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PRIVATISATION OF THE MINES IN ZAMBIA - Page 4
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THE CONCEPTUAL FRAMEWORK FOR POVERTY ANALYSIS AND REDUCTION IN ZAMBIA
PREDICTION OF CROP PRODUCTION IN ZAMBIA USING CENSUS DATA
PRIVATISATION OF THE MINES IN ZAMBIA
A COMPARATIVE EVALUATION OF THE APPLICATION OF ECONOMIC INSTRUMENTS FOR SUSTAINABLE NATURAL RESOURCE MANAGEMENT BETWEEN THE SECOND AND THIRD REPUBLICS IN ZAMBIA
GENDERING ENVIRONMENTAL POLICY IN ZAMBIA
PERCEPTIONS OF DISABILTY IN ZAMBIA: IMPLICATIONS FOR EDUCATIONAL POLICIES AND OTHER SERVICE DELIVERY
UNIVERSITY EXPERIENCE AS A CHANGE AGENT IN IMPROVING MANAGERIAL CAPACITY IN ZAMBIA'S EDUCATION SYSTEM
THE ROLE OF FORMAL SCHOOLING IN PROMOTING DEMOCRACY IN ZAMBIA
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PRIVATISATION OF THE MINES IN ZAMBIA

Augustine B.C. Katotobwe*

NCHANGA AND NKANA MINES `PROBLEMATIC SITUATION'

Whereas privatisation of parastatals in Zambia has generally been successful, the same cannot be said for the mines which, despite privatising a few, are still proving difficult to sell in some cases. The Nchanga and Nkana Mines saga is still going on, thereby creating a problematic situation.

A `Problematic situation' in Public Policy Analysis requires policy analysts to refuse to accept what is being said by stakeholders. Analysis is expected to go beyond the face-value reasons or evidence in order to arrive at what may plausibly be the real problem as the right solution can only be found and prescribed when the real problem is identified.

In this Nchanga and Nkana mines `Problematic Situation', "low price" has been given as the main reason for the failure to sell the two mines, which constitute the first of the 9 packages into which all the ZCCM mines have been unbundled (ZCCM Annual Report, 1997:15). In order to verify if the "low price" is indeed the reason for not selling, I will begin my search for the answer by analysing ZCCM Annual Balance Sheets from 1992 to 1997. The emphasis would be on 1996 since it is my sincere belief that the bidders must have looked at this Balance Sheet with keen interest, for their first `Bid' was made in February 1997. All other years before and after 1996 Balance Sheet have been included in order to enable us to trace the trend in the financial position of the mines over this period of six years.

THE ZCCM BALANCE SHEETS

These Balance Sheets are in two sets. Whereas, Table 1 deals with the figures contained in the Annual Reports, Table 2 shows what the real financial position of ZCCM is each year before taking remedial measures.

    Table 1: ZCCM Balance Sheets for Six Years as at 31st March 1992/97.

 

             

 

 

 

 

 

 

 

 

K MILLION

ACCOUNT

1992

1993

1994

1995

1996

1997

Current Assets

71,743

215,146

324,765

458,171

539,122

633,746

Less: Current Liabilities

(59,287)

(191,754)

(369,936)

(417,457)

(516,850)

(775,044)

Working Capital

12,456

23,392

(45,171)

40,714

22,272

(141,298)

Ad Fixed Assets

111,721

579,565

1,752,832

1,731,583

1,715,378

1,674,021

Total Assets

124,177

602,957

1,707,661

1,772,297

1,737,650

1,532,723

Less: Fixed Liabilities

(82,437)

(300,797)

381,953)

452,064)

(618,622)

58,375)

Net Worth

41,740

302,160

1,322,708

1,320,233

1,119,028

51,348

REPRESENTED BY:

Share Capital

893

893

893

893

893

 

893

General Reserve

23,861

75,180

72,624

180,478

251,093

158,258

Revaluation Surplus

80,242

472,742

1,540,492

1,433,948

1,291,971

1,163,742

Unrealised Exchange Loss

(63,256)

(246,655)

288,301)

(295,086)

(424,929)

(371,545)

Shareholders Funds

41,740

302,160

1,325,708

1,320,233

1,119,028

951,348

Net Profit/(loss)

3,602

38,757

(73,774)

985

29,929)

(197,833)

Earnings/(loss) Per share

K40.34

K434.03

(K826.17)

K11.03

(K335.16)

(K2,215.46)

    Source: Adapted and computed from the data contained in ZCCM Annual Reports for the years ending 31st March, 1992/97.

Table 1 above generally indicates that ZCCM mines were financially sound and strong in four of the six years under study. It was only in 1994 and 1997 when the mines incurred negative working capital of K45.171 billion and K141.298 billion respectively. This means that if all the creditors wanted their money at the same time, the Current Assets were all going to be set off against the Current Liabilities, but still leaving credit balances to be cleared by selling some of the fixed Assets. Under normal circumstances no Bank Manager would have lent money to the Mines in these two years as they had no Working Capital, for whatever was going to be lent out would have been spent not in generating more money, but in paying off the already incurred debts!.

 

Table 2:ZCCM Balance Sheets for Six Years as at 31st March, 1992/97

 

             

 

 

 

 

 

 

 

 

K MILLION

 

1992

1993

1994

1995

1996

1997

Current Assets

71,743

215,146

324,765

458,171

539,122

633,746

Less:

Current Liabilities

(59,287)

(191,754)

(369,936)

(417,457)

(516,850)

(775,044)

Working Capital

12,456

23,392

(45,171)

40,714

22,272

(141,298)

Add: Fixed Assets

31,479

106,823

212,340

297,635

423,407

510,279

Total Assets

43,935

130,215

167,169

338,349

445,679

368,981

Less:

Fixed Liabilities

(82,437)

(300,797)

(381,953)

(452,064)

(618,622)

(581,375)

Net Worth

(38,502)

(170,582)

(214,784)

(113,715)

(172,943)

(212,394)

REPRESENTED BY

Share Capital

893

893

893

893

893

893

General Reserve

23,861

75,180

72,624

180,678

251,093

158,258

Exchange Loss

(63,256)

(246,655)

(288,301)

(295,086)

(424,929)

(371,545)

Shareholders' Funds

(38,502)

(170,582)

(214,784)

(113,715)

(172,943)

(212,394)

Net Profit/(Loss)

3,602

38,757

(73,774)

985

(29,929)

(197,833)

Earnings/(Loss)

per Share

K40.34

K434.03

(K826.17)

K11.03

(K355.16)

(K2,215.46)

    Source: Adapted and Computed from the data presented in the ZCCM Annual Reports for the years Ending 31st March 1992/97.

Table 2 clearly indicates that the Mines have been worthless on paper all these years as Net Worth is negative for all the six years from 1992 to 1997. It is my belief that what is shown in Table 2 is the real and true financial position of our copper mines!

Table 3: Bids by Kafue Consortium

 

           

 

 

 

 

 

 

 

US$ Million

DESCRIPTION

1ST

2ND

3RD

4TH

5TH

DATE

FEB. `97

JUN `97

SEPT `30

MAR `98

MAY `98

Cash

140

160

150

200*

130

Debt Assumption

125

150

75

75*

35

Committed Investment

200

400

400*

-

150*

Uncommitted Investment

550

350

1,500*

-

 

Working Capital Investment

-

-

-

-

76

5-year Capital Invest Programme

-

-

-

-

708

Substantial Tax Concessions

x

x

-

-

-

Less Demanding Tax Adjustments

-

-

x

-

-

Retained ZCCM Interest = 10%

x

-

-

-

-

Retain ZCCM Interest: 12%

-

x

-

-

-

 

1,015

1,060

1,125

275

1,099

    Source: Compiled from Theo Bull's Article "Bungled Talks" published in the Post edition of June 15, 1998.

The contents of Table 3 seem to be self-explanatory. My brief comments here are that the best `bids', in the light of Table 2 above, are the second and first in that order. But indexing cash and fulfilment of certain conditions to copper and cobalt price, as shown in appendix 5, is a non-starter since the vendor, unlike the buyers, has got no manipulative linkages to ensure price stability at the London Metal Exchange (LME).

However, having unbundled ZCCM into nine (9) packages would have meant that a composite costs and prices should have been worked out by ZCCM Team so that each bid is viewed against the expected price. The Vendor's price would have taken into account the Houses to be sold to miners in addition to the vehicles, cookers, fridges auctioned to miners and the general public.

POLITICAL UNCERTAINTY

Clearly, factors other than economic efficiency determine the nature, pace, and extent of SOE reform. The most important of these factors is politics. State-owned enterprise reform can cost a government its support base. Consequently, politicians everywhere carefully weigh any changes in state-owned enterprise policy, naturally preferring policies that benefit their constituencies and help them remain in office over policies that undermine support and may precipitate their removal (World Bank Policy Research Report, 1995:175).

It is my opinion that behind the stated reason for not selling the mines for "a song", there is fear of political uncertainty which is entailed in selling such `strategic' mining installations at a time when the country is walling in economic quagmire. The above quotation is quite pertinent for Zambia and the MMD Government has belatedly realised that it can easily lose its "political base" on the Copperbelt if privatisation of these two key mining divisions of ZCCM is not handled properly. I also agree with the World Bank (1995:178) when it further states that:

We begin with the proposition that state-owned enterprise reform becomes desirable when the political benefits to the leadership and its constituencies outweigh the political costs. We would expect this to happen in two circumstances: either there are changes in the leadership and its constituencies, or there is economic shock or crisis that alters the calculation of costs and benefits.

The Repeal of Cap. 593: Exchange Control Act in 1995 has also not helped since it is only ZCCM which is bearing the heavy socio-economic responsibility of maintaining socio-political order in the country by releasing its foreign exchange on the market each time the Kwacha depreciates.

CONCLUSION

Having come thus far, it is my conclusion, therefore, that the real reason for not selling Nchanga and Nkana is more political than the `low price', for my thesis is that whoever controls the copper mines, controls the politics of Zambia. Having dealt with the matter at length, I feel that remedial measures should be recommended as follows:

That Nchanga and Nkana Mines should be sold to the people of Zambia in partnership with foreign investors.

That either Anglo-American Corporation and R.S.T. (Original Owners) or Kafue Consortium or both should be offered the partnership.

    This way, Zambia would have earned itself credibility and investor confidence by ensuring that the country does not appear to have thrown away more than 60 years of tough-tested friendship with Anglo-American Corporation in Mining, and more than 100 years of equally tough-tested friendship with the British people and their kith and kin in the USA! Otherwise, no new investor, let alone India and China would feel secure if we can abandon our old socio-economic and socio-political friends of so many years just for a few extra dollars which would neither in the short-term nor long-term solve our economic problems.