Called Out Of Retirement.
On 3rd March 1997 Francis Kaunda (going forward shall be called Francis,to avoid confusion with the former president, also, no relation) a phone call came through, from Minister of finance & Econ Development, Ronald Penza “ I am the bearer of a message from the president, and it is of an urgent nature.” 5 days later sitting across the table was president Chiluba, “can you help us with the privatisation of ZCCM.” A note of hesitation, which Francis, attributes to hostility directed at him by a clique within government which led to his early retirement in 1991. Francis said “yes.”
Less than a week after this meeting on 11th March 1997, Penza called Francis and informed him that he had been appointed Chairman of The Government of the Republic of Zambia/ZCCM Privatisation Negotiation Team (PNT going forward) effective immediately. The major inducement for this appointment was obviously Francis’ privileged knowledge about ZCCM assets and nearly 2 decades of experience, dealing with some of the biggest players, in the world copper mining industry. The appointment was totally unexpected as the manner of his forced retirement resulted from political changes, in euphoria that was dubbed the winds of change from the Soviet Union, and other socialist leaning states in the world. Executives in parastatal firms were seen as a close appendage of the political leadership. The view was that, Francis and Co could not be trusted by the new government, because of their perceived umbilical ties to the vanquished UNIP government.
Let The Games Begin
Although the privatisation programme in Zambia began with the passing of the Privatisation Act 1992, ZCCM sale did not kick off till 1996. There was a decision by the MMD government, to retain 2 firms from the UK to advise on mode of sale. NM Rothschild as financial advisers, and Clifford Chance as legal advisers.They advised in favour of unbundling based on their initial work. Even at the early stages, the process was not without controversy, acrimony and accusations, at every stage of every unit of ZCCM. The recommendation finally found full acceptance, and govt keeping in line with the new legislation, the Zambia Privatisation Agency (ZPA) was directed to proceed with the sale of units.
The process started with ZPA putting out a tender for pre-qualification, interested firms that qualified were then asked to make bids. ZPA received these on 28 Feb 1997. At a briefing at ZPA, PNT was to act as an agent of ZPA, not independent of it. ZPA CEO at the time was Valentine Chitalu, and CFA from NM Rothschild Charles Mercy, duly gave the briefing. Francis’ first involvement in the privatisation process was through a ZCCM board meeting on 23rd March 1997. NM Rothschild and Clifford Chance tabled the bids received on Feb 28 1997.
In tabling these bids, they advised the board that there were Preferred Bidders, without elaborating the justification of selecting them as such. At the same meeting, the advisers curiously tabled a resolution for voluntary liquidation of ZCCM. (what the fk??) There was great consternation among board members representing the Zambian government, Chairman of the board then Luke Mwananshiku argued. He did not see the link between tabling bids and liquidating ZCCM. The motion of liquidating was basically terminating the lifeblood of Zambia itself, which would result in social and political upheaval. When the recommendation was neither seconded nor followed up, the Zambian team dismissed the motion as an attempt at arm twisting. This sort of charade was a precursor to the character negotiations for sale of ZCCM’s premier mining assets. A group known as the Kafue Consortium (going forward, we shall call them KC), shortly after submitting their bid was to claim deterioration of assets and lowered their cash consideration as much as $100m. This matter was the first Francis had to deal with as Chairman of the PNT. (More on this later). The decision to privatize ZCCM came largely as one aspect of reform under the Structural Adjustment Programme (SAP). The previous government had also realised privatisation of mining operation was inevitable. The idea entertained by KK’s government, was to allow ZCCM continue operating as a state owned firm, complemented by private companies to be issued licenses for new exploration and exploitation of minerals. Similar to the Chilean model where the state runs Codelco, but new mining development are given to investors. (Elite Mentality) It was greatly acknowledged that privatisation was the greater part of Zambia’s economic reform. The first step taken was to contract German consultants Kienbaum, to study and recommend a mode of privatising ZCCM. It was this report in mid 1994 that recommended ZCCM be broken up into 5 units before privatisation. While all this was going on ZCCM was hurtling towards decline. Nearly everyone who cared to look could see the country’s economic future dissolving before their very eyes. The Kienbaum report was made public in September 1994, and all indications were it was never going to be a genteel affair. The government indicated it’s disagreement with the Kienbaum report, and its major reason was that the various divisions would make other divisions less attractive assets, and they’d be mass redundancies in those divisions. The stated practice of voicing decent was within govt itself, however, deputy Minister of Mines, Dr Mathias Mpande, took every opportunity to state publicly that the Kienbaum report made more sense. His reason was that no single investor could be found to come up with $3 billion, which was the estimated cost of rehabilitation and required investment. Dr Mpande was in tandem with the report, that breaking ZCCM down to 5 units would optimize investment in the industry. He found a sympathetic ear in the local media, however, Dr Mpande and another Deputy Minister Ackson Sejani were, shortly after that, dismissed from government. As the debate raged a picture had been painted that some ministers were trading information to potential investors for personal gain. This suspicion endured throughout the privatisation process. The Kienbaum report saw a quick demise, as the government threw it out in October 1994. While this was going on, the Zambian economy was on its knees, government was failing to keep ZCCM afloat, president Chiluba accused donors of shifting goal posts when Zambia moved closer to fulfilling conditions for aid. Out of the 100 firms privatised by December 1994, cabinet only sanctioned selling shares to the public in 30 companies. Out of these only Chilanga Cement, Zambia Sugar, and Zambia Breweries were sold to the public. Still, by Jan 1995 the privatisation of ZCCM was in uncertain waters. While this sideshow was on, by March 1996, ZCCM was diagnosed to be in need of $2billion to avoid complete collapse. “People should not fear that when foreign investors take over running of ZCCM they would externalize the money, Zambia will benefit from taxes paid” Ronald Penza. (Minister Of Finance at the time). At this time all contributions to the debate in the media, appeared to agree that the decision to unbundle ZCCM was the right one. Still some minor disagreement on how to do it. This new public awareness, helped the government save face and retreat from its earlier position of selling ZCCM as a single unit. It later approved the report by NM Rothschild to unbundle. By July 1996 tenders were expected to be initiated. ZCCM board tabled proposals for privatisation in 2 stages. Stage 1 was to leave ZCCM as owner of minority interests, managed by incoming investors. Stage 2 government shares to be distributed to public and financial institutions. Tenders were duly initiated and bids received by 28 Feb 1997. Govt recognized that to address the objectives of Zambia’s privatisation programme, all available, qualified and experienced, national human resources needed to be summoned. Power Rangers Part of government decision to appoint a negotiations team (PNT) at this point, was ZPA admission that it lacked capacity for ZCCM privatisation. The process was seen to be in need of input from top flight professionals, who had worked in the mining industry, and had in depth knowledge of Zambia’s mining assets. Enter, Francis. Appointed chairman of the PNT, the head of the group of some of Zambia’s finest professionals. In the PNT was, Attorney General George Chilupe,(and later Bonaventure Mutale), Secretary to the Treasury Prof. Ben Mweene, ZCCM chairman Luke Mwananshiku, ZPA CEO Valentine Chitalu, PS Mines Albert Kashimu, Director Mining, Willie Sweta. This team was supported by 2 lawyers from the Attorney General’s office, the Technical Director, 3 others from ZCCM, an economist from ZPA, and Norman Mbazima from Deloitte &Touche. As mentioned before, the privatising of state firms was already under way under the ZPA, this process was a system of giving Preferred Bidder status the criteria of which was questionable. Negotiations of sales of some assets was led on behalf of government by Rothschild instead of ZPA. The PNT discarded this. The Process The role of the PNT was now to receive all bids of mining assets on offer. Painstakingly analysed before recommendation on which potential buyer to engage in negotiations. Recommendation from PNT were then sent to committee of Ministers on Privatisation of ZCCM, chaired by the Mines Minister. Committee included Benny Mwiinga the Minister of Local Government, minister of Finance, Commerce Energy and Environment. Keli Walubita, foreign affairs Minister This committee went through recommendations from the PNT, and if approved sent to ZCCM board of directors. After ZCCM board approved a sale then it went to ZPA which then gave go ahead for actual negotiations to commence. It was only after committee of ministers and boards gave approval that garnished business ceremonies were organised. Before the finalising of the garnished documents and ceremonies it went through this process one more time! (Damn, I thought privatisation was easy) This prevented any one team having powers to effect a sale on their own. (you don’t say) Now the articles, that made up the process. 1) cash consideration. 2) Issue or ZCCM retained interest in the privatised mines. 3) The question of assumption of ZCCM debt. 4) The metal price participation scheme arrived at through negotiation On 4,the seller quotes optimistic prices, of metals to maximize what the buyer would pay, while buyer contends prices will be lower than proposed and impact negatively on cash flow. Parties agree on a price above which seller would get percentage of proceeds. There were also other consideration such as, the buyer commitment to a clause that should the initial investment fail to turn around mines, they would seek additional investment over the life of the asset. Other considerations, commitment to local business development, environmental impact of mining operations etc Mines were split into packages: Aco (Nchanga, Chibuluma, Nkana) Bco (Luanshya, Baluba), Cco(Mufulira), Dco(Chambishi), Eco(Kansanshi), Fco(Nampundwe), Gco(Chambishi cobalt) Hco(Precious Metals plant), Jco(Power Division), Lco(Chingola Refinery) Luanshya/Baluba 3 bids received, FQM of Canada, Binani Industries, and Sterlite Industries both from India. ZPA on behalf of Rothschild had given Preferred Bidder status to FQM, but when the PNT was appointed, it ceased the status of Preferred Bidder to allow others to get equal opportunity at clarification stage. FQM ignored this, and moved to Luanshya sure that the deal would be consummated. (Remember the games, yeah they’ve begun). The 3 bids were as follows FQM cash consideration $15m, new equity investment $20m, assumption of debt $25m, and ZCCM retain interest of 25%. Investment commitment $41m, contingent investment $25m. Binani Industries, cash consideration $10m, new equity investment $21.7m, debt assumption $20m, investment commitment $32m, contingent investment $86m, ZCCM retain 24%. Sterlite Industries cash $3m, new equity $1m, debt assumption $20m , investment commitment $33m, no commitment for contingent investment. Initial stage is calling bidders for clarification of bids. After clarification bidders were asked to review offers and make final bids towards the close of first half 1997. Tipping the scales in favour of Sterlite and Binani was that their bids included plans to develop secondary industries, fertilizer plant etc, commitment to not declare any workers redundant. FQM intended to lay off 1,000 a huge figure from a town whose major employer was the mine. As the first mine to be sold this point was crucial for the govt as they needed support from mine workers Union of Zambia, and securing it at that point was critical. On 1st July 1997 Francis wrote to Binani group informing them their bid was successful for the Bco package. Subject to negotiations and various agreements. FQM suddenly shed all magnanimity and openly refused to accept failure for their bid, the media didn’t help, as surprisingly they were sympathetic to FQM They did little to effect a balance by getting views from the government, ZPA, or the Negotiating Team. FQM surged the ferocious denunciation of Binani as an Indian trading Company with no experience in mining and inadequate financing, which was not true, Binani had commercial links to Lakshmi Mittal a steel magnate, and one of the richest men in India. Culminating in a letter written by Mr Pascall (FQM CEO), to all the committee’s stating FQM was chosen by ZCCM and ZPA as leading bidder, and had done all necessary due diligence and completed negotiations. FQM insistent claims of impropriety against ZCCM and the possibility of unleashing negative propaganda in the international markets had to be addressed politely but decisively. Francis explained the boards, government committee’s, and PNT position. (Francis should be CEO of Manchester United) FQM were not satisfied. FQM proceeded to the high court of Zambia to file a claim against ZPA, ZCCM, and Binani industries. They were represented by Shamwana & Co. They wanted an injunction on ZPA offer of Bco to Binani, and in addition damages and costs. (This is the most ghetto st sentence you’ll read today)
On 10 Sept 1997, chairman of ZPA board, Abel Mkandawire filed an affidavit that virtually killed FQM claim. He swore that the board met and ratified the decision of the PNT to award Binani Bco. FQM withdrew the case.
Binanis bid was successful and moved into begin running Luanshya mine now called Roan Antelope Mining Corporation (Ramcoz)
Major problems for Ramcoz came afterward. At time of bidding price of copper was $2,200 per tonne, after takeover price dropped to $1,600 per tonne
By 1999 price dropped to $1,350 per tonne. Cobalt price fell from $22.50 per pound, to $6.90 per pound in 1998.
Their business plan which was based on a good copper price came apart and could not be sustained. Secondly, because this mine was sold first, it endured much tougher negotiations, and didn’t get concessions later bidders were afforded. Electricity tariffs etc. Then Mines Minister Syamujaye lent a sympathetic ear and tried to get government to help, through a world bank facility government had. Edith Nawakwi, then finance minister skirted around the issue. It was delayed. One of the creditors was ZANACO, Ramcoz went into receivership on 20 Nov 2000.
Only the relevant authorities can answer why Ramcoz wasn’t given concessions afforded to other mines, considering they had a world Bank facility to do so. They even had to pay more in royalties. They had to make in excess of 2,000 staff redundant.
The Kafue Consortium
The premier offerings of the mining packages were what was known as Package A, these were Nchanga and Nkana divisions
They were premier assets because they were the most productive units of the ZCCM conglomerate. Only one bid was received for package A, by a group known as the Kafue Consortium. (Avmin of SA, Noranda of Canada, Phelps Dodge of the USA). They came together citing the advantage of the merged groups, increased capacity to mobilize huge sums of capital needed to revamp the mining jewels. Government was excited but in hindsight this may have been a mistake, because it removed competition among bidders. Being found the sole bidder for the whole of package A, they assumed government could be stampeded into parting with assets on any terms. ZPA CEO Valentine Chitalu didn’t help matters by rubbishing a valuation report from ZCCM on these mines. His strong view played into the hands of the bidders.
The Kafue Consortium (KC), initial bid had cash consideration $140m , debt assumption, $125m, committed investment $200m, uncommitted investment $550m, and ZCCM retain interest of 10%.
Shortly after submitting their bid, KC, wrote a letter stating that assets in Package A had deteriorated by $100m and the group had to reduce its cash consideration by this amount. This letter suggested tough times were ahead for this negotiation. The first meeting in London dispelled any hopes that this was an exaggeration. On April 14th 1997.
Francis and Co, following the usual procedure in all meetings,asked for the bid to be clarified to establish understanding of all contents. Gerry Robbertze who was spokesman for the group said he was disappointed and walked out, and is if on cue the rest of KC all walked out. PNT later learnt the walkout was a negotiation tactic, Robbertze later called the hotel they were in, asked them to round up the team to reconvene the meeting. PNT rejected their offer at the new meeting. The consortium offer was too low for the assets that formed the heart of the ZCCM operation. Assets that sustained the whole Zambian economy. Surprisingly the consortium response was to leave the offer on the table.
The idea was to leave the offer on the table, whilst trying to find ways or personalities within Zambia’s government who could influence the PNT to accept the offer.
One method was a campaign in Zambian media publication called Profit Magazine, where it said biggest mistake Zambia made was appointing Francis PNT chairman.
The consortium finally revised their bid, cash consideration $160m, debt assumption $150m, committed investment $400m, uncommitted investment $350m, and ZCCM retained interest at 12%. This revised offer came with excessive tax concessions, if they didn’t get the concessions the cash consideration reduces by $75m.
Mineral Royalty tax was brought down from 3% to 2% Witholdong tax from 15% to 10% , KC wanted Royalty tax brought down to 1%, witholdong tax from 10% to 0, Import Declaration Fee from 5% to 0.
For some reason there were members of KC who thought, who believed, they could get a better deal by talking directly to key political leaders. Opening gambit in this stratagem was a request by the group to meet President Chiluba. This took place on 15August 1997. Roy Reynolds of CDC (Commonwealth Development Corporation) began by assuring that the donor community, was with Zambia on its decision to privatise the mines,and that speedy execution of this programme would be a boon to the countries economy. He carried on and ended with something that hit a nerve with the president.
“Mr President if you accept this package, the British government will give your government a £10m grant”
President Chiluba “ Tell your govt that this is a commercial transaction and has nothing to do with British aid to Zambia”
There followed a string of unproductive or inconclusive skirmishes between the 2 sides. In October 1997 KC came with an improvement on their original bid
Cash consideration $150m, debt assumption $75m, investment commitment $400m, cobalt price participation $75m, retained interest for ZCCM 12% valued at $70m.
Amounting to $370m , ZCCM valuation of the package was $399m, on this basis, ZCCM board chairman and Francis made presentation to cabinet. The government accepted that this offer, form a basis for further negotiation on the sale of package A.
KC on 12th Nov 1997, signified agreement and wrote a letter to the PNT of their wish to implement a 12week interim monitoring process, pending closing of the transaction. A Management Task Force from KC was set up and on ground on 18th Nov 1997. Everything was moving well.
The PNT and government were jolted to say the least, when on 10 March 1998, KC submitted a revised bid that was a complete departure from the agreed commercial terms. The timing was chosen carefully, because the following week there was to be a Consultative Group meeting in Paris, on aid to Zambia, where ZCCM privatisation was to feature as a major conditionality.(Well shave my left ball, and call me Stewart).
Robbertze from Avmin, Khalid from Phelps Dodge visited the negotiation team, Explained that due to the Far East economic crisis, more assets should be added to the package. KC now sprung new demands on the Zambian side. Among the demands were 300 houses in addition to the institutional houses attached to the mining assets. Either that or they would deduct $150,000 from the cash consideration for each house they should have received. (is this even real life?)Before a response was even give KC sent officers to inspect the 300 houses, it would be impossible to find 300 houses valued at $150, 000 on the Copperbelt. The reaction of government was that they could not sanction the sale under substantially downgraded terms.
Noranda and Phelps Dodge withdrew at that point, and it became clear to the PNT they were not committed to the original terms. The talks had gone on long enough and the team had to move on to plan B. It was an event that released a cascade of half informed criticism that descended on the government
There appeared to be an attempt by some people in Zambia with undeclared interest to paint the offer from KC in very attractive terms which had no resemblance to what was on the table. (Keep this in mind as we go along).
Nkana Slag Dumps
KC had put no value on the Nkana slag dumps, and it this point we now move to the Nkana Slag Dumps, in what would be an eye opener for the PNT on the hidden motives of bidders. In July 1998 after talks with KC broke down, the PNT were on their way to China to finalise negotiations on a deal for Chambishi Mines, connecting through Johannesburg.
Robbertze the cold shrewd obnoxious conduit of the KC, called Francis in July 1998, keeping track of the PNT movements, no doubt. Francis found the phone call strange as the person on the other end sounded reborn in all manner of etiquette. His firm Avmin, now wanted the Nkana Slag dumps. (This is what we call corporate sojo).
When Francis and team arrived in Lusaka they found an offer from Avmin for the slag dumps $48m. These were same slag dumps KC said were of no value to them. The offer was that the assets would be acquired by a public company called Newco, incorporated in Zambia and owned by Avmin. Offer was $48m and cobalt price participation scheme amounting to $4.5m, $2m in Newco in the form of equity or a loan, ZCCM retained interest would be 10%, $60m in contingent investment
There was opposition to the deal from minister of Finance Edith Nawakwi, by her belief was selling the Nkana Slag dump, would reduce the substantial value of the entire assets of Nchanga and Nkana.
When negotiations with KC broke down, the committee of ministers made a decision in July 1998 to allow the PNT to break up Aco package into smaller more affordable business units. This was done to avoid the kind of situation the state faced with KC, and to speed up the ZCCM privatisation. This made minister Nawakwi’s protestations against sale of Nkana to Avmin very surprising. She stated “Avmin to us does not present an alternative. “ She was even against the PNT meeting Avmin to discuss their proposal.
Francis replied with a letter copied in was the president and Mines Minister Syamujaye. Dr Syamujaye replied on their behalf, “please make the necessary arrangements and travel to meet Avmin for more information on the matter. “
Francis, the team and then CEO of ZCCM Edward Shamutete, travelled to Johannesburg, to meet Avmin. Shamutete couldn’t believe what Avmin was offering. The $48m was way above what ZCCM valued the slag dumps. Avmin proposed a 31 month construction programme for a new treatment plant for the slag. ZCCM retained interest was put at 10% (in the KC bid,which Avmin was part, the slag dumps were to be brought online in 12th year of operation LOL).
While this was going on the Zambia side had to deal with the issue of Qasim Mining Ltd. They approached ZCCM in 1993 to secure rights to Nkana slag dump. Agreement was signed 25 May 1995. Qasim experienced difficulties in operating perhaps due to capacity, and ended up owing ZCCM $284,000 for electricity charges. The Avmin proposal was a virtual rescue deal for the Nkana slag dumps. On 28th August 1998 Avmin CEO Rick Menell, and ZCCM chairman Shalaulwa Shimukowa, signed the agreement for Avmin to take over Chambishi cobalt and Nkana slag dumps under a company called Chambishi Metals Plc.
This was the same with Chibuluma assets, KC undervalued it in its bid, saying it had no value but must be included in its bid. Metorex consortium a Canada and South African joint company, we’re quietly fighting for excision of Chibuluma from KC. When talks broke down with KC they approached with a bid
Metorex bid had cash $12m, deferred payment $3m, copper participation $1.2m, committed capital expenditure $34m, ZCCM retained interest 20%
The PNT argued that at this point since government had given significant tax concessions Metorex needed to improve their bid.
Cash was raised to $17.5m, cobalt contribution at $15 a pound, amounting to $6.4m was introduced. ZCCM retained interest 15%, committed capital expenditure remained at $34m.
Deal was done on 30 Sept 1997.
Back to KC and its impact, Phelps Dodge representative Khalid was the epitome of a hard nosed capitalist, out to get package A for as little as possible. Only Avmin had done a due diligence study before bidding. Coming from SA freshly shed of its obnoxious apartheid past, they were worried about perception. KC continued identifying ministers in shady backroom talks, the donor community codenamed “Operation Bypass” The intention was to get round the inconvenience of dealing with the PNT.
The PNT came to learn about this when the consortium demanded the 300 houses. PNT later discovered, KC met a key minister who assured the houses would be given.
Another minister taking advantage of Francis’ absence from the country, assembled KC and other govt officials at a lodge out of Lusaka. This kind of activity slowed down the privatisation process.
Donors had made clear they’re cooperation with KC as disposal of Package A morphed into a major conditionality for further aid, particularly balance of payments support. KC employed the “the controlled leak” ploy, where just before a crucial meeting they would leak favourable contents of their bid to local and international press.
Konkola and Zambian Copper Investments.
ZCI(owned by Anglo American) in Nov 1998 submitted a bid for Nkana, Nchanga, together with Nampundwe, Chingola Refractory Ore dumps(CRO) combined with Konkola Division.
ZCI offer was $72m, CRO commission payment $3m, ZCCM retained interest 20%, expected investment $1.12billion over 8 years.
Cobalt Price participation involving ZCCM deriving price difference of 50% , amounting to $32m, a forecast $723m in dividend over the 30 year estimated life of project.
For all this ZCI asked for serious concessions, no customs duty on capital items, company tax at 25%, no withholding tax, mineral royalties be reduced from 2% to 1%. The PNT found that the commercial terms of ZCI offer compared favourably when compared to the KC offer. Even with concessions, the terms meant the Zambian govt was to earn $3.8 billion, in tax revenue over 30 year period.
ZCI also signified their commitment by being the only bidder to allow the PNT full access to their computerised financial model. An MOU was signed between government and ZCI on 24 Nov 1998 under a few conditions. ZCI needed a major mining partner. ZCI had been in negotiations with Codelco of Chile, for a partnership to buy Konkola, Nchanga, Nkana, and Nampundwe. Now known as KNNNCo.
Completion of the transaction was agreed for early October 1999. It was not to be, Codelco pulled out on grounds that their due diligence revealed KNNNCo failed to meet investment criteria. Upon further discussion with Codelco officials led by Ivan Valenzuela, it may have been more to do with elections, in Chile which were imminent, than with the investment criteria. This did not diminish the implications of the action on the Zambian economy. Balance of payments support were tied to the conclusion of privatisation of ZCCM in 1999.
ZCI were in the hunt for financial partners as they too did not agree with Codelco valuations, and opted to go it alone with financial backing.They looked at the IFC, CDC, SAIDC and Mitsubishi Corporation of Japan.
ZCI would require to cover that investment commitment, not internally generated from KCM (the new company which was to be formed).
The pullout by Codelco brought desperation, but helped sharpen the focus on the need to dispose these assets, and added briskness to proceedings.
24 Aug 1999,Codelco pulled out. 27 Aug 1999, delegation of Zambia government and PNT visit Washington DC to brief IMF and World Bank on ZCCM privatisation programme.
6 Sept 1999 same delegation met ZCI in Johannesburg to seek a commitment on the package.
16 Sept 1999 ZCCM shareholders gave ZCI 2 weeks to submit a formal proposal. 23 September 1999 ZCI submitted its bid to Finance Minister Kalumba.
As always, there seemed to have been some sticking points in the negotiations. ZCI was concerned over long term supply of lime at what they considered the right price.
Government emphasized that it’s policy was to encourage diversified ownership of the mining assets, therefore Ndola Lime Company could not be included in the package ZCI had bid. Other hiccups were ZCI wanted the Companies Act section, of having over half the directors of a company, be resident in Zambia be revised. As a compromise Attorney General Mutale proposed a reduction to 30%.
ZCI also raised objections to Pensions Scheme Regulation Act, which prohibited a private pension from investing its assets abroad.
Enactment of these and other pieces of legislation demanded a fast track, the committee of ministers called a meeting on 26 Nov 1999,together with the Attorney General chambers and various ministries whose jurisdiction touched the required provisions.
Mufulira mine assets, among the larger divisions of ZCCM, with annual yield of 140,000 tonnes of copper. It had its own concentrator, smelter, and refinery. At the time of initial bids, ZCCM in Feb 1997, split the assets into 2. Mine and concentrator as Cco. And the smelter and refinery under Konkola Deep Mining Project (KDMP).
September 1998 a bid was received from Reunion Mining PLC. The bid contained $47m in capital expenditure, over 3 years, working capital of $20m, contingent capital expenditure of $60m. ZCCM retained interest of 5%
Prior to this bid there were studies by the mine itself done and presented to the PNT, made finding a buyer for these particular assets imperative. The study showed that temporary closure of the mine, would require $32.2m in expenditure from ZCCM for retrenchment of workers, there also would be loss of production amounting to a revenue loss of $64m
FQM/Glencore made a bid cash consideration $100m, investment commitment $92m. $334m, conditional investment, ZCCM retained interest 10%, copper participation $20m. Agreement was reached between the 2 parties and Mopani Copper Mines was formed.
The Spat Over Non Core Assets.
During the KC debacle, there was growing frustration in government circles, and in the nation in general, there was even some ill veiled campaigns at ridding the PNT of its chairman, which found expression in sections of the media. The government of Zambia was worried that the attention of the privatisation of the main mining assets of ZCCM, meant there was a real possibility of being laden with a huge residue of no core assets.
Under the category of non core assets were grouped 7 ZCCM subsidiaries, and hundreds of miscellaneous entities, schools, hospitals, recreational facilities, items of furniture, office equipment and motor vehicles.
Thus was born the ZCCM Transformation Plan on September 1998. To execute this plan, the government formed 3 subgroups under the main PNT.
Group 1 was led by John Patterson (ZCCM) and Norman Mbazima (a partner in Deloitte and Touche) and was to negotiate the sale of ZCCM core assets. Team members included Andrew Webb (Rothschild), Vicki Hazelden (Clifford Chance), J. Joseph (ZPA), Willie Sweta (Ministry of Mines), D. Mwimba, Max Mukwakwa, Dr Sixtus Mulenga, Wilfred Katoto, and Alfred Sakala. (ZCCM)
Group 2 to handle negotiations of ZCCM subsidiary companies was led by Hakainde Hichilema (Managing Partner of Grant Thornton) team members appointed were M. I. Ahmad, T.M Chanda, and B. Simutende (ZCCM), G M Mwansa, Peter Heath(ZAL Holdings), F. Kapilikisha(ZCCM), Ron Peiris(ZCI), Alex Chikwese(ZPA)
Group 3 was to help dispose of miscellaneous assets and was led by Mwila Lumbwe, Managing Partner of Ernst and Young. Team members were M. Mwandenga (ZPA), C. Chungu (Deloitte and Touche), Muna Hantumba (ZCI), M. Munyinda, P. H. Nabuyanda, Geoff Handia, D. C. Kabole, FL Mwiya, Professor Muyunda Mwanalushi, and Dr. M Simukonde, all from ZCCM, and NN Simukonde who came in as external adviser -Human Resources.
The groups were established in such a way that they had capacity to co-opt more members from ZCCM, ZPA, external financial legal advisers, and local consultants, to take some additional work load dictated by the tightness of the schedule. There was a comprehensive project management planning system, to provide monthly updated progress reports to ZCCM directors, government ministers, and outside parties, including the World Bank.
All three groups were to report to the PNT.
The Attorney General sat on the the main committee, and had a representative on each of the 3 sub committees. Representative from his chambers in each of the 3 sub committees established by ZCCM Transformation Plan.
Because the ZCCM miscellany was multifarious, the PNT asked for for blanket approval to speed up their sale. Otherwise approval was going to be sought for such items like computers, paintings, filing cabinets, one by one. Both the board of ZPA and ZCCM acquiesced to the blanket approval scheme.(My personal opinion is that this where the rumours and all sorts of conspiracy theories start. We shall begin with Francis and Chatham Estates limited)
ZPA wrote to Francis on the 3rd of December 1998, stating that there was correspondence from Francis, that highlighted his close relationship with Chatham Estates, (his son and his nephew were directors). They were helping with the valuation and disposal of some of the non core assets. Francis replies:
As my terms of reference do not include responsibility for contracting, either directly, or indirectly, advisers, consultant etc, I have decided to defer your letter to the management of ZCCM who have such authority.
ZCCM company secretary Max Mukwakwa attended to the query.
“In the process of enhancing the privatisation teams, due to slippage in privatisation, the government of the republic of Zambia, and the ZCCM board approved that the following be appointed:
Group 2: subsidiary companies, Group Leader Hakainde Hichilema (Grant Thornton)
Group 3: Miscellaneous Assets: Mwila Lumbwe (Ernst and Young)
Ernst and Young subcontracted, Chatham Estates and Premier Consultants in the valuation of properties on the Copperbelt.
Ernst and Young also wrote extensively restating what the ZCCM board secretary had written, but also said the following:
“You should also be aware that Mr Kaunda, (Francis)did bring to the attention of this company, that certain officers of Chatham were related to him, and further that he had no control or interest in Chatham.”
The Attorney General Mutale, also had his own episode over non core assets. He wrote letters to team leaders of groups 2 and 3.
“The ZPA has indicated to me that a report on the sale of non core assets of ZCCM is ready. While we have not received such copy, it has also come to my attention that my chambers were not availed the draft agreements before finalization as procedure requires. Further, you will recall that 22nd April 1999, the chairman of the PNT did circulate a letter to all parties concerned informing you of this requirement.
Kindly inform me why the Attorney General chambers were not availed these copies for scrutiny and approval, before they were concluded. In addition, kindly send these chambers copies of all agreements in order that they are considered accordingly, you are also reminded that where some agreements are found to have been concluded against the interest of GRZ and ZCCM, those agreements may be subject to a process of rescission.
Group 2 leader, Hakainde Hichilema elected to merely refer Attorney General Mutale to ZCCM Company Secretary Mukwakwa for copies of the agreements. (hahaha, this guy)
Group 3 leader Lumbwe chose to to elaborate,
“Group 3 of the PNT was mandated to ensure the orderly and timeous disposal of ZCCM non core assets under the ZCCM Transformation plan of 16 September 1998. The non core assets included those under corporate head office and operations Center as well as social assets at the division. The listing of the relevant assets included the closure report you refer to.” He attached a copy of the sale of Telecommunications and Computing Unit in Kitwe, with correspondence from the Attorney General office indicating that transaction was approved by the Attorney General office. The attached document was a letter by principal state Advocate Gaudencia Salasini, signed by a representative of the Attorney General which informed the chief legal counsel of ZCCM to proceed to execute the agreement for the sale of telecommunications and computing unit. Went on to also state that all groups activities, were subject to regular review by the PNT in meetings the attorney general chambers were represented. Mrs Gertrude Kalulu, and Mrs G. Salisini.
Attorney General Mutale was not done, chose to raise the same issue with Francis on 1st June 2000.
“I wish to state for the record that I was not availed copies of the transaction documents of a considerable number of the non core assets.” He listed 45 items ,covered schools, clinics and some ZCCM subsidiaries abroad.
The timing of the AG letter got many people excited, it was taken up by a parliamentary committee with the belligerence, according to Francis, by independent MP Dipak Patel and opposition MP Benny Tetamashimba. Apparently the MPs had not seen Francis reply. He gave a copy which members began to read,
“Your list of non core assets, which you said were sold without your knowledge comprise largely social assets, included in KCM, and MCM transactions. Your list also includes assets disposed to GRZ and it’s agencies, under the debt swap arrangements, assets that were sold prior to the establishment of the PNT, and assets which have not even been sold.”
Among the assets which received prominent mention was the port facility at Dar es salaam, the challenger aircraft, the presidential guest house in the Copperbelt town of Ndola, another one in Lusaka, and MEMACO House in London. All these were handed to the government under the debt swap arrangement.
But when all this was presented to parliament, Francis’s reply was ignored, they seemed to be disappointed in not finding real scandal attached to the privatisation process.
Ndola Lime Company (NLC)
Another round of negotiations that found scandal was the sale of Ndola Lime Company (NLC),to a Belgian company called Socomer. The Genesis of this was the ZPA board, being over eager to show their independence awarded to it by the Privatisation Act. ZPA gripped over a losing bidder Pretoria Portland Cement. (PPC)
Bids from NLC came by the closing date 15 May 1998. Socomer, PPC of South Africa, ITM (owned by former Defence and later Energy Minister, Ben Mwila) City Investment limited, and Chilanga Cement PLC Zambia. Of the 5 Socomer and PPC were in serious contention.
Socomer offered $17.5m, capital expenditure over 5 years, $16m, but they were found wanting on technical expertise due to lack of experience in lime and Cement production.
PPC offered $15m, capital expenditure over 5 years $11.3m
An independent evaluation of NLC was done by KPMG and a value of $19.5m was estimated.
The PNT recommended the Socomer bid for the following 3 major reasons, one was a desire to realise, one of the terms of reference for the whole privatisation process, which was diversification of ownership of former state enterprises. It was realised that many privatised companies had gone to SA companies. Socomer being Belgian was a way of diversification of foreign ownership.
Secondly PPC was already a major producer of lime in the Southern African region, it was found their desire to acquire Ndola Lime, was merely to strengthen a monopoly position. Thirdly, Socomer was recommended as they had better commercial terms
Before the deal was finalized it needed to go through the same process of approval as picking of winning bids. Committee of ministers, ZCCM board, and ZPA etc.
When it went to ZPA they instructed the PNT to open further talks with PPC at the same time, they were talking to Socomer. (LOL)
When the recommendation was taken to the ZCCM board, Anglo’s ZCI wanted Ndola Lime given to PPC. After another round of negotiation ZCCM accepted the recommendations of the PNT on Socomer bid.
The issue here was that the process suggested by ZPA went against the initial procedures agreed by ZPA themselves, on talking to more than one bidder at the same time. ZPA accused Francis of being motivated by self interest, as he was a chairman of Access Financial Services, who were advisers to Socomer. On 30 Sept 1998, at an extraordinary meeting of ZPA, decided that Francis cease to be chairman of the PNT for the privatisation of NLC. Francis responded, that the sale of NLC was assigned to the group led by Mr John Patterson of ZCCM, and Norman Mbazima, who were jointly chairing the talks with Socomer,
More letters from ZPA , Francis was asked how the structure of the company was to be implemented. He reminded the board of its decision to remove him as PNT chairman of the NLC sale, so he was surprised that the same board that removed him, would expect him to carry out functions of the same position. (ROTFL)
All these delays were costly, ZCI main concern was the supply of lime for the mines they had acquired which they were hoping was a fixed rate and price per tonne. Secondly the price of (HFO) Heavy Fuel Oil, which accounts for 55% of the cost of quicklime, increased by 300% between 1998 and 2000. This had an immense effect on contracts and viability of NLC, when viewed from the fixed contracts and supply to its main consumers, the mines, ZCI was buying.
This led to Socomer reducing its bid from $17.5m to $5.6m, and this became another sticking point with ZPA, even though Socomer had committed $12m in additional investment in Ndola Lime, the ZPA appointed Charles Sichangwe, a Lusaka banker of Wits Limited, as chairman of an Independent Negotiating Team for Ndola Lime, to be assisted by Constantine Chimuka of Ellis and company, and Alfred Sakala (ZCCM).
Turned out to be a costly delay, on 1st March 2000, Finance Minister Kalumba called a meeting for the next day, and it was resolved NLC privatisation reverts back to the PNT.
My view here, is that it, appears from the book, that there seemed to be animosity between ZPA and the PNT, Francis said , this stemmed from the fact that the ZPA had a record of transferring over 200 firms from the state into private hands in a space of 3 years. The agency appointed independent negotiators from the private business sector in Zambia. This quickly led to unsubstantiated claims that there were “privileged lawyers and accountants” favoured in appointments to handle lucrative privatisation negotiations. This may have made ZPA believe, ZCCM would was going to go in the same line, through them.
Had the government allowed ZCCM to go with ZPA as sole agents on its privatisation, Francis says, would have been disastrous, as they had few or no Zambians with the most experience in the mining industry. (They also did say, they lacked capacity in the beginning remember?) It would have been dangerously out of depth, in conducting negotiations with some of the worlds most experienced mining hands.
The Participants
Apart from those already mentioned , were a supporting cast and crucial according to Francis, to the successful privatisation of ZCCM.
Dr Edwin Koloko, ZCCM Director Corporate Affairs, John Patterson, ZCCM technical director, Deepak Malik General Manager ZCCM, Alex Chikwese an economist from ZPA, and Wilfred Kototo a metallurgist from ZCCM. (These were the other team members of the PNT). Others were Norman Mbazima, Andrew Webb, Charles Mercey.
Mines have interdependent operations, useful lives (reserves) these members were crucial, Mbazima would provide financial models at the ready, cash flow analysis for respective units in a remarkably short time.
On Interdependent operations, for example, Metorex bought Chibuluma mine which has neither a smelter, nor refinery, the copper concentrate they produce would have to go to Nkana for treatment. Such relationships needed separate agreement, Kototo and Patterson worked these out.
All transactions resulted in legal documents, legal issues features prominently, this area was covered by the Attorney General, first George Chilupe, and later Bonaventure Mutale, whose role was to protect the national interest in every transaction, and ensuring they confirmed to Zambian law. It was with Mutale that most of the work was done. Other lawyers who worked with the team, under the AG chambers, we’re Gertrude Kalulu, Gaudencia Salisini, Kamwenje Nyalungwe, and Monica Musonda. Francis said they were a crop of lawyers whose smart contributions brought nothing but pride to Zambians on the team.
Special mention also goes to PS for mines Kashimu, and director of mining Sweta. They were in charge of the development agreements, ensuring they were in line with national interest. It was under these agreements through the negotiation team, government would give certain concessions, to the investors in return.
Image for post
Random picture of Kalusha Bwalya
The Politicians
The infamous secret meeting between KC and a minister at a lodge?While the PNT was out of the country
That was Edith Nawakwi, between KC and a team from government at Lilayi Lodge.
Nawakwi according to Francis, didn’t stop there, she brought a firm called Carlington Sales company of Canada. Trying to get a sales agreements for the main mines after Codelco pulled out of their venture with ZCI. It failed embarrassingly. One of the agents representing the same company tried to sue the Zambian government in the UK. The English court threw out the case.
Francis was to learn later that Nawakwi had signed an agreement to retain the services of Carlington Sales Company, to facilitate the privatisation of some of ZCCM mining assets for an undisclosed fee.
She wasn’t the only one.
Ronald Penza, first played his hand in the privatisation process, with his parallel talks with KC as he was willing to give them the 300 houses they had demanded in their bid.
He went as far as writing to ZCCM Chairman, Luke Mwananshiku, which in effect sought to transfer, responsibility of privatisation of the mines from the PNT to the ZPA.
President Chiluba expressed shock at the audacity of the move. He characterised it as blatant insubordination, as the PNT was appointed agency of the ZPA through a decision of cabinet. He was fired.
Chambishi Mine (dco), bids were received from China Non Ferrous Metal Industry Corporation (CNNC), GMD resources, Ivanhoe capital, Jet Cheer Development (Zambia) Limited, and Sterlite Industries of India.
CNNC won the bid, with cash consideration of $20m ZCCM retained interest 15% 15 July 1998, a new company was formed NFC Africa Mining PLC.
Power Division (Jco) like all ZCCM operations, we’re hampered by serious lack of investment capital. The division bought power from Zesco, for resale to ZCCM mining operations, and other consumers. The package was advertised on the international market, 6 firms, pre qualified to bid, Eskom (South Africa), Edison International (Canada), Houston Industries (USA), Midland Power Int(UK), National Grid Company (UK), Trectebel (Belgium),
Midland Power International/National Grid under a consortium called Copperbelt Energy Corporation was superior in commercial considerations. Cash $50m, revised debt assumption $73m, ZCCM retained interest 20%. CEC also had a plan for the forecasted retrenched workers numbering 250 employees, over 3 years. They planned to retrain them, and also committed $250k for overseas training for Zambians in their 1st year of operation.
Completion of the sale was achieved on 17th December 1997.
Conclusion
There appears to be a general expectation that Zambia was going to mint lots of money out of privatising ZCCM. Francis thought this understandable, through sentiment attached to the mines, arising out of knowledge that the mines were Zambia’s most valuable resource. It didn’t seem to matter or people are just not aware, that ZCCM assets had been losing value over the previous 20 years and during their sale. There just wasn’t enough reinvestment into the mines, low copper prices didn’t assist matters.