Another bonanza for Vedanta
Another bonanza for VedantaBy Editor
Sunday July 22, 2007 [04:00]
So it now looks certain that Vedanta will be staging another coup in our mining industry. The Zambian government having handed its 51 per cent shares in KCM to Vedanta for a paltry US$25 million, Vedanta has been smiling ever since and there is justifiable cause for this.
Apart from the fact that copper production has gone up and the prices on the London Metal Exchange are as good as they can possibly never be, Vedanta is now seeing prospects of having a larger stake, and therefore more control, of Zambia's largest mining operation.
And this is besides the well-known fact that numerous concessions in terms of tax have been granted to Vedanta, which makes it possible for the mining firm to gain as much as it can in terms of profits.
Our comments on Vedanta should not be misunderstood to mean that we are against foreign investments pouring into our country. What concerns us the most is that even as we pursue foreign investments, there should be some corresponding benefits accruing to the people of this country.
Notwithstanding the long and earnestly held view that foreign direct investments are critical to economic development, we think that such a view is redundant in the absence of tangible economic benefits to the people.
As for Vedanta, we have not yet forgotten that the government gave away its shares for what was widely and correctly viewed as a song. In early 2005, one Lusaka-based financial expert put it candidly when he said that Vedanta had actually made an extraordinarily astute purchase.
That it agreed to pay in installments a total of $44 million for its KCM shares and on then present indications, it would make a profit of US$120 million in the first twelve months. The analyst further argued that if the sale had not taken place, about US$210 million would by early 2005 have been banked in KCM's account in Zambia instead of Vedanta's accounts abroad. On an annual basis, this would translate into over US$400 million in turnover and US$120 million in profit for KCM, which now goes to Vedanta.
Actually, it is quite ridiculous that a mine of the magnitude of KCM could have been sold at such a meagre price that Vedanta Resources Plc could recover the purchase price in just three months. There is no question about the fact that the value of KCM's assets was grossly undervalued. A development studies academic at the University of Zambia, Mufana Lipalile, could not have explained it better than to say:
"It's like buying a house at the price of a chair". Surely, the KCM-Vedanta deal could have been done better and the government was at the time advised about it, especially that copper prices were already souring when the deal was being undertaken. And as if the meagre price was not enough as an incentive to Vedanta, the government went ahead to award an eight-year tax relief and yet we know the negative consequences to the economy of such unjustifiable concessions.
These are the realities that make us wonder why we should continue giving away our resources just like that and when we can't find money to build schools, hospitals and good roads, we just want to whinge and pass on the blame to others. We've got to do something about how we want our resources to be exploited.
If we want others to do it for us, we should not expect much in terms of returns because as they say, there is no such thing as a free lunch. Those who come here to invest in different sectors are not doing so for the sake of charity. In fact, even those who usually come under the guise of charity work do so in anticipation or expectation of some ultimate benefits.
Those in government should start to plan seriously about how Zambia as a nation will benefit from the numerous resources that the nation is endowed with. Whereas it has now become normal to hear of new mineral deposits in the country, we have not heard much or even seen an elaborate or comprehensive government policy in so far as positioning the country in terms of actual accrual of economic benefits from these resources is concerned.
As decisions are being made on new development projects, the main concern to the government should be how such projects would be beneficial to the nation, not just to the investors as the case is at present. These resources belong to Zambia and it is Zambians who are supposed to benefit.
And this is why we think that it is a matter of urgency that the government increases mineral royalty tax from the current 0.6 percent to around 3 percent. This is not too much a demand because we are aware that the average mineral royalty in the world is about 2.5 percent to 3 percent. And we hope that the new royalty structure will be introduced before the end of this year as promised by finance minister Ng'andu Magande.
There is no way that a country like ours, born with a copper spoon, can still be ranked amongst the world's poorest nations. This has to change and it can only change with a departure from our old and unbeneficial ways of managing our resources.
As for now, it appears certain that Vedanta is in for another bonanza in our copper mining industry.
Labels: EDITORIAL, KCM, ROBERT SICHINGA, VEDANTA
posted by MrK @ 7:56 AM
1 Comments:
A couple of questions come to mind.
- How did these deals end up being so bad? Why did the President consent to these deals?
- Who was the chief negotiator, and what was going through his mind when the nation's resources were signed away? Perhaps he could be interviewed.
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