By Nicholas Bariyo
Special to DOW JONES NEWSWIRES
Zambia's copper mining sector faces a future of diminishing
returns as higher taxes and costlier energy bills conspire to
threaten growth, the head of the country's mining industry body
said Friday.
Fredrick Bantubonse said in an interview with Dow Jones
Newswires that the government's recent decisions to double mine
royalties and reduce capital allowances, coupled with increasing
energy costs, threaten to reverse the gains of the past few years.
The move highlights the dangers of resource-rich African nations
attempting to seek greater control of their minerals and win a
bigger share of mining profits.
"We shall never be able to tell how much investments we have
discouraged as a result of these new tax measures" Mr. Bantubonse
said. "Abrupt fiscal changes are very dangerous to the sector, over
taxation discourages investments."
Last year, the government doubled mine royalties to 6% from 3%
and introduced a new tax measure, reducing a capital allowance in
the mining sector to 25% from 100%. The latter measure means that
mining companies start paying taxes before recovering their
investment capital.
As the result, the country's mine revenue collections increased
33% to hit 4.4 billion kwacha ($840 million) last year. Although
higher mine revenues will enable Michael Sata, Zambia's populist
President, to increase social spending, investments in new projects
may be curtailed, Mr. Bantubonse said. Mr. Sata was voted into
office in 2011 after pledging to ensure that the state reaps more
from its minerals sector.
Mining companies, including Glencore International AG (GLEN.LN),
China Nonferrous Metals Co. (8306.HK), First Quantum Minerals Ltd.
(FM.T) and Vedanta Resources PLC (VED.LN), have been implementing
expansion projects over the past four years worth more than $4
billion.
According to government officials, only two mining companies
declared profits last year and these were the main contributors to
the higher revenue collections. The majority of the other companies
are still at a capital-investment phase but will now pay taxes
earlier than they would have had the new measures not been
introduced.
At the height of the global copper price rally in 2006, mining
companies committed billions of dollars in expansion projects,
which enabled Zambia to surpass the 700,000 metric tons historic
production in 2010. The southern African nation had last registered
that level of production in the 1970s.
However, in the past two years, no new big investments have been
committed to new copper projects as investors remain wary of the
stability of the country's fiscal and taxation policies.
Zambia copper miners also have to pay higher electricity tariffs
amid a looming power crisis due to ailing power facilities. In
2011, tariffs for miners were increased by 30%, the state power
utility, Zambia Electricity Supply Corp. applied to the state
regulator to increase tariffs by a further 26% to revamp its ailing
infrastructure.
Mr. Bantubonse said this is a further strain, mainly to
underground mines, which require higher voltage to conduct
operations. Last year, Zesco rejected a request from Vedanta's
unit, Konkola Copper Mines, for lower tariffs at its deep mine
project, where it says 50% of the costs are spent on electricity
used to pump out underground water.
Write to Nicholas Bariyo at Nicholas.Bariyo@dowjones.com