20 May 2014

Zambia: Uneasy Truce As Vedanta Rolls Back Retrenchments in Mining Sector


The London-listed mining company Vedanta Resources Plc which through its subsidiary Konkola Copper Mines (KCM) owns four mines in Zambia is currently fighting on two fronts.

On the one hand, there is the vociferous international campaign by the lobby group, Foil Vedanta (centred on London) that accuses the company of massive and systematic avoidance of Zambian taxes to the detriment of country.

Vedanta denies those allegations, but in Zambia relations between the company and the government are frayed. Its future was thrown into doubt last November when the government in anger revoked the work permit of the CEO Kishore Kumar and, at the high point of a bad tempered row over retrenchments, President Michael Sata threatened to do the same to its mining license.

Both Vedanta and the government have recently announced a rapprochement, but given the sound and fury that characterized the row, it isn't at all clear how long this will last. Relations are unlikely to ever be the same again.

There was a great deal of anger in government circles following the company's sudden announcement on November 1st 2013 that KCM would retrench up to 1,529 miners as it moved over to more mechanized and automated mining.

Kumar made the argument that mechanization is essential for higher productivity in view of the decreased copper grades at mines approaching the end of their life.

Productivity is unsustainably low at those mines because of reliance on costly conventional mining methods. He promised "a well-structured" process to minimize the impact on workers who would be affected.

The announcement came as a bombshell that sent shockwaves through the country. KCM, with a workforce of up to 18,000, is the country's largest private sector employer and the second largest overall after the government.

Few believed Kumar's automation explanation and many saw it as the manifestation of a deeper malaise in the Vedanta group. But there was also a strong sense of déjà vu.

During privatization in the 1990s, the Indian-owned Binani Group had acquired the Luanshya Copper mine. The mine soon ran into financial difficulties. Ultimately the Indian company had to close and give it up because of insolvency. Not until a new investor was found was the mine brought back to life. The situation also served to give Indian investors a bad name.

Following the Vedanta announcement there were howls of outrage and indignation all round. The Ministry of Labour said that it had not been notified and was hearing of the impending lay-offs for the first time. It argued that the law was clear: it had to be notified first.

The Mine Workers Union of Zambia (MUZ) was scornful and called for a new investor because Vedanta had failed: "This is a sign of failure... KCM will never announce that it has failed. Our duty is to look at the signs and symptoms ... KCM has shown all the signs that they are unable to move the company forward. Government must take a bold and courageous decision."

In the heated exchanges that followed there were calls for the KCM mines to be re-nationalized and for government to see through the "blackmail."

"Retrenchment is normal but what KCM is doing is abnormal because there is no economic catastrophe to warrant dismissal of such a huge number of workers. Government should act now ... Let them go." said MUZ president Nkole Chishimba.

There was little sympathy for KCM even though it was labouring under the financial weight of sinking a new 1,500m shaft to access a rich ore body that would expand production from 2 million tonnes to 7.5 million tonnes per annum.

The capital outlay required for the Konkola Deep mining project (KDMP) as it is known is considerable and given the upheavals in banking may not always be readily available.

It wasn't in fact at all clear that the retrenchment talk wasn't just the opening gambit in negotiations to try and ease KCM's mounting operational problems. But if so, it went very wrong.

Job creation is now effectively the ultimate measure of a Zambian administration's success. The country's sustained economic growth of the past few years has not translated into jobs. The situation is dire and the urban elite are very vocal and critical.

The Copperbelt, where the retrenchments were due, is the most urbanized part of Zambia. It is a demographic melting pot and is politically very volatile. Job losses of that magnitude would discredit the government and possibly lead to protests. The governing Patriotic Front (PF) party won massively in 2011 but with such "provocations," the mood could easily swing.

The PF was already on edge at the time of the Vedanta retrenchment announcement. President Michael Sata who was in Kitwe, the country's main mining city, for the 49th anniversary of independence, needed a strong advance party to keep a lid on things.

The PF national Youth chairman, Sports Minister Chishimba Kambwili addressed a meeting ahead of the president's arrival and talked of planned demonstrations. "Anyone fanning confusion will be expelled from the party," he warned.

The police also weighed in and warned that they would take action against demonstrators carrying placards with inflammatory messages.

Plainly the authorities were uneasy and such massive job losses could inflame the situation. When the president spoke he sounded angry:

"Go and tell Mr Kumar that if he is threatening us ... we shall sort him out ... Let him lay off one person and we shall take his mining license away. That is the best way of laying him off. If Mr Kumar wants to threaten and blackmail us he will go," he declared.

After attempts to clarify the KCM position failed, Kumar left the country and the government immediately said he would not be returning as his work permit had been revoked.

Vedanta appointed an interim management with a Zambian at the head and at the end of February this year dispatched its chairman Tom Albanese for talks with the Zambian government.

In early March the Mines Minister Christopher Yaluma announced that government had accepted a business improvement plan submitted by Vedanta. He was emphatic that there would be no retrenchments and that KCM had agreed to commit more resources to boost production and profitability.

"We have had a positive and constructive dialogue and have charted a mutual way forward," said KCM.

But things are unlikely to go back to how they were given the continuing and vociferous campaign of the Foil Vedanta group which the government cannot ignore permanently. What is beginning therefore appears to be at best only an uneasy truce.

Arthur Simuchoba is a Zambian journalist. This article was commissioned via the African Journalism Fund.

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