The legal and fiscal regulatory regime in the Zambian mining sector favours the Government at the expense of other players and there is need to harmonise it to maximize real returns for all players, a legal body has observed.
Various reviews undertaken to streamline mining operations from 1993 at the time of liberalization of the economy until 2008 and impending subsequent reviews to the regulatory framework have deprived players, thus, posing a challenge for the sector to thrive as envisaged at privatization of the mines in the late 1990s, says Law Association of Zambia president George Chisanga.
The various reviews since the liberation of the economy from 1993 to date, culminating into various amendments to the regulatory framework, has created various challenges mainly to investors that sought to enter Zambia based on the incentives availed in the industry than the Government.
Chisanga argues that the reviews have deprived mining houses from the initial benefits and in turn, created monopoly for the Government over the administration of the sector, one of the hurdles that needs to be reviewed to develop the industry.
In a recent presentation to the 4th Zambia International Mining and Energy Conference (ZIMEC), LAZ noted the current legal and fiscal framework in the mining sector is lopsided-leaving some stakeholders unable to maximize on the rebates given at privatization as benefit for their investment.
According to Chisanga, various reviews undertaken since 1993 to date, culminating into the enactment of the Mining and Minerals (1995) and the Environmental Protection and Pollution Control Act (1997) including planned reviews under the Mines and Minerals Act 2008, have serious challenges.
This has in turn affected sustained investment in the industry as most of the players have been deprived of their incentives as promised in the development agreements signed with various multinational companies.
The rebates included; ability for players to secure title to mining rights; stability of the fiscal regime; enhanced foreign exchange retention; the right to market mine products and agreeing a mining regime through development agreements to create stability in environmental management.
It further allowed players to be respected and delocalised dispute resolution (i.e. international arbitration) and the freedom of commercial operation.
“The legislation was designed to create a favourable investment environment and the regulations promulgated alongside this legislation assisted in simplifying the licensing procedures and placed reasonable constraints on prospecting and mining activities.” Chisanga said.
The situation remained unchanged for over 15 years until 2006 and later 2008 when Governments made legislative changes to the mining regime in the Country that the situation started to change out of the realisation those significant changes had occurred in the Country’s implementation of the liberalisation policies.
It was perceived that the incentives to the investors were hurting the Government and at the very extreme Government, believed that some of the incentives were being abused by mining companies.
In 2008, Government sought to repeal and replace the Mines and Minerals Act (1995) then Cap 213 and instead enacted the Mines and Minerals Development Act Number 7 of 2008
The new Act, although it retained the majority of provisions, also introduced sections that took away some of the incentives contained in the repealed Act which abolished the right of retention of licenses by holders.
It extended the duration of holding a prospecting license and expanded the rights of the holder thereof; changed the procedure for transfer of a prospecting license and introduced the procedure for amendment of the prospecting program.
It constituted the Director of Mines as the authorised person for issuing rights and licenses under the Act. It also expanded the provisions relating to environmental protection to include consideration of human health and introduced prohibition on the Minister (of Mines) to enter into any agreement relating to the grant of large scale mining licenses and rights.
Further, it expressly declared the State’s position not to be bound by the Development Agreements which were in force on the date of enacting the Act, Chisanga explained.
“The legislative changes introduced by the new Act have been described as a culmination of the Government policy of the give and take approach in that it was intended to achieve parity among the Government, the Investors and the local communities of the areas where mining operations are undertaken.”
Although the action was introduced as a means to achieve equity in the regulation of the mining sector, Act No 7 was not received without misgivings by the mining investment community.
The quest not to give Development Agreements legal effect in future was viewed as a set back by the major investors who had made investment plans based upon the period provided for in the Agreements.
The abolition of retention license too, posed challenges to major players in the sector. One of the largest investor made serious representations to Government to allow it retain a number of its prospecting licenses even after the coming into effect of the new Act.
Additionally, there was a court case in which an investor sought to obtain an order from the High Court that it was still entitled to hold valid retention license issued under the repealed Act notwithstanding the changes in the law.
“Available information suggested that even after the new legislation Government continues to receive and even accommodate request for extension of incentives to investors in the mining sector.” He added.
Then Finance minister Situmbeko Musokotwane in 2011 expressed readiness to extend fiscal incentives for 10 years to companies that would accede to the tax regime to be introduced by Government in the form of corporate income tax, capital allowances, mineral royal (ties) and profit variable tax.
Recently, mines energy and water development minister, Christopher Yaluma said “…for most underground mines, production costs have been going up, at the time when the price of copper has not been doing well.
“We have to look at this situation and see how we can assist. We shall decide whether to give tax breaks or concessions or any other form of incentive which can encourage them to produce more.”
However, Yaluma in consideration noted: “But we also have to look at their performance data, we are looking at the trend spilling over the past six months and whatever proposal each individual companies makes to us, it has to be backed with production data”
However, further problems still arose from the fiscal framework including the
foreign exchange regulation through statutory controls (SI33/SI55) which caused serious negative impacts on the economic sectors of the Country, especially the mining sector, although reversed on March 21.
Finance minister Alexander Chikwanda in waiving the decision cited challenges as some of the reasons for the reversal, which has since brought stability to the sector
The introduction of the minimum wage legislation on non-governmental companies posed another challenge as it resulted in the rise in labour costs for the mining industry.
Some players have argued that production per employee in Zambia is well below the global industry average of similar sized mines chiefly on account of some of the mines in Zambia being old and expensive to operate. The energy cost regulation is yet another challenge in the fiscal framework of Zambian mine.
One company (Copperbelt Energy Corporation)that supplies energy to the Copperbelt based mines has the monopoly of pricing in the absence of other players in the market, Chisanga further argued in his presentation.
Chisanga noted that mines have also been burdened by the need to provide amenities to the communities within which they operate through corporate social responsibility being provided by mining companies where they operate.
Although the gesture is done in keeping with the concept of corporate social responsibility, it is contended that the burden is always easier where Local Authorities operating in mining area are fully equipped and financially resourced to provide the amenities while mining companies are merely contributing to the public service.
Zambia has since 1930 anchored its economic growth on traditional copper mining which will, if nurtured, through dialogue, can continue to drive the Zambian economy for years to come, hence the need for the sector to continue to benefit from incentives made available by Government.
“This can be achieved through a wider stakeholder consultation which takes on board Government, the Investors in the sector, local authorities, local community leadership, Civil Society Organisation vested with knowledge of international best practice in mining operations.” Chisanga added.