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(GUARDIAN/OBSERVER) Zambia's new bid to cash in on copper

Zambia's new bid to cash in on copper - It has the raw material, so why doesn't it have the wealth? Nick Mathiason reports from Africa

Sunday October 28, 2007
The Observer

Last week, Anshell Chibuye took a day off work as a turbine operator in one of the largest copper mines in the world - Zambia's Konkola - to bury his 20-year-old nephew, who had died of malaria. 'My nephew went to hospital too late,' the 40-year-old explains quietly. In Chamboli, his shanty compound near the border with Congo, 10,000 people are crammed into breezeblock bungalows and mud huts. There, Chibuye, a father of three, also brings up two other children whose parents died of HIV/Aids - a disease affecting well over 1 million of Zambia's population of 11 million.


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Chibuye is better off than most. In one of the world's poorest countries, where half are unemployed and the average life expectancy is 38, his wife also has a job, as a teacher. Their combined incomes place them above the poverty line.
Chibuye believes education, healthcare and roads have deteriorated in the last decade. He is not alone. Church and union leaders, opposition politicians and aid agencies all point to Zambia's central question: why is this once middle-income country so poor, when it is so rich - £2bn worth extracted from its mines last year - in copper?

Copper is used in everything from electrical wiring, phone and internet lines to computers and cars, and since Zambia's copper mines were privatised at the insistence of the International Monetary Fund and World Bank, the metal has quadrupled in value to about £4,000 per tonne.

The answer to the Zambian question boils down to the terms of that privatisation, in which Rothschild and law firm Clifford Chance played the leading role as advisers, seven years ago.

On behalf of the Zambian government, the London-based firms parcelled the mines and smelters, which were then losing £500,000 a week after years of underinvestment and low commodity prices, into seven entities. The government holds a tiny stake, which it has used as collateral on new loans. Zambia's mines are now owned by the likes of Canada's First Quantum Minerals, Glencore International, the firm founded by controversial American commodity trader Marc Rich, and Vedanta Resources, the UK-quoted mining firm run by Indian billionaire Anil Agarwal.

Last year the Zambian government, led by newly re-elected President Levy Mwanawasa, admitted that the royalties it received from copper represented just 0.6 per cent of sales - little more than £12m against £2bn of copper turnover. That royalty percentage is considered by academics and government officials to be the lowest any country has agreed to.

'We say "we sold the mines but the mining companies forgot to pay us",' joked a senior government official in Zambia's capital, Lusaka, last week. But the last fortnight has seen a development which is being closely watched by other African governments and mining executives in boardrooms across the world.

Stung by being virtually wiped out in Zambia's Copperbelt region in last year's elections, Mwanawasa has forced mining firms to the renegotiation table. On the agenda are moves to raise the royalty rate fivefold to 3 per cent and to increase corporation tax on mining firms from 25 to 30 per cent. Even that increase will leave mining outfits paying less than £100m a year because of generous capital allowances, whereas Zambia's hard-pressed personal taxpayers contribute four times as much: £280m.

Government insiders say mining firms have 'no legal obligation to sit with us; all we're using is moral persuasion'. But unless a new deal is signed, officials admit that one of history's biggest commodity booms will pass Zambia by, and with it the chance to improve the lives of its people.

Just how Zambia signed up to the original privatisation agreement remains, after seven years, something of a mystery. The contracts, which ran to over 20 bulky volumes, were never presented to parliament. At the time the country was run by disgraced former President Frederick Chiluba. Earlier this year, Chiluba, who is now gravely ill, was convicted in a London court of siphoning off tens of millions of pounds. Civil servants allege that MPs received advances on expenses as the vote came to a head, and there is widespread suspicion that government officials benefited greatly from the sale.

Others point the finger at the World Bank and its advisers. Professor John Lungu, a respected academic at Zambia's Copperbelt University, says the World Bank told the government that some of the mines to be sold had just seven years of life in them. Yet the very same mines are still fully functioning and scheduled to operate for at least another 15 years.

'How could so much investment go in with seven years' worth of copper left? It baffles the mind,' Lungu said.

This week a report by Christian Aid will focus on the need to create a new tax framework for Zambia's mineral resources. It will say: 'Pressure must be brought to bear on all parties - from the Zambian government to the mining companies - to ensure that the renegotiation is as successful as possible and that any funds generated are used transparently to the benefit of the population.'

Zambia is a peaceful country, not riven by tribal rivalries. Yet there is now a tangible resentment at the arrival of Chinese workers on the back of copper production agreements between the two countries. Of course, the real root of anger is Zambia's inescapable poverty set against the mining firms' huge profits.

'People are angry,' said Chibuye. 'It shouldn't be taken for granted that [the stability] will stay like this forever. I'm sure one day we will react.'

Labels: COPPER, CORRUPTION, DEVELOPMENT AGREEMENTS, MINING CONTRACTS

posted by MrK @ 11:17 AM