Outgoing First Quantum Minerals (FQM) director of operations Matt Pascal says the decision to lay-off some of its staff is to ensure the mining company is not taxed to death.
And Pascal has revealed that FQM is still owed over US $400 million in VAT refunds by the Zambia Revenue Authority (ZRA), a situation that will be made worse by the new fiscal regime.
Meanwhile, Pascal has thanked all the workers at FQM’s operations at Kansanshi Mining Plc and the Sentinel in Kalumbila District for their hard work in helping to make the mining giant a success.
Announcing the official end of his management role with FQM in Zambia, Wednesday, Pascal reiterated that the decision to lay-off some its staff this year in response to government’s new 2019 mining fiscal regime, which took effect, Tuesday, was designed to ensure that the company was not taxed to death.
Last month, FQM announced that it will cut its workforce by 2,500 local and expatriate employees during the first quarter of 2019, in addition to an unspecified number of contractors, in response to the hiked mining fiscal regime.
The 2019 mining fiscal regime will see an increase in mineral royalty rates by 1.5 percentage points at all levels of the sliding scale.
In a detailed statement narrating his over two-decade tour of duty in the country, Pascal warned that with the new mining fiscal regime, no new or expansion capital will be possible.
“It would seem improper for me to take my leave without some explanation for the (December, 2018) letter I recently sent out regarding reductions in labour numbers, especially given the amount of negative reaction it has caused,” Pascal wrote.
“The prime responsibility of any company to all its stakeholders is to stay in business. If a company or mine closes down for whatever reason all parties, including all the employees, lose. Any new or expansion capital will not be possible under the prescribed new tax regime. To reiterate what was in my letter – these moves on labour reduction are not “strong-arm tactics”, they are simply measures that need to be taken to ensure the mines are not ‘taxed to death’.”
And Pascal revealed that the 2019 mining fiscal regime will exacerbate FQM’s position given the fact they are still owed over US $400 million in VAT refunds.
“The taxation level has been further exacerbated by the non-refund of VAT to the tune of well over US $400 million to FQM. This leaves the only costs in our control as being; other consumables, maintenance spares and labour. Reducing the cost of consumables automatically reduces the levels of production, and once production levels decline so must labour costs,” he explained.
He also defended FQM’s role in helping to develop Zambia’s infrastructure.
“As all of you who work on our mines will know we have also contributed hugely to infrastructure development around the mines. This has included: maintenance and rebuilding of the T5 National road; construction of many kilometres of tarred roads; buildings Kabitaka and Kalumbila towns; clinics; schools; power supply; airports; police stations; etc,” Pascal added.
“Realistically, a lot of this work should be done by government out of the taxes, especially royalties, paid by the mines. Royalties, strictly speaking, should be for the benefit mainly of those whose lives are affected by the creation of the mines, i.e. the local residents.”
He further explained the history of how economically unviable the old ZCCM became pre-privatization.
“Having been personally involved in the ZCCM privatisation process, it was very evident even before 1999, that ZCCM could not continue as a business; it was losing US $1 million per day, which was only possible with World Bank funding that was meant for the State. This is part of the reason that Zambia ended up with over $6 billion in debt to the World Bank and others,” he explained.
“By 2000, the assets were in such poor condition that not only did the new owners have to spend billions of dollars refurbishing them; but also had to pick up the full retrenchment liabilities (over $110 million) for the entire ZCCM workforce.”
He further narrated how high taxation rates at the time had negatively impacted ZCCM.
“The uneasy truth was that ZCCM had reached a stage where it couldn’t afford to pay reasonable wages nor could it afford to retrench workers due to the high retrenchment benefits. Sometimes it is important if not critical to reduce labour numbers if the health and survival of the company is at stake. What had happened to the once mighty ZCCM? It had effectively been taxed to death; this is probably true to say that being a State-owned entity it was not able to make decisions on a purely business basis, and the golden goose was plundered of all its eggs,” he recalled.
Meanwhile, Pascal thanked all the workers at FQM’s operations at Kansanshi and in Kalumbila for their hard work in helping to make the mining giant a success.
“Although my day-to-day management role in Zambia ends today, as one can see from the history, the voyage from a tiny start-up to now has been a tremendous ride. It couldn’t have happened without the all the men and women who have worked with us over these years, and this is really a tribute to all of you,” stated Pascal, who now takes up a new role in South America.
“So my sincere thanks go out to all of you, and to those who may have been part of the journey but are no longer with us for whatever reason. Of course, I have had to spend a large proportion of my time away from home and so my wife and family have been and remain a critical support to me. I would also like to thank all those who, other than at work, have helped to make life more sociable enjoyable whether this was patiently waiting for me on cycle rides, hacking around the golf course, feeding me or in any other social activity.”