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Mining

Focus on Africa: Zambia snubs SA court order on Konkola Copper Mine

President Lungu during his swearing-in ceremony in Lusaka, 13 September 2016.
President Lungu during his swearing-in ceremony in Lusaka, 13 September 2016.

A South African court Tuesday granted Vedanta Resources an order blocking the liquidation of its Zambian-based Konkola Copper Mines (KCM) company amid a growing dispute with the government in Lusaka.The Johanneburg High Court ruling sets Vedanta Resources on a collision course with President Edgar Lungu, who has vowed to find new investors for the strategic mine.

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KCM, Zambia's largest copper mining firm, has been at the centre of a standoff since May between Vedanta Resources, its majority owner, and Zambia's President Edgar Lungu.

The Indian-founded company which owns an 80 percent stake in the Konkola Copper Mines (KCM), had filed an injunction with the Johannesburg arbitration tribunal seeking to block Zambia’s appointment of a liquidator to wind up Vedanta’s operations.

News Diggers reports that Wednesday’s interim interdict by the court validates Vedanta’s plea that the Consolidated Copper Mines Limited Investment Holdings, (ZCCM-IH) representing Zambia in the matter, had breached articles of the shareholders’ agreement on winding up operations.

The High Court also ordered the ZCCM-IH to pay Vedanta’s legal costs for three lawyers who applied for the interdict.Zambia which owns just 20 percent of shares in the KCM, has been locked in a dispute with Vedanta, over the alleged abuse of its mining license since May.

“Government is confident that it made right decision against the investor,” argues Chibanda Kenyama a Zambian economist based in Lusaka.

He explains that 15 years after the 2004 agreement to increase Zambia’s copper output, to nearly 2 million tons per year, KCM instead played with transfer pricing” by shifting profits and importing most of its copper concentrates from DR Congo for processing rather than mining local reserves.

Contractual failures

According to Chibanda Kenyama, Vedanta’s failure to develop the Konkola dip was evident in the serious liquidity problems it faced from overdrafts contracted from commercial banks to years of overdue suppliers’ payments.

Vedanta-Resources-Headoffice
Vedanta-Resources-Headoffice kcm.jpg

 

“This has had a significant impact on the growth of jobs on the copper belts and the wellbeing of Chingola, Chililabombwe and Nampundwe which relied on the major investment”, the economist Kenyama noted. “KCM lost the social license to trade, its credibility in the eyes of the community, that of its workforce, which in his opinion, posed a huge risk to the government, precipitating Lusaka’s move to place the company under liquidation.”

Issues of sovereignty

News Diggers reports that on the eve of the South African High Court ruling, the Zambian government called a press conference to reiterate its stance about the issue.

Zambian minister of mines Richard Musukwa(centre) flanked by justice minister Given Lubinda and attorney general Likando Kalaluka, during press conference at State House in Lusaka, 23 July, 2019
Zambian minister of mines Richard Musukwa(centre) flanked by justice minister Given Lubinda and attorney general Likando Kalaluka, during press conference at State House in Lusaka, 23 July, 2019 gov.za.jpg

“The ruling will have no bearing on the Zambian court process,” mines minister Richard Musukwa is quoted by the newspaper as saying.

This is despite the designation of the Johannesburg tribunal as the seat of arbitration in the KCM shareholders agreement.

“The principle that one sovereign state should not attempt to regulate the proceedings before the court of a different sovereign state was outdated” argued justice minister Given Lubinda who also took questions during the briefing.

Lubinda also disclosed that the country’s attorney general Likando Kalaluka would be travelling to South Africa to join the appeal team there, “in order to protect the integrity of Zambian courts”.

Line of potential investors

Meanwhile the Zambian Mines Minister says he expects investors from Russia, Turkey, Australia, Canada and China to submit bids for the Konkola Copper Mines business within weeks.

Lusaka Times relays a warning from University of Zambia lecturer Sishuwa Sishuwa that even if the government has a very good case against Vedanta, it was messing up and could pay a heavy price for failing to “follow the legal procedure”.

Milingo Lungu, provisional liquidator of Kongola Copper Mines  arriving in Chingola recently on a ZAF plane Image JPEG
Milingo Lungu, provisional liquidator of Kongola Copper Mines arriving in Chingola recently on a ZAF plane Image JPEG kcm.jpeg

Lungu's millstone?

Shishuwa’s signal came amid reports trending on social media in Lusaka that the Democratic Republic of Congo was forced to pay Vedanta Resources 1.2 billion dollars, as the first quantum of reparations for equally fouting the law when equally seizing a mine.

The Vedanta affair increasingly looks like “a millstone tied around President Edgard Lungu’s neck”, warns a Zambian on the interactive column of the Lusaka Times.

As he puts it, “if Zambia loses its bid to liquidate and sell the company to new investors, it would mean more woes to the foreign exchange market, at a time when the economy badly needs stability”.

 

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