Eurasian Resources and CNMC firms eye Vedanta’s Zambia arm

Context

Eurasian Resources and China Non-Ferrous Metals (or CNMC), which already have copper assets in Zambia and Congo, expressed their interest in buying Konkola Copper Mines (KCM), in case the Zambian government seizes it from Vedanta Resources Ltd.

About

  • Zambia is Africa’s second-largest copper producer and copper exports account for 70% of its total export earnings and 12.2% of its gross domestic product.
  • According to Zambian government, “Many companies” are interested in taking over Konkola Copper Mines. Zambia, cash-strapped and struggling to contain debt, says that Vedanta hasn’t met its investment promises and paid too little tax. The government has accused KCM of breaching its operating licence, while the company says it is a “loyal investor" that’s spent more than $3 billion in the country since 2004.
  • Many mining operations do not yet pay tax on profits because they say they are still paying off capital expenditure, and the government is keen to increase its tax take.
  • Eurasian Resources declined to be identified by name. CNMC also wanted to buy the assets. The Chinese company offered to spend $2.5 billion on development.

KCM

  • KCM and its resources are at stake. It is one of the world’s richest and wettest deposits, which stretch from Zambia’s Copper-belt region into southern Democratic Republic of Congo.
  • KCM’s flagship operation is Konkola Deep with 140 Olympic-sized swimming pools worth of water having to be pumped to the surface daily. The ore bodies also contain cobalt, a prized metal that’s used in rechargeable batteries that power mobile phones and electric cars.

Stand of Zambian Government

  • Every government of the day has a right to run state-owned enterprises and a right to choose which countries and institutions to partner or work with.
  • Article 90 of the Constitution of Zambia Amendment 2016 provides that the Executive authority derives from the people of Zambia, and should be exercised in a manner compatible with the principles of social justice and for the people’s well-being and benefit. In exercise of the executive authority of the State, the ruling government is obliged to promote the rule of law, among other values and principles.
  • In relation to the matter on hand, Government had several lawful options to divorce from Vedanta. Some options were direct while others were fronting.
  • One direct option was Government would have taken over operations of KCM in line provisions of the Shareholders’ Agreement. The Agreement stipulates steps that need to be taken to do so.
  • The next direct option was invoking the Mines Development Act 2015 Licencing provisions. In this instance, the Ministry of Mines would have revoked KCM mining licence if there any breaches committed by KCM which violated the license conditions. The Mines Act stipulates steps that need to be taken to do so.
  • The trouble with the case in hand is that instead of adopting a direct option, it instead adopted by a fronting option. But direct options were better in many ways than fronting option.

Breach of rights

  • This is a breach of legal rights of Vedanta as attempted liquidation of KCM “can only hurt the country’s hard-earned democracy and investor-friendly status."

Way Ahead

  • Zambian government should rethink its strategy on the KCM liquidation/takeover. Rationality and rule of law should be cornerstones of such grand decisions in the interest of social justice and for the people’s well-being and benefit.
  • By taking over some of the shuttered operations, the government of Zambia can run these operations for cash to meet its debt burden, but this is a short-term strategy because at some point there will be the requirement for further investment.

© 2020 Basix Education Pvt. Ltd. All Rights Reserved