Mine workers victims in mineral royalties saga

 

Lusaka – Concerns over the Zambian government’s revision of the mineral royalties and the withholding of over US$630 million in value added tax (VAT) for mining companies and other exporters have heightened with Glencore’s Kabwe Sable Zinc laying off 170 workers to remain sustainable.

Sable Zinc said government delay to resolve the VAT issue has negatively affected its operations and has forced it to lay off staff in order to ensure sustenance. The company has been put under care and maintenance.

This decision has angered the government, which contends that such action was intended to arm-twist it, as it seeks to increase employment for the locals in the mining sector to over 1 000 000 from the current 723 000.

The company stressed that withholding of more than US$630 million in VAT refunds will also have negative effects on its operations and unless an urgent and lasting solution is found, many mining companies will find it difficult to invest further in the country. The company further argues that the proposed and redesigned mining fiscal regime will deter capital investment in existing and new mining projects.

FQML, which operates Kansanshi Mine ‑ the eighth largest copper mine in the world and Zambia’s biggest miner of copper and gold, says the 2015 budget does not provide incentives to the mining sector.

The company’s government affairs manager, John Gladston, told media recently that the new mining tax system does not encourage investment in new capital projects and that would inevitably lead to fewer new jobs and less opportunities for wealth creation in Zambia’s mining sector.

According to new structures, the mineral royalty threshold for open cast and underground mining operations moved to eight percent from three percent and 20 percent, which Gladston contends seems to confirm FQML’s logic earlier in postponing additional capital projects.

Early this year, the company withheld US$1.7 billion in planned investment in Zambia, including a smelter expansion and sulphide processing expansion at Kansanshi in Solwezi.

“As the largest corporate tax payer in Zambia, First Quantum will have to wait for the actual implementation of the Minister of Finance’s 2015 budget address to analyse the full impact of the renewed tax system,” Gladston states.

He adds: “On the face of it, however, the new system doesn’t incentivize investment in new capital projects which in turn, will inevitably be translated into fewer jobs and less opportunities for wealth creation for Zambians.” Another concerned mine, First Quantum Minerals Limited, rated seventh largest copper and gold producer, says the proposals to review the tax regime will have a devastating impact on the country’s mining sector and will deter capital investment in new projects.

The company stressed that the government’s withholding of more than US$630 million in VAT refunds will also have negative effects on its operations and unless an urgent and lasting solution is found, many mining companies will find it difficult to invest further in the country. In his 2015 budgetary speech recently, Finance Minister, Alexander Chikwanda, announced a review of mineral royalties of between 8 percent and 30 percent.

Mines Minister, Christopher Yaluma, has also supported the reintroduction of mineral royalties, stressing that it came after careful consideration by the government after which it discovered that giving tax breaks to mining companies was a mistake.

He said the government regretted the decision, adding that under the current arrangement, only two mining companies were remitting taxes to the State and that the new action would compel all companies to pay their dues.

Zambia Chamber of Mines President, Jackson Sikamo, has expressed his displeasure, that due to the new mineral royalties, companies will be reluctant to invest in new capital projects as they would be required to pay taxes by the 14th of every month. This will strain the companies in their quest to repay the debts owed to various creditors as they would not make any meaningful profit for their investments.

According to a study by the Zambia Chamber of Miners and the International Council of Mining and Metals, new investments have increased to US$12.4 billion since the late 1990 when the conglomerate, Zambia Consolidated Copper Mines was dismantled and various units sold to the private sector.

Recently, Mopani Copper Mines said the delayed refunds in excess of US$200 million, which the company is owed in VAT, has grossly affected development of new projects at the country’s second largest producer of copper and cobalt.

Chief Executive Officer Danny Callow says more than 21 000 jobs, including miner suppliers and contractors will be affected grossly because of the delayed reimbursements while future projects have either been halted or suspended for want of resources.

But these concerns have been contradicted by an Economist at the Copperbelt University, who has welcomed the increase in mineral royalty taxes.

Sumbye Kapena says more needs to be done in the next budget to ensure the country realises more returns from its mineral wealth, as it seeks to improve the economy.

November 2014
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