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.
By David Mihalyi, Natural Resource Governance Institute, and Jim Cust, the World Bank
This post originally appeared on resourcegovernance.org on November 29, 2017
Resource-rich countries tend to experience slower economic growth and more social problems than do less-endowed countries—a phenomenon dubbed the “resource curse.” But it turns out that in many cases, economic growth begins to underperform long before the first drop of oil is produced; this we call the “presource curse.”
In a recent research paper, we found that, following oil discoveries, growth systematically underperforms the forecasts made by the International Monetary Fund. For certain countries with weak institutions, the discoveries have even led to significant growth disappointments, compared with pre-discovery trends.
We propose that the presource curse is driven by elevated expectations. Expectations can in turn drive suboptimal behavior. For example, governments may be pressured by voters to embark on risky borrowing on the back of overly rosy projections.
To find out more, read our new article published in Finance and Development.
The underlying World Bank research paper provides econometric evidence of this phenomenon.
Elsewhere, we discuss how expectations of resource wealth drove policy making in Ghana, Lebanon, Mongolia, Mozambique and Sierra Leone. On the other hand, Tanzania is an example of a country that so far has avoided the presource curse.
Our brief on premature funds discusses the risks of governments creating sovereign wealth funds in countries when resource revenues are small, distant or uncertain.
David Mihalyi is an economic analyst with the Natural Resource Governance Institute.
Jim Cust is an economist in the Office of the Chief Economist, Africa, at the World Bank.
By Johnny West, OpenOil
This post originally appeared on OpenOil.net on March 15, 2018
This analysis was referenced in an April 8, 2018 Bloomberg article "Exxon Sparks IMF Concern With Weighty Returns in Tiny Guyana."
Guyana’s first and major oil deal, with ExxonMobil, produces results for the government which are outlier low, an OpenOil financial model reveals. Over the life of the project the government should expect to see from 52% to 54% of profits, compared to well over 60% in a cluster of comparable projects signed in other frontier countries.
The gap could cost the small South American country billions of dollars, as successful drilling continues apace in the Stabroek field, and recoverable reserves figures climb into the billions of barrels.
The relatively low performance of the Stabroek terms, first signed in 1999 and renegotiated in 2016, following the first significant discovery the previous year, holds under a wide variety of market and field size conditions.
There is also a significant possibility, as reserves growth gathers pace, that Exxon and its partners Hess and Nexen could achieve “super profits”, rates of return of over 25% and edging considerably higher under certain conditions, as this profit map of the project shows.
The agreement has become controversial in Guyana in the past year or so and the contract was published by the government at the end of 2017 to allow public scrutiny. The financial model and this accompanying narrative are based on that contract, as well as public statements and media reports giving details of reserves, development lead time and costs.
Even under conservative assumptions, Stabroek will transform Guyana. Government revenues could hit a billion dollars a year by 2024 – more than the entire current government budget.
The 52% Average Effective Tax Rate (also known as “the government take”) is lower than a general rule of thumb of 60% to 80% government take in oil projects, and also from a range of frontier projects in Ghana, Senegal, Papua New Guinea, Mauritania and Guinea, which were comparable at the time of signature. A more detailed description of the comparison methodology is laid out in the Annex to the narrative report.
What is significant here is to understand the role reserves growth scenarios could play in increasing company rates of return. At the currently stated field size of 450 million barrels in Stabroek, for example, the company does not reach “super profits”, defined here as an Internal Rate of Return (IRR) of 25% or more, until a price point of $75 per barrel for oil. But this field size relates only to the first stage of development of the field now underway, with first oil anticipated for 2020. A second phase is now under active consideration by the companies, with a projected production plateau which could be twice as high as in the first phase. If the amount of oil produced rose only modestly, compared to Exxon’s declared reserves, to 750 million barrels, the superprofit level (25% IRR) could be reached at $50 per barrel – below today’s prices. At a billion barrels, that stage could be reached with prices in the $40s per barrel.
The FAST-compliant financial model and accompanying report are part of OpenOil’s public interesting financial modelling library, part of a practise as commercial and financial analysts to governments and public policy makers.
A second stage of the model will be published in the coming weeks, to incorporate feedback from interested parties, and quantify how revenue streams could play for both investors and the government under a modified fiscal regime.
For further enquiries contact email@example.com
By Alexander Malden, Governance Associate; Toyin Akinniyi, Media Capacity Development Associate; Zira John Quaghe, Nigeria officer - Natural Resource Governance Institute (NRGI)
This post originally appeared on resource governance.org on April 10, 2018
On Monday, Shell released its payments to governments report for 2017, the company’s third year of reporting under the U.K.’s Reports on Payments to Governments Regulations. Nigeria national media closely covered the disclosure.
In the 24 hours since Shell published its report, six national media outlets in Nigeria--Punch, Vanguard, This Day, The Cable, World Stage and Leadership—have analyzed the news.
This level of immediate national press coverage reaffirms the importance of payments to government data to citizens in resource-rich countries, and how it is increasingly informing national debates on countries’ natural resources management.
Similar laws to the U.K.’s in Europe and Canada have come into force over the last few years to shed light on billions paid to governments around the world by oil, gas and mining companies. Greater disclosure of these financial flows can deter corruption and mismanagement in the natural resource sector.
Shell reported payments made to governments in 29 countries amounting to USD 22.4 billion in 2017. Nigeria is the largest payment recipient at USD 4.3 billion (NGN 1.5 trillion), a USD 700 million increase on the amount Shell paid to Nigerian government entities in 2016. As analysis by Vanguardnoted, this NGN 1.5 trillion figure represents 15 percent of Nigeria’s NGN 10.6 trillion total government revenue for 2017. (This total includes both oil and non-oil sources.)
Shell is the third international oil company to disclose payments to Nigerian government entities for 2017, with Statoil (USD 469 million) and Total (USD 1.15 billion) having already reported in March. Chevron, CNOOC, Eni and Seplat are all expected to disclose payments for 2017 by the end of May.
The stories written include analysis breaking Shell’s Nigeria payments up by recipient government entity (USD 3.2 billion to the Nigerian National Petroleum Corporation; USD 80 million to the Niger Delta Development Commission; USD 280 million to the Department of Petroleum Resources; and USD 765.5 million to the Federal Inland Revenue Service) and by payment type (USD 3.2 billion to production entitlement; USD 765.5 million in taxes; USD 245.7 million in royalties; and USD 114 million in fees).
NRGI has been working to promote the use of this data in Nigeria. In December, NRGI published Nigeria’s Oil and Gas Revenues: Insights from New Company Disclosures. The briefing explores how payments to governments data from Shell and six other international oil companies operating in Nigeria could be used to hold the government accountable for revenues generated from the sector.
NRGI is co-hosting a meeting with nongovernmental organization Connected Development in Abuja on Wednesday with around 20 Nigerian civil society organizations to launch the briefing. We aim to explore new ways in which civil society within the country can use this data as an accountability tool. NRGI has already been working to support Nigeria civil society organizations to use this data, including working with BudgIT, which produced infographics analyzing Shell’s 2016 payments to governments report.
NRGI also works with Nigeria-based journalists through the Media for Oil Reform Fellowship to promote the use of extractives industries data. Program fellow and Punch senior correspondent ‘Femi Asu was among the journalists who reported on the Shell disclosure.
As a new data source—most companies have reported for only the second or third time this year—it is exciting to see stakeholders in Nigeria engaging with payments to governments data as an informative and accountability tool.
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