Saturday, January 05, 2008

(ZIBB, XINHUA) Zambia to scrap old mining agreements

Zambia to scrap old mining agreements
LUSAKA, Dec 4, 2007 (Xinhua via COMTEX) --

The Zambian government said here on Tuesday that it will scrap previous development agreements in the mining sector signed with foreign companies when the country sold most of its mines and assets in 1990s. Minister of Finance and National Planning Ng'andu Magande told a press briefing the government will puts in place a fiscal and regulatory framework to regulate the sector to ensure no special incentives are given to mining companies.

"I must emphasize that with such a regime, there will be no incentive for this administration or indeed any future administration to make changes to the regime as it will provide comfort and minimize the risk for both the investor and the government," he said, adding the government was currently in the process of re-negotiating those development agreements.

The agreements provided tax concessions to the mining firms with the objective of supporting and facilitating the necessary substantial re-capitalization and investment in the mining industry.

The concessions included, among others, the reduction of mineral royalty tax from 2 percent to 0.6 percent, reduction of corporate tax from 35 percent to 25 percent and withholding tax on interest, dividends, royalties and management fees paid to shareholders and affiliates reduced from 15 percent to zero percent.

However, following the increase in copper prices on the international market, various stakeholders have said there was need to re-negotiate the agreements because mining firms were not paying sufficient revenue to the government .

According to analysts, the conditions which necessitated the provision of concessions to the mining sector no longer exist and that since metal prices are high on the international market, there is need to re-negotiate the agreements.

The Zambian minister decried inequality in the sharing of the revenues from the country's mines.

"This clearly demonstrates the lopsidedness of these agreements, and under such circumstances, it is extremely difficult for the government to continue signing new agreements under the same terms, " he said.

According to government figures, earning from the mining sector amounted to about 1.6 billion U.S. dollars in 2005 and 3.1 billion in 2006. Of these amounts, taxes paid to the government only amounted to 26 million in 2005 and 76 million in 2006.

In 2007, the mining companies are projected to earn about 3.5 billion while their tax contribution is estimated to be 198 million only.

He said a government appointed team to negotiate the agreements did extensive work including consultative visits to major mining countries in the world, and concluded that Zambia had the lowest fiscal regime governing the mining industry in the world.

"According to the team's findings, there is need to reform both the fiscal and regulatory regime further if Zambian people have to equitably benefit from their natural resources," he said.

The establishment of this regime will ensure that Zambians get a fair and equitable share of earnings from the mining industry.

The current deals were signed during the privatization of the country's mining companies in the 1990's, during which companies were given special incentives, including lower mineral royalty tax of 0. 6 percent and lower corporate tax of 25 percent, with a view to re-investing in the poorly recapitalized mines at the time.

After the recent rise in copper prices, the country feels there is need to re-negotiate the deals because mining companies are earning a lot of money.

Zambian Minister of Finance and National Development Ng'andu Magande announced in this year 's budget in February that the government intended to raise mineral royalty tax from 0.6 percent to 3 percent and corporate tax from 25 percent to 30 percent, adding the government would institute new negotiations with the mining firms.

Copper production in Zambia reached 300,000 tons per year in the 1990's and early 2000's but current statistics show the production is over 500,000 tons.

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