EIGHTH REPORT For the fiscal year ended 31 December 2015 4 Contents 1. INTRODUCTION .............................................................................................................................7 1.1 Background ........................................................................................................................................................ 7 1.2 Objectives........................................................................................................................................................... 7 1.3 Nature of our work ............................................................................................................................................. 7 2. EXECUTIVE SUMMARY ...................................................................................................................9 2.1 Revenue Generated from the Extractive Sector ............................................................................................... 9 2.2 Analysis of Production and Exports ............................................................................................................... 11 2.3 Scope of the reconciliation .............................................................................................................................. 14 2.4 Completeness and Accuracy of Information ................................................................................................. 15 2.5 Reconciliation of Financial Flows................................................................................................................... 17 2.6 Analysis of Government Revenues .................................................................................................................. 18 3. CONTEXTUAL INFORMATION ON THE EXTRACTIVE INDUSTRY ........................................................... 29 3.1 Oil and Gas Sector ........................................................................................................................................... 29 3.2 Mining Sector ................................................................................................................................................... 31 3.3 Collection and Distribution of the Extractive Revenues ................................................................................. 49 3.4 Beneficial Ownership ....................................................................................................................................... 53 3.5 Government Participation in the Extractive Sector ......................................................................................... 54 3.6 Audit and Assurance Practices in Zambia .............................................................................................58 3.7 Corporate Social Responsibility ..................................................................................................................... 59 3.8 VAT Refunds........................................................................................................................................60 4. APPROACH AND METHODOLOGY ................................................................................................... 61 4.1 Scoping Study .................................................................................................................................................. 61 4.2 Information Collection ..................................................................................................................................... 61 4.3 Reconciliation and Investigation of Discrepancies ........................................................................................ 61 4.4 Reliability and Credibility of Information Reported ......................................................................................... 62 4.5 Basis of Reporting ........................................................................................................................................... 62 5. DETERMINATION OF THE RECONCILIATION SCOPE ........................................................................... 63 5.1 Selection of financial flows ............................................................................................................................. 63 5.2 Selection of Extractive Companies ................................................................................................................. 66 5.3 Reconciliation scope ....................................................................................................................................... 68 6. RECONCILIATION RESULTS ........................................................................................................... 73 6.1 Payment Reconciliation between Mining Companies and Government Entities ........................................... 73 6.2 Payment reconciliation per company .............................................................................................................. 74 Eighth Report For The Fiscal Year Ended 31 December 2015 5 7. RECOMMENDATIONS ...................................................................................................................79 8. ANNEXES ................................................................................................................................. Annex 1: Reporting template and Supporting Schedule ..................................................................................... Annex 2: Tracking table of certified declaration forms ....................................................................................... Annex 3: Extractive companies profile and immediate beneficial ownership .................................................... Annex 4: List of Oil and Gas companies ............................................................................................................. Annex 5: List of Mining Rights (MMMD) ............................................................................................................. Eighth Report For The Fiscal Year Ended 31 December 2015 6 LIST OF ABBREVIATIONS DA Development Agreements EPF Environmental Protection Fund (EPF) EITI Extractive Industries Transparency Initiative FDI Foreign Direct Investment FOB Free on Board FQM First Quantum Mining and Operations Ltd-BM M S GDP Gross Domestic Product GRZ Government of the Republic of Zambia GSD Geological Survey Department IDC Industrial Development Corporation INTOSAI International Organization of Supreme Audit Institutions ISA International Standard on Auditing ISRS International Standard on Related Services KCM Konkola Copper Mines MCM Mopani Copper Mines MMMD Ministry of Mines and Minerals Development MoF Ministry of Finance MoL Ministry of Lands MoLGH Ministry of Local Government and Housing MSD Mines Safety Department MT Metric Tons MTEF Medium Term Expenditure Framework NTES Non Traditional Exports OAG Office of the Auditor General PAC Public Accounts Committee PAYE Pay As You Earn PFM Public Financial Management PLC Public Limited Company TPIN Tax Payer Identification Number UMCIL Universal Mining & Chemical Industries Limited US$ United States Dollar VAT Value Added Tax WHT Withholding Tax ZCCM- IH Zambia Consolidated Copper Mines – Investment Holdings Plc ZEC Zambia EITI Council ZEITI Zambia Extractive Industries Transparency Initiative ZICA Zambia Institute of Chartered Accountants ZMW Zambian Kwacha – Rebased ZRA Zambia Revenue Authority Eighth Report For The Fiscal Year Ended 31 December 2015 7 1. INTRODUCTION 1.1 Background The Extractive Industries Transparency Initiative (EITI) is a global coalition of governments, companies and civil society working together to enhance transparency and accountability in the management of revenues from natural resources. The International Board issued a new global standard for transparency in the oil, gas and mining industries in February 2016 (the “EITI Standard”). The EITI principles are based on the belief that prudent use of natural resources contributes to economic growth, sustainable development and reduction of poverty in resource-rich countries. To achieve this, the 2016 standard further develops the EITI principles of the standard as follows; It encourages countries to build on their existing reporting systems and practices for EITI data collection in order to make EITI data more timely, reliable and accessible and the EITI process more cost effective and efficient. It seeks to develop the EITI’s growing status as a platform for progress that is bringing greater transparency and accountability to all aspects of natural resource management, including tax transparency, commodity trading and licensing. It includes ground-breaking disclosure requirements on beneficial ownership, ensuring that the identity of the real owners of the oil, gas and mining companies operating in EITI countries will from now on be public. It introduces a new validation system which aims to better recognise efforts to exceed the EITI requirements and sets out fairer consequences for EITI countries that have not yet achieved compliance with the EITI requirements. Zambia has produced seven (7) annual EITI reports since joining EITI in May 2009 and becoming compliant on the 19th of September 2012. The periods covered by these reports are from 1 January 2008 until 31 December 2014. The 2015 ZEITI reconciliation report is the 8th ZEITI report, covering the period 1 January 2015 to 31 December 2015. Zambia’s next validation