Efficient electricity costs must be the basis for tariffs, says Chamber chief.
Knowing the true cost of producing electricity efficiently in Zambia is the first step on the road to cost-reflective tariffs, Chamber of Mines president, Nathan Chishimba, said today.
It is also the first step on the road to eventual reform of the Zambia power sector, which is currently under consideration by the government.
Chishimba’s remarks were contained in a statement released at a media conference held in Lusaka today (Wednesday 9 March 2017) on the challenges and opportunities facing the power sector, and how these are likely to affect the economy.
“At present, the cost of producing electricity in Zambia is not known, as the last study done for ZESCO was ten years ago, in 2007. However, a new study, funded by the African Development Bank, is expected to commence in the course of 2017.”
Chishimba said it was “absolutely crucial” that the findings of this study be the basis for both tariff reform and sector reform.
“Zambia needs a revitalised, reformed power sector able to deliver cost-efficient, competitively priced electricity to grow the economy, employment and disposable incomes,” said Chishimba. “Bringing this about is a mammoth strategic task whose effects with be felt decades from now. It must be done properly.”
Chishimba said the idea that tariffs should be based on the known cost of producing electricity efficiently was one shared by Finance Minister Felix Mutati. “It’s worth recalling that the Honourable minister said in his 2017 national budget speech that cost-reflective tariffs do not mean ‘consumers should end up paying for inefficiency’.”
Chishimba said the idea of reforming the power sector was also increasingly accepted, not just by government but by the Energy Regulation Board itself.
“Minister Mutati said in his 2017 national budget speech that government would conduct a review of the overall structure, governance and operations of the electricity sector, including generation, transmission and distribution. And the Energy Regulation Board issued a paper in 2016 discussing the pros and cons of various reform options in developing countries like Zambia.”
Illustrating the concern the mining industry and other stakeholders have about electricity costs, Chishimba revealed that proposed electricity tariffs at Zambia’s newest power projects are more than 20% above global benchmarks established by the US Energy Information Administration.
“What this suggests is that Zambia’s electricity is not being produced efficiently by global standards, or there is a lack of transparency around the way in which tariffs are calculated,” Chishimba said.
“For new sources of electricity to facilitate economic development and power Zambian homes, it has to be competitively priced. Electricity that users cannot afford is little better than having no electricity at all.”
Competitively priced electricity is all the more important in a developing country like Zambia, because industry needs to generate “much-needed employment”, and households need the affordable power that helps to fuel the growth of the middle class, a key barometer of social progress.
Chishimba said that the mining industry has never shied away from the reality of cost-reflective tariffs. “We are business people, after all, and costs are something we deal with every single day at our mines. We are fully committed to tariffs that reflect the cost of providing electricity in an efficient, transparent and internationally competitive manner.”
The Zambia Chamber of Mines, a body representing mining and allied industries in Zambia has welcomed the removal of 7.5 per cent import duty on copper concentrates following a statement by the Minister of Finance, Honourable Felix Mutati.
The Chamber of Mines and its Members are committed to working with the Government to finding solutions that will allow the mining industry in Zambia to sustain operations, protect jobs, support local communities and contribute to Government revenue.
We note from inception that the Ministry of Finance and the Government at large are committed to fostering the sustainable operations of mining companies, as seen through its resolve to guide the line ministries, including the Zambia Revenue Authority on other issues such as Value Added Tax .This will surely help to continue contributing to job creation and poverty alleviation.
The Zambia Chamber of Mines is committed to working with all stakeholders to put in place a tax system that will:
It must be emphasised that the year 2016 has not been a good year for the mining sector and Government must be commended for striving to make the mining sector stay afloat.
The mining sector in 2015 and 2016 faced challenges that were beyond the control of all stakeholders, including the low copper price and nationwide power deficit. It is our sincere hope that the Zambian Government and the mining industry can continue to have open and fruitful discussions going forward.
The removal of import duty on copper concentrates will help in stabilizing independent smelters, and finished copper output, in addition to employment and contributions to government revenue.
The Zambia Chamber of Mines requested for a waiver before the Parliamentary Estimates Committee based on the following reasons:
The introduction of this duty coupled with the imminent increase in the cost of electricity due to the migration to cost reflective tariffs, would have left mines and smelters with tough decisions to make. If there is insufficient supply of concentrates, finished copper output will be affected, in addition to employment and contributions to government revenue.
Acting Chief Executive Officer
Zambia Chamber of Mines
A range of industry observers have welcomed the release last week of a new education booklet by the Zambia Chamber of Mines, entitled Taxation and Mining Investment in Zambia.
They describe it as a good initiative which will help to raise awareness of a subject that is of critical importance to the Zambian economy.
Mike Phiri, tax partner at professional services firm KPMG, said: “The booklet is a great initiative, and makes the Chamber of Mines a leader among industry players on disseminating information about their industry.”
He said it should help lead to a better understanding of the link between taxation and mining investment, not just at government and policy level, but also among various stakeholders.
Yusuf Dodia, Chairman of the Private Sector Development Association, said: “It is a good document which was well constructed, and kept short enough for readers to embrace the key messages. It is a good mechanism to initiate a dialogue on the issue of taxation and the development of the mining sector in Zambia.”
On World Bank projections cited in the booklet showing that growth in Zambia’s copper production will start to slow after 2019, Dodia said: “This may be a key departure point which should compel the government to consider mechanisms for diversification away from copper mining towards other sectors such as tourism, agriculture, manufacturing and services.”
Siforiano Banda, Chief Executive of the Extractive Industries Transparency Initiative (EITI), welcomed the booklet and said it would lead to a better understanding of the subject of taxation and mining investment.
“There is not enough knowledge among players,” he said. “There is a need for government and industry stakeholders to always dialogue on matters of policy. If possible, the Ministry of Mines should be giving weekly appraisals to fellow cabinet ministers on developments in the sector, so that they are kept abreast and can assist in redirecting the future of the country.”
Musonda Kabinga, economist at the NGO Action-Aid said it was good of the Chamber of Mines to have released the booklet, as it gives an overview of the mining sector in terms of investment and taxation.
Joseph Chewe, General Secretary of the Mineworkers Union of Zambia (MUZ), said: “The Chamber of Mines has come up with another great publication on taxation and mining investment in Zambia. The first one, on Mineral Royalty Tax, was simple and easy to understand.”
He said it was good of the Chamber to release such “informative and educative” booklets, as they help to close knowledge gaps and inform the Zambian public.
“There is a need for such information-sharing mechanisms to continue so that government and policymakers arrive at policymaking and tax regimes from a well-informed background,” he said.
Msoni Mtwalo, deputy national coordinator for Publish What You Pay, a body which promotes transparency in the extractive sector, said: “The booklet is quite useful in that it gives an overview of the mining sector from the industry’s perspective.”
However, he said it would prove less useful for people outside the sector as it does not break down the implication of the various mining taxes, and doesn’t state the basis on which the royalties cited are calculated.
On the question of whether there was sufficient understanding of the topic at government and policy level, Mtwalo said: “Definitely not – otherwise we would not have had six different tax regimes in the past eight years.”
Taxation and Mining Investment in Zambia is free to the public, and is available in hard copy from the Lusaka office of the Zambia Chamber of Mines. It can also be accessed in electronic form on the Chamber’s educational website www.miningforzambia.com.
In July 2016, the government of Zambia announced a new Mineral Royalty Tax based on a
sliding scale that varies between 4% and 6%, depending on the copper price.
We in the industry warmly welcomed this development, which we believe marked a shift away
from the harmful mining tax policy proposals of recent years, towards a more pragmatic and
realistic tax policy that views the mining industry as partners in development.
Zambia’s new Finance Minister, Hon. Felix Mutati MP, in the budget address to Parliament on
11th November 2016, made clear that “we cannot spend what we do not have”; a reference
to the urgent need to deal with the country’s growing budget deficit, and government
indebtedness, caused by past expansionary spending.
Fiscal restraint is necessary, but it need not have an adverse effect on economic growth and
development, if the right climate can be created for increased levels of private investment into
Zambia. The ‘multiplier’ effect of investment is well documented, and recent research has
shown a historic correlation in Zambia between investment levels, mining output and GDP
growth, particularly in the decade following privatisation.
What is the right climate? Let us be clear, it does not mean ultra-low tax rates, and light
regulation. It means being internationally competitive, in every sense.
Whilst there have been significant improvements, Zambia remains an outlier. It still has one of
the highest effective tax rates compared to other copper producing countries, and a terrible
recent history of policy instability. This deters badly needed investment.
With the renewed spirit of dialogue and cooperation which now exists with government, we
believe that it is possible to devise a more competitive mining tax regime that could provide
the economic stimulus that will help to grow industry, the wider economy and employment,
and ultimately deliver more tax over the long run.
With this objective in mind, we are publishing this freely available booklet Taxation and mining
investment in Zambia. It explains, in layman’s terms, the challenges of designing a mining tax
regime that benefits both the mines which pay tax, and the governments which receive it.
President: Zambia Chamber of Mines
Zambia needs a more competitive mining tax regime to entice both new and existing investors to invest billions of dollars into the mining industry and boost flagging production, says Nathan Chishimba, president of the Zambia Chamber of Mines.
“Last Friday’s budget speech by Finance Minister Felix Mutati aims to restore financial stability to the Zambian economy and lay the foundations for long-term economic growth – and economic growth depends on investment,” Chishimba says.
In a press statement publicising the release of a new report by the Chamber, Taxation and Mining Investment in Zambia, Chishimba says despite recent welcome changes to Mineral Royalty Tax (MRT), Zambia’s overall effective mining tax rate remains among the highest in the world.
“How is it that we have ceded our long-held position as Africa’s leading copper producer to the Democratic Republic of Congo (DRC). A key part of the answer has to be investment incentives and policy stability. The DRC’s tax regime is not only more investor-friendly than Zambia’s, but has also been much more stable. This has encouraged long-term investment, which has boosted production.”
Chishimba says the importance of new investment in Zambia is all the more timely, as the World Bank has projected that growth in copper production will start to slow after 2019. “Along with a decline in production, there will be a decline in government revenue, mining industry jobs and foreign exchange. However, production levels can increase if there is a new wave of investment.”
Taxation and Mining in Zambia quotes research showing that mining investment in Zambia benefits not just the mining industry but the wider economy too, through what is known as the ‘multiplier effect’. It means mines procure supplies from local businesses, and employees spend their wages in the economy, stimulating more business creation and more employment. A World Bank study on FQM’s Kansanshi Mine in Solwezi found that for every direct employment opportunity created at the mine, a further five were created in the wider economy.
The report also shows how levels of mining investment and national economic growth are inextricably linked. From 1997, investors in the newly re-privatised mining industry collectively poured more than $12 billion into modernisation, expansion and new greenfield ventures. Both copper production and economic growth recovered in 2000 and accelerated in the years thereafter. Importantly, this growth started before the copper price began to recover in 2004, proving it was the surge in investment which turned around the economic fortunes of the country.
The report goes on to cover the challenges of designing a mining tax regime which encourages continued investment – or at least does not discourage it.
The report considers the various phases that a typical mine goes through, from exploration and development to production and closure, and what incentives are necessary to encourage the development of resources through the various stages.
For example, during the exploration phase, when there is no income, the tax regime should ideally allow mines to defer losses to later years and write them off against future profitability. This incentivises mines to continue beyond exploration to actual mine construction.
“When taking business decisions, mines will respond to the nature of the tax treatment in place,” the report says.
Download Booklet – Taxation and Mining in Zambia
Issued by Zambia Chamber of Mines
Acting Chief Executive officer
A new analysis of mining in Zambia for the past 100 years shows a clear historical link between levels of mining investment and wider economic development.
According to an academic paper published this week entitled Copper Mining in Zambia – history and future.When mining investment is sustained and high, there is growth not just in the mining sector, but also in the broader economy in jobs, new businesses and the overall prosperity of the population.
When mining investment declines, it’s not just the mining sector that is affected but the entire economy, along with the material well-being of the population.
The paper, Copper Mining in Zambia – history and future, by Jackson Sikamo, Alex Mwanza and Cade Mweemba, was published in the journal of the Southern African Institute of Mining and Metallurgy.
The paper identifies three major periods in Zambia’s history when the levels of investment in the mining industry had a pivotal effect on the fortunes of the country.
The first period was in the early 1920s, when mainly American and South African companies invested massively in Zambia’s first commercial copper mines. Jobs were created, infrastructure was built, towns came into existence, and support industries emerged.
“Thus, by 1964, when Zambia was born, it had a strong economy driven by the mining sector,” the paper says. Zambia had one of the highest GDPs in Africa.
The second period was in the early 1970s, when government nationalised the Zambian mining industry and used its considerable revenues to drive an ambitious development programme.
However, because it came at the expense of continued investment in mining, the industry was unable to expand. Copper production and mining employment plummeted, and the economy went into decline. “The business prospects of the mines were bleak, and so were those for the national economy, which was heavily reliant on mining”, the paper says.
The third period was from about 2000 onwards, after privatisation. Investors poured capital into new machinery, new mining methods and new processing and extraction technologies. New mines were started in North-Western province.
“There was a sudden economic upturn, not only on the Copperbelt but in the country as a whole, with the mining industry as a pivotal contributor,” the paper says.
Significantly, this economic upturn occurred before the copper price started to recover, suggesting that it was the result of the investment itself, rather than an accident of commodity pricing.
By 2013, after more than US$12 billion of investment, Zambia’s copper output had tripled to 763 000 tonnes, and direct industry employment had reached 90 000.
Looking to the future, the geology of Zambia shows “great potential for further investment in mining”, say the authors. Consequently, the country’s prosperity hinges on the creation of a stable mining policy, internationally competitive tax rates and an investor-friendly environment.
The original paper can be viewed here (https://issuu.com/saimm/docs/saimm-201606-june) on page 15 of the June issue of the SAIMM journal.”
Issued by: Zambia Chamber of Mines
Contact: Talent Ng’andwe
The Chamber and a number of Chamber members attended a conference in Lusaka from the 25th April to the 26th April organized organised by Zambian Episcopal Conference on the Laudato Si, Pope Francis’s encyclical : “Care for our Common Home in the Context of Large Scale Investments – Mining and Agriculture” that was held at the Government conference Centre.
The relationship between large scale mining and agriculture and local civil society has had problems in the past but the message from the Pope to all stakeholders was to acknowledge the damage that has been afflicted on the environment and the need for urgent dialogue by all stakeholders to find lasting and sustainable solutions to the challenges being faced.
The conference was attended, a part all the important speakers, by Cardinal Peter Turkson, the President of the Pontifical Council for Justice and Peace who was representing the Pope, the Apostolic Nuncio to Malawi and Zambia His Excellency Julio Murat, their Royal Highness’s Chief Mumena and Chief Mpande and the Deputy Minister, Natural Resources and Environmental Protection. The conference discussed the impact that large scale industry has on the livelihood of those affected in the proximity of the operations. The conference noted the contribution of mining to the development of society and the contribution to job and wealth creation of the country, however it challenged the industry to practise responsible mining that respects the environment and the affected communities.
Our President, Nathan Chisimba, addressed the conference and conveyed the message that starting from the reality, about the social and environmental damage made in the past, now , according to Pope Francis message, all parties should work together to solve the problems in an open and sincere dialogue.
Following the conference, a Communiqué of Laudato si Conference was issued and is attached. (published also on the Pontifical Concil justice and Peace web site: http://www.iustitiaetpax.va/content/giustiziaepace/en/archivio/news/2016/zambia-episcopal-conference–zec—communique-on-the–laudato-si.html )
Chamber of Mine aware about the important and positive impact that this conference had also between many mining companies, specially those committed in Reflection’s days already organized with the Religious Leadears (with the Vatican and the Anglican Church) will work in order to propose to the ZEC another conference that could be organized, as follow up of this conference in the Copperbelt
The recent Zambia conference was the first of the planned regional conferences to encompass the spiritual community, major industry, civil society and the government.
We are pleased to inform you that with effect from 1st July 2016, our organisation will be relocating to the following address, the main telephone and facsimile numbers & email addresses remain unchanged.
We are moving to;
Mpile Office Park
Stand No. 4953
74 Independence Avenue (next to Ministry of Finance)
Tel No. +211-258383 (Main Line)
Fax No. +211-258385
During the relocation period, should you encounter any difficulties in contacting us via email and land-lines, please contact the following personnel via their mobile phones:
To quote former South African President Thabo Mbeki, who spent time in exile in Zambia:
“I am an African…I owe my being to the hills and the valleys, the mountains and the glades, the rivers….and the ever-changing seasons that define the face of our native land…”
To paraphrase Mbeki, I am a patriotic Zambian.
I work for a listed global mining company. I am proud to be both a Zambian and a modern miner, and I see no contradiction in that, merely a continuation.
Copper is the foundation of our development. For decades, it has fed Zambians, it has housed Zambians, it has educated, clothed and protected Zambians.
And, at least 600 years before copper was “discovered” in Zambia in 1895 by American scout Frederick Russell Burnham, copper crosses were being used as currency in the great trading civilisations of the 11th and 12th centuries.
Our Zambian Coat of Arms, adopted at independence in 1964, pays a fitting tribute to our industry by prominently featuring a miner’s headgear.
As the world continues to develop and industrialise, it drives demand for copper. So, despite the current downturn, copper has a great future.
Can Zambia be a part of that future? I firmly believe it can.
Last year, we produced 711 000 tonnes of copper – more than three times the level of 15 years ago.
I have a vision that in another 15 years, when my hair is greyer, Zambia’s copper production will have breached 2 million tonnes.
I believe this is achievable.
The copper is there.
Zambia’s mines have enough reserves to last another 50 years. More recent discoveries could take us well into the next century.
The long-term demand is there.
As countries in Asia, Africa and South America develop and industrialise, they will need copper.
But the story of Zambian mining should not only be about copper. We have undeniable evidence that Zambia is capable of producing a wider range of mineral materials if concerted effort is made to address the long term sustainability of the mining sector in Zambia.
And in mining, the long term is everything.
It takes at least a billion dollars to start a new mine, and several years before a return on investment is possible. But when good mining meets a good, stable policy framework, investors will commit their capital. This will result in a reinvigoration of exploration projects, which will then drive discoveries that will promote new and more exciting mining projects.
It is this fusion that we must strive for, if Zambia is to maintain its position as a favoured mining destination.
Yes, last year’s 711 000 tonnes is a record. But if you go back to forecasts made a few years ago, we should by now be closer to 900 000 tonnes.
Yes, our existing reserves are extensive.
But after a century of mining, the ore grades are lower, and the copper is more technically challengeing – and expensive – to access.
Since privatisation, approximately $12 billion has been invested in Zambia’s mines. Kalumbila and the recent modernisation of Mopani are just the latest shining examples.
But more is needed.
The World Bank is forecasting a decline in Zambia’s copper production after 2019, unless there is, quote-unquote, a “new wave of investment”. Given the timescales in mining, we have no time to lose.
All of us here today know that policy instability and friction between Zambia’s Government and mining industry have benefitted no-one in recent years. But, I truly believe those days are past us. Since early last year this Government has shown that it is willing to listen. To those investors here today, I point to the recent decision to lower MRT, in the face of budgetary pressures, as evidence of long-term policy making to safeguard the future health of the country’s pre-eminent industry.
The industry, too, has learnt from recent times. We acknowledge our wider role as a developmental driver for Zambia, and we recognise that we must ‘make our case’ to the people of Zambia.
This week, the Chamber has launched a new website, appropriately titled MiningforZambia.com, to help ordinary people learn all about our industry, its challenges, and its contribution. As a purely educational resource, I believe this is the first industry website of its kind.
So, good progress has undoubtedly been made by all parties in the last 18 months.
However, we all need to acknowledge the further challenges that lie ahead.
We must find the collective means to overcome them, through the symmetry of industry excellence and responsive regulation, if my vision is to come to pass.
Many of those challenges – power, regulation, investment, and so on – will be aired over the next two days, and I thoroughly look forward to being part of this vigourous debate.
For, let us be clear, tomorrow’s mining industry depends on decisions taken today.
Lusaka, June 22, 2016 – THE Zambia Chamber of Mines today launched an industry website which explains mining to ordinary people.
MiningforZambia.com website is educational and extensive in scope and content, and complements the Chamber of Mines’ existing website – featuring latest industry news from Zambia and around the world, a live updated copper price, tracking of the price of other mineral resources and the Kwacha/US Dollar exchange rate, and features offering a deeper look into mining in the country.
Chamber of Mines president Nathan Chishimba said: “It’s a world-first in the topics covered, the ease of reading and its daily round-up of news and financial information.
“This powerful website is a must-read for anyone wanting to understand the role of mining in the Zambian economy and society. We expect readers to return to the site daily, or at least weekly, to keep themselves updated – especially as we continue to add new content. It will appeal to all who follow the mining industry, be they experts or ordinary Zambians,” he said.
MiningforZambia.com is part of an ongoing programme of strategic, public engagement by the mining industry to promote a better understanding of the industry.
The site covers core topics focused on Zambia’s mines, their economic and social contribution, interesting facts about the industry and more.
It follows the launch of the booklet “Understanding Mineral Royalty Tax (MRT)” by the Chamber of Mines earlier this year.
The Chamber also hosted a media conference in December 2015 to explain the causes and the consequences of the global mining crisis resulting from the economic slowdown in China, the world’s largest importer of copper and other industrial metals.
MiningforZambia.com is the latest in several initiatives still planned by the industry.
“Mining in Zambia is relatively under-reported, and there are deep and abiding misconceptions about what it actually does and its impact on society and the economy,” Chishimba said. “MiningforZambia.com aims to help correct that.”
The website’s primary content is free for use by the media, or anyone else who wishes toaccessit.
Its five key sections are:
It also has a library and downloads section – where open source/ free to use information are shared. “We invite all Zambians to visit the website to learn more about an exciting and challenging industry which plays a critical role in the economy and society,” said Chishimba.
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