Tribunal Halts Vedanta Liquidation, Rules ZCCM In Breach Of Agreement

An arbitral tribunal in London has ruled that the government-controlled ZCCM Investment Holdings is in breach of its shareholder agreement with Konkola Copper Mines (KCM) owner Vedanta Resources and that the provisional liquidator appointed to split up KCM should be discharged immediately.

In a filing to the Singapore Stock Exchange, Vedanta said “the arbitral tribunal has recently granted a partial final award in which it has ruled that ZCCM has breached, and is in continuing breach of, the dispute resolution provisions in the shareholders’ agreement between amongst others ZCCM, Vedanta and the Government of Zambia.”

In response the government claim that Vedanta have misinterpreted the ruling, with KCM’s General Manager for Corporate Affairs Shapi Shachinda stating that the partial award did not address the “status, functions and the powers of the Provisional Liquidator”. However, he did concede that the government’s winding up proceedings in the High Court should be stayed, essentially undermining any legal authority of the state liquidator.  

Vedanta and the Zambian government have been locked in a dispute since May 2019, when the government handed control of KCM to a liquidator. The government accused Vedanta of failing to honour its licence conditions, including promised investment -  a claim Vedanta strongly denies.

Legal arguments over the case have been heard in both Zambia and South Africa, with arbitration taking place simultaneously in London. This latest decision places the fault squarely with the Zambian government, who have been trying to split up KCM for several months in order to sell off the company’s assets.

In December 2020, provisional liquidator Milingo Lungu announced a restructuring plan aimed at dividing KCM into two subsidiary companies: KCM SmelterCo Limited and Konkola Mineral Resources Limited. Lungu has previously claimed that asset disposal is the mine’s last remaining option.  

Productivity at KCM has collapsed since the government effectively took over, with integrated copper production (i.e. copper produced using KCM mined ore) decreasing by almost 70% in the past two years. This, at a time when copper prices are at an all time high, is costing Zambians millions in potential lost revenue. 

In response, the government has implemented a number of desperate measures to improve production, including slashing tariffs on foreign concentrates and providing free electricity. However, KCM is still facing a cash crisis, with the mine unable to pay PAYE contributions on its employees’ earnings or supply workers’ compensation contributions. Jobs are now also at risk at a company which was once the country’s largest employer.

Contrary to the government’s claims, Vedanta have in fact promised an additional $1.5 billion (K33.8bn) in investment provided they are given back their original 79.4% stake in KCM. The company has a long history of supporting Zambian industry, having invested an initial $3 billion (K67.7bn) when it first acquired KCM from Anglo-American in 2004. This helped fuel a surge in Zambian copper production, returning to its pre-nationalisation peak of 720,000 tonnes in 2014.