GOVERNMENT QUERIES MINING INDUSTRY ON COST SAVING MEASURES CAPE TOWN – 8TH FEBRUARY, 2016 -
GOVERNMENT QUERIES MINING INDUSTRY ON COST SAVING MEASURES
CAPE TOWN – 8TH FEBRUARY, 2016 -
GOVERNMENT has questioned why mining companies were quick to effect what they termed as cost saving measures even when commodity prices were still above worst case scenarios which they had indicated in their business cases.
Meanwhile, government has pressed on mining companies to diversify their operations by investing in power production in order to stabilise production in the industry.
Mines Minister, Mr. Christopher Yaluma, who is leading a Zambian delegation to the 2016 Investing in African Mining Indaba in Cape Town, South Africa, told the 4th Annual Ministerial Symposium yesterday, that with the low electricity tariffs in the country, mining companies could not expect Government alone to sustain their operations.
Mr. Yaluma said mining companies should consider going into joint ventures with Zambians and invest in a mix of power sources.
Others in the delegation are Mines Deputy Minister, Mr. Richard Musukwa; Finance Deputy Minister, Mr. Christopher Mvunga; Zambia’s High Commissioner to South Africa, His Excellency Mr. Emmanuel Mwamba, senior officials from the Ministry of Mines and the High Commission of Zambia in Pretoria.
“We need some serious energy mix and mining companies must play a clear role. It is regrettable that we allowed the investors to do away with power plants when they took over the mines because they saw a cheap source of power in Zesco. We should go back to the ZCCM days when all divisions had their own power sources. I raised these issues at the Ministerial Symposium and the mining companies present acknowledged.”
The Minister pointed out that it could have been a lighter burden on Government had the mining sector shown willingness to support the proposal to take electricity tariffs to cost reflective levels.
Zambia currently ranks among countries charging the lowest electricity tariffs on the continent, a situation Mr. Yaluma said had made it difficult to attract private sector investment.
Currently Zesco pays about 11 cents per kilowatt for electricity generated locally and about 19 cents per kilowatt for imported power. The utility company in turn sales this at about five cents to the mines.
Mr. Yaluma said Government was working on normalising this as mandated by last year’s meeting of SADC Ministers of Energy which resolved that all member states should attain cost reflective tariffs by 2019.
On measures taken by mining companies in times of low commodity prices, Mr. Yaluma said there was inconsistency in the way mining companies behaved when they decided to shed off their workforce on account of low prices and that they were not able to sustain their businesses.
Mr. Yaluma said most mining companies in Zambia had indicated in their business plans that the only times when operations would become unprofitable in Zambia would be when prices for commodities such as copper started trading at US$2, 500 and below.
He questioned why companies in Zambia have rushed to retrenching workers even when copper prices were currently going for US$4, 000 per tonne, which was way above the US$2, 500 which the mining companies had put up as the worst case scenario which could trigger such measures.
“When copper prices were above US$9, 000 per tonne, these companies made windfall profits. It is mind boggling that they do not want to refer to these supper profits when it comes to low commodity prices. One would expect that they should have made savings to cushion effects of bad times as what we are going through today but you find that all of them have externalised these profits,” Mr. Yaluma said.
He said this year’s mining indaba was taking place at a difficult time not only for Zambia but the African continent. He said it was gratifying that the African Union (AU), under the African Mining Vision, had directed countries to standardise instruments governing mining investment in all countries.
Mr. Yaluma said Zambia’s challenges stemmed from factors over which Government had no control citing the low water levels that have reduced the country’s energy generation capacity. This has consequently led to reduced low production in the mining and various other sectors. The challenges have been compounded by the low commodity prices which have greatly reduced on the country’s foreign exchange inflow.
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