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Friday, 18 August 2017

African Continental FTA Negotiations - the end game

The author. Courtesy Comesa library

By Francis Mangeni

At their last summit, this July, the African presidents re-iterated their determination to launch the Continental Free Trade Area (CFTA) by December 2017. They directed that negotiations including on goods and services be completed this year. 
The apparent grounds for this optimism are that modalities for negotiating goods and services have so far been agreed and adopted, and a draft text for the CFTA Agreement has been produced and put on the table for negotiation.
With these modalities and draft text, some believe the job is almost done, and two or three negotiation sessions before the end of this year will do, and the CFTA can be launched.
Stakes are high. If the CFTA is not launched this year, Africa will be the laughing stalk of the world, for failing to meet the deadline of 2017 set in 2012. There is a sense of pride and duty. This self-imposed burden is quite heavy but not insurmountable.
The challenge seems to be that the pride and duty require some brains and strategy as well. It is this quad that can deliver the CFTA this year. 
For starters, a CFTA must have an Agreement covering the essential elements, namely, establishment, principles and objectives, non-discrimination, tariff elimination, customs and trade facilitation, standards, transparency and notification, institutions, disputes, and the usual final provisions.
Outstanding work if any, details of trade remedies for instance, can be put into a built-in agenda for continuing work afterwards. It is in this sense possible to have a CFTA Agreement.
A good strategy for quick progress is to construct the CFTA Agreement using the provisions already available in the Agreements of the African regional economic communities (RECs), which African countries have already been using over the years.
A provision-by-provision comparison in a matrix would assist, to graphically demonstrate that the text or at least the essence is the same. The alternative would be at least a clear and convincing presentation on sources of, and process of producing, the draft text for the CFTA Agreement. 
Best practices from the RECs demonstrate that an easy digital system for addressing non-tariff barriers can be handy and appropriate for trade disputes. The COMESA-EAC-SADC Tripartite Online System for Reporting Monitoring and Eliminating Non-Tariff Barriers, at www.tradebarriers.org, is a best practice par excellence.
Trade problems can be reported through the system using internet or SMS on mobile phones. Since 2008 when the system was established, 581 NTBs have been reported, out of which 506 have been eliminated using the system, leaving 75 currently outstanding.
In COMESA, this system is supplemented with bilateral consultations and a standing agenda item on NTBs at the technical and ministerial level meetings. Out of 204 NTBs reported among COMESA countries since 2008, only five remain unresolved today, showing a very high level of success.
The EAC supplements the online tripartite system with its own action plan called a time-bound matrix for eliminating specific reported NTBs. And a few years ago, the EAC Parliament adopted a law providing for penalties for imposing NTBs.
On trade disputes, then, the CFTA could build on the tripartite online system, putting it together with that of the ECOWAS, to agree on and operationalise a continent-wide digital system, to begin with. And in the meantime, the African Union Trade Ministers' meetings can regularly consider any matters requiring attention.
A free trade area must have rules of origin, that is, criteria for sorting out which products are actually produced within the region and should therefore be given FTA treatment such as; not paying customs duties.
It is feasible to have CFTA rules of origin by December 2017 if the negotiations take the approach of across-the-board thresholds or general rules for conferring origin. In COMESA, EAC, West Africa and Central Africa, for instance, any goods can qualify for FTA treatment if the value of inputs from within the region reaches a set percentage of its total value - 35 percent in COMESA; or the value of inputs from outside the region does not exceed a set percentage of the total value of the good - 60 percent in COMESA.
However, if the rules of origin negotiations take the approach of producing product-specific or list rules, that is, specifying a working and processing required for every single product for it to qualify for FTA treatment, it will definitely be impossible to have rules of origin for the CFTA by December 2017 or even December 2018.
The sheer scale of the task, covering more than 5000 products, is monumental and unmanageable, but can be done over an extended period of time.
In the tripartite negotiations, after five years including a year or so of trying to agree on the approach, only about 47 percent to total tariff lines or products have been done. In COMESA, it took 11 years to complete the change in tariff heading exercise, but fortunately trade could happen under the other criteria for qualifying for FTA treatment, such as wholly obtained, material content or value addition. 
The CFTA will require every African country to eliminate customs duties on at least 90 percent of its total products lines, leaving out 10 percent. On the 10 percent, every country may designate some as sensitive, meaning that customs duties can be only reduced and over a longer period of time; and may designate others as excluded products, on which no tariff reductions are expected. 

The author is the Director of Trade and Customs at the Common Market for Eastern and Southern Africa –COMESA



Submit to: Editor: jeff.kapembwa@gmail.com

Power ‘rationing’ on mining units cripples Zambia ………As power providers flout power restoration order (update)

Kalumbila smelter at Sentinel mine on hold because of low power intake
Aug. 17 (Zambia Informer) ----- The induced power rationing by Copperbelt Energy Corp., and Zambia Electricity Supply Corp., providers of energy to mining companies in Africa’s second largest copper producer, has faltered prospects for the country to attain production of 850,000 tons of the red metal this year and retaining the top slot as leading producers of the red metal on the continent.

The service providers, have restricted power supply to Mopani Copper Mines, a unit of Baal-based Glencore International to 94 megawatts instead of 130 megawatts it needs.

Kansanshi and Kalumbila mines, subsidiaries of First Quantum Minerals Ltd., and Toronto based producer is receiving 153 megawatts instead of 187 megawatts while Kalumbila has reduced intake to 153 megawatt6 from 187 megawatts needed daily in copper producer respectively.

The power restricting exercise has been induced by the service providers to compel the three miners, like others, remit US$0.09 cents a kilowatt hour after the power company-Zesco revised power tariffs to 75 percent, effective January this year from US$0.06 cents a kilowatt hour.

According to Government, it was unfortunate that some mining companies were reluctant to adhere to cost reflective tariffs yet over 80 percent of other mining companies have responded positively, warning that should they fail to comply, the status quo would remain the same, unless they dialogue with power providers, David Mabumba, the  energy minister argued early this week.

However, despite court interventions to resolve the impasse and having issued a restraining order to power providers to rescind the restriction of power to the units, the two companies-CEC and Zesco have also issued a counter summons to the courts seeking redress over the matter, which the affected parties argue violates the contracts signed under the Bulk Power Supply Agreement and a decision which should have been made in consultation unlike unilaterally by the  providers.

The suspension of power from Mopani Operations since Aug. 11 has since forced the miner to send over 15,000 workers home pending the court’s determination of the matter.

Mopani management at both Mufulira and Nkana  says, on humanitarian grounds, it will continue paying the workers despite not producing copper with the restriction of power, in which energy has not been spared for essential services including pumping of water from underground to avoid flooding and loss of business.

“The situation has remained the same…...there is no production at all the units but what we have done is that we have ensured all the remaining energy is used to secure essential services to avoid flooding the underground operations,” sources close to Mopani said by phone.

The situation at Kalumbila and Kansanshi remains the same-power is still being restricted as sought by the power providers, a cost which has weighed down heavily on the Canada and Toronto listed miner whose power shortfall has forced the company to open operations on “just essential services at Kalumbila’s sentinel mine as well as Kansanshi.
Clive Ne Newall, the President of First Quantum Minerals Ltd, in an update report to shareholders and posted on Lusaka Stock Exchange  August 17, laments the power restriction to the two operations, having been reduced 15 percent and 29 percent, respectively since the afternoon of August 10, 2017.

Through management action, budgeted production at both operations was maintained until August 15, 2017 prior to the Kansanshi smelter shutdown.  On August 15, 2017, the planned four-week maintenance shutdown of the Kansanshi smelter began.

“By letters dated June 29 and August 4, 2017, the Company agreed to pay approximately $0.09 per kilowatt hour for both operations, conditional on the state-run power company (“ZESCO Limited”) allowing it to source 200 megawatts of power from other suppliers.

The Company also offered to build more capacity in the interconnector from Zimbabwe to Livingstone, Zambia. Company representatives are currently working to resolve the situation.”  He added, while hinting that the company will strive to update interested parties on developments.

Despite the outcry from labour unions, Mine workers Unions of Zambia (MUZ) and National Union of Miners and Allied Workers (NUMAW) pleading for an end to the standoff which is feared could cost thousands of jobs for the miners, the power providers have remained defiant of the court order issued by Judge Timothy Katenekwa to restore full supply of power to the affected units.

CEC contends I until when  MCM, First Quantum (FQM’s) Kalumbila and Kansanshi mines pay what is due to the company, will power be restored commensurate with what they were paying since they had declared a dispute with the new tariffs.

Mineworkers Union of Zambia (MUZ) president Chishimba Nkole and NUMAW  President James Chansa have both called for level-headedness among stakeholders in ending the impasse to prevent a repeat of the 2014 mass job losses from repeating itself due to their carelessness as jobs and national revenue collection were at stake.
MUZ expects  a permanent solution to be found over the current stand-off before the mining company lays off workers, adding that all stakeholders stood to lose if the situation was left to go to extremes.
Mopani Copper Mines is 73.1 per cent owned by Swiss commodity trader Glencore while First Quantum Minerals owns 16.9 per cent and ZCCM-IH owns 10 per cent.
First Quantum Minerals wholly owns Kalumbila Mines and it is the majority owner of Kansanshi Mines with ZCCM-IH being the other shareholders.

Thursday, 17 August 2017

UPDATE: Power debacle in Zambia heightens.....As power companies seek further court restraint

Part of the Series:

Subject of power – and tariffs in particular – has become a hot topic of conversation, not just among ordinary Zambians but also in the media; although this has helped to shed welcome light on the subject, there are a still a few misconceptions being bandied about.
Here are the three most common of them:

The mines are largely responsible for Zambia’s power deficit, because they consume around 55 percent of the country’s generated power; that leaves a lot less for everyone else.
It is true that the mines consume a large proportion – around 55 percent – of Zambia’s generated power.
But that simply reflects Zambia’s small installed energy base, rather than any wastage on the part of the industry, whose consumption patterns are well within global norms.
The mining sector in larger mineral-producing countries consume proportionately far less electricity than in Zambia. For example, in Chile, the world’s largest copper producer, mining accounts for only 20% of national energy consumption; in the United States, which has an even bigger mining industry, it is barely 10 percent.
It is more expensive to supply power to a residential home than to a mine
As Zambia starts to ramp up its long-neglected power-generating capacity over the coming decades, the mines’ consumption as a proportion of overall supply should fall.
Zambian mines pay less for their power than residential users; the mines are therefore being subsidised.
It is true that mines all over the world – and not just in Zambia – generally pay less for their power than residential users; but that is simply because it is vastly cheaper to deliver power to a mine than to a residential home.
Heavy industrial users – such as mines and factories – use high-voltage power that is cheaper to supply than low-voltage household power. In the European Union area, for example, average industrial power tariffs are 44% lower than household tariffs; in the United States, they are 43% lower.
It all comes down to electrical engineering. Because residential homes require power at very low voltages, ZESCO has to operate and maintain an extensive – and expensive – network of distribution lines, substations and transformers. Mines, on the other hand, draw their power straight from the high-voltage transmission lines and pipe it directly into their operations at no further cost to ZESCO.
There has been no new investment in the power sector for decades because ZESCO’s finances are so bad, and the main reason for this is because the mines do not pay cost-reflective tariffs.
The mining industry is on record as saying it is committed to the principle of paying tariffs that reflect the cost of an efficient, internationally competitive power sector. It also accepts that ZESCO needs a decent return on its investments so that it can fund not just its operations, but also future expansion.
However, the term “cost-reflective” tariffs is usually misused in public discourse as shorthand for higher tariffs. This is to imply a knowledge of ZESCO’s costs; but no one knows for certain what these costs are, because the last formal Cost of Service Study dates back to 2007. A new study is currently under way, and is expected to present its findings by next year.
ZESCO’s precarious financial situation is also linked to the fact that it does not appear to be an efficiently run organisation. Finance Minister Felix Mutati himself said in his 2017 budget speech that cost-reflective tariffs “does not mean that consumers should end up paying for inefficiency”. He also spoke of the need to “improve both technical and commercial efficiency in the electricity supply industry”, and announced a review of the overall structure, governance and operations of the sector.
The efficiency factor is also reflected in the fact that Zambia’s power appears to be significantly overpriced. In the Zambia Chamber of Mines’ submission to the Budget Committee of Parliament in March 2017, it was noted that, according to a study by one of the Chamber members, proposed electricity tariffs at two new power generation projects are, on average, 23 percent higher than international benchmarks.
It was also pointed out that the price of imported emergency power is more than 60% above international benchmarks.
While higher tariffs would obviously help ZESCO’s financial situation, it does not therefore follow that tariffs are the reason for Zambia’s power deficit. The real reason is politics and economic growth.
For more than 20 years, as Zambia’s power surplus slowly slipped into deficit on the back of booming economic growth and rising electricity consumption, the necessary steps were just not taken to renew the country’s ageing power infrastructure……Mining for Zambia

Zambia in US$671mln HIV/Malaria funding ……..As Government reaffirms quest to eradicate HIV

Chilufya-----Zambia has secured funding for HIV/AIDS fight

17 Aug. (Zambia Informer) ------ Zambia has received over US$670 million in grants from  the donors to assist the Southern African state fight the HIV/AIDS pandemic and eradicate malaria by the year 2030.

The United States has provided Zambia with US$401 million to assist undertake HIV/AIDS related programmes  under the President's Emergency Plan for AIDS Relief (PEPFAR) while the Global fund has set aside US$270 million to assist step up the fight against malaria and HIV/AIDS.

 The funding to Zambia by PEPFAR will be implemented in the next five years while Global funding will be utilized in the next three years as Zambia seeks to step the fight against the pandemic as well as eradicate malaria between 2017 and 2030 as espoused by the World Health Organisation (WHO) in all its 47 member states globally.

“The donors have approved funding for Zambia to fight HIV/AIDS and malaria and we are very determined that as government we lead a healthy and productive life,” Chitalu Chilufya, the health minister told Lusaka-based journalists during a media interactive forum, Thursday.

The PEPFAR is a united States Government initiative that seeks to extend its gesture and help save the lives of those suffering from HIV/AIDS around the world while the Global Fund, which mobilizes an average US$4 billion annually,  extends   its  gesture  to assist countries fight AIDS, Tuberculosis and Malaria.

Global fund is an international financing organization whose aims include among others, to attract and disburse additional resources to prevent and treat HIV and AIDS, tuberculosis and malaria mainly in Least Developed Countries.

News Just in!!!! Zambia in US$671mln HIV/Malaria funding

Chilufya-----We are determined to lead a healthy and productive nation

Wednesday, 16 August 2017

Retain power to Mopani Mine, Court orders......'As Mopani demands damages' (update 3)

Mabumba---'Failure to pay new tariffs is blackmail'--Daily Mail

Aug. 17 (Zambia Informer)----Mopani Copper mines, a unit of leading commodity trader, Glencore International will soon have full power restored in accordance with the court directive as the miner demands damages for lost business.

High Court judge Timothy Katanekwa  has granted MCM an interim injunction restraining Copperbelt  Energy  Corp., providers of power to the mining company, with operations in Kitwe and Mufulira following a dispute over power tariff reviewed last January.

According to the court, CEC has been ordered to halt the reduction of power to the mining company, which has since sent back home over 15,000 workers following a power reduction by CEC.

The court argues that until the matter is resolved in court, CEC should adhere to the directive pending the hearing of the inter parte summons, or until further order of the court.

Judge Katanekwa has further ordered power generator, known as ZESCO to stop restricting power from the mining company until the matter is fully determined by the court, according to the Daily Mail citing content from an interim injunction ordering CEC from further action.

Mopani Copper Mines has since halted production pending resolution of the power restriction by CEC. However, arising from the action by the power company, Mopani has dragged CEC and Zesco to court as first and second defendants following the restriction of power to the miner since Friday, August 11.

A statement of claim before the High Court, Mopani is demanding various overtures including the court making a declaration or order that the attempt by CEC to obtain tariff increment outside the process that is clearly outlined in the Power Supply Agreement (PSA) is null, void, and unlawful.

Mopani, in its affidavit contends that CEC  must  pay damages for breach of contract arising from the manner CEC has attempted to obtain a tariff increment outside the process stipulated in the PSA entered into between the defendant and the plaintiff.

The miner wants exemplary interest or any sum found to be due to them in addition to costs and any other relief that the court may deem fit. It contends that in March 2005, it entered into a PSA with CEC that subsequently underwent two amendments in 2008 and 2015, and that clause 3.3 of the power purchase agreement outlines the process that is supposed to be followed in effecting a tariff increment, the Daily adds citing the  court order.

According to Mopani Copper Mines, CEC’s  proposed a tariff increment to US$0.9 cents a kilowatt hour in January this year following proposals from the Ministry of Energy. The plaintiff,  however argued that there was need to consult in line with the provisions of the PSA.

Mopani argues further there was no agreement reached between it and CEC regarding the issue of the tariff increment as negotiations have been on going and nothing has been concluded. By their  conduct, CEC and Zesco have breached a fundamental provision of the PSA, and as a result of their action, the plaintiff has suffered loss and damage.

On Tuesday, August 16, Government and ZESCO demanded that three of the mining companies, Kalumbila, Mopani and Kansanshi had failed to honour the new directive hence the restricting of power supply to the mining companies until they fulfill what is due to the power companies.

According to energy minister David Mabumba, Mopani was receiving 94 megawatts of power instead of 130 megawatts, Kalumbila mine was getting 110 megawatts instead of 155 megawatts.

Kansanshi mine has been restricted to 153 megawatts from the needed 187 megawatts of power, far less to meet the needed energy to drive the equipment and mine copper at the affected units, pending the companies paying what was due to the power companies as demanded.

Mabumba claimed the action by some mining companies not to migrate to cost reflective tariffs was tantamount to blackmail and that all affected mining companies needed to pay in full as they were the major consumers of power at 50 percent of the total output from the national grid.

Mabumba, in support of the action by Zesco and CEC, the two companies would continue restricting power to defiant mining companies  until they pay all that is due to the  companies.

 He advised mining companies that are insistent on paying old tariffs to engage Zesco and CEC over the matter. These include Mopani, Kalumbila and Kansanshi.  CEC buys power from Zesco Limited and re-sells it to the mines on the Copperbelt.

According to Mabumba, it was regrettable that some mining companies have refused to pay the revised electricity tariffs  yet other mines, accounting for 80 percent as well as domestic consumers are paying the new fees that were adjusted upwards by 75 percent, effective May 15.

It is unfair for some mining firms to refuse to pay the revised 9.3 cents per kilowatt hour electricity tariffs when over 70 percent of mining companies are already paying the new tariffs.

Mining companies currently paying the new rates include Luanshya, Chibuluma, Luela, NFC, Lubambe Mine, China Copper Mines, Chambishi and Lumwana, which Mabumba argued unless Zesco was allowed to generate money on its own unlike relying on the treasury, it will fail to provide the service.
“We appreciate the investment by the mining companies but they should remember that we also have a government to run….I also appeal to the labour unions to encourage these mining companies to realize the effects of their actions”

“Zesco has a product called power and it has to be sold at a cost-reflective tariff...........“No person will be given special consideration when it comes to paying revised tariffs. If our domestic workers are paying new tariffs, why should Government subsidise industries?”  Mabumba wondered.

Information minister Kampamba Mulenga, who is also chief Government spokesperson, supported Mabumba arguing that electricity tariffs were increased to safeguard the security of electricity supply by Zesco.

The revised tariffs will ensure Zesco has adequate revenue to continue purchasing electricity from the local independent power producers, as well as imports from the region,” she said. The increased electricity supply will attract investment in power generation.