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KCM LIQUIDATION…a scheme by a clueless clique in leadership of the country to loot the assets – M’membe

(By Mwaka Ndawa and Darious Kapembwa)

 

DR Fred M’membe says the placement of Konkola Copper Mines under provisional liquidation is a scheme by a clueless clique in leadership of the country to loot the assets.

Meanwhile, KCM provisional liquidator Milingo Lungu yesterday in the company of State House aides Amos Chanda, Kaizer Zulu, Hibeene Mwiinga and Sukwana Lukangaba and mines minister Richard Musukwa his labour counterpart Joyce Nonde-Simukoko and the labour commissioner went to deliver to Chingola to deliver court papers on KCM management and take possession, custody and control of all assets of the mine.

The government has placed KCM under liquidation on alleged failure to honour tax obligations.

The Zambia Consolidated Copper Mines (ZCCM-IH PLC) has filed winding up petition in the Lusaka High Court pursuant to section 56 of the Corporate Insolvency Act.

ZCCM-IH stated that Vedanta Resources Holding Limited holds 872,569,369.00 ordinary shares and 48,000,000 special shares whilst the petitioner (ZCCM-IH) holds 226,107,824.00 ordinary shares and 12,000,000.00 special shares.

“The government of Zambia has one Golden share,” reads the petition.

ZCCM-IH stated that KCM was being managed and administered in a manner detrimental to the interests of government.

It contended that since the company commenced operations in 2004, it has only declared total dividends of US$58 million out of which it has refused, neglected or ignored to pay around US$10 million, which was declared in 2013 despite the sum having been accounted for in the financial statements.

ZCCM-IH accused KCM of failing to develop the mining areas in Chingola and Chililabombwe as well as carry out mining operations with due diligence in accordance with the programme of mining operations in breach of section 35(1)(b) of the mines and minerals development Act of 2015.

“The company has failed to carry out mining operations in accordance with approved mining operation plan, the gross proceeds of sales of minerals from mining areas are less than half of the demand turnover applicable to the mining license for more than three successive years and liable to the revocation of the licence under the Miners and Minerals Development Act,” stated ZCCM-IH.

 

ZCCM-IH said KCM engaged in massive tax evasion through transfer mispricing and other unscrupulous means.

It stated that KCM was insolvent and had failed to pay outstanding invoices to suppliers and contractors when they fall due.

It stated that in 2008, power supply to the respondent was partially cut when it refused to pay Copperbelt Energy Company (CEC) the utility bill of three months amounting to US$40 million.

ZCCM-IH added that the company’s operations were not environmentally friendly or sustainable and had polluted or continued to contaminate water sources in the vicinity of the mine, especially the Kafue River.

 

In an affidavit verifying the winding up petition, ZCCM-IH chief executive officer Mabvuto Chipata averred that in November 2004, the Zambian government entered into an agreement with Vedanta Resources Holding Limited, an Indian owned company listed on the Lusaka Stock Exchange to sell 51 per cent shares of KCM to Vedanta.

 

It was agreed that Vedanta shall subscribe to ordinary shares equivalent to US$25 million representing the 51 per cent of the shares.

 

ZCCM-IH would have their pre-emptive subscription rights and Zambia Copper Investments was to receive a deferred consideration of US$23.2 million from Vedanta payable over a period, which would commence upon the completion date of the investment ending December 31, 2008.

 

Chipata stated that KCM has evaded tax for the past five years without justification.

 

“From 2004 when Vedanta took control of the company, it has only declared dividends in the years ended 2007, 2008, 2009, 20012 and 2013. Though the company declared a dividend in 2013, it has refused, neglected or ignored to pay the dividends without justifiable cause or excuse,” Chipata said.

 

He stated that despite numerous undertaking by Vedanta to invest in the company, it has not provided any funds for recapitalisation and operating capital.

 

“Vedanta’s management policies have led to the company being technically insolvent and financially distressed as it is failing to pay debts when they fall due,” said Chipata.

 

Meanwhile, the Director of Mines has notified KCM of his intention to revoke its mining licence.

The director of mines has given the company a 60-day ultimatum to show cause why its licence should not be revoked.

 

In an ex-parte order of appointment of provisional liquidator signed by High Court judge Anessie Banda-Bobo, Milingo Lungu of Messers Lungu, Simwanza and company has been appointed as provisional liquidator of the mining company to protect the company’s business and assets for the purpose of winding up pending hearing of the matter.

 

According to the order, Lungu will make any compromises or arrangements with creditors.

 

The provisional liquidator will possess and control all the assets of KCM and dispose assets by public tender or the most transparent manner.

 

According to the order, the liquidator would also sell real and personal property and things of place of KCM by public auction tender or private contract.

On 18 May, President Edgar Lungu announced government’s final decision to take over Konkola Copper Mines because it did not fulfill its promise of investing in the mining company.

 

Speaking when he arrived at Simon Mwansa Kapwepwe International Airport, President Lungu said that government lawyers, led by the Attorney General Likando Kalaluka would institute legal proceedings to actualise the takeover of the mining firm to create room for other investors.

The Head of State said Vedanta had cheated enough that it always incurred losses.

 

 

But on behalf of the Socialist Party (Zambia) politburo, Dr M’membe wondered how the placement of KCM under provisional liquidation would help to solve the problems of the troubled mining corporation.

“This is nothing but a scheme by a clueless clique in the leadership of this country to loot the assets of Konkola Copper Mines which will leave the workers of this company with nothing and in destitution,” the SP 2021 presidential candidate said.

“This is the easiest thing to do and it doesn’t require much thought or reasoning. But this is not a solution to the problems facing Konkola Copper Mines. If anything, it will just compound the problems, especially for the workers. It requires a little intelligence – if a little is all one has – to realise that placing Konkola Copper Mines under provisional liquidation will lead to series of problems, including new ones. We have seen before how this regime and its agents uses provisional liquidation to loot. A more rational and honest approach could have been taken to address the problems of Konkola Copper Mines.”

Dr M’membe argued that moreover, most of the assets of KCM “are leased and owners will soon come forward to claim them!”

“The supply chain of a mining company is also very complex to manage,” said Dr M’membe.

 

And National Democratic Congress president Chishimba Kambwili welcomed government’s takeover of Konkola Copper Mines (KCM) but fears the process the state has taken might not benefit the miners, suppliers and contractors.

 

Kambwili said people in Chingola and Chililabombwe had suffered enough at the hands of Vendetta Resources.

 

“Vedanta Resources should have actually been gone many years had Zambia been in the hands of capable and honest leadership,” Kambwili said in a statement.

“President Lungu despite being in bed with Vedanta Resources was left with no option but to succumb to the pressure I had created and he noticed the growing anger of the people,” he said.

 

Kambwili said it was clear President Lungu’s statement in Ndola showed that he did not want to take over KCM mine from his friends.

 

“As far as we understand there is an arbitration procedure to be followed under the agreements between government and Vedanta. Alas President Lungu in trying not to be suspected by his Vedanta friends has decided to use treachery in dealing with the matter; steps in ZCCM-IH,” he stated.

 

And Kambwili said Milingo Lungu was a known member of the PF legal team.

 

“We are also aware that a scheme is being hatched between the Attorney General and the liquidator to enter into a consent order to preempt and defeat the arbitration process,” he said.

 

“My concern is the interest of the people of the Copperbelt will not be served with this process and how the wolves are rounding up on this ‘carcass’.

 

“As NDC, we find this liquidation development shocking and suspicious. It’s clear that the wolves have smelt blood and they want to suck the mine assets dry and share proceeds. This is an opportunity to strip the mine by known friends of Mr Lungu who belong within the inner circle of State House. It is also interesting to note that out of all known mining experts and engineers this country has been blessed with, government decided to settle for little know PF lawyer Milingo Lungu with no proper background whatsoever in the mining sector.”

 

Kambwili said the liquidation was a worst option to pursue but that it was deliberately done by those within State House to have control of the looting.

 

“This they will do by managing the liquidator on which creditors must be paid first and they get commissions from that. As any legal expert knows, in a liquidation, there is a legal parking order on how the debts need to be settled by the liquidator. The liquidator’s fees are paid first, then taxes and debts owed to statutory institutions. This will then be followed by money owed to secured creditors, usually financial institutions. We are aware that KCM owes over US$1.5 billion to financial institutions. So these debts to banks have to be paid second,” he stated.

 

Kambwili questioned where the latest turn of events would leave the sub-contractors and miners.

 

“In a liquidation, payments to employees and subcontractors will be among the last to be paid,” he observed.

Kambwili said it was unlikely that there was any money in local KCM bank accounts.

 

“So what funds will the liquidator use to pay creditors? In addition, auctioning of the mining equipment to raise the needed funds will be  impossible because most of the mining equipment is not owned by KCM but subcontractors who actually do the mining. Simply put, there will be no money to liquidate the $2 billion debt that KCM currently owes,” he said.

 

“Therefore, cry our beloved people of Chingola and Chililabombwe because there will be no money coming soon from that mine or sale of it’s assets at least. Unless government puts in money but we don’t see that happening. Had the government decided to nationalise the mine and appoint managers, there would be justification to get money from the treasury.”

Kambwili said the NDC could have opted for either the legal termination as contained in the agreements with Vedanta or nationalise the mine and appoint competent Zambians to run it until such a time that a suitable investor is identified or place it under receivership to carry out a business rescue operation

 

Meanwhile, Lungu has taken over KCM operations.

Anxious onlookers and workers thronged KCM when word went round that the liquidator and his entourage would be in the area to take over the mine amid tight security by the Zambia Police.

On arrival at the headquarters, Lungu went straight to the office of the chief executive officer to serve the notice as the rest converged in the conference room where Musukwa briefed the gathering saying “…the process will be done smoothly and in a transparency manner. And also to assure you that the decision has been done to safeguard the interests of the workers and the economy and assets.”

After a short closed door meeting, the leaders emerged and Lungu made his remarks.

“So we have served the document with mine management, ZCCM-IH as you know commenced the petition against KCM and the grounds of that petition is that they have lost confidence in the manner that the mine, the business and assets are being managed. So on that they have petitioned the court that KCM should be wound up for just and equitable reasons. Following that they applied for a provisional liquidator and I was appointed to be provisional liquidator. I will be provisional in the sense that it’s an interim measure until a final winding up order is made, if it will be made. So, in the meantime, the order of appointing me has vested the assets of KCM in myself, so I will be continuing to meet with the management to see how we are going to proceed from here,” Lungu said.

“But I would like to assure everyone that the status quo will continue, the mine will continue operating as it has been operating until obviously the court decides whether the winding order will be made. So, I will urge all workers, contractors and suppliers not to be anxious, all measures are being taken to ensure that the transition is smooth.”

Lungu also assured the workers not to worry about remuneration as they would continue to draw their salaries during the transition period.

“In terms of workers’ salaries, that will be taken care of, no one should worry about workers being paid, we are going to pay the workers. The emphasis here is that the status quo will continue probably even better than what was before but we’ll also ensure that there is a smooth transition, the going concern value of the company has to be maintained, for me that’s my primary concern. I have been appointed to ensure that the assets are well safeguarded…until the court finally decides on the fate of KCM,” said Lungu.

And MUZ president Joseph Chewe appealed to the workers in KCM to remain calm and observe law and order in the transition.

“We also want to tell our fellow workers across KCM that the cries, I think we have heard them and the petition that came through the union has been sent and that the failures in KCM needs to be taken to another level. What we want to urge our fellow workers is, as we pass through this transition, all workers should unite to safeguard assets of the mine so that when another investor comes, they should find assets intact and during this transition, let’s all follow company rules so that no one should lose a job during this transition. Let’s all report early, let’s all knock off on time, the rules will apply even during this period,” Chewe said.

He warned that the union would remain vigilant so that there were no disturbances in production.

“Let’s work hard like we have always wanted while Vedanta is being looked at. The workers have cried and have been heard. Let’s work hard without problems, this is our company, let’s work for the future and also the next generation. This is what we are calling upon workers and the community of Chingola and Chililabombwe, you called for this transition and let’s all be part of it. Let’s not allow anyone to destroy, the mine. Let’s guard our assets jealously,” said Chewe.

NUMAW president James Chansa said the unions had always been partners with government in the running of the country’s affairs.

“We shall continue to be partners even in this transition until KCM starts doing the right things. To the miners, this is not the time to be excited. Let’s prove that we are law abiding workers, the union is going to remain watchdogs until the right thing is done,” said Chansa.

Musukwa later proceeded to address the cheering crowd urging them to remain vigilant so that the assets are not vandalised.

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