Sunday, April 16, 2017

The Mopani Copper Mine in Zambia – Role Model for Trump’s Infrastructure Investment?

Frik Els wrote last year on what on the surface might seem as good news for Zambia:
Last week Glencore announced plans to invest more than $1.1 billion in its Mopani copper complex in Zambia over the next two years. The investment, which will help improve the mine’s operational efficiency and extend its life, is credit positive for the Southern African nation because it will help drive growth says ratings agency Moody's. Glencore’s expansion and upgrade plan for 75%-owned Mopani will return output to 110,000 tonnes per year by 2018 and reduce costs at the same time and will enable the Swiss mining and trading giant to "take advantage of the potential for a gradual recovery in copper prices over the next three to five years." Glencore acquired the historic Mopani complex in Kitwe province in 2000 after the mine was privatized and has since spent $3 billion on the project.
Copper prices were less than $1 per pound in 2000 but rose to almost $5 per pound by 2011. They fell to around $2.30 per pound but have been on the rebound. One would think this Mopani mining affiliate of Glencore is getting not only jobs in Zambia but also a lot of tax revenues given all these economic rents from high copper prices. Christian Aid, however, has been accusing Glencore of transfer pricing abuse:
The first signs that something may have been seriously wrong with the taxes of Glencore's Zambian subsidiary emerged in early 2011, with the leak of a draft report by auditors Grant Thornton and Econ Poyry. It has never been clear who leaked the report. Even by the standards of 2015, when revelations about multinationals' tax affairs are commonplace, the 23-page document is an extraordinary one. It highlights irregularities around the mine's operational costs, revenues, transfer pricing, employee expenses and overheads and covers the years 2006-7 and 2007-8. The auditors who wrote it also complained bitterly about the obstructiveness they faced when they attempted to do their job, which was commissioned by Zambia's tax authority, the ZRA. "It should be noted that the international team leaders have not experienced such a lack of compliance in any other country, and Grant Thornton Zambia confirmed that this attitude is also not typical for other industries/companies in Zambia," they said. Glencore has always dismissed the report as a flawed draft which contained major mistakes and it and Mopani have always denied wrongdoing.
Maybe this report prepared on behalf of the Zambian government does not tell the whole story but one would think Glencore should be asked to present its own analysis of the transfer pricing issues. And maybe Donald Trump should release his tax returns. But one has to wonder what Peter Navarro and Wilbur Ross think about this investment in the Mopani copper mines especially if most of the economic rents can be so easily diverted to Switzerland tax free.


Sandwichman said...

Are you suggesting some sort of connection between Wilbur Ross and Glencore?

Sandwichman said...

from Wilbur Ross will shepherd Trump’s trade policy. Should he also own a shipping firm?":

Connections to a Russia deal

Russia’s alleged influence on the Trump administration is being hotly debated on multiple fronts in Washington, and the FBI is looking into whether anyone associated with Trump’s campaign coordinated with Russian operatives.

Diamond S Shipping’s business relies heavily on a handful of customers, including Glencore PLC, whose deal to invest in Russian national oil company Rosneft has drawn scrutiny from American and European regulators.

In December 2016, Swiss-based commodities giant Glencore announced it would join with Qatar’s sovereign wealth fund to buy a 19.5 percent stake in Rosneft. The deal marked the biggest foreign investment in Russia since the United States and the European Union imposed sanctions in 2014 because of the country’s military occupation of Ukraine’s Crimea region.

Glencore provided more than 10 percent of Diamond S Shipping’s revenue during the fiscal year that ended March 31, 2013, according to the company’s SEC filing.

The deal reportedly gives Glencore a new supply deal for Russian crude oil.

A Glencore spokesman, Charles Watenphul, referred the Center to Public Integrity to previous statements by the company saying its investment in Rosneft is in compliance with all applicable sanctions. Sanctions permit Rosneft to sell oil. Watenphul also noted that Glencore is one of the largest charterers of oil tankers in the world and works with many tanker owners and operators, not just Diamond S Shipping.

ProGrowthLiberal said...

Samdwichman - thanks for this link. Very interesting reading. Income shifting with respect to oil has been a ig deal since the 1990's. It seems when the Big Four decided to discuss Russia's transfer pricing rules in 2012, they did this in Cyrpus not Moscow. Of course Cyprus is a well connected tax haven so why not.