When an activist group recently released a secret video of the billionaire Vedanta Resources Plc founder Anil Agarwal boasting before of conference of having swindled Zambians out of the invaluable Konkola Copper Mine (KCM) for a mere $25 million, an explosion of public anger followed, including urgent calls for state action to correct the injustice.
But following an extensive investigative report, sources have revealed that Agarwal may not be the only Indian businessman who will come under fire for the flawed transaction, as the embattled Finance Bank Chairman Rajan Mahtani has also been linked to the KCM scandal from its very beginning.
The Mahtani-Agarwal Friendship
Back in 2002, President Levy Mwanawasa faced an existential crisis. After only two years, the country’s then-largest foreign investor, Anglo-American Corporation, decided to pull out of KCM citing “feasibility issues” and reduced its shareholding from 65% to 28%. With thousands of jobs on the line and a major hole in the state revenue, President Mwanawasa began desperately searching for a new investor.
The president was then approached by his former client, Mahtani, who during this period of the presidency (before they had fallen out) was known as a “kingmaker” for arranging deals with the government. Through his ties in London, he had befriended Mr Agarwal and proceeded to make introductions and set up the first meetings between the Indian owner of Vedanta and President Mwanawasa paving the way forward for the extraordinarily questionable sale of KCM for $25 million to his colleague when company assets held an estimated value of well over $350 million.
It wasn’t the first time the Finance Bank founder was involved in a shady mining deal. In 1997, Mahtani helped to broker the deal for another Indian foreign investor – the Binani Group of Companies – to acquire the troubled Luanshya mine (also know as Roan Antelope Mining Company, or RAMCOZ) for a steeply discounted price along with promises of heavy capital investment and development.
As is well known to people in the area, Mahtani’s arranged sale of RAMCOZ to Binani turned out to be a catastrophe. As soon as the assets were taken over by the Indian foreign investors, the Luanshya smelter was switched off and scrapped, while all major components were stripped and exported to other countries. Not long afterward, the Binani group shut down the Ndola copper refinery, turning the once thriving area into a ghost town. The government watched helplessly as the investors, who were paying for the assets on a delayed schedule, tore the company apart, failing to pay salaries, and causing riots among workers. After RAMCOZ was placed into receivership and audited by Grant Thornton, the company had created a $20 million debt with ZESCO, all with the help and close cooperation of Mahtani.
Controversy among Indian Community
Despite working closely to help enrich Agarwal and Binani Group in these deals, Mahtani has a much more controversial history among Zambia’s Indian business community, where many people have fallen victim to the combined power of his political ties and majority ownership of Finance Bank (which is illegal under Zambian banking code).
Investigations have further revealed that one particular couple who fell afoul of Mahtani back in 1999, Mr. Ajesh Patel and his wife Abba Patel, nearly lost their entire company to Mahtani. At the time, when Abba Patel was serving as Mahtani’s legal counsel in Ndola, the two allegedly began a love affair, according to local sources. As the relationship developed, Abba managed to convince Mahtani to provide financing for her husband’s multi-million dollar juice and Coca-Cola bottling plant in Ndola, Invesco Ltd.
Sources say that soon after Mahtani had arranged the funding for the bottling plant, the husband discovered the affair between his wife and the financier, and confronted him, creating bad blood between the two. To take revenge for this embarrassment, sources say that Mahtani demanded a full repayment of the entire loan within 30 days, a common method he has used to seize other assets numerous times since. Luckily, the cuckolded Mr Patel was able to secure refinancing from the Development Bank of Zambia (DBZ) to save Invesco Ltd., and has since turned it into an admired, successful company. The Patels took Mahtani to court over the damages he caused to the company and prevailed with a favourable judgment.
Questions Continue to Surround Mahtani-Agarwal
The situation at KCM under Vedanta is clearly not the same kind of asset stripping that Mahtani was involved in at RAMCOZ or the rough business with the Patel family. In fact, according to the company’s crisis control CEO Tom Albanese, the company has allegedly made $2.9 billion of capital investment and taken out just $73 million in dividend payments (which differs from Agarwal’s claims in the video).
But the existence of Mahtani’s fingerprints on this deal, especially in light of the Finance Bank scandals and other issues before the courts, are certain to raise more questions about the transparency of the KCM transaction back in 2004.