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Mining sector under the microscope: Questions raised over offshore bank accounts

Discussion in 'Jukwaa la Siasa' started by BAK, Dec 10, 2007.

  1. BAK

    BAK JF-Expert Member

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    Dec 10, 2007
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    Mining sector under the microscope: Questions raised over offshore bank accounts

    -How much is BoT supposed to know?

    THISDAY REPORTER
    Dar es Salaam

    A MINING sector review committee chaired by the former deputy minister for energy and minerals, Lawrence Masha, last year pointed out serious financial irregularities in the key industry and called for a government investigation into offshore bank accounts maintained by mining companies.

    ’’It is reported that most of the (mining) companies have not been complying with the conditions of submitting monthly bank statements (to the Bank of Tanzania),’’ says part of the committee�s report submitted in September last year but apparently never made public.

    ’’Furthermore, it is observed that the mining companies receive massive funding in the form of unsecured advances from affiliated companies or shareholders’ loans without formal approval from the Bank of Tanzania,’’ the report continues.

    It notes that mining development agreements (MDAs) require mining companies to seek approval from the BoT to open and maintain offshore accounts in order to facilitate disbursement of foreign- sourced loans and repayment of the loans.

    The BoT grants permission for mining companies to maintain these offshore accounts subject to specific conditions, including furnishing of monthly bank statements and closure of the account upon full repayment of the loans.

    As such, the committee recommended in its report that ’’investigations be made on the transactions (of the mining companies)’’ by the Ministry of Energy and Minerals and BoT.

    The report said there was a general consensus among members of the public that Tanzania is getting a raw deal from its mining sector.

    It is believed that although the existing six largest-scale gold mining companies in the country have employed a total of about 8,000 Tanzanians, with mineral exports rising sharply from 0.04 per cent of the total exports values in 1999 to 42.4 per cent in 2005, the current environment is not mutually beneficial for both the government and the companies, all of which are foreign-owned.

    The report echoes public concern that while the companies presented bankable feasibility studies to the government prior to commencing mining operations in the country, none of them has started paying corporate tax todate.

    ’’They claim to have accumulated heavy losses despite a steady rise in the world market gold price since 2002. Paradoxically, the same companies commit large additional capital expenditure,’’ says the report.

    There has also been public concern that even ordinary services to the mines, like laundry and the like, are apparently dominated by foreign service providers.

    Another issue of contention raised was that the reportedly-impressive increase in export values from the mining sector remains not reflected in the country’s actual export earnings.

    ’’These anomalies call for a revisit of the terms and conditions outlined in the mining agreements, and particularly the fiscal incentives provided,’’ the report said.

    Among other things, the committee recommended that the government should maintain current mining royalty rates; 5 per cent for diamonds and uncut gemstones, 0 per cent for cut and polished diamonds and gemstones, and 3 per cent for all other minerals including gold.

    ’’The arte of 3 per cent royalty on gold charged in Tanzania is a world average,’’ said the report.

    It also recommended key changes in government policy and taxation systems, to reap more benefits from the sector. One of these was the instruction of ’’pit ring fencing’’, so that various taxable projects of a mining company are separated with regard to the determination of taxable income. The government was also advised to improve the Value Added Tax (VAT) refund system and abolish the special reliefs on VAT provided to mining companies, except for prospecting licence holders who do not qualify to be registered for VAT.

    The Masha committee was formed by the Ministry of Energy and Minerals in May 2006 to review MDAs and the fiscal regime governing the minerals sector, under instructions from President Jakaya Kikwete.

    Members of the committee were drawn from the Vice-President’s Office (environment); Ministry of Planning, Economy and Empowerment; Ministry of Finance; Prime Minister’s Office (regional administration and local government); and the Ministry of Energy and Minerals.

    The committee also included representatives from the Ministry of Justice and Constitutional Affairs; Tanzania Revenue Authority (TRA); Geological Survey of Tanzania; Bank of Tanzania (BoT); and the State Mining Corporation (STAMICO).

    However, quite surprisingly and for unexplained reasons, the committee’s findings were never released to the public domain, and President Kikwete has now ordered a fresh mining sector review exercise being carried out by a new committee chaired by former attorney general and judge Mark Bomani.

    Masha, meanwhile, has since been appointed deputy minister for home affairs.
     
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