THE enmity between Vedanta Resources and the Zambian government shows no signs of easing after mines minister, Richard Musukwa, labelled the country’s mining sector a victim of criminal activity.
“Zambia is a victim and it needs support,” said Musukwa in a speech to delegates at the Investing in African Mining conference in Cape Town on February 5. “We deserve African and international support to make sure Vedanta pays the price.”
Musukwa was referring to a dispute with Vedanta dating from May last year in which the state-owned copper company, ZCCM-IH, sought the liquidation of Konkola Copper Mines (KCM). ZCCM-IH has a 20% stake in KCM, which has productive capacity of about 100,000 tons of copper. Vedanta is the majority shareholder in KCM with an 80% stake.
ZCCM-IH argued at the time of starting liquidation proceedings that Vedanta had failed to deliver on its investment promises – a theme Musukwa ran with at the conference. He told delegates: “Investors must follow their [Vedanta’s] commitments.
“Vedanta Resources pledged $398m in a project and did not bring that. It pledged another $500m – it did not bring that. It pledged another $250m – they did not bring that money,” he said.
In an earlier interview with Miningmx, Vedanta CEO, Srinivasan Venkatakrishnan, said the attempt to wind-up KCM was tantamount to theft. “It is a classic example of a hijacking,” he said.
“We woke up one fine day to find ZCCM-IH had applied ex-parte to wind up the company,” he said. In Vedanta’s view, ZCCM-IH ought to have aired its complaints in terms of KCM’s shareholders’ agreement which allows for grievances and dispute resolution – a view supported by South Africa’s High Court which last year ordered ZCCM-IH to desist its winding-up order.
There have been attempts to resolve the dispute. In September, Zambia president, Edgar Lungu, agreed to negotiate with Vedanta following a meeting with the Indian firm’s executive chairman, Anil Agarwal. However, the negotiations lost almost immediate momentum.
Since then, there have been reports that the Zambian government has been seeking to sell off parts of KCM, a development Vedanta has so far been able to foil. It said in a recent statement that any third party attempting to buy KCM assets from the Zambian government could be breaking the law.
Undeterred, Musukwa today also criticised Vedanta’s track-record for poor governance at the Chingola facilities, one of KCM’s assets, that last produced copper in 2014. KCM owed creditors and its failure to operate the mine was “criminality” as the company was locking up resources that other investors could exploit.
“Zambia is open for business and is ready to welcome well-meaning investors who follow the rule of law,” said Musukwa. “Serious investors have no cause to worry.” His comments were met with applause.
Venkatakrishnan argues that Zambia had made it difficult to operate profitably in the country prior to ZCCM-IH issuing a winding up order. It had imposed new fiscal changes that helped dry up cash flow whilst a 300% increase in power tariffs further hurt KCM’s ability to fund itself.
“Vedanta has continued to bankroll KCM through all of this: some $500m has been invested in the mine until May last year when we were last in control. It’s like being evicted from your house; you can’t even go into your house and visit it,” he said.
A crushing blow for KCM has been the government’s refusal to refund VAT that Venkatakrishnan calculated could be north of $160m.
“At some stage, a dialogue will take place,” said Venkatakrishnan. “We are speculating, but it has to happen. There is a cash crunch coming which makes us hopeful,” he said of Zambia’s increasing inability to fund KCM.