Government looks to mine rescue plan

A high-level World Bank team arrived in Zambia on Tuesday for discussions with the government over last week's shock decision by mining giant Anglo-American to pull the plug on its investments in the country's crucial copper industry. A Zambian government official told IRIN that Lusaka was expecting the World Bank and International Monetary Fund to help with a rescue package to save jobs on the economically depressed Copperbelt, and to sure-up an industry that accounts for 80 percent of Zambia's foreign exchange earnings. The World Bank last week expressed "deep concern" over the decision by Anglo-American, the majority shareholder in Konkola Copper Mines (KCM), to halt further investment in the loss-making company. The decision was announced by Zambia Copper Investments (ZCI), an Anglo-American-owned company which has a 65 percent stake in KCM. ZCI said it was considering several options including the sale, transfer of assets, or closure of KCM over the next 12 months. The Bank said its delegation would work with the government in reviewing the next step. "Our objective is to ensure that the choices made would be best for the Zambian people and establish a sound basis for the mining sector over the medium-term," said Callisto Madavo, World Bank's Vice President for Africa. The International Finance Corporation, the private sector lending arm of the World Bank Group, was also expected to step up efforts to explore various options for the future of KCM and Zambia's copper industry, the Bank's statement said. "Our focus now is on the future, on evaluating the options for KCM, and on minimising the impact on Zambia's economic development, the workers, and their families," Peter Woicke, IFC Executive Vice-President and Managing Director of the World Bank Group for private sector development activities, was quoted as saying. "The World Bank Group will work closely to help Zambia through this difficult time." The recent global economic slowdown, the current low copper prices, and some "unexpected operational difficulties" had hurt KCM's profitability and prospects, he said. KCM — in which IFC has a 7.5 percent stake — was created two years ago by the privatisation of Zambia Consolidated Copper Mines (ZCCM). The Zambian government, reacting to Anglo-American's decision to withdraw - after only returning to Zambia in 2000 - reportedly said that mines "will not be closed and that employees ... should not panic". Zambia's Catholic Commission for Justice and Peace (CCJP) told IRIN in a statement on Tuesday that "any decision to close Konkola mines will have a social effect". Although some 11,000 jobs are directly related to Anglo's operations, "the structure of the Copperbelt's economy with forward and backward linkages means that other industries will be affected". The London-based Economist Intelligence Unit (EIU) said that although the government was "talking up the copper industries prospects", the unit would almost certainly have to "substantially" downgrade its 3-4 percent growth forecast for Zambia in light of Anglo's decision. The CCJP warned that the impact of the likely fall in government revenues would be felt in cutbacks in expenditure on social services such as education and health, which have already suffered more than a decade of inadequate funding. The recovery of Zambia's ailing economy was seen to lie in the resuscitation of the copper industry, which was crippled by over two decades of mismanagement and inadequate financing by the former government of Kenneth Kaunda, analysts said. The privatisation of ZCCM - the country's prized but loss-making mining monopoly - was one of the key conditions for donor economic support to Zambia. After years of feet-dragging by Kaunda's succesor Frederick Chiluba, amid falling copper prices and dwindling foreign interest, Anglo paid US $90 million in 2000 for ZCCM's choicer assets which the government had valued at US $400 million in 1996. Some 8,200 people were retrenched as part of the privatisation process, according to the EIU. At the heart of Anglo's return to Zambia, after being forced out by nationalisation in the 1960s, was Konkola Deep Mining Project which straddles the border with the Democratic Republic of Congo (DRC). Konkola Deep is estimated to have a "world-class" ore reserve of 100 million mt, but its development was conditional on finding sufficient financial support and good market prices for copper. Neither was achieved. The EIU said a strategic review led to the decision to abandon Konkola deep after estimated costs rose from US $300 million to US $1 billion over 18 months. Since April 2000, Anglo has invested US $174 million in refurbishing existing mines, while losing US $108 million. In the aftermath of Anglo's about-turn, the CJP appealed for the government to make a "rational decision" about the future of the mines. "We have to question the assumptions of privatisation. We're not saying the government is the best [manager] of the mines, but better analysis should have been done," the human rights organisation said.