By Andrew Sardanis
The Chairman of Vedanta, Anil Agarwal, in his statement for the financial year ended 31 March 2005 reported that the cost of the Konkola acquisition was a gross of $49.2 million. This comprised a subscription for sufficient new KCM ordinary shares for an amount of $25 million for a 51% interest, $23.2 million as deferred consideration for ZCI waiver of their pre-emptive subscription rights and $1 million towards the cost of the feasibilty study.
But what did the nation get out of the sale of Konkola? The answer is zero.
The government of that time did not sell the mine, it simply handed it over to Vedanta and the nation did not receive any money out of the handover.
ZCI received $23.2 million for the diminution of its share in Konkola and a million went as contribution to the cost of the feasibility study.The only payment that would have represented cash for the nation was the $16.8 million that ZCCM-IH was due to receive for the diminution of its shares from 42% to 20.6%. But it did not and nobody is saying what happened to it. As the LPM government could not completely eclipse It, the Ministry of Finance issued a credit note to ZCCM-IH against its debt to the government! The question is: Did LPM waive the payment and not tell the nation about it or did the payment go into somebody’s pocket and remained unaccounted for?
The generosity to Vedanta did not end there. The government then proceeded to give it an additional present of $2.5 billion by allowing KCM carry forward all the tax losses incurred up to and including 31 Dec 2003. As the income tax rate for KCM was set at 25% unchangeable for 20 years, this meant that KCM would not start paying income tax until after it made profits in excess of $2.5 billion.
Additionally, the acquisition agreement provided that KCM be treated as a new mine under the 1975 Act, which allows 100% deduction of capital expenditure in the year it is incurred inclusive of the acquisition costs as well as subsequent investment.
With all this, does it require any rocket science for one to wonder whether the leadership of that time ever imagined KCM to ever pay taxes during the life of the mine?!!
How could LPM commit this huge blunder at the expense of the nation. His legal practice had been mainly commercial hence must had some knowledge in this regard. His Minister of Finance then Magande was an economist and a banker and that of Commerce Deepark Patel was an Indian businessman. And he had another advisor, a prominent Indian businessman in whom he publicly declared undying friendship who was an Accountant and a close confidant, always by his side.
Source: Zambia – The First 50 Years, Andrew Sardinis.