18th Jan 2018 In the third major London case against Vedanta subsidiary Konkola Copper Mines (KCM) since 2014, the English High Court on January 2nd ordered KCM to pay $139 million plus costs to Zambian government entity ZCCM Investment Holdings (ZCCM-IH) for sums owed as part of a copper and cobalt price participation agreement dating back to 2004, when Vedanta took over the Zambian copper mine. ZCCM-IH is the 20.6% shareholder of KCM. In February 2013 various claims of non-payment against KCM were the subject of a Settlement Agreement in which KCM agreed to pay a total of $119 million to ZCCM-IH in two instalments. However they subsequently reneged on the agreement after paying only $19 million, forcing ZCCM-IH to take them to London courts. In the High Court’s January summary judgment a further $36 million was awarded for KCM’s further breaching of the Settlement Agreement by making payments to its parent company Vedanta Resources while the amounts due to ZCCM-IH were still outstanding. (Download the full judgment here)
The judgment reveals that once again KCM had done their best to delay and frustrate the legal process by applying for two extensions of time in order to provide documentation on their payments to Vedanta Resources, which they never supplied. As a result KCM did not serve a defence and a default judgment was served in ZCCM-IH’s favour.
The court action by ZCCM-IH is part of a wider effort by the Zambian government to regain more control and benefit from their mineral resources. In 2014 the Government of Zambia had conducted a forensic audit of KCM following Foil Vedanta’s leak of a video in which Vedanta boss Anil Agarwal bragged about making $500 million a year in Zambia while declaring a loss. Subsequently $600 million in VAT refunds was with-held from KCM and other major mining companies citing VAT rule 18, which demands that mining companies must provide certificates of sale from the country of destination when copper is exported. According to export documentation held by the Government of Zambia, the vast majority of the country’s copper was destined for Switzerland each year, though a fraction of it can be traced to arrival documentation. Switzerland just happens to be a tax haven, raising the Zambian government’s suspicions that this could be a vehicle for transfer mis-pricing or other forms of tax evasion. The majority of the VAT has now been repaid, but only after forcing the mining companies to become more transparent, closing this tax loophole.
ZCCM-IH is also suing Canadian firm First Quantum for $1.4 billion over claims that it wrongly borrowed $2.3 billion at below market rates from its local copper mining subsidiary Kansanshi Mining Plc, in which ZCCM-IH is a 30% shareholder.
Chief Exec Pius Kasolo recently announced ZCCM-IH’s intention to increase its shareholding in Zambia’s mines, a major move towards regaining control of the country’s rich resources, for which they have gained little benefit despite years of copper boom, due to the prevalence of tax and royalty evasion by foreign mining companies.
The 2014 judgment in the case of U&M mining against KCM for unpaid contracting fees revealed that KCM was selling its copper underpriced to fellow Vedanta subsidiary Fujairah Gold in Dubai, a transfer pricing mechanism which goes some way to explaining how Agarwal could make $500 million a year from KCM while declaring a loss in Zambia.
More recently, in October, around 2000 farmers living downstream of KCM’s plant were granted permission to have their case against KCM and Vedanta for years of devastating pollution heard in London, adding to important precedents on the legal accountability of British parent companies for the actions of their subsidiaries. The case itself is expected to be heard in London later this year.