Zambia’s government has filed notification of its plans to take over Vedanta Resources domestic copper assets, President Edgar Lungu said. The Lungu administration has ratcheted up tensions with the local mining industry, especially with large operators such as Indian firm Vedanta and Swiss-based Glencore. Lungu has previously threatened to “divorce” the country from the major mining houses over disputes relating to taxes and royalties.
In May, he said a new non-refundable sales tax in place of Value Added Tax (VAT) would go ahead, despite objections from mining companies that it would push up operating costs.
Other mining companies operating in Zambia include Canada’s First Quantum Minerals and Barrick Gold.
Bloomberg reported that on a recent visit to the copper belt, Lungu said, “I want to make it very clear that I have come here to sanction, if it’s the will of the Zambian people, that we divorce these mines … My position is that enough is enough. The attorney general is here, the lawyers are here. They will guide us how to proceed with this divorce.”
For its part, Vedanta, which operates in the country through Konkola Copper Mines (KCM), appears to have been taken by surprise, and said it would seek an urgent meeting with the Lungu government. “KCM is yet to receive formal communication from the government of Zambia on this, although it has sought an urgent meeting with the president and/or the minister of mines,” the firm said in a statement.
In August last year, Vedanta Chairman Anil Agarwal said the firm would invest US$700 million to raise output to 400 000 metric tons per year.
However, the relationship with the government has deteriorated markedly since then. Vedanta’s troubles stem in part from the technical challenges it faces that have weighed on the financial viability of its operations. KCM’s flagship mine at Chililabombwe is regarded as the world’s wettest, as the local geology is riddled with water-bearing aquifers.
The main shaft needs to pump around 450 million liters of water to the surface every day, the equivalent of 180 Olympic-size swimming pools to prevent flooding. Vedanta said that pumping alone comprises 40% of KCM’s energy costs.
In recent months, contractors have gone unpaid and in April, KCM instituted a total hiring freeze and promotions were put on hold. KCM is also the country’s largest employer.
By the end of last year, the Zambian mining ministry accused KCM of owing local and international contractors $80 million in outstanding invoices.
In January, KCM halted operations at its Nchanga mine near the Democratic Republic of Congo’s border, in response to Zambia adding a 5% tariff to copper concentrate it was importing from its neighbor. Without the DRC production, the Nchanga smelter and mine became unviable, KCM said.
As a result of its poor financial performance, KCM’s day-to-day operations have been affected, said Sishuwa Sishuwa, a Zambian political analyst.
“KCM’s machinery is infrequently serviced and the contractors and suppliers are hardly paid,” he said. “The company faces a litany of legal suits, and even copper concentrates are imported from the DRC because it hasn’t been investing in new reserves. It’s as if Anil Agarwal keeps KCM for strategic reasons.”
Almost certainly, Lungu will approach one of the Chinese operators in Zambia, which is heavily indebted to Beijing. Lungu may be hoping that China will offset some of the debt if one of its firms gets KCM.
However, it’s unclear whether new owners will fare any better with KCM’s troubled assets. Vedanta acquired KCM in the mid-2000s, after its former owner Anglo American walked away. Anglo, like Vedanta, found the technical challenges of keeping KCM afloat during a downturn in the copper price overwhelming.
Meanwhile, even if Vedanta is kicked out of the country, its troubles won’t end at the Zambian border. A group of Zambian villagers has won the right to sue Vedanta in a U.K. court, where it is listed on the London Stock Exchange. The complainants allege that fields and water sources around Nchanga are contaminated with sulphuric acid and other toxins, depriving them of farmland.
In a statement, James Nyasulu, the lead claimant in the U.K. case, said, “The Supreme Court judgment will finally enable justice for the thousands of victims of pollution by KCM’s mining activities, who have suffered immensely since 2006 to date, in the Chingola district of Zambia. Their livelihoods, land and health have been irreparably damaged by pollution, which has rendered the River Kafue completely polluted and unable to support aquatic life. Some have already died as a result.”