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 $11bn debt, one-third of which is owed to China.
As copper prices begin to recover – driven especially by Franklin D. Roosevelt-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 $20.4bn 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.
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 $144.7m 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 and was never extended, 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.
Simon Wolfe is an international lawyer and MD of Marlow Strategy