Tuesday, March 25, 2014

Complicated industry to monitor, supervise
By Editor
Mon 16 Dec. 2013, 14:00 CAT

If the Zambian people are to get any meaningful benefits from the exploitation of their country's mineral resources, a lot of work needs to be done on strengthening the Ministry of Mines' capacity to regulate mining activities.

As things stand today, it cannot be said that the Ministry of Mines has the organisational capacity to adequately supervise the exploitation of the country's mineral resources and ensure that it is carried out in an efficient, effective, orderly and beneficial manner.

A few weeks ago, we highlighted the conflict of interest arising from the permanent secretary in the Ministry of Mines sitting on the boards of mining transnational corporations. We pointed out that as a chief controlling officer, the permanent secretary had a fiduciary duty to the people of Zambia and ensure that mining activities are carried out in a manner that is most beneficial to them. Equally, as a director of a mining enterprise, he also has a fiduciary duty to ensure that the interests of the mining transnational corporations are maximised. The permanent secretary has a duty to keep the secrets of the Ministry of Mines from the mining corporations on whose boards he sits. Equally, the permanent secretary as a director has a duty to keep the secrets of the companies on whose board he sits secret. A director of a company is not a representative of the individual shareholder but of the company itself.

Of course, the Minister of Mines doesn't see things this way; doesn't see anything wrong with the permanent secretary representing the interests of both the government and the mining transnational corporations at the same time. We will not belabour the merits or demerits of this arrangement any further because it is a clear case of conflict of interest, that whether one accepts it or not doesn't need any more disquisition.

And this is not the only challenge facing the Ministry of Mines' regulatory role. The mines need very highly skilled and experienced government workers to monitor them. Such government workers need to have a lot of practical and theoretical knowledge about policy matters relating to the mining sector.

The Ministry of Mines need very well trained and highly experienced engineers, economists, financial experts, lawyers and other professionals who are able to interpret feasibility studies of these mining companies and other issues and point out things that require special attention. They need to have the experience to analyse and bring out the issues which are today haunting us like the declaration of losses by some mining corporations even with unprecedented high copper prices.

At the beginning of any mining project, the Ministry of Mines and the Zambia Revenue Authority need to be there so that the expertise of these two institutions complement each other. It is irresponsible of us to continue to allow a situation where a mining corporation sets up a building foundation for a smelter and presents an invoice amounting to almost US$300 million. What type of building foundation is this that costs so much? These costs are deductibles, meaning they are expenses that are deducted from their income and when they are inflated, they will sometimes exceed the income. And when this happens, no taxes are paid because the concerned mining corporations will be declaring losses.

This is the normal trend with some of these mining corporations operating in Zambia today which don't want to pay anything to government.

The Zambia Revenue Authority should monitor these projects from the very beginning and determine the prevailing market prices of equipment and other consumables that are brought into the country. If all this is left to the mining houses to determine and report on their own, they will continue declaring losses and never pay taxes to the government or will pay minimal amounts because of the exaggerated costs.

The supervision of all this calls for highly qualified and experienced personnel in the Ministry of Mines, and at the Zambia Revenue Authority and Ministry of Finance in general. You cannot employ fresh university or college graduates to monitor the activities of an industry they don't fully know, they have never worked for or with. How can they be expected to understand things they have never experienced? They need to be trained by seconding them to the industry so that they get to know the operations of mines. Emphasis should be made in the critical areas that are relevant to the operations of the Zambia Revenue Authority or the Ministry of Mines. By saying this, we are not in any way implying that other auxiliary operations should be neglected. No. What we are saying is that emphasis should be placed on issues that are important in relation to the two institutions.

This issue of experience is more serious or pronounced within the Ministry of Mines. For instance, how do you employ a mining engineer or metallurgist and send them to inspect a mine when they have no practical or work experience of how a mine operates? What type of standards can such an engineer set? What regulatory role can such an engineer really play?

That they are mining engineers or metallurgists with bachelor of science degrees from the university does not in itself mean that they understand the operations of the operations of mines. Technology has advanced so much that some of the theoretical things they learn are simply for the classroom, are outdated and of no practical use anywhere. An engineer needs the practical experience to effectively execute his or her regulatory duties. What can a fresh university graduate advise policy-makers on issues relating to the mines if they have never worked there? These are some of the engineers running or managing our regulatory institutions - with no clue about what really happens in a mine.

Mining requires some practical experience and is different from lecturing, where one teaches what is written in textbooks without any practical experience. One can proceed and get a PhD without any practical experience.

We, therefore, urge the leadership of our country to mull over things and without prejudice consider the issues we are raising. If we are to get something meaningful out of the exploitation of our mineral resources, we have to increase our understanding of how best to deal with the mining corporations.

This is a complicated industry requiring a lot of experience and knowledge on the part of our policy-makers and the regulatory authorities. At the moment, this is seriously lacking. And as a result of this, the country is getting very little, if not nothing, from the exploitation of its mineral wealth by transnational mining corporations. This cannot continue. Some patriotism is needed. There is need for responsibility to the current and future generations.

If we can't get anything meaningful from the exploitation of our mineral wealth, let's leave that to the future and more competent generations to beneficially or profitably undertake.

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