Oil and Gas

UPDATE 3-Zambia hikes mining taxes in 2019 budget to rein in debt

* Mining firms have criticised about high operating costs

* Protesters complain about graft as budget announced

* Western donors worried about debt, transparency (Adds analyst comments)

LUSAKA, Sept 28 (Reuters) - Zambia will introduce new mining duties and increase royalties to help bring down mounting debt, the finance minister said on Friday, a move likely to draw opposition from mining firms.

Miners such as First Quantum, Glencore and Vedanta Resources have often criticised the government over rising operating costs in Africa’s No.2 copper producer.

Finance Minister Margaret Mwanakatwe made the comments when announcing her 86.8 billion kwacha ($7.1 billion) budget to lawmakers as crowds gathered outside parliament to protest against what they said was corruption in government.

Mwanakatwe pledged to bring debt down and to trim the fiscal deficit to 6.5 percent of gross domestic product (GDP) in 2019 from 7.4 percent this year.

She said the economy was expected to grow by at least 4 percent in 2019, around the same as forecast for this year.

Outside parliament, police flanked about 100 protesters in black t-shirts emblazoned with “Zambia Demands Accountability”.

“We are tired of hearing about scandal after scandal concerning the misuse of our national resources,” said Laura Miti, one of the protest organisers.

Concerns about Zambia’s rising debt, alongside accusations of additional hidden borrowing and government corruption, have spooked investors and Western donors in recent months.

Britain and Finland froze funding to Zambia in June on suspicion that $4 million they channelled into a social welfare scheme may have been misused.

The International Monetary Fund has put on hold talk about an aid package due to Zambia’s debts that it describes as unsustainable.

To help tackle debt, Mwanakatwe announced plans to increase the country’s sliding scale for royalties of 4 to 6 percent by 1.5 percentage points and introduce a new 10 percent tax when the price of copper exceeds $7,500 per tonne.

The scale is adjusted so royalties are paid at higher levels as commodity prices climb and are reduced as prices fall.

Lubinda Habazoka, an analyst at Economics Association of Zambia, said mining companies were likely to resist the new royalties but said the government should stand its ground.

“Zambia needs to benefit when copper prices are favourable and the new 10 percent royalty is like a windfall tax,” he told Reuters.

A new 15 percent export duty on precious metals, including gold and gemstones, will be introduced, while copper and cobalt concentrate imports will incur a new 5 percent levy.

“As mineral resources are a depleting resource, it is vital to structure an effective fiscal regime for the mining sector to ensure that Zambians benefit from the mineral wealth our country is blessed with,” Mwanakatwe said. (Reporting by Chris Mfula Writing by Joe Brock Editing by Edmund Blair and Emelia Sithole-Matarise)