Message Lun 30 Mar 2015 14:42

Vedanta’s Albanese Sees ‘Huge’ Restructuring Task in Zambia

(Bloomberg) -- Vedanta Resources Plc, Zambia’s biggest employer outside the government, has a “huge task” to restructure its loss-making copper operations in the country, Chief Executive Officer Tom Albanese said.
The CEO will this week review plans by management at Konkola Copper Mines Plc, in which Vedanta has a 79.4 percent stake, to return the business to profit, he said in a Sunday interview in Lusaka, the capital. Zambia is Africa’s largest copper producer after Democratic Republic of Congo.
“We are looking at tough decisions,” said Albanese, a former CEO of Rio Tinto Group. “If a person is running a restaurant that’s losing money, that restaurant may not stay open. The best interest of the restaurant owner is to find a way to make money.”
Losses at Konkola Copper have exceeded $170 million in the last 2 1/2 years. Higher mineral royalties that replaced income tax for mining companies from January, together with lower copper prices, have made matters worse for the business, Albanese said.
The review will focus in particular on the Nchanga operations in Chingola, about 400 kilometers (245 miles) north of Lusaka, where losses are more than canceling out the profit from other parts of the business, he said. Vedanta has open-pit and underground operations at Nchanga, which account for two-thirds of its Zambian copper production, and also owns the Konkola mine about 20 kilometers to the north.
Tax Refunds
Vedanta must review the Nchanga operations while being “conscientious to the employment base,” Albanese said, without detailing whether this would include closures or job cuts. Konkola employs about 16,000 people in Zambia. The company has already redeployed some workers to its Konkola mine.
The withholding of value-added tax refunds by the Zambia Revenue Authority had also been choking cash flow at the company, he said. The amount totaled almost $200 million by the time the government changed a law requiring exporters to provide import documents from the countries their products end up in order to claim VAT repayments.
While companies had argued this was almost impossible, KCM has been “working very hard” for 1 1/2 years to get the required documents, Albanese said. The company has provided papers for most of the VAT refunds owed to it and payments are yet to be made, he said. It’s “encouraging” that the law was changed, he said.
The government is also “doing the right thing” in reviewing the new mining-tax system that increased royalties to 20 percent from six percent for open-pit operations and to 8 percent for underground mines, Albanese said. President Edgar Lungu ordered his mines and finance ministers to recommend changes to the tax system by April 8.
Zambia must come up with a “middle-of-the-road fiscal environment that is not the most competitive, but is also not the least competitive” and should be based on royalties and profit tax, according to Albanese.