Vedanta the grave digger of Hichilema’s political career
By.James Musonda (PhD)
Socio-political anthropologist, Université de Liége, Belgium
Summary
This article argues that the political future and relevance of the Zambian president presently rests on the decision his government will make on Konkola Copper Mines. If they give KCM to Vedanta, Vedanta will be Hichilema’s political grave digger, and Vedanta’s capital will be the shovels with which Hichilema’s political career will be buried. If the electoral results since Zambia’s return to multiparty democracy in 1991, is anything to go by this claim is valid, as no party has won formed government without winning Copperbelt, which often vote alongside Lusaka, and to a larger extent, the Northeastern provinces.
Introduction
It is now roughly just three months before president Hichilema and the UPND clock one year in office. Yet, the new dawn government’s position on Konkola Copper Mines, remains at best, blurred, incoherent and inaudible, and at its worst, hopelessly absent. Compounding this silence, is the UPND’s uncoordinated public relations approach to governance rooted in keeping quiet and firefighting later. This is unfortunate because copper prices on the global market are unprecedentedly over the roof. Also, KCM has one of the richest copper deposits, the largest reserves, and third largest copper producer in the country.
This silence has coincided with the Zambian Court’s reluctance to make a ruling on the status of KCM ownership. Indeed, the doggy manner in which KCM was liquidated requires careful attention by both the judiciary and the executive. This is because any further mistakes can lead to unbearable legal costs for a country already struggling with over US$14 billion thoughtlessly borrowed by the PF, which was recklessly abused and corruptly spent. Add to this, the debt that the UPND has borrowed since it came into office, and the US$1.5 plus interest that ZCCM-IH owes to Glencore through an irresponsible acquisition of a company that within the first year of its acquisition made a US$91 million net loss.
Unfortunately, the delay and the silence is not solving any problems. If anything it is deepening the chronic anxiety among Zambian mineworkers and their families for whom uncertainty has become norm. This chronic uncertainty dates back to the sustained economic crisis from the mid 1970s to 2000 when the company was privatised, from mid 2000 when Anglo-American Corporation and its partners withdrew its capital and handed over the company to the government, during the ownership of Vedanta, to the present, under the controversial liquidation.
Instead of creating certainty and hope, the government’ loud silence has instead opened the space for Vedanta, the embattled owner of KCM to attempt to rebuild its reputation through misleading, misinforming and misrepresentation of facts. In this pursuit, Vedanta has sought, using back door means, the support of union branch leaders, who were made to issue statements in support of Vedanta’s return even when they were not legally authorized and, for misrepresenting the union position. These junior branch leaders have in the case of MUZ been subjected to disciplinary processes.
The mine unions are on record supporting the liquidation and the nationalisation of KCM. This is evident in various media statements in print, video and at radio stations. Vedanta has also sought the support of some poorly informed NGOs.
I argue that the political future for the UPND squarely rests on the decision they will make on KCM. Giving KCM to Vedanta will effectively make the UPND a one-term-party. This is because Vedanta carries a hugely turnished image, and anyone seen to associate with the company is likely to suffer the consequences. Here is why.
1. In 2014, a video clip went viral on the Internet showing Anil Agarwal, the majority owner of Vedanta, bragging about making an easy profit of $500 million each year from KCM, the mine he purchased for a mere $25 million.This is despite the company declaring losses every year, and failing to invest, and failing to bring in the FDI the company promised to develop the KDMP.
2. When Vedanta bought KCM, there was a one- year gap between development (the opening of the shafts) and production (the actual production of the copper ore), but starting from 2006, the gap had reduced to just one and a half months of reserves.
3. Instead of developing underground resources, Vedanta concentrated on the surface plant concentrator to process seven million tons per annum of ore it did not produce but purchased from other countries. Jobs were created in other countries at the expense of underground miners in Zambia.
4. Vedanta mismanaged the KDMP project. The initial aim of developing the KDMP was to increase production from two million tons of ore per annum to six million in the medium term and, in the long – term to nine million.
This was indeed very feasible given that at Nchanga the copper deposits are found near the surface and hence cheaper to mine. On top of that, prior investments by Anglo – American Corporation of $350 million before it abandoned the mine helped to modernize the shaft and infrastructure to better standards than during ZCCM.
5. But Vedanta adopted a “ruinous model of business” at Konkola Deep Mine Plant (KDMP) by turning operational revenue into capital. Instead of investing in developing reserves, Vedanta went to the open pit, took the ore out in the quickest way possible, got the money, and built the smelter. In so doing, Vedanta effectively changed the philosophy of the business entirely from a “mining”, into a “treatment facility”.
6. Vedanta changed the design of the mine by positioning the shaft in the wrong place. To better exploit the ore body located ten kilometers long from nose to end, Vedanta needed to develop the mine to create a broad base of ore to feed processing. Instead, Vedanta dug a very steep gradient (what experts call “diving in.”), took the ore out, leaving behind a lot of waste for a future producer to take out. In doing so, they shifted the center of gravity, sinking a shaft over one kilometer with no ore in between the two ends, where there are ores (Lee 2017, 69-70).
7. In 2014 KCM announced its intentions to retrench an excess of 1,529 employees.
8. The government immediately commenced an audit of the entire operation of KCM. The audit revealed: high indebtedness and the threat of insolvency. The total liability of the company as of 30 September 2013, stood at US$1.567 billion exceeding its current assets by US$123 million. It was also under the threat of receivership from Standard Bank for defaulting on its US$700 million loan.
8. Yet Vedanta was unconcerned. For example, in September 2011, Vedanta prematurely recalled the US$500 million loan it had given to KCM earlier which was supposed to have been repaid in 2012.
9. Vedanta also failed to fulfill its commitment to inject US$397 million into KCM as FDI.
10. Instead, the company used all the funds it generated within KCM towards capital projects. This deprived the company of the necessary funds for operations, and maintenance.
11. The investment into KDMP was further delayed by about seven years mainly due to design challenges and resource mobilization resulting in increased cost of sinking of shafts, development of the ore resources, and a loss in excess of four million tonnes of ore anticipated per annum.
12. Vedanta’s failure to properly manage its contractors, coupled with its failure to purchase or maintain its own equipment further undermined its production capacity. Hence potential loss of possible jobs, and tax revenue.
13. The government’s efforts of reviving the company by providing it with a Business Improvement Plan (BIP) to increase production from 132,318 tonnes of finished copper in 2013, to 178,994 tonnes by 2017 were frustrated by Vedanta’s failure to fulfill its commitments resulting in a further decline in production to 86,585 tonnes.
14. In 2018 the Zambian government had no option but to threaten the repossession of the mine. But this did not result in any improvements forcing the government through its minority shareholder, ZCCM-IH to commence the liquidation of the company.
15. At the time of liquidation: KCM’s debt had exceeded UU$2.5 billion; developments at KDMP had stalled; underground operations at Nchanga suspended, while the open pit was operating at very low capacity; the smelter was not running at full capacity due to lack of concentrates. The company depended on imported concentrates to run and operate the mine; the acid generation at the acid plant had declined alongside the reduced operation at the smelter.
15. This resulted in declines in the operations at the tailings leach plant which requires a lot of acid to treat the Chingola refractory ore from the surface dumps basal sandstones and other sources from Nchanga ground; the Nkana Refinery in Kitwe was on care and maintenance while the company continued to export copper anodes; Operations at the Nampundwe Mine slowed down; annual production dropped from 191,685 metric tonnes in 2014, to 97,946 metric tonnes in 2018.
16. In other words, Vedanta failed to run a company with over 280 million metric tonnes at Konkola, with an estimated lifespan of over fifty years and in excess of over 53.9 million metric tonnes at Nchanga Mine.
17. In 2006, the KCM under Vedanta polluted the main source of water in Chingola in which most people depend for water for their everyday consumption. The company was found guilty by courts in Zambia and the UK. Vedanta fiercely and expensively claimed innocence and appealed the court rulings in both Zambia and the United kingdom instead of taking responsibility and sympathising with the poor women, children, the disabled, poor villagers, retrenched miners and the old people living in Chingola.
18. Put simply, Vedanta failed to run KCM: profitably and technically; pay taxes; offer decent employment to its workers; pay contractors; repay its loans and prevent pollution from affecting poor communities. In May 2019, the Zambian government announced the liquidation of the company because of the company’s alleged environmental and financial regulation breaches.
19. Throughout its existence Vedanta has been reluctant to pay taxes by declaring losses amidst growing suspicion of tax evasion and avoidance.
These reasons do not paint Vedanta as a good investor and this claim is consistent with my ongoing ethnographic research among KCM employees and their families. What is likely to happen if Vedanta comes back is as follows:
a) Most people will associate Hichilema with the Vedanta’s bad name
b) Given its record of fulfilling promises Vedanta is likely to fail to fulfill its promises. This will lead to growing frustrations and uncertainty among workers and their families and the Copperbelt in general.
c) Vendata will likely continue providing precarious jobs, and subcontracting workers on poor salaries
d) Vedanta is likely to continue to arm twist the government when it comes to taxes, especially during elections by threatening retrenchments or to leave the country forcing the government to avoid any tax raises.
e) On 7 August at Parklands Secondary School in Kitwe, Edgar Lungu accused Hichilema of receiving money from Vedanta for campaigns and of promising to give KCM back to Vedanta. Giving back KCM to Vedanta is likely to give life to these accusations no matter how baseless they may look at the moment.
Way out
1. The government waits upon the court ruling which may give KCM to Vedanta on top of compensation and courts
2. Build a strong case against Vedanta to secure a legally enforceable liquidation
3. Secure a negotiated settlement with Vedanta that will see Vedanta disappear from the list of owners. This will mean finding money. Vedanta is unlikely to agree given the high copper prices at present.
4. The government just seats and does nothing and achieves nothing.
5. Government finds the money to pay off Vedanta and to recapitalize the company.
Government finds an alternative investor other than Vedanta to clear Vedanta and invest new money to revamp production and pay off all the debts (I do not favor privatization).
Conclusion
Vedanta remains a potential grave digger of the UPND and president Hichilema. It is upto them to make the right decision because in a democracy, those who suffer political deaths, are also required to attend their funeral and mass burial. This is what happened to Lungu during the inauguration of Hichilema. Also, the UPND should not allow a situation where people start to miss the PF. That would be disastrous for all of us.
Free advise from a concerned patriot. James Musonda