29 May 2014

Liberia: Vedanta Rapes Zambia in Copper Deal - Liberia 'Stupid' Too?

Photo: This is Africa
Zambia copper mine.

Vedanta's Agarwal, who spoke at an event in India last March, is seen in the video ridiculing the Zambian government about how he dribbled government over the paltry amount of money he paid to buy the mine, and boasted that KCM was giving him US$500 million every year in profit, plus an extra US$1 billion. He also mocked the Zambian government for giving him VIP treatment in 2004 when he came to acquire the asset and eventually becoming majority owner of KCM at the current 69 per cent.

Monrovia - In 2006 after the election of Liberia's first post-war government, dozens of investors flocked to the virgin land, a country still struggling to reach full scale economic activities after more than a decade due to a bloody civil war.

Amongst the investors flooding Liberia were Indians, Chinese and other foreign nationals scrambling for Liberia's vast natural resources. There were investors in nearly every sector, ranging from forestry, mining, energy and others with these investors promising to make mega million and some case billion dollar investments and provide much needed jobs for Liberians.

The National Legislature of Liberia under the pretext of passing concessions to create jobs for the huge unemployed population hastily ratified dozens of concession agreements without due diligence, under dark cloud of receiving bribes and other kickbacks from these mineral and forest thirsty investors.

During the course of the past eight years, some of the investors turned out to be fronts, while others, after a period of time were found to be lacking the capacity to deliver what they promised in several concessions agreements ratified by the National Legislature. Among them was Broadway Consolidated Plc, one of the investors that won an oil block to engage in hydrocarbon development in Liberia but later turned out to be a worthless company with no offices located in Britain.

Buchanan Renewable Energy (BRE) which also promised to provide cheap electricity to some communities in Liberia using energy generated from dead rubber chips did not last long in the country as it rolled up operations and left. It's legacy? Shipment of woodchips overseas for profits and a bag of charcoal, the country's primary energy source for cooking skyrocketing from 65 Liberian dollars to nearly 5 US dollars today, a nearly 600 percent increase over 8 years. The 52nd National Legislature was rocked by bribery allegation when one of its members Alomiza Ennos signed for funds from the National Oil Company of Liberia to be used as lobbying fees for the ratification of oil reform laws.

In total the National Oil Company paid US$118,000 to the Legislature in bribery according to audit conducted by the Supreme Audit Institution, the General Auditing Commission of Liberia with an official of the oil company at the time Clemenceau Urey admitting that the money was paid in order to fast track ratification of oil reform laws.

'Shady' Elenilto Arrives on the Scene

Elenilto Minerals & Mining LLC was another foreign company which a won bid for the Western Cluster of Liberia signing a 25-year agreement after winning a controversial bid that was initially cancelled after President Ellen Johnson Sirleaf said lapses occurred in the process.

In 2009 The Government of Liberia selected ELENILTO for the development of the Western Cluster iron ore mega-project. Elenilto signed a 25 years Mineral Development Agreement (MDA) with the Government of Liberia in August of 2011 and on the same day it signed the MDA sold 51 percent of it to Sesa Goa Verdanta, an Indian company listed on the London Stock Exchange for 90 million dollars. In less than six months after the initial sale, Elenilto bailed out by selling the remainder of the Western Cluster for U.S $33.5 million in cash to the Vedanta Resources PLC company. The whole deal smelled, and many observers were shocked in disbelief how a scrap metals company such as Elenilto could have won a bid pitted against such industry giants such as Fomento of India and Capital Steel Shougan, the Chinese mega steel company and then allowed to sell all of its stake without investing a dime and walking away with 123.5 million dollars less taxes for doing practically nothing. The concession was previously awarded to Delta Mining in 2007 but a FrontPageAfrica investigation linking former Minister of State Willis Knuckles in a chain of E-mail exchanges with investors forced the government to cancel the agreement and open the concession for rebidding.

Recently, the same Vedanta has been caught in a brewing controversy in Zambia, when its Chairman and principal owner was seen on tape mocking how he bought a copper mine for cheap in Zambia listed at a much higher price. He bought the mine for 25 million dollars even though the Zambians had asked 400 million dollars and he remarked on the tape that he makes between 500 million to 1 billion dollars annually from the copper mines. Western Cluster Investor mocks Zambia

The government of Liberia resisted criticisms and anger from an antsy nation untrusting toward a deal, many economists complained was rotten to the core and bad for Liberia. Those fears and apprehensions have now been validated with the recent release of a YouTube recording which suggests that one of the major players in the Elenilto sell-off, Vedanta have been engaged in similar investors-related issues in Zambia. Anil Agarwal, founder of Vedanta Vedanta Resources PLC in a recent YouTube video was seen mocking the Government of Zambia over concessions he was granted in that country's rich copper mines.

In contrast to Liberia, Zambia is not taking too kindly to words expressed by the Agarwal, the Indian is currently mining Liberia's Western Cluster after a YouTube video showed Agarwal mocking the Zambian government on how he was sold Konkola Copper Mines (KCM) at a cheap price of US$25 million similarly to how Liberia received the short end of the stick in the controversial Elenilto deal for the coveted Western Cluster.

Elenilto Minerals & Mining LLC. In 2013 sold to Sesa Goa it had won earlier to the Indian iron-ore miner making Agarwal's firm the sole owner of Liberia's Western Cluster following its acquisition of the remaining 49% stake from Elenilto.

Zambians outrage at Indian

According to published reports, Zambians have reacted with shock and dismay at a leaked video on YouTube showing Anil Agarwal, Vedanta founder and executive Chairman of the United Kingdom-based Vedanta Resources PLC, mocking the Zambian government on how he was sold Konkola Copper Mines (KCM) at a cheap price of US$25 million.

Agarwal, who spoke at an event in India last March, is seen in the video ridiculing the Zambian government about how he dribbled government over the paltry amount of money he paid to buy the mine, and boasted that KCM was giving him US$500 million every year in profit, plus an extra US$1 billion.

He also mocked the Zambian government for giving him VIP treatment in 2004 when he came to acquire the asset and eventually becoming majority owner of KCM at the current 69 per cent.

At what was intended to be a "motivation speech" Agarwal, who was addressing the Jain International Trade Organization in Bangalore, India, between March 22-23 this year, told the cheering crowd how he bought KCM for a song, rather than the US$400 million asking price.

In the 3:58-minute video, a bragging Agarwal describes his surprise at receiving a VIP welcome to the Zambian Parliament, and ridicules the late Zambian President Levy Mwanawasa's for claiming that Vedanta would improve the lives of Zambians, especially those in Cingular and Chililabombwe cities where the mines are located on northern Copperbelt province.

Agarwal reveals how he told the late President Mwanawasa's on their first meeting that 30 members of his delegation missed the connecting flight out of Johannesburg into Lusaka, when in fact he had only travelled with one engineer from his firm.

Following the YouTube revelations last week, Zambians and government have now kept up the pressure around the saga, with government demanding that KCM reconciles the profit figures attributed to its owner and those declared to the Zambia Revenue Authority.

"We took over the company. It's been 9 years, and since then, every year it is giving us a minimum of US$500 million plus US$1 billion every year... it has been continuously giving back. It's a matter of taking a chance," Agarwal stated in his "motivational talk" to the gathering.

"Take chance in life definitely! All people sitting there... Take chance! If you won't take chance, nothing will happen. Why we are different - different because we take chances. I told you we have to take chance. Then we said 'US$25 million we will give you cash and US$375 million we have to invest in making the machines running'. We forgot the matter, and suddenly in about a month or so, we received calls; they invited us. We called up and inquired. They confirmed: 'This company is yours' ... Really?" Agarwal said amid claps and whistling from the audience.

His remarks have angered Zambians especially that Vedanta had previously released figures from its annual reports showing that the company made US$362 million in 2013.

But Vedanta chief executive officer Tom Albanese disputed this during his visit to Zambia last February, repeating the previous claim that KCM was making a very low profit or a loss due to high operational costs and higher taxes.

Recently, KCM has touted to dismiss close to 2,000 workers from its mining units to cut down on labor costs and improve its profitability. The mine planned to cut 24 per cent of its workforce, attributing the reduction of staff numbers to high costs, dropping copper price and many of the upgrade and expansion projects coming to an end."

Vedanta had continued to claim that they were making losses or a minimal profit at KCM. The mining unit claims declining ore grades at its mining units and high operational costs on the backdrop of high labor and energy costs was hurting the country's second-largest copper producer.

The London Stock Exchange-listed Vedanta made a profit of US$26 million from KCM for the three-month period October to December 2004, effectively recovering the purchase price in just three months.

Parliamentary Public Accounts Committee member Cornelius Mweetwa says it is unfortunate that KCM, which threatened to lay off workers for alleged low productivity, could boost of the reported huge profit margins.

Zambia Revenue Authority is investigating to establish whether claims by Vedanta Chairman that Konkola Copper Mines makes a minimum of US$500 million in profit per year is at variance with profits declared. If the company is found wanting, tax adjustments with possible resultant penalties and interest will be made.

According to Zambian vice President Guy Scott, the Zambia Revenue Authority has written to Konkola Copper Mine-KCM asking it to reconcile the profit figures attributed to KCM owner and those declared to ZRA. Scott warned that the law will visit KCM if found wanting.

"It is disheartening that the KCM boss could talk about buying a national asset for a song with such impunity," Action Aid Zambia economic justice project officer Patrick Nshindano said in Lusaka.

"For us at Action Aid, this video confirms what we have always said about the privatization of some of these assets. This goes to mean that there was something fishy about the whole process," he added.

Nshindano urged the government to move in to ensure Vedanta accounted for its operation and also to ensure that the right corrective measures were taken to see to it that Zambians benefited from the mines. He also said the Zambian officials that negotiated the sale of KCM owed Zambians an explanation on why a company worth billions was sold to Vedanta Resources for peanuts.

The government came under heavy attack from the mining area's chamber of commerce and the Zambia Congress of Trade Unions (ZCTU) as well as mining experts for allowing the mine to be sold for peanuts. Stakeholders questioned the deal and the competence of the negotiating team and the awarding of an eight-year tax relief to Vedanta Resources.

Action Aid Zambia country director Pamela Chisanga has demanded that KCM be shut to allow investigations to take place so as ensure that Zambians know how much the mine makes. It has also demanded that President Michael Sata gives the government's position on the matter.

Vedanta Resources in a media statement issued in response to the video posted on YouTube, accused "one activist" for taking a small part of the video of its Chairman's speech and using it negatively out of context.

Group Communications Executive vice President, Roma Balwani, said Agarwal in an anecdote, referred to Vedanta's 2004 acquisition of KCM, but that Agarwal decided not to mention that since the acquisition, nearly all the returns from KCM have been reinvested back into KCM, as it simply wasn't relevant to his anecdote.

"In fact, over nine years of ownership by Vedanta Resources, KCM has made $2.9 billion of capital investment and made just $73 million in dividend payments - a fifth of which is to the Zambian government," Balwani stated.

Agarwal, Chairman, said in the statement: "In the nine years of ownership by Vedanta Resources, KCM has made nearly $3 billion of capital investment and taken very little out. With our investment, we have invested heavily, extending the mine life, creating jobs and investing in the community. We are now Zambia's largest employer and second biggest taxpayer."

Balwani said with that investment, the company had dramatically increased the mine life, dramatically increased employment, doubled real salaries there, provided technical and management training for thousands of Zambians, reduced the number of expatriates and continued to be Zambia's second-biggest mining taxpayer.

Tom Albanese, chief executive officer, said: "KCM has a long mine life, and we are committed to see it through the near term challenges it currently has. We have made the investments, and now we're making a commitment in terms of all aspects of the management, the stakeholder relations, the government dialogue, to make this the world-leading Company that it deserves to be. Our reinvestment in the business is not for the next three to six months, it's being reinvested into the business for the next 50 years."

Damage control can't help

But an economist, Jimmy Sakala says: "No amount of damage control by Vedanta will do for any well-meaning Zambian. In fact, Vedanta's attempt at damage control shows its insincerity. The video was demeaning, degrading and insulting to our country."

"Nothing was taken out of context, the video shows exactly what the man was saying and this is insulting. All we are interested in now is our fair share from the US$1.5 billion profits per year paid retroactively since acquisition," Sakala told PANA.

Timothy Mwenya, a secondary school teacher, said: "President Mwanawasa's sold the mines to Vedanta for a song. This was a mistake but despite being duped and our copper stolen since then, we now have a lucky chance to get what belongs to us as a country."

Mwenya commended President Sata for halting about 2,000 workers who were planned to be laid off by KCM. Opposition Forum for Democracy and Development (FDD) leader, Edith Nawakwi, says revelations made by Vedanta Chairman that Konkola Copper Mines has been making a minimum profit of US$500 million per year is clear indication that "all economic managers in the country are sleeping".

The outspoken opposition leader and former Finance Minister in the previous MMD government under the late President Frederick Chiluba expressed regret that the country was losing huge amounts of money in taxes as a result of the insincerity of some international companies operating in Zambia. Nawakwi said she strongly suspected that certain elements in the ministry of Finance were conniving with some international companies to deprive the country of the much needed resources.

United Party for National Development (UPND) President Hakainde Hichilema has proposed that government re-introduces windfall tax in view of such revelations. And National Movement for Progress (NMP) President, Ng'andu Magande, says when he reminded the ruling Patriotic Front government of the need to reintroduce the windfall tax he was called a lunatic.

Magande who introduced windfall tax during the time he served as Finance Minister in President Mwanawasa's government before it was scrapped by Situmbeko Musokotwane says the PF has now seen the result of failing to reintroduce the tax.

"It is common knowledge that many developing countries such as Zambia are losing billions of dollars in the extractive industry owing to poor policies," he states.

The independent Post newspaper in an editorial this week said Agarwal's story about how he had dribbled the Zambian people and their government to make a fortune was annoying, and hoped there would be a national awakening in the light of these experiences and start doing things in the right way.

"But the anger should not be wholly directed at him (Agarwal). A greater part of it should be directed at ourselves, our leaders and our government. Agarwal knew what he was doing and we should also have known what we were doing. In fact, the Zambian government and the Zambian people were warned about how poor this deal was," the Post newspaper stated.

It noted that through this deal, the government had given away a 51 per cent stake in Konkola Copper Mines for US$25 million, a mining venture that just recorded US$60 million in its half year results this year.

"The sale is almost giving away KCM to Vedanta unless there are other hidden benefits which are yet to be disclosed. Zambians should start to question the government on the continuing practice of giving away national assets even if there is pressure from the International Monetary Fund and the World Bank," the paper stated, concluding: "Do we deserve to be mocked by Agarwal."

Liberia, ironically, represents the same problems as India does for the Vedanta Group, headed by billionaire Chairman Emeritus Anil Agarwal.

His strategy was to tap western Africa for ore when supply from India, Goa specifically, started to dry up. In October 2012, India's top court had banned mining in Goa, where Sesa has almost all its mines, curtailing exports of the crucial raw material for steelmaking.

But SSLT soon realized that Liberia was going to give it similar growing pains as India. Permissions were not coming through to set up infrastructure projects related to the mining activity, delaying the project. Sesa's mines in Liberia are about 44 miles away from the nation's capital, the port city of Monrovia, and the company is still awaiting approval from the Liberian government to build a road to the port.

The cash crunch from lack of ore exports from the Goan mines was always there to contend with. Revenue from Sesa's iron ore business tumbled to about US$218 million in the year ended March 31, 2013. The proverbial straw that broke the camel's back was the falling ore prices in the international market.

The price had slumped 35 percent, according to a Bloomberg report, since Sesa agreed to buy the mines from Elenilto Minerals & Mining LLC in August 2011. In December 2012, it bought Elenilto Minerals' remaining shares for $33.5 million.

The first signs of Liberian trouble could be sensed in a statement during an earnings call in November 2013, when Mahendra Singh Mehta, the then-CEO of Vedanta Resources Plc, had said they planned to develop the Liberia project in a phased manner, and were currently reviewing even the first phase of 2 million tons.

Some analysts say in the run-up to the company's fourth-quarter 2013-14 figures, Vedanta's operating profits will be hit with further costs in its African operations. Outside of Liberia, these include the recent announcement by the Zambian government of a 28.8 percent increase in electricity charges for miners.

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