The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

Ratings update: Vedanta, Zambia

Vedanta subsidiary KCM continues to face commercial, legal and reputational pressures in Zambia – but the country’s broader business climate for mining investors appears to be on a positive trajectory.

Key Developments

  • Konkola Copper Mines (KCM), a joint venture between Vedanta Resources (80%) and Zambia’s state-owned mining company Zambia Consolidated Copper Mines Investments Holdings (ZCCM-IH; 20%), recently saw operations at its Konkola mine affected by industrial action. On 4th January, workers blocked the gates at the mine and processing plant in Chililabombwe, northern Zambia, as part of an ongoing wage dispute. The strike comes as KCM faces a number of other challenges, including pressures over alleged pollution of a river near another of the company’s mines, and a recent UK court ruling demanding that KCM pay US$103m to ZCCM-IH under a 2013 agreement. The company strongly denies all allegations against it.
  • These developments are taking place in the broader context of what appears to be an improving climate for mining investors in Zambia – the country’s incumbent president, Edgar Lungu, was re-elected in August in 2016 and is pursuing an increasingly pro-business agenda.

Evaluation

  • The January strike demonstrates the potential operational implications of labour tensions in Zambia’s mining sector. The strike was reportedly motivated by an ongoing wage dispute around frozen salaries. Other sources have suggested that it was also driven by perceived social grievances, including an alleged increase in school fees at KCM’s sponsored community school. KCM has said that the stoppage was ‘illegal’ as wage negotiations with the unions are still underway. As KCM continues to face financial pressures despite recent gains in global copper prices, it may prove challenging for a comprehensive solution on wages to be reached in the near term, and if so the company could witness further disruption.
  • KCM’s relations with suppliers and the Zambian government have also come under strain as a result of financial pressures. The company is said to have repeatedly delayed payments to labour contractors, and one of its suppliers is now reportedly suing KCM for failing to pay for fuel supplies. The company denies the allegations. In December 2016, a UK court ordered the Vedanta subsidiary to pay US$103m to ZCCM-IH, after the state mining company filed a claim saying it was owed the sum under a 2013 copper price agreement. In a further sign of growing tensions, Minister of Mines Christopher Yaluma is recently reported to have warned that KCM could lose its mining license if it continues to miss payment deadlines. Financial pressures therefore continue to pose serious challenges to KCM’s relations with national stakeholders with potentially serious operational implications.
  • The Vedanta subsidiary in Zambia has also been subject to ongoing international attention and legal pressures around a case of alleged pollution at another of its mines in the country. In 2015, proceedings were issued in a UK court on behalf of over 1,800 Zambian villagers, who claimed to have been affected by alleged pollution of the Kafue River near the company’s Chingola mine. KCM strongly denies all allegations. The Vedanta subsidiary has battled for the case to be heard in Zambian rather than British courts but was overruled in May 2016, and the trial is reportedly expected to start in late 2017. Reports have also suggested that KCM may face legal proceedings by Zambia’s environmental regulator with regards to the allegations. Whatever its merits, the attention around the case could prove damaging for Vedanta and its operations in Zambia, particularly if the case attracts further international media and NGO attention.
  • Despite the challenges faced by KCM, the general business climate for mining investors in Zambia appears to be improving. The country’s 2016 elections saw relatively pro-business campaigns and signalled a shift away from a previous, more populist and resource-nationalistic agenda. In the run-up to the elections for example, President Lungu introduced a new system that varies royalties depending on the price of copper, a move that was welcomed by many miners. More recently, the government backed down over a proposed 7.5% copper concentrate import tax after coming under pressure from investors. Some challenges remain: for example, the government is reportedly withholding US$243m in tax refunds owed to mining companies, reportedly due to a lack of correct documentation. Nonetheless, the general trajectory appears increasingly investor-friendly as the government attempts to boost foreign investment, signalling improved prospects for the mining sector in Zambia in the medium term.

 

This article uses Critical Resource’s LicenseSecure™ model to assess the likely level of political and stakeholder risk. Our updates provide a rapid overview of new or updated ratings in our database, with a focus on projects in the news. Please note that these ratings updates are provisional, based in part on open source analysis and are not from client projects. Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.

 

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