Zambia

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Introduction to the Country

Quote
"The inability of those in power to still the voices of their own consciences is the great force leading to change." - Kenneth Kaunda, President of Zambia 1964-1991

Population
13 million

Capital
Lusaka

Government type
Constitutional democracy with an elected President

Legal system
Common Law, based on the English system

Economy overview
GDP of approximately US$16 billion and GDP growth of 6% per annum, per capita income of about US$ 1,400. Inflation is at approximately 13.8%. Main industries are copper mining and processing, construction, foodstuffs, beverages, chemicals, textiles, fertilizer, horticulture.

Map

Next election due
End of 2011, the date is fixed by the President.

Legal and Regulatory framework

The key player in generation and distribution is the parastatal entity ZESCO which is wholly- owed by the government. In 1995 the Government of Zambia liberalised the electricity supply industry ("ESI") in Zambia. The Electricity Act (the "Act") removed ZESCO's statutory monopoly over the industry. The Energy Act was enacted to regulate the energy sector. As a result of this legislation, other entities are now permitted by law to participate in the ESI. In order to ensure that the aim of liberalisation, primarily enhanced efficiency and rapid electrification goals are achieved by various stakeholders in the ESI, the regulator, the Energy Regulation Board has formulated measures such as the Zambia Grid Code to facilitate open and non-discriminatory access to the Transmission System. ZESCO has a monopoly over the generation of power in the country, although the Government has put in place policy to encourage more players in the electricity sector. The main source of power is hydro-electric power.

 (a) Key enabling legislation

(i) List of key legislation and regulations

Electricity Act CAP 433- an Act to regulate the generation, transmission, distribution and supply of electricity; and to provide for matters connected with or incidental to the foregoing.

Energy Regulation Act CAP 436- An Act to establish an Energy Regulation Board and to define its functions and powers; to provide for the licensing of undertakings for the production of energy or the production or handling of certain fuels; to repeal the National Energy Council Act and the Zambia Electricity Supply Act; and to provide for matters connected with or incidental to the foregoing.

Citizens Economic Empowerment Act No. 9 of 2006- establish the Citizens Economic Empowerment Commission and to define its functions and powers; establish the Citizens Economic Empowerment Fund, promote the economic empowerment of targeted citizens, citizens empowered companies citizens influenced companies and citizens owned companies, promote Greenfield investment through joint ventures and partnerships between local and foreign investors in order to enhance broad-based economic empowerment;

Environmental Protection and Pollution Control Act CAP 204- An Act to provide for the protection of the environment and the control of pollution; to establish the Environmental Council and to prescribe the functions and powers of the Council; and to provide for matters connected with or incidental to the foregoing.

Lands Act CAP 185- an Act to provide for the continuation of Leaseholds and leasehold tenure; to provide for the continued vesting of land in the President and alienation of land by the President; to provide for the statutory recognition and continuation of customary tenure; to provide for the conversion of customary tenure into leasehold tenure.

Lands Acquisition Act CAP 189- An Act to make provision for the compulsory acquisition of land and other property; and to provide for matters incidental to or connected with the foregoing.

Lands and Deeds Registry Act CAP 185- An Act to provide for the registration of documents; to provide for the issue of Provisional Certificates of Title and Certificates of Title; to provide for the transfer and transmission of registered land; and to provide for matters incidental to or connected with the foregoing.

Loans and Guarantees Act CAP 366- an Act to provide for the raising of loans, the establishment of sinking funds, the giving of guarantees and indemnities and the granting of loans by or on behalf of the Government; and to provide for matters incidental thereto and connected therewith.

Public Private Partnership Act- The object of the Act is to develop principles in the award of contracts by public authorities through specific procedures for the award of infrastructure projects and facilities. The Act is intended for the following;

(A) to establish a Public- Private Partnership Commission and provide for its powers and functions;

(B) to provide for public- private partnership for the construction and operation of new infrastructure facilities;

(C) to develop general principles in the establishment of specific procedures for the award of infrastructure projects; and

(D) to provide for the implementation of public- private partnership agreements.

The Water Act CAP 189- An Act to consolidate and amend the law in respect of the ownership, control and use of water; and to provide for matters incidental thereto or connected therewith.

Zambia Development Agency Act No 11 of 2006- An Act to foster economic growth and development by promoting trade and investment through an efficient and coordinated private sector led economic development strategy, to establish the Zambia Development Agency as a one stop facility to facilitate client focus, dialogue with private sector, create confidence in public sector support for business,, to streamline bureaucratic procedures and requirements faced by investors, facilitate industrial infrastructure development, to facilitate Greenfield investment through joint ventures and partnership between local and foreign investors and any matters incidental to the foregoing.

Zambia Grid Code- a regulation to ensure enhanced efficiency and rapid electrification goals are achieved by various stakeholders in the Electricity Supply Industry the Energy Regulation Board "ERB") has formulated measures known as the Zambia Grid Code ("ZGC") to facilitate open and non-discriminatory access to the Transmission System ("TS").

The ZGC prescribes the tariff regime and methodology with respect to electricity generation and transmission in Zambia. The ZGC also provides the guidelines and defines the role the ERB is expected to perform in the electricity sector, which will include setting tariffs.

(ii) Overriding legislation and regulations

The terms of the generation license issued will prevail over the terms of any contract.

 (b) Powers and capacity of the Government and Constitutional issues

(i) Governmental involvement

Government involvement is done through the Ministry of Energy and Water Development ("MOEWD"). MOEWD established the Office for Promoting Private Power Investment ("OPPPI") in 1999 to encourage the involvement of private participants in the Zambian energy sector, as well as to facilitate a competitive energy market. OPPPI was established by GRZ within the MOEWD as a unit with responsibility for the fast track facilitation of private sector participation in the Zambian energy sector.

(ii) Powers of Government

The Government has influence to provide incentives and facilitation of power project following its policy to encourage private participation in power projects, through the OPPPI.

(iii) Powers in respect of the project

The Government through the Ministry of Commerce Trade and Industry will enter into implementation or investment promotion agreement which will provide certain rights to the project company.

(iv) Power to contract

The Government has the power to enter into commercial contracts.

(v) Legislative restrictions applicable to the giving of sovereign guarantees

There are restrictions on the number of guarantees that can be issued in one particular year.

 (c) Regulator

(i) Overview of regulators and their powers

The Energy Regulation Board whose powers are derived under the Energy Regulation Act Chapter 436. Its functions are to monitor the efficiency and performance of undertakings in the energy sector, to provide for the licensing of undertakings for the production of energy or the production or handling of certain fuels.

(ii) Does the regulator typically enter into project documents relevant to the Project?

The regulator will usually not enter into such agreements.

(iii) What is the form of licence issued and can it be amended?

Licences for energy generation, transmission, supply and distribution.

(iv) Is the regulator regarded as being genuinely independent from government/the utility? How is the regulator funded?

Regulator is not absolutely independent as its BOARD is appointed by the Minister in charge of MOEWD. It is funded by money appropriated by parliament.

 (d) Procurement

(i) Procurement or tender process

The PP Act passed in August 2009, established the Public Procurement Authority ("PPA") as the regulatory body responsible for overseeing the grant of contracts and to ensure the transparency and efficiency of the procurement process. All procurement will be conducted through procurement entities and procurement committees in the relevant institutions, the institution in the case of the Project being MOEWD. It should be noted that the PP Act provides in the second schedule that for the next two years from the commencement date of the PP Act, the PPA's powers will be exercised by the Central Tender Committee, an organ of the PPA, to allow the PPA to ensure that the relevant procurement entities have the necessary capacities to conduct tenders. Hence the PPA will oversee the procurement entity within the MOEWD under the procedure envisaged by the PP Act. OPPPI have confirmed to us that they are the relevant procurement entity within MOEWD.

(ii) Other specific procurement requirements

There appears to be some overlap between the roles of the PPA under the PP Act and the recently commenced the Public Private Partnership Act 2009 which is also expected to govern the procurement of infrastructure facilities and Public-Private-Partnership (“PPP”) arrangements under the PPP Commission. Under the PPP Act the Minister of Finance is expected to give prior written approval to any contracting authority for the competitive selection process. Which approval from the Minister of Finance is subject to the following being carried out:

  • production of a feasibility study;
  • production of a project proposal; and
  • production of draft Concession Agreement.

Under the PPP Act the Minister of Finance is also expected to issue a Statutory Instrument establishing the procurement  rules for the competitive selection process for infrastructure projects, which has not yet been issued yet.

 

 (e) Power plants

(i) Is there a standard form of power purchase agreement?

No.

(ii) Independent Power Projects: are there any IPPs in existence?

Please see “Legal and Regulatory Framework” section.

(iii) Merchant power: are there merchant power plants and if so, are they allowed to (or obliged to) sell power back to the grid?

There are no merchant power plants to any significant size although Copperbelt Energy Corporation ("CEC") generates power itself for its own mining customers. Otherwise all capacity/energy is sold to ZESCO.

 (f) Consents required and authorisations from other ministries

(i) List of key licences, permits or consents

EIA approval decision letter (Under the Environmental Protection and Pollution Control Act, Cap 204, 1990 and approval for construction under the Town and Country Planning Act CAP 204. There is also need for Water rights under the Water Act. An Investment Certificate required for ownership of land by companies with less than 75% Zambian shareholders or foreign companies (Under the Zambia Development Act No 11 of 2006. Licences (under the Energy Regulation Act).

(ii) Are consents capable of being secured and are transferable to the lenders?

Yes. However, licences issued by the ERB cannot be transferred without its approval.

(iii) Process of application for consents

There are prescribed forms to be completed under each of the statutes and fees for each license are prescribed from time to time. The costs and timing is variable.

 (g) Competition law

(i) Exclusivity: are any rights of exclusivity granted to a project company enforceable?

Yes

(ii) Restrictions on competition: are there any restrictions on the ability of a project company to compete freely in the country?

No

 (h) Environmental regulations

(i) Regulations: are there any environmental or health and safety regulations or legislation applicable to power plants?

Yes

(ii) Additional consents required by a project company

Any developer of the project will need to enter into a public consultation process and prepare an EIA, in accordance with the terms of the Environment Act. In addition to the environmental impact of the Project, any developer will also need to assess the detrimental impact of the Project on the social, economic and cultural welfare of the affected community and to propose methods or strategies to mitigate such detriment. GRZ will need to give consideration to the level of environmental risk it will bear as developers are unlikely to bear unlimited environmental risk. The costs of an EIA depend on the size of the project. The time it takes to get the permit will depend on the speed at which the public consultants are held.

Finance and Tax matters

(a) Financial assistance

(i) Does the concept of financial assistance exist

Yes but the 'white wash' procedure can be used.

(b) Lending restrictions/banking monopolies

(i) Any restrictions applicable to the importation of capital by lenders?

No

(ii) Requirement for the lenders/security agent to be registered in the jurisdiction?

No

(iii) Can foreign lenders lend into the jurisdiction?

Yes

(c) Restrictions relating to repatriation of dividends

(i) Are there any restrictions relating to repatriating dividends?

No

(d) Convertibility

(i) Are there any restrictions on the convertibility of the jurisdiction's currency?

No

(e) Interest payments

(i) Are there any restrictions on the payment and compounding of interest? If so, does this also affect both local and foreign lenders?

Compound interest is legal provided the parties expressly agree to it. However, penal interest is illegal under the law.

(f) Tax

(i) Are there any withholding tax issues in relation to interest payments and fees to foreign lenders or payments received under any agreements?

There is withholding tax on interest payments, management fees/consultancy fees.

(ii) List of double taxation treaties.

Several countries have signed a Double Taxation Agreement with Zambia that have been included in the Income Tax Act as subsidiary regulation which includes:

  1. Canada
  2. Denmark
  3. Finland
  4. France
  5. Germany
  6. Holland
  7. Ireland
  8. Italy
  9. Japan
  10. Kenya
  11. Mauritius
  12. Norway
  13. Romania
  14. South Africa
  15. Sweden
  16. Tanzania
  17. Uganda
  18. United Kingdom
  19. Yugoslavia
  20. Zimbabwe
  21. India

(iii) Lender risks in respect of tax liabilities/tax domiciliation as a result of providing debt and/or taking/enforcing security interests

None.

(iv) Can loan repayment / enforcement proceeds be treated negatively from a tax perspective for the lenders?

None.

(g) Stamping costs

(i) Details of stamp duty costs

No stamp duty is payable in Zambia

Security, Enforcement and Insolvency

(a) Overview of security regime

(i) Can a security interest be obtained over a company's assets, e.g.:

(A) accounts receivable (book debts); - Yes
(B) inventory (stock in trade); - Yes
(C) shares of a company (issued and authorised); - Yes
(D) equipment; - Yes
(E) real property; - Yes
(F) insurances; and - Yes
(G) project contracts. - Yes

(ii) Can shares of a project company validly be pledged and enforced under an English law share charge?

Yes

(iii) Can a company grant a security interest in order to secure its obligations (i) as a borrower under a credit facility, and (ii) as a guarantor of the obligations of other borrowers and/or guarantors of obligations under a credit facility?

Yes

(iv) If the borrowings to be secured are under a revolving credit facility, are there any special priority or other concerns?

Priority will be accorded by registration of the security

(v) Can the relevant security interests be granted to a security agent or trustee on behalf of the lenders from time to time?

Yes

(vi) Please indicate the claims that would have priority over the relevant security interests.

The payment to preferential creditors in priority in event of liquidation or the appointment of a receiver under a floating charge as provided by s.346 of the Companies Act is as follows:

(A) Liquidation costs: the costs and expenses of the winding-up or receivership and the remuneration of the liquidator or receiver;

(B) All amounts due:

  • by way of wages or salary accruing to any employee within the period of three months before the commencement of the winding-up or receivership;
  • leave pay accruing to any employee within the period of two years before the commencement of the winding-up or receivership;
  • any paid absence (not being leave) accruing to any employee within the period of three months before the commencement of the winding-up or receivership;
  • recruitment expenses or other amounts reimbursable under any contract of employment;
  • an amount equal to three months' wages or salary, by way of severance pay, to each employee;
  • all amounts due in respect of workers' compensation under any written law relating to workers' compensation accrued before the commencement of the winding-up or receivership;
  • any tax, duty or rate payable by the company in respect of any period prior to the commencement of the winding-up or receivership, whether or not payment has become due after that date;
  • all Government rents not more than five years in arrears at the commencement of the winding-up; and
  • all rates from the company to a local authority having become due and payable within the period of three years before the date of commencement of the winding-up.

(vii) Is there a public security registry?

There is a Companies Registry and a Lands and Deeds Registry

(viii) Formalities in respect of security creation:

(A) Statutory perfection requirements;

The security documents must be registered with the relevant Public Registry for them to be legally enforceable and for purposes of priority.

(B) Any other formalities.

Under the Authentication of Documents Act Chapter 75 of the laws of Zambia ("Authentication Act") before a document signed outside of Zambia can be used in Zambia it must be "authenticated" in accordance with the Authentication Act.

(C) Steps for perfection and length of time taken

Apply for registration with either the Companies Registry or the Lands Registry must be made and filed together with the necessary fees. Registration will take between one to two weeks.

(D) Any significant financial costs or significant time delays required to create and perfect the relevant security interest?

No

(b) Insolvency and enforcement regime

(i) Is there a court or similar register that can be searched in respect of proceedings and insolvency actions ?

The Principle or Commercial Registry of the High Court of Zambia

(ii) Summary of the different options for an insolvency related process.

(A) Voluntary winding up(creditors)- this is a winding up of a company at the instance of the companies creditors

(B) Voluntary winding up(members)- this is a type of winding up of a company at the instance of the members of the company

(C) Involuntary winding up- this is a winding up of a company by the Court.

(D) Receivership- this is a remedy for a secured creditor to allow for the realisation of company assets subject to security

(E) Composition or Scheme of arrangement- this is a Court sanctioned procedure where a compromise or other arrangement with creditors or members is made, which is binding if the appropriate majorities of each class of creditors/members agree

(iii) Are summary or expedited proceedings available?

There are no expedited proceedings available. However, the judiciary has a Commercial registry which was designed to be a fast track court to deal only with matters of a commercial nature.

(iv) Are any governmental or other consents required in connection with:

(A) the enforcement of a security interest in shares;

No

(B) the enforcement of a security interest in other assets; or

No

(C) the enforcement of a guarantee (sovereign or otherwise)?

No. The State Proceedings Act provides that you cannot execute against the State

(v) Do lenders inherit all environmental liabilities when they become owner of the shares upon enforcement (or at any other time)?

Yes

(vi) Can security interests be enforced by both private sale and public auction, and is it necessary to appoint a court or other official to carry out the enforcement?

Security interest can be enforced both publicly and privately. A company can appoint a person of its choice to carry out the enforcement. It is not necessary to appoint a Court receiver.

Corporate, Insurance and Employment matters

(a) Corporate vehicle

(i) Project company incorporation:

(A) Type of corporate vehicle

A limited liability company is more appropriate. There are no shareholding restrictions. The minimum capital should be K5, 000,000 (with the current dollar/kwacha rate at US $1 to K4700

(B) Issues relating to thin capitalisation

None

(C) Requirement to have indigenous shareholdings

No such requirement compelling companies to have a certain amount of equity to be held by indigenous Zambians. However under the Citizen Economic Empowerment Act ("the Act"), companies that meet a particular threshold of Zambian shareholding stand to benefit from various incentives provided under the Act. Companies that fall in any of the following categories as defined by the Act stand to benefit;

Citizen Empowerment Company" means a company where twenty-five to fifty percent of its equity is owned by citizens;

"Citizen influenced company" means a company where five to twenty-five percent of its equity is owned by citizens and in which citizens have significant control of the management of the company;

"Citizen owned company" means a company where at least fifty point one percent of it equity is owned by citizens and in which citizens have significant control of the management of the company;

(I) Thin capitalisation requirements

No such requirement

(II) Can a limited liability company be established?

Yes

(III) Is it possible to use a foreign company or a branch of a foreign company to act as project company?

Yes

(D) Estimated timescale for incorporation in the country. Are there any specific fees or other costs payable to governmental authorities in respect of incorporation?

A company can be incorporated within 2-7 days. The fees for incorporating a company with a minimum capital of K5, 000,000 are K245, 000 or 2.5 % of the capital plus K120, 000 where the capital is above the minimum.

(b) General corporate issues

(i) Is a private company free to lend and/or issue guarantees?

Yes

(ii) Are there any restrictions on dividend distribution?

None except it must be out of profits

(c) Insurance

(i) Mandatory insurance: are there any insurances which the project company or the Project is required to have by law (or regulations or similar)?

No

(ii) Is there any minimum requirement to place the insurance with local insurers or any other similar restrictions? If so, can reinsurance be lawfully placed internationally?

The law requires that all assets in Zambia must be insured by an Insurance Company registered in Zambia. However, reinsurance is lawful where the risk involved cannot be covered by the local insurance companies and approval of the Pensions and Insurance Authority.

(iii) Are there any restrictions in respect of granting security rights over the insurances or reinsurances?

No such restrictions

(d) Employment

(i) Legislative/regulatory issues: is there any legislation or regulation impacting on foreign employees, in particular the conditions relating to work and residence permits? Please give an indication of the process and costs in relation to obtaining work and residence permits.

Under the Deportation and Immigration Act, foreign employees must obtain a work permit and the number of foreign employees to be issued with permits will depend on the size investment made as under the Zambia Development Agency, an investor who makes an investment of over $500,000 will get additional incentive to bring more foreign employees into the country .

(ii) Foreign restrictions: are there any restrictions that apply to foreign employees and foreign contractors/subcontractors and if so what do they need to do in order to comply with local legislation?

There are no restrictions applying to foreign employees provided they meet the conditions under the Immigration and Deportation Act. Further foreign contractors are also required to register with the National Construction Council of Zambia for them to participate in any public project.

Land

(a) Land registry: is there a land registry (or similar) in the country that can be searched to confirm whether a project company has granted of any mortgage, charge, option assignment, lien or other encumbrance over the whole or part of the properties or assets of a company?

There is a Lands and Deeds Registry.

(b) Landlord's rights: please indicate whether there are any rights which accrue to the landlord (or the government or any other bodies) that may override the terms of a land lease or threaten the rights of a project company particularly any right of repossession or acquisition.

The only risk of acquisition is under the Lands Acquisition Act where the President has power to compulsorily acquire land provided the necessary market compensation is made.

(c) Direct agreement: are you aware as to whether a direct agreement in respect of a lease has been previously been provided to lenders on other transactions?

Not any we are aware of.

(d) Forfeiture rights: do relief from forfeiture rights exist and would the lenders be entitled to rely on such rights?

Yes they exist. Lenders will only be able to access such rights through a receiver over the company.

(e) Is there any additional legislation governing property rights?

The Lands Act states all land is owed by the President. The President can grant a term of up to a maximum of 99 years.

(f) Are there any formalities with which lenders need to comply when enforcing security over land?

There are no specific formalities provided as this is dependant on the security contract.

International law and arbitration

(a) Supra-national treaties

(i) List all Bilateral Investment Treaties to which the country is party.

Germany and Switzerland (in force); Belgium, Luxembourg, China, Croatia, Cuba, Egypt, Finland, France, Ghana, Italy, Netherlands signed but not in force.

(ii) Is the country a signatory to the Energy Charter Treaty?

No. However, Zambia is a member of the Southern Africa Power Pool which is intended for the strengthening of regional power cooperation. The members include; South Africa, Zimbabwe, Zambia, Democratic Republic of Congo, Malawi, Botswana, Tanzania, Swaziland, Namibia, Lesotho, Angola & Mozambique.

(b) Arbitration

(i) Requirements and restrictions applicable to the choice of arbitration roles and place of arbitration

No such restrictions

(ii) Are foreign arbitral awards / decisions are enforceable in the country (i.e. is the country a party to the New York Convention on the Recognition of Foreign Arbitral Awards (the "Convention")?

Zambia is a party to the Convention and foreign awards are enforceable upon registration with the High Court of Zambia.

Renewable Energy

(a) Has the country enacted any legislation specifically designed to promote and enable the development of renewable energy projects?

No legislation has been implemented specifically designed to promote renewable energy projects.

(b) Is the country is a signatory to the Kyoto Protocol?

Yes

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