By Mukasiri Sibanda, Zimbabwe Environmental Law Association (ZELA)
This post originally appeared on mukasirisibanda.wordpress.com on June 10, 2018
On 6 June 2018, Zimbabwe Platinum Mines (Zimplats) publicly announced that it has amicably resolved a six-year long dispute with government which was seeking to compulsorily acquire part of its mining claims measuring 27,948 hectares. This dispute was pending in the courts of Zimbabwe.
Consequently, Zimplats agreed to release 23,093 hectares to government “to ensure participation by other investors in the platinum mining industry.” Zimplats now owns 24,632 hectares with a new special lease valid for the lifetime of the mine. A significant development that warrants public scrutiny into how well the country’s mineral wealth is governed for the benefit of all Zimbabweans.
It is a positive development that this dispute was amicably resolved. But it must be noted that the dispute had been going on for six-long years, and such lengthy period riddled with uncertainty on government’s commitment to property rights and Zimbabwe as an unattractive investment destination. Such disregard for investment agreements also provides scant comfort to existing and prospective investors.
Notably, Zimbabwe is one of the least attractive investment destination according to Fraser Institute’s Policy Perception Index. Interestingly, Zimbabwe’s mineral potential is ranked among the top under the same organisation’s Mineral Potential Index. This partly explains why, despite Zimbabwe’s abundant mineral wealth, the country is struggling to attract much needed investments to realise the sustainable development dividend from its huge mineral wealth endowment.
One could also spin the agreement between Zimplats and government as positive in that the released land creates space for the entrance of new players in the platinum industry. In all mineral sectors, the entrance of new players is largely problematic as most of the land has been taken.
It is noteworthy that the new Minister of Mines, Honourable Winston Chitando publicly stated during the Chamber of Mines AGM held last month that from next year, government will enforce the law on renewal of mining titles. Paying ground rental and mining inspection fees will no longer suffice, but evidence to back capital expenditure will be required. He stressed that this is not a new requirement at all. Perhaps Zimplats was cornered by this development and it had no option but to release the ground. In this regard Chitando’s leadership is coming to bear, a man with strong private mining sector background.
Worryingly, Zimplats got a new mining lease valid for the life span of the mine. Its special mining lease was due to expire in August 2019. Terms and conditions of the new special mining lease have not been disclosed. What we know is that in the previous mining lease, Zimplats had a 2.5% royalty stabilisation agreement with government which undermined the country tax code in which platinum royalties were pegged at 10%.
In 2015, Zimbabwe Revenue Authority (ZIMRA)’s annual revenue performance report revealed that mineral royalty income was in the red at $19,421,653.62. A factor attributed to a royalty refund of $101.55 million. Although the report did not state Zimplats, the refund came after Zimplats had won a court dispute with the tax agency on legality of the 2.5 percent royalty stabilisation agreement with Ministry of Mines.
Section 315 (2) (c) of the Constitution requires transparency and accountability in the negotiation and performance monitoring of mining contracts. It remains to be answered whether Parliament was involved in this deal? A government that was established against the backdrop of restoring order should be at the forefront of respecting the Constitution.
Now that government is in possession of released ground, what happens next? The privately-owned Zimbabwe Independent on Friday reported that Lucas Pouroulis, whose company Karo Resources, last month signed a $4.2 billion platinum deal with government, has been given the land in the resource rich Great Dyke.
The African Mining Vision, to which government is a signatory, cautions that known mineral reserves should be disposed through bidding to allow room for government to pick an investor who offers greater development outcomes like infrastructure, skills development, technology transfer and the development of local supply chains in addition to taxes.
The secrecy around the deals being announced currently leaves too much room for corruption. Lessons can be learnt from the acquisition of claims from Anglo American owned Unki Mine by government in 2008 as empowerment credits, which ended up in the hands of speculators. Government got $100 million from CAMEC, which later resold the Bougai and Kironde claims for nearly $1 billion dollars.
Much as Parliament is preoccupied with the issue of allegedly missing $15 billion diamond revenue from Marange, a lot is going on in the mining sector with mega deals being announced frequently. Parliament should keep its eye on the ball.
In 2014, Niger announced it had successfully renegotiated uranium extraction contracts with French state-owned company Areva to secure a greater share of the wealth deriving from their uranium resources. Three years later, an analysis carried out by Oxfam based on data released by Areva calls into question the benefits for Niger in the contract renegotiation.
This analysis was carried out as part of the data extractor program developed by Publish What You Pay.
You can read more about Areva in Niger and more in the English version of “Beyond Transparency: Investigating the Investigating the New Extractive Industry Disclosures.” This report was published by Publish What You Pay France, Oxfam France, ONE, and Sherpa.
Understanding the context: why is Nigerien uranium so important for Areva?
Uranium is a strategic commodity for France. More than 75% of electricity produced in France comes from nuclear power. Most of the uranium used for nuclear combustion in France is supplied by Areva. Up to 1 in 5 lightbulbs in France would be lit up thanks to Nigerien uranium.
For years, civil society organizations have called out Areva for the uneven partnership with Niger. Despite vast resources in uranium, Niger has yet to convert this valuable resource into tangible wealth: the country still ranks second to last in the Human Development Index.
The renegotiation: a game-changer for Niger?
In 2013, Oxfam and ROTAB, a Nigerien NGO – both members of Publish What You Pay – launched a campaign denouncing the unbalanced partnership between Areva and Niger and calling for the renegotiation of the contracts. Oxfam and ROTAB specifically pointed that Areva’s contracts included a sweetheart clause enabling Areva to pay a lower rate of royalty than the applicable regime in Niger. Royalties make up the majority of uranium mining revenues to the Nigerien government.
In 2014, after months of pressure from civil society organizations around the world, Areva and Niger agreed to a new contract without the sweetheart clause. In June 2014, a Strategic Partnership Agreement signed between Areva and Niger stressed that Areva would be subject to the legal royalty regime, raising hopes of a fairer share of the revenues for Niger. This agreement was published on the Journal Officiel- the official gazette of the Republic of Niger where major legal official information are published.
In August 2016, Areva released for the first time the payments the company makes to governments where it mines uranium, as part of new EU regulations. In Niger, it was the first time the public had access to Areva’s payments since the renegotiation took place in Niger. And the results are surprising:
By Aaron Sayne, Alexandra Gillies, Andrew Watkins, Natural Resource Governance Institute
This post originally appeared on resourcegovernance.org on April 6, 2017
Oversight actors can detect and prevent corruption in the oil, gas and mining sectors if they ask the right questions. Corruption schemes can be complex and opaque, yet clear patterns and similar signs of problematic behavior do exist across resource-rich countries.
To find these, we examined over 100 real-world cases of license or contract awards in the oil, gas and mining sectors in which accusations of corruption arose. The cases come from 49 resource-producing countries.
Based on this work, we developed a list of 12 red flags of corruption in extractive sector license and contract awards, with real-world illustrations for each. This list can provide a concrete, practical tool for many types of actors, not least:
Download the full report on resourcegovernance.org
By Rachel Etter-Phoya, Citizens for Justice
This post originally appeared on the Natural Resource Governance Institute blog on April 5, 2017
What royalties should companies pay? What can governments hope to earn in the future? Do the companies really need tax reductions?
Access to contracts signed between extractive companies and governments can help answer questions like these. In many countries, however, extractive sector contracts remain closely guarded secrets and access to them has often been highly restricted, even within government. This limits the potential not only for effective citizen oversight, but also oversight from government bodies responsible for regulating parts of the industry.
Seeking answers, a group of both expert and aspiring financial modelers met in October 2016 in a rather sleepy German town to begin the work of using public domain information to dig deeper into oil and mining projects in their countries. Berlin-based OpenOil has been championing the process to improve transparency in the sector.
Malawians have been advocating long and hard for governments and companies to publish mining and petroleum contracts so that they might better understand the terms by which the country’s non-renewable resources are extracted.
When Malawi joined the Extractive Industries Transparency Initiative (EITI) in 2015, civil society in Malawi made sure that contract transparency was in the first work plan. Although officials at the Ministry of Natural Resources, Energy and Mining said that hard copies of the agreements were publicly accessible at the Department of Mines offices in 2015, it was still hard for most people to access them.
Six months later, the Malawi EITI Secretariat made two mining contracts available. These contracts were released on ResourceContracts.org. In doing so, Malawi became one of the majority of EITI implementing countries that publish contracts.
Building a financial model
Grain Malunga, a former minister responsible for mining in Malawi, and I used the 2007 mining development agreement for Kayelekera uranium mine, found on ResourceContracts, to build a financial model of Malawi’s largest mine, which contributed about 3 percent to the country’s 2013 GDP. The mine is operated by Paladin Energy.
ResourceContracts documents are annotated by legal experts, meaning we had access to contextualized information about key obligations, including fiscal provisions, which aided in building the financial model.
We examined possible future scenarios for government revenue and for the mine, which is on care and maintenance (meaning that production has stopped, but the site is being managed to allow for potential recommencing of operations at a later date) due to depressed uranium prices and high operating costs.
As we modeled the fiscal regime, we learned that the break-even price—which the owner would need to obtain to cover the costs of extraction—was more than double the price of uranium at that time. The government has generated USD 12 million to date from royalties, but lost out on a further USD 15 million due to reduction in royalty rates. This was a result of mining development agreement negotiations that gave the Malawian government a 15 percent free carry equity stake in Paladin Africa, part of the Paladin Energy group of companies and the holder of the group’s interest in Kayelekera. We concluded that a further royalty reduction would only marginally increase the break-even price.
Much speculation surrounds when or if the mine will resume operations. The model has improved public awareness of what factors need to change, such as price, production to resume. As part of the Malawi EITI multi-stakeholder group, I hope to use similar skills and tools to produce financial models for projects in the exploration phase. In doing so, Malawian civil society hopes to ensure that our expectations—regarding revenues as well as impacts on local communities—are grounded in reality.
The ResourceContracts platform is an online repository of oil, gas and mining contracts developed in partnership between the World Bank, NRGI and CCSI. The site enables civil society organizations, members of affected communities, government officials, researchers, and other stakeholders to search for contracts; view summaries of contracts’ key environmental, social, operational and fiscal provisions; and download full contracts as open data. The site was relaunched in 2015 with new features and contracts.
Rachel Etter-Phoya is an integrated expert on accountability, natural resource governance and public financial management at Citizens for Justice in Malawi.
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