The provisional liquidator appointed to wind up the operations of Konkola Copper Mines is issuing very strange statements which sound as if the decision to liquidate the mining company has been rescinded. In his latest statement, Mr Milingo Lungu urged stakeholders not to panic about what is going on at KCM, saying the company operations will continue as normal.
“KCM is a going concern and operations continue to run normally and safely. Management continues with their operational responsibilities and accountabilities in the execution of their normal duties. I would like to stress the fact that the company will continue to operate as a going concern and all our actions will be in the interest of the company and its stakeholders. We will conduct business as usual and there will be no action that will be taken that will prejudice the future of the company,” said Mr Milingo.
Uuuum? There will be no action that will prejudice the future of KCM? What happened to the liquidation process? We have an idea. The first mistake that government made was to call the takeover of Konkola Copper Mines as “liquidation”. This is not exactly what they meant to do, but they used the term to avoid a few liability traps.
What we are learning from experts is that liquidation is the final process of winding up an insolvent company so that it’s liabilities can be taken care of by the liquidator, through the sell of assets, with help from shareholder. But it doesn’t look like this is what the Patriotic Front government is doing to Konkola Copper Mines.
The confusion on the way forward now at Konkola Copper Mines, where government is pushing the Economic Association of Zambia (EAZ) to take a leading role in appointing the interim management team shows that government used a wrong approach to do the right thing. With all the bad things that anyone can say about the EAZ and it’s leadership, if government had first consulted the association on how to resolve the KCM crisis, they would not have recommended liquidation. But now, after creating the mess, you are running to Mr Lubinda Haabazoka to mop the embarrassment.
Well, the damage has been done. The declaration by State House that KCM would be wound up through liquidation caused a lot of panic among those who invested in our Eurobonds and international fund managers. Imagine what First Quantum is thinking about investing in Zambia. Imagine what fund managers for Glencore or Equinox Minerals have to say about investor security in this country. As long as you use the term liquidation, to them this is a hostile takeover of a business by government. So if the State can do that to KCM, what can stop them from doing the same to all others?
The fact that government sent a PF official as KCM liquidator means investors will remain worried that this is probably a move by the ruling party to sell the mining company’s assets so that they can pay off the local mine suppliers who are their friends. This is contrary to a pecking order of standard liquidation which dictates that preferential creditors, who are the banks, are paid off first even before the local mine suppliers.
We don’t know why the PF is refusing to understand that what KCM needs is not managers but money. We already have very competent Zambians involved in the top management of KCM. They understand what has been going on and they know what to do. But without recapitalization from the shareholders, there is nothing they can do. Who ever takes over KCM, whether it is government or a new investor, they will need to inject capital into the mine. That’s why experts say it will take time to find a buyer.
We have observed that the PF government is trying to confuse us between liquidation and receivership. They are pronouncing liquidation, but implementing care and maintenance. That is why they are now dragging EAZ into the mess, after initially throwing every piece of advice from mining experts and economists.
If this is what they wanted to do, they could have done so without sounding the alarm with careless statements. It is so unfortunate that the President has caused a lot of confusion on a matter that needed great caution. It is also sad that government thinks they can resolve this KCM issue without help from the parent company Vedanta. You can’t solve such a problem outside the main shareholder who bares all the debt and liabilities up to the value of 80 per cent. If you forcibly do that, one can only expect consequences falling on the liquidator.
Someone would wonder why we can’t just shut up and let the liquidator do his job. Well, this is our concern: If government doesn’t apply transparency and due diligence to this so called liquidation process, we see a situation where a lot of taxpayers’ money will be involved in the KCM debacle. This will mean our obligations will increase and the financial deficit will widen. Zambia is in no position to take such risks.