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
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
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.
The Zambia Chamber of Mines welcomes the changes to the new 2015 Mines and Minerals Development (Amendment) Act which was passed by parliament last Friday.
The Chamber maintains its position that the question of having an equitable fiscal regime that promotes the competitiveness of Zambia’s mining sector is not a zero sum choice between Government on the one hand and the mining industry on the other. Rather, it is one of making appropriate and well thought out choices that will result in a vibrant and competitive Zambian economy that promotes overall growth in the long term for Zambia. Given the pivotal importance of the mining industry in promoting long term diversified economic growth, the mining industry supports the forward thinking policy shift by Government, which will no doubt bear fruit in time to come.
We also note that the Government’s decision marks a significant shift in outlook towards the sector, and it can only be of benefit to the industry and the economy in the longer term.
However, given the intense competition we face as a country from other mining jurisdictions in the world, more needs to be done to ensure long-term competitiveness and renewed investment in the mining sector, which is key to securing growth. We are sure that if the country maintains the same momentum as exhibited by the outlook that resulted in the most recent change to the fiscal regime, this should be achievable in the next few years.
We believe the prevailing low price environment continues to present significant challenges for the mining sector over the short to medium term.
The gesture by the Government is a good lifeline that will provide much needed relief. The simplicity, stability, predictability, and ultimately the attractiveness of Zambia’s minerals fiscal policy environment and taxation regime, is vital to providing the assurances these investments require, especially given that copper mining in Zambia is a high cost business.
For the mining industry, this is critical: the instruments used within a taxation regime, and the rates at which taxes are set, together establish the incentives and disincentives a mining company faces in deciding whether and how much to invest, how many workers to employ, and what ore to extract – which in turn can affect the life-span of the mine.
If Zambia is to attract this needed investment its mining taxation levels, particularly Mineral Royalty Tax, must at the very least lie within global norms. Given Zambia’s specific production conditions, many would argue that an even bolder approach is necessary.
Since 2000, on the back of rising copper demand from China, the Zambian copper mining industry has led the nation’s development, spurring GDP growth and helping to achieve annual growth rates of 7% to 10%. The industry has ploughed more than US$14 billion into new mining ventures and trebled the country’s annual mining output to around 800 000 tonnes. This mining growth has been key in taking government tax revenue from less than half a billion Kwacha in 2000 to a peak of K8 billion ten years later.
“We are the basket which holds all the proverbial eggs. Working together we have to create a high-growth, diversified economy which spreads risk and opportunities across the economy creates more jobs and widens the tax base,” said Mr Nathan Chishimba, President of the Zambia Chamber of Mines.
“As we are seeing in the current crisis, Zambia should not be relying only on mining for its future,”Mr Chishimba said.
We commend the government for this new spirit of dialogue and cooperation, and we look forward to continuing to work together to solve these and future challenges.
The Zambia Chamber of Mines, kindly advises all its stakeholders invited to the first ever National Mining Dialogue Conference that the event has been postponed.
The new dates for the conference will be communicated. The Chamber regrets the inconvenience caused and appreciates the positive response received from all stakeholders.
For further information contact the office:
The Mining Industry Association of Southern Africa (MIASA), an association of Chambers of mines in the SADC Region, represents Chambers of mines from Botswana, the DRC, Madagascar, Namibia, South Africa, Tanzania, Zambia and Zimbabwe. MIASA attended and participated in the Ministerial Symposium held on 7 February 2016 at the Mining indaba in Cape Town.
The symposium with African Ministers on promoting Africa as a preferred investment destination for mining takes place at a time when the mining industry in the whole of the SADC region and Africa at large is experiencing headwinds of significant proportions that require governments and the private sector to be pulling in the same direction to weather the storm and mitigate the negative impacts of the current downturn. Without such cooperation between governments and the private sector, the industry will slide further into decline to the detriment of socio-economic growth in the region with massive job losses which are a threat to social stability.
MIASA notes with concern, the large scale retrenchments in the region as a consequence of depressed commodity prices on international markets. In the SADC region alone, the mining industry has lost approximately 70,000 jobs across all commodities and considering a multiplier effect of 7, this translates to total jobs lost amounting to 490,000. This means up to 5 million people have been deprived of their daily subsistence considering that each employee supports between seven to ten dependants. To make matters worse, a further
50 000 employees face the risk of losing their jobs if something drastic is not done urgently.
In order to turn the situation for the better and ensure that Africa and in particular the SADC region is attractive for mining investment, governments need to maintain consistency in policy, to only introduce policies that are well researched and above all, in consultations with the private sector. MIASA calls for governments to cooperate and share experiences of what works and what doesn’t.
There is no need to re-invent the wheel. Four jurisdictions in the SADC region are currently reviewing mining legislation. Any legislation change makes investors nervous for as long as there is no finality and consultation on that legislation.
MIASA notes that the mining industry has had no significant investment in recent years with no major exploration projects for mining. Ministers of mining need to assist the mining industry by reducing the level of bureaucracy and creating an environment that will make it easy for new and emerging miners to enter the industry. Governments can also create certainty by avoiding changing policy at short intervals.
External investors also need certainty on security of tenure to ensure long term investment in mining industry. The industry is always ready to engage with governments in the SADC region to come with solutions that will help the industry to survive the downturn and position itself to reap mutual benefits in the next super-cycle.
THE United States of America (USA) and other foreign diplomats accredited to Zambia have backed calls for a long-term strategic consensus in the mining sector anchored on diversification to steer economic growth to new heights.
This is in response to the call made by the Zambia Chamber of Mines (ZCM) president Nathan Chishimba last week, for a deliberate drive by the Government, the industry and other stakeholders, to find conditions which will lead to a high-growth mining industry and a diversified economy.
US Ambassador to Zambia Eric Schultz applauded the initiative by ZCM to better educate the public on the importance of the mining sector to the country’s economy while encouraging diversification.
“A crisis sometimes offers an opportunity to make a lasting change. The slump in copper prices, electricity shortage and issues with a depreciating Kwacha have hampered Zambia’s growth.
“Copper will eventually rebound and will remain an important part of the Zambian economy going forward but, as the mining companies are themselves saying, now is the time for the country to diversify away from an over-reliance on a single commodity and its cycles of boom and bust,” he said.
This is contained in a statement released by the ZCM office in Lusaka yesterday.
Canadian High Commissioner to Zambia Alex Andre Leveque said he also welcomed the diversification initiative, both in the mining industry and the wider economy, as this would benefit all Zambians.
Acting British High Commissioner to Zambia Lucy Joyce said mining was clearly an important industry in the country and its economic development.
“I understand that this initiative recognises the importance of increasing transparency between the mining industry, the Government, civil society and the public; we welcome this and hope stakeholders will engage constructively,” she said.
Zambia Association of Manufacturers (ZAM) chief executive officer Maybin Nsupila said the diversification of the mining sector and the wider economy was vital given the numerous challenges faced by the country in recent years.
Mr Nsupila said the fluctuations of the metal market had a great impact on the country’s foreign exchange earnings, while taking its toll on the growth of major sectors such as manufacturing.
“Total dependence on copper at the expense of other sectors has resulted in little growth in the economy, and there is an urgent need to diversify,” Mr Nsupila said.
Other stakeholders supporting the cause were Centre for Policy Trade and Development executive director Isabel Mukelabai, University of Zambia (UNZA) School of Mines Dean Osbert Sikazwe and prominent business executives Mark O’Donnell and John Kasanga.
Story By James Kunda (Times of Zambia).
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