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Government of Zambia should step back

The Zambian government is panicking. Despite a recent rally, the pandemic has accelerated the dramatic fall in copper prices, leading to a collapse in the value of Zambia Kwacha and a depletion of the country’s foreign currency reserves. It is struggling to service its USD 11 billion debt, one-third of which is owed to China.

As copper prices begin to recover – driven especially by FDR-style infrastructure stimulus spending already witnessed for example in South Africa – and while the mines in South America are hobbled by the pandemic, this is the Zambian government’s opportunity to boost the mining industry and its supporting infrastructure. Copper is Zambia’s lifeline. It accounts for more than 75% of its export receipts and employs more than 65,000 Zambians.

The government should be stabilising energy costs and creating an attractive fiscal and regulatory environment to attract Foreign Direct Investment. FDI stock made up nearly USD 20.4 billion in 2018 and remains dominated by large mining investments and Chinese investment in infrastructure.

Unfortunately, all evidence of boosting the sector points to the contrary. The government has increased taxes, destabilised mines and pitted energy companies against each other. If the government continues with its interference in the mining and energy sectors, investors may turn away. There are other stable and competitive markets to explore.

This is why this week’s attacks by the Government of the Republic of Zambia on Copperbelt Energy Corporation (CEC) – a private sector energy company in the Copperbelt Province – are so shocking. Unfortunately, they also confirm a growing trend of government interference in the copper mining industry.

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The assault came after a year-long payment dispute between CEC and the Konkola Copper Mines (KCM), which had been taken over by the government last year from the Indian mining company, Vedanta. When the debt of USD 144.7 million remained unpaid after multiple attempts by CEC to agree a repayment plan and the power supply agreement between the two companies came to an end on 31 May, CEC began restricting power to KCM.

The government backhandedly arranged for ZESCO, the state energy supplier, to undercut CEC and provide power directly to KCM. To compound matters, ZESCO let the bulk supply agreement with CEC run out at the end of March while stalling negotiations, presumably to put further pressure on the company.

However, the sting was in the statutory instrument issued on 29 May by the Minister of Energy, who designated CEC’s infrastructure as ‘common carrier’ and forced the company to allow all power to be transmitted and distributed through their lines, paying them just 30 cents on the dollar.  In effect, by this coordinated attack, the government expropriated a private sector’s assets with no due cause and left CEC on the brink of default.

This should ring alarm bells across the sector. The Chamber of Mines issued a statement on 5 June, pleading with the government to put an end to this saga and reach an amicable arrangement. It worries that this will damage Zambia’s reputation as a copper producing nation. The Chamber is right to worry.

This is not the first time in recent months that the government has overstepped its mark. In April, following Glencore’s announcement that it would close the Mopani Copper Mines for care and maintenance because of Covid-19 disruptions, the government threatened to revoke its mining licence and took the extraordinary attempt to detain its local CEO from leaving the country.

At the beginning of the Covid-19 crisis, Zambian economist Professor Oliver Saasa said that “the year 2019 was so bad that, as a miner, one would need a special sense of humour to reinvest in the industry.” Let’s hope that the government’s recent actions do not make 2020 even worse. The jewel in the Zambian economy should be no laughing matter.

What is most worrying to ordinary Zambians is that this week’s attacks on CEC are not motivated by economic or commercial concerns. If the government was concerned with ‘getting the best deal’ and ’securing the copper industry for the Zambian people’ then they wouldn’t go after CEC – a highly competent, responsible, Zambian company. Neither of those adjectives – competent or responsible – could be attributed to the government’s handling of the crisis. The people of Zambia, including CEC’s customers and shareholders are rightly questioning the government’s true motivations, a year before the next election.

By Simon Wolfe, International Lawyer and MD of Marlow Strategy

Country

18 Comments

  1. Let’s stop the blame game and look at the root cause of all these problems in the mines. It all started with privatization. Most of these mines were striped and who knows who got the proceeds. Colleagues do we all understand the core business goal of an investor. One of them is to maximize on profit. In this regard who benefits the most…….not the common man but investor. This is another indirect way of neocolonialism. Africa as a whole needs to wake up. How many years have these mines been running and yet none of our people have attained the skills to run their own mines. We need laws that will guard against our natural wealth. Changing leaders is not the solution….especially in Africa. Democracy is not about pointing fingers all the time and calling for regime change. Democracy was prescribed for Africa. And today it has torn us apart. It’s time to wake up and redefine our political, social and economic trajectory. Otherwise we will continue dancing to the tune of neocolonialists. Africa can and Africa will be great again. It all starts with us

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  2. I think CEC shouldn’t even exist, power supplied to the copperbelt is at higher rates because of CEC. How can ZESCO sell power to CEC and then buy it from them….

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  3. We need to work as one, Zambia is being destroyed further by ECL and giving him more years will be disastrous God give Zambians proper foresight. We need to be prudent.

    1. We are not going to allow Edger Chagwa Lungu to continue ruling our peaceful Zambia…. He’s time has come to an end, 2021 is for Hichilema.

  4. My fellow Africans please Africa is our land, particularly Zambia, it’s good to talk about a problem, however, in my opinion let’s focus of the solutions to our problems. The same way we analyze the mistakes of our Government we can also use it to help and suggest for the solutions. Otherwise, we won’t progress.
    Furthermore, we are poor because we all depend on outsiders to change our economy but remember also that investors are businessmen, and they want to make profit. Currently me as a Zambian I am advocating for Zambian and government investments the only way to change our economy. I know we can do it and we should limit the so called investors because they come not to help us but make their money. It’s like you are the owner of the house and you want visitors to improve your house it will never happen they will keep on taking our wealth while we remain poor.

  5. This is the most incompetent Government Zambia has ever had. Please add selfish and corrupt to that long list. They simply don’t care what happens to this country. People who support such moves by Government are just as stupid. You don’t enact legislation every time you have a problem. That means you can’t be trusted. Unfortunately this has been demonstrated very well by the current government.

  6. Guys it takes two to tangle… CEC has been stubborn and one thing one needs to understand, do not play activist and run to the media for public court sympathy when you are on the negotiating table.
    Why not offer share holding to grz to shut them up so that CEC becomes a PPP agreement?

  7. People like Simon Wolfe and his kind are looters of the first degree. Who doesn’t know that? Africa Beware of such people! We have political independence but we need economic independence. Let’s learn with China, which in less than a generation made a titanic leap forward. Europeans are thieves by nature. Even corruption was brought here by Europeans.
    Any European you see in Africa is a potential thief. They are not here to help us to develop. They are here to fatten their stomachs. We have to learn from slavery and colonialism. and the racism against us. Always remember that these people are not, and will never be our friends. You can’t trust them one second. The problem is that there are still too many stupid African leaders, giving these white boys chances, however the time will soon come.!

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  8. Mr. Sampa. Your reaction to a good analysis and advise is so disappointing. Your quote on Mugabe just shows lack of focus and foresight. Did Zimbabwe become any better after those remarks from Mugabe? Certainly in your thinking, is that the way you prefer your country to be. Please do not comment for the sake of just wanting to comment even when you don’t make sense.

  9. This article exposes the ignorance of the so called journalist. CEC was purchased for a total of $77m in 1997 in 2006 it generated $132m in gross revenue and about $36m in profit.

    CEC signed a 23 year agreement for power from ZESCO, signed by a former CEC Managing Director who was then ZESCO managing director.

    The same CEC claimed $30m from KCM in 2014 and was subsequently paid $50m, in 2018 CEC claimed KCM had an outstanding $40m in debt and today that figure sits at $140m.

    All this for a company that generates a whopping 80MW of power and an interconnecter to the DRC. CEC is the only member of the SAPP that has no generating capacity.

    Either CEC have discovered a financial miracle or the deal it signed with ZESCO stunk. Nowhere in the world have rates for power remained constant for 20+ years.

    Zesco agreement with CEC expired and CEC insisted on the daylight robbery rates they corruptly received 23 years ago. Thankfully ZESCO and the government refused to budge.

    The law allows for the government to declare any electricity infrastructure national carriage. In the absence of the said SI CEC could have blocked the ZESCO from supplying power to the mines. CEC have no capacity to supply power without any contract with ZESCO.

    This is not journalism, it is a foolish opinion devoid of facts disguised as journalism and shame to the Zambian puppets talking nonsense.

    1. Ba Biggie, the writer is not a ‘so called journalist’……he is an international lawyer and Managing Director. Read and understand the thrust of his argument!

  10. We are the cause of our own problems.
    As long as we don’t take responsibility for our poor decisions and actions, our country will continue to steep deeper into awful disaster!
    No, we are to blame. poor policies, lacking skills in governance, nepotism, sheer lack of creativity and corruption to name a few.

  11. Let’s not blame outsiders for the poor governance in some African countries, Zambia for one. We are suppressed by politicians who think the throne is for life! These people lack governance skills, compassion for their people and positive creativity to progress their economies.
    Zambian people still lack the very basic necessities of shelter, water and food which every human being is entitled to. As long as we continue to blame outsiders and not make the politicians accountable, we’ll never progress.
    Please stop this meaningless narrative of blaming others. We’ve had enough of it!

  12. This CEC and Zambian government saga from my understanding has come a long way, Zesco the company owned by government and supplying power to CEC at highly reduced prices in their so called bulk purchase agreement can not go on.

    Directors from CEC have been passing wrong and bad comments on how ZESCO has been run by government. This is a company claiming to have been well run and managed and using the same super profits to look like they have better management skills than others when they have been surviving on discounted contacts.

    Let them agree on market reflective rates for power and see if they will continue looking intelligent.

  13. Sampa. I can understand your passion for your country, but to say that the writer of this article is the genesis of poverty is so not based on reality. Zambia adds 250,000 to it’s workforce every year but the country is not creating jobs for them. There are around 600,000 paid/salaried jobs in the country. Government is struggling to pay salaries, benefits and pensions. Local Government workers go unpaid – in Chipata, 7 months without pay. Government debt commitments absorb a significant amount of Government revenue, and how many if the loans contracted actually GENERATE income or create jobs? Airport buildings? Luxury jets? None of this is related directly to mining. Your government made the laws and supervises them. It signed the contracts. The courts are there to deal with lawbreakers. Seizing assets is the short route, as thus article says, to disinvestment by foreign investors or a reluctance to invest. And you think Zambia has the capital to invest to replace it? And quoting Mugabe about economic management is something you won’t find many Zimbabweans doing!

  14. Mr. Simon Wolfe: people like you are the genesis of Africa’s problems of poverty. I don’t support the government of today in my country Zambia but I do support some progressive actions they make in behalf of the country. For how long has Africa’s depended on foreigners to help grow their economies and how much have they contributed? They steal from us and bring back the little and grants and loans using imf and world bank and other so called cooperating partners. We are awake now my friend. What we need is technological support in important sectirs and not foreign investors. Just like what Robert Mugabe once said: keep your money and we will keep our land.

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    1. Someone is in denial of the facts. When did foreigners ever come to Zambia and steal anything rather than the government (who are Zambians) made terrible financial deals that has led to lack of a healthy DGP. Technology help? The government has to build that themselves for the population, oh wait they can’t because they owe literally the life of every Zambians to the countries they have borrowed. Learn about your own country and in what financial state it’s in.

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