Mopani Copper Project

On 25 February 2005, the European Investment Bank (EIB) signed a Finance Contract with Mopani Copper Mines Plc (MCM) – ultimately majority owned(1) by the Swiss group ‘Glencore’ - for an amount of USD 50 million under the ACP-Investment Facility (using EDF) to partially fund the first phase of the renovation and modernisation of the Mufulira copper smelter to reduce the emissions of sulphur dioxide (SO2). Total project costs were USD 130 million and the remaining USD 80 million were financed from own funds of the borrower. The EIB loan was fully disbursed in April/August 2005. The project was successfully completed by mid 2007, and is effectively eliminating half of the SO2 emissions of the smelter. A further and final reduction of SO2 and dust emissions is planned for latest 2015, when MCM will have completed the construction of the second acid plant without co-financing by the Bank. This will render the smelter compliant with local and World Bank emission regulations. MCM’s debt service to the Bank has always been excellent and the loan is expected to be fully reimbursed by end 2016.

Prior to its approval, the EIB loan received the non-objection from the Zambian government, as well as from the European Commission. The loan has been correctly used, the project successfully implemented and the smelter is operational with environmental benefits demonstrated.

The EIB has a long record in supporting mining projects in African, Caribbean and Pacific (ACP) countries with 650m EUR signed since the implementation of the Cotonou Agreement in 2003, which is about 11.9% of total EIB lending for ACP over the same period. EIB mining projects are fully in line with EU development policies and with our mandates. Operations in the mining sector are usually prime projects for bringing value to indigenous natural resources, increasing export revenues and generating fiscal income for the country through royalties and corporate taxes. Moreover these projects create permanent - direct and indirect - jobs and provide training that contributes to local skills.

Some NGOs have criticized the EIB’s role in this project and the EIB was not offered the chance to comment on these allegations. The following paragraphs aim to correct these inaccuracies or misleading statements.

On a leaked tax audit

The Zambian Revenue Authority (ZRA) commissioned a pilot audit report on Mopani prepared by an international tax audit team, consisting of experts from Grant Thornton and Econ Pöyry, and focused on tax matters, A version characterized by the ZRA as “confidential, preliminary and incomplete draft” has been recently leaked.

In accordance with EIB’s Anti-Fraud Policy, the Bank has informed OLAF and has also launched its own investigation. This investigation is conducted by the EIB’s independent Inspectorate General (IG) which can also rely on external expertise from audit companies with a fiscal and forensic background as well as expertise in private investment in ACP countries.

In the event that this investigation were to conclusively demonstrate tax evasion according to the Zambian authorities this would clearly expose MCM to local financial penalties and lead to events that may trigger early repayment of the EIB loan.

For the EIB, the next step is to complete its independent investigation. As is normal for any institution, the EIB is continuously seeking to improve its procedures, including its due diligence mechanisms. Whether there may be a specific need for EIB to improve certain aspects of its due diligence process, will also be reviewed in the light of the outcome of the aforementioned investigation.

On the development impact of mining in Zambia

The Development Agreement signed between Zambia and Mopani in the year 2000 has been annulled by the Zambian government in 2008, at least in as far as fiscal arrangements are concerned. Since then, a revised tax regime has been put in place by the Zambian authorities.

In Zambia the copper industry, estimated to represent more than half of the country’s GDP, plays a crucial role in enabling economic development. The Cotonou mandate, under which the Bank has financed the Mopani project, refers specifically to mining as one of the sectors eligible for funding, while environmental protection remains an explicit priority of all EIB lending, inside and outside the EU.

The Mopani operation has generated over $380 million in tax payments to the Zambian government since privatization in 2000 through royalties, import/customs duties and income taxes.

On the environmental and social aspects

As regards environmental aspects, pollution was much higher before privatisation, and the latest information obtained confirms that the situation has improved since, including notably through the investment financed by EIB’s loan.

The Mufulira smelter was first built in 1937. Prior to privatization in 2000, 100% of all SO2 went into the atmosphere, and the latest information confirms that the situation has improved since, including notably through the investment financed by EIB’s loan to Mopani copper mine for modernization of the copper smelter. The project has successfully established the capacity to eliminate 250000 tons of SO2 a year, materially contributing to the protection of the environment.

As a general rule, all EIB projects require an Environmental Impact Assessment (EIA) taking into account also social issues. These assessments follow European standards, also in countries outside of Europe. In the specific case of the smelter rebuild in Mufulira, the project also follows the Best Available Technology principle according to the European IPPC (Integrated Pollution Prevention and Control) Directive.

A number of additional environmental and social activities are being supported by Mopani Copper Mine (MCM) and are subject to conditions and undertakings covered by the Development Agreement between MCM and the Zambian government and by the Financing Contract between MCM and EIB.

According to MCM, the company is spending around US$16-20 million per year on social projects which includes: operating two hospitals and seven township clinics, five first-aid centres and public health departments at Nkana and Mufulira. Mopani also runs two schools for 1,850 pupils, HIV-AIDS and malaria prevention and control programmes, supports local orphanages, charities and sports clubs. Retired miners have also been supplied with opportunities for post-retirement employment at a Mopani built farm near Mufulira.

However, due to serious concerns about Glencore’s governance which have been brought to light recently and which go far beyond the Mopani investment, the President of the EIB has instructed the services to decline any further financing request from this company or one of its subsidiaries.

(1) Namely 73%. The remaining share capital is held by First Quantum Minerals (FQM) of Canada (17%) and by Zambian state company ZCCM Investment Holdings (10%).