NAWAKWI YOU CAN RUN BUT YOU CAN’T HIDE.
BY Shamoba, LET THE TRUTH BE TOLD #CANADASCANDLE AND ZAMBIAN MINES.
mining industry, foreign policy and neoliberalism overlap tightly. It is a subject Canadians ought to pay attention to if they want their country to be a force for good in the world.
While few Canadians could find Zambia on a map, the Great White North has significant influence over the southern African nation.
A big beneficiary of internationally sponsored neoliberal reforms, a Vancouver firm is the largest foreign investor in the landlocked country of 16 million people.
First Quantum Minerals (FQM) has been embroiled in various ecological, labour and tax controversies in the copper rich nation over the past decade. At the end of last year, First Quantum was sued for $1.4 billion by Zambia Consolidated Copper Mines Investment Holdings (ZCCM-IH), a state entity with minority stakes in most of the country’s mining firms. The statement of claim against First Quantum listed improper borrowing and a massive tax liability.
In a politically charged move, President Edgar Lungu recently ordered ZCCM-IH to drop the case and seek an “amicable” out of court settlement with FQM. Social movements criticized the government for (again) caving to powerful mining interests exploiting the country’s natural resources. According to the organization War on Want, Zambia loses $3 billion a year to tax dodges by multinationals, mainly in the lucrative mining sector. A recent Africa Confidential report on the row between First Quantum and ZCCM-IH highlighted the Vancouver firm’s political influence, pointing out that “top government officials are frequently feted and hosted by FQM.”
First Quantum’s presence in Zambia dates to the late 1990s privatization of the Zambian Consolidated Copper Mines (ZCCM), which once produced 700,000 tonnes of copper per year. In a report on the sale, John Lungu and Alastair Fraser explain that “the division of ZCCM into several smaller companies and their sale to private investors between 1997 and 2000 marked the completion of one of the most comprehensive and rapid privatisation processes seen anywhere in the world.”
The highly indebted country was under immense pressure to sell its copper and public mining company. Zambia’s former Finance Minister Edith Nawakwi said, “we were told by advisers, who included the International Monetary Fund and the World Bank that…for the next 20 years, Zambian copper would not make a profit. [But, if we privatised] we would be able to access debt relief, and this was a huge carrot in front of us — like waving medicine in front of a dying woman. We had no option” but to privatize.
Ottawa played a part in the privatization push. Canada was part of the World-Bank-led Consultative Group of donors that promoted the copper selloff. With the sale moving too slowly for the donors, a May 1998 Consultative Group meeting in Paris made $530 million in balance of payments support dependent on privatizing the rest of ZCCM.
(Canada had been a proponent of neoliberal reform in Zambia since the late 1980s. At the time Ottawa slowed aid to the country in a successful bid to change the government’s attitude to neoliberal reforms, explains Carolyn Bassett in The Use of Canadian Aid to Support Structural Adjustment in Africa. After Zambia fell into line with the International Monetary Fund, CIDA recharged its aid program. As part of a push for economic reform Ottawa secured an agreement that gave a former vice president of the Bank of Canada the role of governor of the Bank of Zambia, where he oversaw the country’s monetary policies and “responses to the IMF”. In her 1991 PhD thesis Bassett notes, “instrumental in developing Zambia’s new ‘domestically designed’ [economic] program was the new head of the Bank of Zambia, Canadian Jacques Boussières.” Paid by Ottawa, Boussières was the first foreign governor of the Bank of Zambia since independence. This was not well received by some. Africa Events described Boussières as “a White Canadian who came to de- Zambianise the bank post under controversial circumstances.”)
The hasty sale of the public mining behemoth was highly unfavourable to Zambians. The price of copper was at a historic low and the individual leading the negotiations, Francis Kaunda, was later jailed for defrauding the public company. “ZCCM’s privatization was carried out with a complete lack of transparency, no debate in parliament, and with one-sided contracts which few of us have ever seen,” said James Lungu, a professor at Zambia’s Copperbelt University.
Taking advantage of the government’s weak bargaining position, First Quantum and other foreign companies picked up the valuable assets for rock bottom prices and left the government with ZCCM’s liabilities, including pensions. The foreign mining companies also negotiated ultralow royalty rates and the right to take the government to international arbitration if tax exemptions were withdrawn for 15 years or more. Many of the multinationals made their money back in a year or two and when the price of copper rose five-fold in the mid-2000s they made bundles.
Having conceded tax exemptions and ultralow royalty rates, the government captured little from the surge in global copper prices. In 2006 Zambian royalties from copper represented about $24 million on $4 billion worth of copper extracted. The .6% royalty rate was thought to be the lowest in the world. The government take from taxing the mining companies wasn’t a whole lot better. Between 2000 and 2007 Zambia exported $12.24 billion in copper but the government only collected $246 million in tax.
Since 2008 Zambia has wrestled more from the companies, but they’ve had to overcome stiff corporate resistance. When the government suggested an increased royalty in 2005 First Quantum’s commercial manager Andrew Hickman complained that it “would probably make any new mining ventures in Zambia uneconomical” while three years later First Quantum said it would have “no choice” but to take legal action if a new tax regime breached the agreement it signed during the privatization process.
With billions of dollars tied up in the country, First Quantum had good reason to campaign aggressively to maintain the country’s generous mining policy.
First Quantum stands accused of cheating Zambia out of tens of millions of dollars in taxes. An audit found that between 2006 and 2008 Mopani Copper Mines underreported cobalt extracts and manipulated internal prices to shift profits to First Quantum and Glencore subsidiaries in the British Virgin Islands and Bermuda, allowing it to evade millions of dollars of tax in Zambia.
In Offshore Finance and Global Governance: Disciplining the Tax Nomad, William Vlcek explains: “As a corporate entity, First Quantum does not directly manage the mining operations in Zambia, rather it owns a subsidiary in Ireland which in turn owns subsidiary corporations registered in the British Virgin Islands and Zambia. … The overall corporate organization involves similar subordinate corporate structures with subsidiaries registered in Barbados, British Virgin Islands, Ireland, Luxembourg, and Netherlands, none of which jurisdictions include a mine or smelter operated by First Quantum. … Jurisdictions such as the British Virgin Islands … do not impose a corporate income tax on foreign-sourced income. Thus, First Quantum’s subsidiaries will pay corporate income tax on their operations in Zambia to the Zambian government, but any income that flows through to the BVI-registered subsidiary will not be taxed before flowing onward.”
In a bid to cut down on corporate ‘transfer pricing’ and tax evasion, the Zambian government sought to simplify the mining fee structure. In 2013 Lusaka proposed eliminating income tax on mining companies and substantially increasing royalty rates (up to 20% for open-pit mines and 8% on underground operations). In 2015 Minister of Finance Alexander B. Chikwanda told Parliament: “the tax system was vulnerable to all forms of tax planning schemes such as transfer pricing, hedging and trading through ‘shell’ companies which are not directly linked to the core business. Sir, it has been a challenge for the revenue administration to detect and abate such practices. Further, provisions on capital allowances and carry forward of losses eliminated potential taxable profits. Mr Speaker, the tax structure was simply illusory as only two mining companies were paying Company Income Tax under the previous tax regime as most of them claimed that they were not in tax-paying positions.”
First Quantum, Toronto’s Barrick Gold and a number of other foreign mining companies screamed murder and worked to derail the Zambian government. First Quantum government affairs manager John Gladston said “the new system doesn’t incentivise investment in new capital projects which in turn, will inevitably be translated into fewer new jobs and less opportunities for wealth creation for Zambians.” To spur a backlash in the job-hungry country, First Quantum laid off 350 workers at its Kansanshi mine. The government responded by saying First Quantum wasn’t adhering to the country’s labour law. Government spokesperson Chishimba Kambwili told Xinhua that “all mining companies are aware of the standing order, which obliges them to consult the government through the Ministry of Labour before any decision to sack any worker becomes effective.”
Barrick Gold also threatened to lay off workers if the government increased royalty rates. The Toronto company said it would shutter its Lumwana mine, which prompted 2,000 workers, fearing for their jobs, to hold a one-day strike. The foreign-run Chamber of Mines of Zambia claimed 12,000 jobs would be lost if the royalty changes went through and the IMF added its voice to those opposing the royalty hike.
The mining corporations’ strong-armed tactics succeeded. After a six-month standoff, the government backed off.
First Quantum, Barrick and the other foreign mining companies exploited the immense power ZCCM’s privatization gave them over Zambian economic life. By shuttering their mines they could produce economic hardship for thousands of people. (With an 80% unemployment rate and most Zambians living on less than a dollar a day, each formally employed individual provides for many others.) Some suggested the foreign mining companies were even “powerful enough to manipulate the exchange rate” of the country.
Canadian officials actively backed FQM and other mining companies in Zambia. At the 2013 Prospectors and Developers Association of Canada Convention Ottawa announced the start of negotiations on a Foreign Investment Promotion and Protection Agreement with Zambia, which would allow Canadian companies to pursue Zambia in international tribunal for lost profits. The next year the Head of Office at the Canadian High Commission, Sharad Kumar Gupta, “said the Canadian government is trying to encourage the private sector to explore… opportunities in Zambia’s mining sector,” reported Lusaka’s news.hot877.com.
After the leftist Patriotic Front opposition party accused First Quantum of blocking workers from voting in a 2005 parliamentary by-election, the Canadian High Commissioner defended the Vancouver company. John Deyell, who previously worked at mining giants Inco and Falconbridge in Sudbury, claimed First Quantum wasn’t responsible for day-to-day operations despite owning a sixth of MCM stock and controlling two seats on MCM’s executive board. In response the Patriotic Front sought to take their protest against MCM’s violation of workers’ rights to the Canadian High Commission, but the police denied them a permit.
In Zambia, as with elsewhere in Africa, Canada’s mining industry, foreign policy and neoliberalism overlap tightly. It’s a subject Canadians ought to pay attention to if we want our country to be a force for good in the world.
Zambia Consolidated Copper Mines (ZCCM), which operated ten mines, three smelters, two refineries and a tailings leach plant. ZCCM was owned by Zambia Industrial and Mining Corporation (60.3%), an Anglo-American subsidiary ZCI Holdings (27.2%), RST International (7.0%) and the public (5.5%). ZCCM was sold in 1998 for just US$627 million, split into 7 units, including Konkola Copper Mine ($25 million), Kansanshi Mine ($28 million), Luanshya Mine ($35 million), Chibuluma Mine ($17.5 million), Chambishi Mine ($20 million) and others. The low price was criticised for being a result of bribery and corruption – with Anglo-American, which sat on the board of ZCCM, buying Konkola Copper Mines, ZCCM’s flagship, for a song, critics alleged. The mines were privatised after the copper prices had dropped from $2,300/tonne in 1997 to about $1,500/tonne in 1998 – and remained at this level until 2003. As the government was subsidising the mines by approximately $1 million a day, the privatisation was encouraged by a bit of arm-twisting: “We were told by advisers, who included the International Monetary Fund and the World Bank that for the next 20 years, Zambian copper would not make a profit. [But, if we privatised] we would be able to access debt relief, and this was a huge carrot in front of us, We had no option,” said then Minister of Finance Edith Nawakwi.#1999
The objectives, which the Government was seeking to achieve through the privatisation of ZCCM, were to: · Transfer control of and operating responsibilities for ZCCM’s operations to private sector mining companies as quickly as practicable; · Mobilise substantial amounts of committed new capital for ZCCM’s operations; · Ensure that ZCCM realised value for its assets and retained a significant minority interest in principal mining operations; · Transfer or extinguish ZCCM’s liabilities, including its third party debt; · Diversify ownership of Copperbelt assets; · Promote Zambian participation in the ownership and management of the mining assets; and · Conduct the privatisation as quickly and transparently as consistent with good order, respecting other objectives and observing ZCCM Ltd’s existing contractual obligations.
As part of the privatization process, the company’s mining assets were unbundled and sold off as separate new entities or business packages to the private sector. The reason for unbundling the ZCCM Ltd into business packages was to promote diversity of ownership and minimise political and economic risks.
A two-stage privatisation process was adopted. Under Stage one, majority interests in the packages relating to certain of ZCCM Ltd’s mining and power distribution operations were offered to trade buyers, which was to leave the transformed ZCCM Ltd as an Investments Holdings Company, with minority interest in each of these packages. Through ZCCM Investments Holdings Plc., Government has retained minority interests of not more than 21% within each of the business packages.
The privatisation of ZCCM commenced in 1996, after GRZ and the Boards of ZCCM and the Zambia Privatisation Agency (ZPA) approved the ZCCM Limited Privatisation Report and Plan presented by UK based financial and legal advisors, NM Rothschild & Sons and Clifford Chance, respectively.
Stage two of the privatisation of ZCCM envisaged GRZ disposing of some or all of its shareholding, with part of this being earmarked for Zambian institutional and private investors as a way of promoting Zambian participation in the mining sector.
GRZ obtained the support of the World Bank and the Nordic Development Fund for the Copperbelt Environment Project (CEP), to address environmental liabilities and obligations remaining with GRZ/ZCCM-IH following the privatization of mining assets.
The Environmental Management Facility (EMF) which is composed of multiple stakeholders, working as the EMF Steering Committee, was established by the Minister of Finance and National Planning as provided for by the protocols, for the purpose of prioritizing and approving subprojects of the CEP for funding. The project which became effective on 31 July 2003 ends in August 2008.
Apart from environmental responsibilities ZCCM-IH has the additional responsibility of managing the ex ZCCM employees trust fund and also the finalization sale of ZCCM properties.
In November 2011, the role and importance of ZCCM-IH have been highlighted, led by the Hon. Zambian Minister of Mines Wylbur Simuusa, representing the major shareholder.
“Through its state mining investment company, Zambia Consolidated Copper Mines Investment Holdings, the government is finalizing plans to start negotiations with mining companies aimed at increasing its stakes in projects to as much as 35%” he told the press.
“There is need for the country to have increased ownership in the mines and ZCCM-IH is an engine which can facilitate the process.”
“ZCCM-IH is an important unit which if properly managed, can help the country realise huge benefits from the mining resources.”
To that purpose, as Zambian presidential elections have emerged the victory of Patriotic Front leader Michael Sata, Mr. Wila D. Mung’omba was appointed as Executive Chairman of ZCCM-IH with effect from 1 December 2011.
Mr. Mung’omba who is not new to the affairs of the company, has in the past served as Group A Director of ZCCM Limited in 1996–98. Between 1995–1998, Mr. Mung’omba was World Bank’s appointed Team Leader in the initial preparation of the ZCCM Limited privatization Report and Plan by the UK based Investment Bank NM, Rothschild & Sons and international law firm Clifford Chance. Later Mr. Mung’omba was involved in the creation of the present ZCCM-IH.
July 21, 2015 Daily Nation Reporter
FDD president Edith Nawakwi has been challenged to explain her involvement with the Canadian businessman Ari Ben-Menashe who swindled Zambia in a bogus maize deal and was also involved in the failed privatization of some mining assets.
PF deputy secretary general Mumbi Phiri has also challenged FDD spokesman Antonio Mwanza to explain if he had asked Ms Nawakwi about Ben-Menashe’s involvement in the botched mines privatization deals, “he should not just talk about things without investigating”.
Ms. Phiri revealed that Carrington Sales owned by an Israeli Ben-Menashe was ordered by a London court to refund Zambia US$10 million from the botched maize deal but that Ms. Nawakwi introduced the same man to the privatization team led by chairman Francis Kaunda.
Mrs. Phiri said Ms Nawakwi, who presents herself as an incorruptible and virtuous person, must explain what role Ari Ben-Menashe played in the failed delivery of maize to Zambia and also his involvement in the failed purchase of mining assets which had to be stopped by President Frederick Chiluba.
Ms. Phiri said the role of Ms Nawakwi in the botched sales of the mines were very well documented in a book published in 2002 by former privatization negotiation chairman, Francis Kaunda, which book has never been challenged.
“That book gives details of the role Ms Nawakwi played and it cannot be said that she is blameless,” she said.
“In all fairness I would like her to explain to the Zambian people what role Ari Ben-Menashe played in the maize deal and in the sale of the mines, both of which were found to be irregular,” Ms Phiri said.
“I would also like Ms Nawakwi to tell the country why she was dismissed as Minister of Finance so that the people of Zambia have an idea of the person who has now come out to criticize and cast aspersions on Edgar Lungu and other people in leadership.
“She must explain if, as the book says, it was not her who brought Carrington Sales Company of Canada with their key man Ari Ben-Menashe to negotiate the sale of the mines which Mr. Francis Kaunda later discovered to have been totally contrived, involving people of dubious character.
According to the book, Ms. Phiri said, Mr. Kaunda and his negotiating team travelled to Canada for a meeting with alleged mining houses organized by Carlington Sales but that when the Zambians investigated the people they were meeting they discoverd that they were not mining houses, but actors who had been paid to do so.
“This book was published in 2002 and Ms Nawakwi has never challenged the facts presented by Mr. Francis Kaunda. Can she explain this to the people of Zambia. Can she explain why Mr. Kaunda refused to sign the mining deals in Canada?
After that can she also explain how Zambia lost millions of dollars paid for maize which was never delivered in a deal brokered by Ben-Manashe of Carrington Sales,” Ms Phiri said.
We know who is who…. Don’t think you are smart will go deeper.