Observations: The current KCM case, a double edged sword

By Barbrah Musamba Chama Mumba

Recent reports that Konkola Copper Mines (KCM) decision to lay off about 1,500 of its work force has sparked debate in the public domain including provoking government’s unintended threats on the mining giant.

The situation that has just arisen comes from the backdrop of many management challenges KCM is currently undergoing. Yet, it has to face numerous accusations such as failure to conduct business to expected standards especially on the financial side of its operations. Management has been accused of several financial irregularities including non-remittance of Pay As You Earn (PAYE) to government on of behalf of its employees.

Vedanta Resources Plc

KCM is a subsidiary of the Vedanta Resources Plc, a company that is listed on the FTSE 100 on the London Stock Exchange. Vedanta Resources has 79.4 per cent shareholding in KCM while ZCCM (IH) and ZCI hold the minority on behalf of the government of Zambia.

Vedanta Resources Plc a company that was established in 1986 has mining operations in Zambia and Australia and has other business operations in other countries. Vedanta has management control over KCM though the Ministry of Mines Permanent Secretary Dr Victor Mutambo who was appointed by government to sit on the board in October 2011 also represents government.

However, since 2004 Vedanta through KCM has made investments into operations of the mines in of excess US$2.5billion. KCM is trying to streamline its operations so that it can mine the copper ore in a more profitable way by investing in modern extraction technology.

Cost of mining

The cost of mining in Zambia has risen in the recent past due to many factors. The major ones being the choice of policies which the PF government has implemented since it came into power in 2011.

Some of these policies have been haphazardly implemented without considering the dynamics of business in the private sector.

What one should always consider is that due to the nature of the business in the mining sector which requires huge investments and enormous amounts of money and other resources, planning of decisions and implementation thereof cannot be done at the blink of an eye.

Some of the decisions government made and have since been carried out thereby causing a rise in the cost of producing copper include the introduction the of minimum wage. This policy, though good and desirable as it is, was rather arrived at and enforced without consideration of the business fraternity.

That is, the business sector as part of major employers in the country required full consent to the decision and thus, ample time to adjust to the new pay structure.
Secondly, the removal of subsidies on fuel is yet another measure undertaken by government with good intent but has now caused a hike in the energy sector and the mines have been negatively affected. Additionally, the increase of mineral royalties and the implementation of a 10 per cent tax on unprocessed copper exports have all contributed to the high cost of producing copper.

As if these costs induced by government were not enough, mining companies have also been affected by fluctuations in the world copper prices for which they have no direct control. The current copper prices on the world market is US$7,180 per metric ton, whilst during its peak in February 2010 the prices of copper was US$10,100 per metric ton, meaning that the profitability of mining copper has gone down in the last three years thus justifying miners to adjust its cost structures to suit viability of their operations.

Protection of workers; another paradox of the PF government

The issue is that, on the one hand, KCM is trying to conduct its business in the most profitable way by reducing labour costs associated with the 1,500 workers earmarked in its job cut decision. On the other hand, the government wants more investors in the mining sector and it also has to protect the labour force from redundancy by telling off KCM to dare not lay off any worker.

This appears to be a difficult move government has made in the quest to keep employment figures up to fulfil some of the employment related policy matter they promised during the 2011 general elections.

The clear signal to the masses was that income inequality and poverty levels would be reduced through good employment conditions and more jobs created.

But the situation is not as simple as they said in the ‘the more money in the pocket rhetoric’. It is complex and the KCM case illustrates what other companies with different development agreements may go through following such enthusiastic and realistic promises from government.

KCM the largest private employer in the country plans to mechanise its operations to make profits by laying off 7 per cent of its work force of 22,000 employees. Like already stated, that the decision could have arisen due to internal challenges and external forces which outsiders should not easily challenge.

The president is trying to use populist methods of going around solving the crises that has arisen forgetting that he is also sending a wrong signal to would be investors and to those already operating with difficulties.

Threats and its Consequences

The president and the minister of finance, Alexander Chikwanda, have issued threats to the mines. The president has gone further by daring KCM to lay off workers that if management did so, he would revoke the miming licence.

Well, he could do that but the repercussions will definitely fall on the Zambian people for which he claims to be representing. Worse still, the entire economy would be affected by such an act.

This is not the first time that the president has done so. A few weeks ago Sata issued threats to Shoprite Stores to have the 3,000 workers that management had fired following a strike reinstated.

These direct interventions by Sata are ridiculous and are menaces to Foreign Direct Investments (FDIs) of which we have not seen as much new FDIs come through in the last
two years.

Way forward

There are better ways to resolve issues rather than the issuance of threats by those that hold powers. Dialogue is always important when two parties in development are faced with an issue.

There is no doubt that government needs KCM much as KCM needs government to facilitate its business. Why not engage each other and find a lasting solution to protect workers who are an asset to KCM and clients of government.

The KCM case is a double edged sword if not handled properly. There is need for sobriety on the part of the president and his government by using tact other than threats that would send wrong signals to the world. At the same time if KCM is cooking up its books and deliberately carrying out financial irregularities it needs to be prosecuted.

Lastly, private businesses are equal partners in developing the country!