All assets including obsolute assets are considered. The valuation is normally undertaken by independent professional valuers who will determine the value each asset based on consideration of the market, replacement, and /or depreciation.
It is possible for valuers to attach a "zero" value to an asset which may be considered rundown or obsolete. However the valuers's job is to assess for ZPA what a willing buyer is prepared to pay for an asset in its present condition.
2. Quest:Does ZPA follow up cases of Asset Stripping?
Yes ZPA does follow up cases of asset stripping - and is taking a much more aggressive role in documenting and prosecuting this kind of wrongdoing. Within the ZPA there exists an asset Monitoring Team and an Investigating Team trained professionally whose primary role is to ensure that public assets are protected - that the culprits of asset stripping are investigated and arrested.
Apart from the ZPA, the Directorate of state enterprises has a responsibility to ensure that assets of parastatal companies are safe guarded until they are properly disposed off by the ZPA.
It is important to note that the prime responsibility to safeguard a company's asset lies with the Board of Directors who have the [ower to hire and fire top management. Ultimately, however, the entire workforce and public are responsible for reporting cases of asset stripping to our law enforcement agencies and to ZPA.
3. Quest: To what extent do political leaders have advantage in privatisation?
Political leaders, have no advantage in privatisation. However, they are also Zambians who have an equal opportunity to exploit private sector possibilities.They are treated on equal terms as any other bidder wishing to purchase a company.There are a number of cases where bids by political leaders have failed due to competition, or their own inability to raise the necessary funding. Political leaders are required to declare their interests publicly.
4. Quest:Why is Management Buy Out (MBO) done behind the back of employees?
5. Quest:What is the policy on disposable assets? Does ZPA give chance to employees to purchase these assets. Ans: Yes the employees of a parastatal company can be given an opportunity to purchase some of the disposable assets of a company. However, authority should always be sought from the Board of the company and ZPA to proceed with such sales.This is in accordance with the provisions of section 21 of the Privatisation Act. 6. Quest:Do you intend to privatise even profit making organisations? Ans: It's the policy of Government to privatise all parastatals companies. However, the government may decide to maintain some control over certain parastatal companies especially those that are service oriented by retaining a golden share or by putting such companies on management contract where by targets on operations can be set to enhance performance. 7. Quest:What is the role of ZPA in companies already privatised: Ans: ZPA has a responsibility to ensure that whatever is agreed upon with the investor during the sales negotiations for the privatisation of the company and entered in the sales contract is adhered to by the investor. However, it is the intention of the government to put in place a permanent monitoring mechanism to ensure that there is continued monitoring of sales agreements as the ZPA winds up its operation. 8. Quest:What measures are in place to ensure that political leaders do not buy companies through third parties? Ans: There is a requirement under the privatisation Act for the bidder to disclose full information about himself. Anybody using a third party can only do so at their detriment. Besides, should the bid be successful, the shares will be issued to the person or company that bid for the purchase of a company and not to any third party. 9. Quest:Where do the proceeds from sale of companies go? Ans: The proceeds of sale of companies go into an Account held and controlled by the Ministry of Finance and it is up to the government to decide what to do with the money. Amongst others, the money can be used for supporting redundancy payments as well as social projects that are in the public interest. 10. Quest:What is the criteria used when privatising a company? For example US$2m was spent on refurbishing the Pamodzi Hotel and the sale price was US$4m. How do you arrive at such prices? Ans: The company was valued on the basis of what profit it would earn in the future. Deloitte and Touche valued the company at between US$1.4m - US$2.3m. The company also had a loan of US$2m from CDC. The company was advertised worldwide but attracted little interest. Considering the debt liabilities, the company was sold at the best price which was well above the valuation price. The Agency sold 70% of the shares to the investor while 30% would be publicly floated through the stock exchange. 11. Quest:How many valuers do you use when privatising a company? Ans: Normally we use three valuers for: a) Chattels b) Land & Buildings c) Plant & Machinery 12. Quest:Why is ZPA leaving the Unions in the cold in its privatisation programme? The Trading sector collapsed without the knowledge of Unions. Ans: Prior to the sell of Trade Sector Companies, meetings and a workshop were held at which both the Unions and Management employees were represented. The collapse of the Trade Sector was historical. The sector was overmanned and mismanaged. However, the employees were still paid promptly and were better cared for than those in UBZ. Besides this, the Unions, are well represented on the ZPA Board and their interests are always taken into account. 13: Quest:ZPA is involved in privatisation do you also advice government on problems concerning workers and proposing policies? Ans: The ZPA does not only advise government on policy direction as regards employee issues in privatisation but also initiates strategies for dealing with employee issues during the privatisation process. However, while the Agency participates, in initiating policy guidelines the authority and responsibility for coming up with relevant policies as regards employee issues in general including policies on retrenchment lies with the Ministry of Labour and Social Security. 14. Quest:What does ZPA recommend to government to protect workers in situations where the financial status of the company is poor? Ans: The ZPA has been able to protect jobs for employees working in companies which were headed for liquidation by restoring them back to high levels of productivity through re- investment brought in by purchasers of these companies. In such situations operations of such companies have been resuscitated with the majority of the employees remaining in employment. However, where a company is beyond redemption the ZPA has been able to initiate strategies through which these companies have been disposed off while employee interests have been protected by ensuring that the employees are paid their appropriate benefits depending on the company's ability to pay. 15. Quest:How are employees protected from victimisation during the transition period before buyer finally pays for the company? Ans: Where a company is handed over to a buyer on a management contract prior to completion of sale of the company, the ZPA and the buyer signs a memorandum of understanding in which the obligations of the buyer to the company and the employees would be stated. Cases of victimisation, under the circumstances, would have to be dealt with in line with the terms and conditions agreed upon in the memorandum of understanding and the terms and conditions of contract for the employees including the labour laws. 16. Quest:What is the Privatisation Trust Fund (PTF)? Ans: The Privatisation Trust Fund is a Fund where some shares of a privatised company are held in Trust for eventual sale through for eventual sale to the citizens of Zambia and the public at large. 17. Quest:The parastatal companies are poorly managed because of political influence. Posts for Chief Executives are supposed to be advertised. Why has State House appointed people in these positions? Ans: The government owns the parastatal companies. Being the owner it appoints Directors. ZPA does not own companies. 18. Quest:What help does Social Impact Department give to the retrenchees? Ans: The Social Impact Department has a very limited role to play in as far as retrenchments are concerned during the privatisation process. Their primary responsibility towards retrenchees is to ensure that retrenchments are managed in the most acceptable and sympathetic manner and that employees are paid promptly and in accordance with their approved conditions of service. 19. Quest:How does ZPA handle the interests of foreign investors coming to invest in Zambia. Do you check their characters and hidden agendas? Ans: There are procedures which the ZPA applies to ensure that they are dealing with genuine investors. Measures are always taken to establish the investors' background and track record more especially in the particular business of their interest. 20. Quest:Do you put a clause in the business transaction as to when the buyer should pay the workers? Do you also tell buyer that ZPA would come back should workers be victimised? Ans: During negotiation for the sale of a company, bidders will normally indicate which people they need to retain/retrench depending on their business plans. It is ZPA's responsibility to ensure that those that are retrenched are compensated accordingly. However, the responsibility to protect the workers rights after the company has been privatised lies with the Unions and ultimately the individual employees themselves. It is therefore, important that the employees are educated about their rights as stated in the terms and conditions of their contracts and the labour laws.
Following the sale of Kansanshi Mine, the Agency has received a number of questions from the public regarding the transaction. We publish for the information of the public some of the most common questions that are being raised with answers.
1. What is the Kansanshi Mine and how much copper does it currently produce?
The Kansanshi Mine is located near the town of Solwezi in the North Western Province. It has been mined intermittently since 1908 but large scale mining ceased in 1986. Since then mining has continued on a small scale, producing approximately 1,000 tonnes of copper a year. Prior to the start of privatisation, ZCCM had decided that Kansanshi was not a core asset, and would be disposed of.
2. Why did ZCCM not conduct exploration work and complete a feasibility study before selling the mine?
The work needed to complete a bankable feasibility study for a large mine at Kansanshi will cost a substantial amount of money. Cyprus Amax has committed to spend a total of US$20 million. ZCCM simply does not have the money to do this work. Furthermore, as was evident from the bids received, different mining companies each have different views on the type of mine that should be developed at Kansanshi; this would mean that the investor would almost certainly wish to redo any ZCCM study, and that the money spent by ZCCM would be wasted.
3 . Why will it take so long before Cyprus Amax will actually start to construct the mine?
A Cyprus Amax will make a decision on the construction of a new mine at Kansanshi following a period of study which will not exceed 54 months. This timescale is considered reasonable and is comparable with other major mining projects undertaken around the world, Cyprus envisage developing a mine producing between 50,000 and 100,000 tonnes of copper a year; this represents a mine larger than any single one of ZCCM's existing sources of ore. It has also been one of the objectives of the ZPA to encourage large projects which have the ability to contribute significantly to the Zambian economy.
4. Why is there such a complex structure to the transaction? Why didn't Cyprus Amax just pay for the mine in one go ?
As has been explained, mining companies will need to conduct studies before developing a mine. A mining company will not invest hundred's of millions of dollars without a detailed feasibility study. If they are asked to pay cash in advance, before they can do this work, they will weigh up the chances of a successful outcome to the studies and will pay a low price to reflect the uncertain outcome, or not buy the asset at all--a distinct possibility for a mine like Kansanshi. By staging the payments as work proceeds, ZCCM will receive more cash than if it had asked for it all up front. Cyprus Amax will provide the money needed to develop the mine (which is likely to be hundreds of millions of US dollars) and this can be considered as part of the "price" paid for Kansanshi. ZCCM will retain 20% ownership of the project and this will enable ZCCM to share in the success of a project which it would not itself have been able to fund.
5 . With this transaction structure, has Kansanshi been bought for a fair price?
The best way of establishing a fair price for something is what someone will pay for it. During the international competitive tender for Kansanshi, all suitably qualified mining companies were offered the chance to bid. Some 21 companies pre-qualified for the sale, and six companies submitted bid. The ZPA, a sub-committee of ZCCM's board and a Committee of Ministers all scrutinised the bids and unanimously decided that Cyprus Amax's offer was the best in terms of the quantum of price offered and the commitment to the pre-feasibility and feasibility work programme.
It is also important to note that the price paid compares very favourably with prices paid by mining companies in countries like Chile & Peru, where mining assets attract premiums due to (a) their proximity to large economies, (b) having longer periods of free market economies and a perceived higher level of political stability than in Africa and (c) the mining assets having significantly lower production costs compared to Zambian assets.
6. What will happen if, after the feasibility studies, Cyprus Amax decided that they would not develop the mine ?
If Cyprus Amax decide not to proceed further with the project at any stage, then it must give the mine back to ZCCM, together with the results of all the work carried out to that point. ZCCM would not refund the cost of this work, but would be able to sell the project to another mining company, willing to explore the possibility to develop the mine.
7. After the Kansanshi sale, do you foresee any other assets being sold using sale structures similar to the one used for Kansanshi?
The sort structure used for the Kansanshi was designed to obtain the best value for assets which will require feasibility studies before substantial new operations are constructed. The tenders for the Chambishi Mine and the resource known as the Chingola Refractory Ore will be structured similar to this one, as will the Konkola North project which is being negotiated with Anglovaal. The participation of the consortium consisting of Anglo American, Gencor and Falconbridge in the Konkola Deep Mining Project will also involve a period during which a feasibility study is prepared. This is the manner in which feasibility stage projects change hands world over.
8. What will happen to the current ZCCM workforce at Kansanshi, given that construction of a new mine may not start for several years?
Cyprus Amax has agreed that while they are conducting their studies, ZCCM will have the right to continue mining on the current scale at Kansanshi. ZCCM is currently considering how this might be achieved and will keep its employees at Kansanshi informed. Employees living in ZCCM houses owned by ZCCM at Kansanshi will be entitled to live in their homes, regardless of whether the land is sold to Cyprus Amax.
9. How will the economy of Zambia benefit from a mine which will be privately owned and managed?
The mining industry is of key importance to the Zambian economy. The Government of Zambia can expect to receive substantial additional revenues as a result of the project in the form of royalty payments on copper sales, import duties on goods used in the mine's construction and operation and tax revenues/foreign exchange from its profitable operation. In addition, the project will employ a good number of Zambians both during the feasibility stage, development stage and production stage.
Additionally, Cyprus entry into Zambia has encouraged a good number of mining companies to look at Zambia as a country with great mineral potential.
10. Apart from the money received by ZCCM, and its 20% stake in the project, what else will Zambia get from this deal ?
Zambia and the Zambian people (in particular those of North Western Province) stand to gain a great deal from the development of a major new mine at Kansanshi. In addition to the employment at the mine once it is in production, the construction of the mine will itself be a major project, costing hundreds of millions of US dollars. This will mean improving the infrastructure at Solwezi, upgrading electricity supplies and improving roads. Cyprus Amax has signed a contract with the Government of Zambia in which they undertake to fulfil their investment commitments and agree to implement a Training and Human Resources Management Programme and to identify business in Zambia which are capable of supplying the equipment and services which the mine will need. With these agreements, the mine at Kansanshi will therefore be heavily linked into the local Zambian economy.
It is also important to note that the 20 percent stake by ZCCM in the project is a significant one and higher than what most governments have been able to achieve in similar transactions in Africa, Eastern Europe and elsewhere.