New African » July 2010
An election year anywhere in the world is usually a year when the government is compassionate to the electorate. With various players wanting to grab power and rule, appeasing the ordinary people tends to be at the heart of the sitting governments initiatives. Not so in Tanzania, it appears, even though parliamentary and presidential elections are scheduled for 31 October. Sakina Zainul Datoo reports that a new Mining Act passed in April is worsening matters for the government. 


President Jak aya Kikwetes ruling CCM party in power since independence in 1961 is facing its stiffest electoral competition in October. The president himself is seeking a second term, but he has surprised many with the harsh tone he used in May against civil servants who threatened to go on strike if their minimum monthly wage of Tsh60,000 ($43) was not increased to Tsh315,000 ($224). And not only that: they also threatened to shift their voting allegiance elsewhere too.


In response, President Kikwete said the country could simply not afford this demand, and could only increase the minimum salary to Tsh105,000 ($75) this year. He warned the civil servants that they would be replaced if they went on strike, and in any case he did not really care too much for their votes since he was confident others would vote for him. 

Some analysts said the presidents harsh tone showed desperation.
Desperation that comes from being a poor nation that cannot guarantee its civil servants a living wage, one analyst pointed out. The irony however is that Tanzania is endowed with riches beyond imagination under its soil. 

So far, the country has discovered gold, diamonds, silver, tantalite, coltan, steel, iron ore, emeralds and sapphires. Depos- 

64 | New African July 2010 

its of cobalt, copper, natural gas, nickel, and titanium are also known to occur in Tanzania. It is also the only place in the world where tanzanite, translucent green opal, malaya garnet, and umbellate garnet are found.
Next year, the country will start mining uranium. 

But despite all this wealth, which has made foreign mining companies superrich, most Tanzanians still live in the agony of poverty. No wonder, in the past few years, the Tanzanian media has been awash with criticism of the way the mining sector has been handled. In the end, pressure from parliament, and the media, led President Kikwete to form a commission in 2007 chaired by Judge Mark Bomani to probe accusations of theft of natural resources and human rights violations. 


The Bomani Commission found that Tanzania did not benefit sufficiently from the multitude of natural resources under its soil. Its findings resulted in a new Mining Act, which was passed by parliament on 23 April this year. 

However, for all the goodwill that went into reviewing the mining sector, the new law still does not offer any significant changes.
One major component absent from the new law is an extremely important windfall tax clause. 

Windfall tax is levied by governments 
President Jakaya Kikwete is seeking a second term in office in October, but in May he gave no quarter to civil servants wanting a huge jump in pay against certain industries when economic conditions allow those industries to experience above-average profits.
Using gold (of which Tanzania is Africas third largest producer) as an example, its price has consistently gone up on the world market. Thus, if Tanzanian mining contracts had had a windfall tax built into them, the country would have reaped a huge dividend over the years. 

As an illustration, when the Canadian multinational Barrick Golds Bulyanhulu Mine in Tanzania started in 2001, an ounce of gold fetched $271 on the world market. Since then the Tanzanian government has been calculating royalty and taxes at that price despite the fact that an ounce of gold now sells at approximately $1,200 on the world market.


According to Dr Peter Kafumu, Tanzanias commissioner for minerals, calculating windfall tax can be very cumbersome as you must balance and reduce other taxes and make it clear how this will be calculated. Examples do exist in Africa where mining legislation in some countries like Ghana, Botswana and South Africa ended up removing the [windfall] clauses in their subsequent reviews. 


But Tundu Lissu, the executive director of the Lawyers Environmental Action Team (LEAT) and a well-known critic of the mining industry, begs to differ. These are mere excuses by mining officials for not doing their job, he said. But they are the last people to tell us about simplicity given how complicated they make all their documents. 

Lissu pointed out that many countries, including Britain, have windfall tax clauses in their legislature. Australia too has just introduced 40% profit tax. Profit tax is another name for windfall tax, he said. 

Tanzanias new Mining Act has meanwhile increased the rate of royalty paid on minerals like gold from 3% to 4%.
Zitto Kabwe, a member of the presidential commission formed to probe mining contracts, told Reuters soon after the Act was passed that the changes in the method of calculating royalties by using the gross value of minerals instead of the net value would significantly improve revenues for the government.
However, this change does not affect current agreements with foreign mining companies. Of the seven gold mining companies operating in Tanzania, only one, Geita Gold Mine (GGM), owned by Anglo Gold Ashanti, has paid any corporate tax. This started in 2006, to the tune of about $2m per year, six years after the company started production. 

Others like Golden Pride Project (Resolute Limited) which has been mining since 1998 have yet to declare profits and pay any corporate tax.
According to Dr Kafumu, who spoke to New African in London recently, Golden Pride is currently locked in discussions with the Tanzania Revenue Authority (TRA) over this matter. And none of Barrick Golds four mines in Tanzania has paid any corporate tax.
Bulyanhulu for example, began mining in 2001 and nine years on, has yet to contribute significantly to national coffers. It is expected to start paying corporate tax in 2013. 

There are two main reasons why Tanzania has failed to benefit from corporate tax payments. An independent audit conducted by Alex Stewart Assayers (ASA) in 2003, and leaked to the media in 2006, alleged that four gold mining companies overstated their losses by $502m between 1999 and 2003, indicating that the government lost revenues of $132.5m.
The audit also noted that thousands of documents were missing that would have shown whether royalties valued at $25m were, in fact, paid. 

But Dr Kafumu told New African that the ASA report was misleading. They dont even maintain a proper website, you know how people are looking for money, they were like that and ended up in Tanzania in controversial circumstances that I cannot comment on as the case is currently in court, the commissioner for minerals said. 

But while ASAs entry into Tanzania may be shrouded in controversy, their reports for the first time revealed the exploitation by foreign mining companies who continuously under-declare their profits despite the gold price increasing all the time on the world market. 


Independent audit reviews commissioned by Tanzanian newspapers, based on official figures given by the mining companies themselves, came to the same 

29 August 2008: President Jakaya Kiwete (left) in the White House with President George W. Bush conclusions as the ASA reports. 

But the government terminated the ASA contract in 2007, and since then the government has been auditing gold mining itself.
Asked what his assessment of these government audit reports was, Lissu said: I havent seen the reports but I can definitely say what they contain. They contain what foreign mining companies want them to contain. Lost opportunity In 2008, a joint report titled, A Golden Opportunity? released by the Christian Council of Tanzania (CCT), the National Muslim Council (BAKWATA) and the Tanzania Episcopal Conference (TEC) in collaboration with Christian Aid (UK) and Norwegian Church Aid showed that the government had incurred great losses of tax revenue from mining.
We calculate that Tanzania has lost at least $265.5m in recent years as a result of an excessively low royalty rate, and government tax concessions that allow companies to avoid paying corporate tax, the report said. 

Even then the $265.5m was deemed as a conservative estimate as it did not cover all the gold mining companies operating in the country or all the figures for the years under review (which were not publicly available). 


Commissioned by the three main religious bodies in Tanzania, the report said: Company figures show that AngloGold Ashanti has paid taxes and royalties totaling $144m in 20002007 and over the same period has sold around $1.55bn worth of gold, meaning that it has paid the equivalent of around 9% of its exports in remittances to the government. 

Barrick Gold, meanwhile, does not state on its website how much in taxes and royalties it pays to the Tanzanian government our calculations show that it is paying a figure equivalent to around 13% of its export sales in remittances to the government. 


The report confirmed that few mining companies have paid corporation tax (levied at 30% of profits) because they have consistently declared losses. 

The report identif ied loopholes in 

Tanzanias tax regime that made it possible for mining companies to manipulate the system. The countrys generous tax concessions mean that companies are able to avoid declaring a taxable income, the report added. 

It also showed that over the last five years, Tanzania exported gold worth more than $2.5bn but only received $21.7m a year in royalties and taxes while the expectation was to get $100m annually. 


But according to Dr Kafumu, the mining sector presently contributes 3% to the countrys GDP, and this, he says, is enough. 

The other controversy surrounding the new mining law is the inclusion of an exemption in the ownership clause regarding ruby and tanzanite mining. According to the new legislation, Tanzania will not issue new gemstone mining licences to foreign companies.

Of the seven foreign gold mining companies operating in Tanzania, only one has paid any corporate tax to the government. 

Tanzanians own the companies mining tanzanite and ruby. But this, according to Dr Kafumu, spells ruin for the tanzanite industry in particular. Mark my words, he told New African, in three years time, the industry will be in trouble as we have chased away foreign investors through this clause. It means, when the contract of Tanzanite One [the countrys main tanzanite producer] ends in 2012, we will not be able to renew it. 


For once, Lissu agreed with Dr Kafumu: He told New African that the tanzanite ownership clause doesnt make any bloody sense. 

This is because, the clause contains an exemption that says for a company to get a tanzanite mining contract, at least 25% of its shares must be held by a Tanzanian. This exemption was particularly put there to protect gemstone producer Tanzanite One and negates the whole clause; so really, it makes no difference at all, said Lissu.
George Bushs connection According to high-level sources, initially there was a sincere political will in President Kikwetes government to revamp the mining sector, which despite its huge potential, has not benefited the country due to its exploitation by foreign mining companies. However, soon after settling into office, the president was summoned to the USA and politely asked to let Barrick Gold flourish in Tanzania. In exchange, Tanzania received the largest amount of American assistance, $700m, which in the words of the then American President George Bush, was the largest Millennium Challenge grant ever given in the history of our nation. 


Furthermore, to show appreciation for Tanzanias understanding, President Bush visited the country in 2008, spending three of his seven-day African tour in the mineral-rich nation. 

As a thank you gesture to the people of Tanzania, President Bush distributed 5.2 million Tanzanian-made bed nets (worth about $1m) to Tanzanians to save them from the killer disease, malaria. 


Critics pointed out that the compromises made by the Tanzania government in the mining industry were because of George Bush and his fathers alleged close ties with Barrick Gold. Said Lissu: What do you expect 47% of our budget comes from American dollars. 100% of our development budget is foreign-funded. This results in our governments hands being tied when it comes to dollar-countries and foreign companies from dollar-countries.
The Millennium Challenge Account was a way of keeping us tied up. 

Meanwhile, Tanzanias commissioner for minerals, Dr Peter Kafumu, is worried that the new Mining Act will chase away the present investors in the country, who, he says, are not happy with the new law. 

The Tanzania Chamber of Minerals and Energy (TCME) for example, issued a statement saying certain provisions of the new Mining Act as approved by parliament on 23 April 2010 are bound to hold back the growth and development of a sustainable and competitive mining industry in Tanzania.


The Act, which was intended to clear the imbalances and uncertainties of the past, unfortunately ended up with a framework likely to damage the confidence in Tanzania of both existing and prospective investors, the TCME added, and appealed to the government to take urgent corrective measures before extensive damage is done to Tanzanias budding mining industry.
An election year anywhere in the world is usually a year when the government is compassionate to the electorate. With various players wanting to grab power and rule, appeasing the ordinary people tends to be at the heart of the sitting governments initiatives. Not so in Tanzania, it appears, even though parliamentary and presidential elections are scheduled for 31 October. Sakina Zainul Datoo reports that a new Mining Act passed in April is worsening matters for the government. 


President Jak aya Kikwetes ruling CCM party in power since independence in 1961 is facing its stiffest electoral competition in October. The president himself is seeking a second term, but he has surprised many with the harsh tone he used in May against civil servants who threatened to go on strike if their minimum monthly wage of Tsh60,000 ($43) was not increased to Tsh315,000 ($224). And not only that: they also threatened to shift their voting allegiance elsewhere too.


In response, President Kikwete said the country could simply not afford this demand, and could only increase the minimum salary to Tsh105,000 ($75) this year. He warned the civil servants that they would be replaced if they went on strike, and in any case he did not really care too much for their votes since he was confident others would vote for him. 

Some analysts said the presidents harsh tone showed desperation.
Desperation that comes from being a poor nation that cannot guarantee its civil servants a living wage, one analyst pointed out. The irony however is that Tanzania is endowed with riches beyond imagination under its soil. 

So far, the country has discovered gold, diamonds, silver, tantalite, coltan, steel, iron ore, emeralds and sapphires. Depos- 

64 | New African July 2010 

its of cobalt, copper, natural gas, nickel, and titanium are also known to occur in Tanzania. It is also the only place in the world where tanzanite, translucent green opal, malaya garnet, and umbellate garnet are found.
Next year, the country will start mining uranium. 

But despite all this wealth, which has made foreign mining companies superrich, most Tanzanians still live in the agony of poverty. No wonder, in the past few years, the Tanzanian media has been awash with criticism of the way the mining sector has been handled. In the end, pressure from parliament, and the media, led President Kikwete to form a commission in 2007 chaired by Judge Mark Bomani to probe accusations of theft of natural resources and human rights violations. 


The Bomani Commission found that Tanzania did not benefit sufficiently from the multitude of natural resources under its soil. Its findings resulted in a new Mining Act, which was passed by parliament on 23 April this year. 

However, for all the goodwill that went into reviewing the mining sector, the new law still does not offer any significant changes.
One major component absent from the new law is an extremely important windfall tax clause. 

Windfall tax is levied by governments 
President Jakaya Kikwete is seeking a second term in office in October, but in May he gave no quarter to civil servants wanting a huge jump in pay against certain industries when economic conditions allow those industries to experience above-average profits.
Using gold (of which Tanzania is Africas third largest producer) as an example, its price has consistently gone up on the world market. Thus, if Tanzanian mining contracts had had a windfall tax built into them, the country would have reaped a huge dividend over the years. 

As an illustration, when the Canadian multinational Barrick Golds Bulyanhulu Mine in Tanzania started in 2001, an ounce of gold fetched $271 on the world market. Since then the Tanzanian government has been calculating royalty and taxes at that price despite the fact that an ounce of gold now sells at approximately $1,200 on the world market.


According to Dr Peter Kafumu, Tanzanias commissioner for minerals, calculating windfall tax can be very cumbersome as you must balance and reduce other taxes and make it clear how this will be calculated. Examples do exist in Africa where mining legislation in some countries like Ghana, Botswana and South Africa ended up removing the [windfall] clauses in their subsequent reviews. 


But Tundu Lissu, the executive director of the Lawyers Environmental Action Team (LEAT) and a well-known critic of the mining industry, begs to differ. These are mere excuses by mining officials for not doing their job, he said. But they are the last people to tell us about simplicity given how complicated they make all their documents. 

Lissu pointed out that many countries, including Britain, have windfall tax clauses in their legislature. Australia too has just introduced 40% profit tax. Profit tax is another name for windfall tax, he said. 

Tanzanias new Mining Act has meanwhile increased the rate of royalty paid on minerals like gold from 3% to 4%.
Zitto Kabwe, a member of the presidential commission formed to probe mining contracts, told Reuters soon after the Act was passed that the changes in the method of calculating royalties by using the gross value of minerals instead of the net value would significantly improve revenues for the government.
However, this change does not affect current agreements with foreign mining companies. Of the seven gold mining companies operating in Tanzania, only one, Geita Gold Mine (GGM), owned by Anglo Gold Ashanti, has paid any corporate tax. This started in 2006, to the tune of about $2m per year, six years after the company started production. 

Others like Golden Pride Project (Resolute Limited) which has been mining since 1998 have yet to declare profits and pay any corporate tax.
According to Dr Kafumu, who spoke to New African in London recently, Golden Pride is currently locked in discussions with the Tanzania Revenue Authority (TRA) over this matter. And none of Barrick Golds four mines in Tanzania has paid any corporate tax.
Bulyanhulu for example, began mining in 2001 and nine years on, has yet to contribute significantly to national coffers. It is expected to start paying corporate tax in 2013. 

There are two main reasons why Tanzania has failed to benefit from corporate tax payments. An independent audit conducted by Alex Stewart Assayers (ASA) in 2003, and leaked to the media in 2006, alleged that four gold mining companies overstated their losses by $502m between 1999 and 2003, indicating that the government lost revenues of $132.5m.
The audit also noted that thousands of documents were missing that would have shown whether royalties valued at $25m were, in fact, paid. 

But Dr Kafumu told New African that the ASA report was misleading. They dont even maintain a proper website, you know how people are looking for money, they were like that and ended up in Tanzania in controversial circumstances that I cannot comment on as the case is currently in court, the commissioner for minerals said. 

But while ASAs entry into Tanzania may be shrouded in controversy, their reports for the first time revealed the exploitation by foreign mining companies who continuously under-declare their profits despite the gold price increasing all the time on the world market. 


Independent audit reviews commissioned by Tanzanian newspapers, based on official figures given by the mining companies themselves, came to the same 

29 August 2008: President Jakaya Kiwete (left) in the White House with President George W. Bush conclusions as the ASA reports. 

But the government terminated the ASA contract in 2007, and since then the government has been auditing gold mining itself.
Asked what his assessment of these government audit reports was, Lissu said: I havent seen the reports but I can definitely say what they contain. They contain what foreign mining companies want them to contain. Lost opportunity In 2008, a joint report titled, A Golden Opportunity? released by the Christian Council of Tanzania (CCT), the National Muslim Council (BAKWATA) and the Tanzania Episcopal Conference (TEC) in collaboration with Christian Aid (UK) and Norwegian Church Aid showed that the government had incurred great losses of tax revenue from mining.
We calculate that Tanzania has lost at least $265.5m in recent years as a result of an excessively low royalty rate, and government tax concessions that allow companies to avoid paying corporate tax, the report said. 

Even then the $265.5m was deemed as a conservative estimate as it did not cover all the gold mining companies operating in the country or all the figures for the years under review (which were not publicly available). 


Commissioned by the three main religious bodies in Tanzania, the report said: Company figures show that AngloGold Ashanti has paid taxes and royalties totaling $144m in 20002007 and over the same period has sold around $1.55bn worth of gold, meaning that it has paid the equivalent of around 9% of its exports in remittances to the government. 

Barrick Gold, meanwhile, does not state on its website how much in taxes and royalties it pays to the Tanzanian government our calculations show that it is paying a figure equivalent to around 13% of its export sales in remittances to the government. 


The report confirmed that few mining companies have paid corporation tax (levied at 30% of profits) because they have consistently declared losses. 

The report identif ied loopholes in 

Tanzanias tax regime that made it possible for mining companies to manipulate the system. The countrys generous tax concessions mean that companies are able to avoid declaring a taxable income, the report added. 

It also showed that over the last five years, Tanzania exported gold worth more than $2.5bn but only received $21.7m a year in royalties and taxes while the expectation was to get $100m annually. 


But according to Dr Kafumu, the mining sector presently contributes 3% to the countrys GDP, and this, he says, is enough. 

The other controversy surrounding the new mining law is the inclusion of an exemption in the ownership clause regarding ruby and tanzanite mining. According to the new legislation, Tanzania will not issue new gemstone mining licences to foreign companies.

Of the seven foreign gold mining companies operating in Tanzania, only one has paid any corporate tax to the government. 

Tanzanians own the companies mining tanzanite and ruby. But this, according to Dr Kafumu, spells ruin for the tanzanite industry in particular. Mark my words, he told New African, in three years time, the industry will be in trouble as we have chased away foreign investors through this clause. It means, when the contract of Tanzanite One [the countrys main tanzanite producer] ends in 2012, we will not be able to renew it. 


For once, Lissu agreed with Dr Kafumu: He told New African that the tanzanite ownership clause doesnt make any bloody sense. 

This is because, the clause contains an exemption that says for a company to get a tanzanite mining contract, at least 25% of its shares must be held by a Tanzanian. This exemption was particularly put there to protect gemstone producer Tanzanite One and negates the whole clause; so really, it makes no difference at all, said Lissu.
George Bushs connection According to high-level sources, initially there was a sincere political will in President Kikwetes government to revamp the mining sector, which despite its huge potential, has not benefited the country due to its exploitation by foreign mining companies. However, soon after settling into office, the president was summoned to the USA and politely asked to let Barrick Gold flourish in Tanzania. In exchange, Tanzania received the largest amount of American assistance, $700m, which in the words of the then American President George Bush, was the largest Millennium Challenge grant ever given in the history of our nation. 


Furthermore, to show appreciation for Tanzanias understanding, President Bush visited the country in 2008, spending three of his seven-day African tour in the mineral-rich nation. 

As a thank you gesture to the people of Tanzania, President Bush distributed 5.2 million Tanzanian-made bed nets (worth about $1m) to Tanzanians to save them from the killer disease, malaria. 


Critics pointed out that the compromises made by the Tanzania government in the mining industry were because of George Bush and his fathers alleged close ties with Barrick Gold. Said Lissu: What do you expect 47% of our budget comes from American dollars. 100% of our development budget is foreign-funded. This results in our governments hands being tied when it comes to dollar-countries and foreign companies from dollar-countries.
The Millennium Challenge Account was a way of keeping us tied up. 

Meanwhile, Tanzanias commissioner for minerals, Dr Peter Kafumu, is worried that the new Mining Act will chase away the present investors in the country, who, he says, are not happy with the new law. 

The Tanzania Chamber of Minerals and Energy (TCME) for example, issued a statement saying certain provisions of the new Mining Act as approved by parliament on 23 April 2010 are bound to hold back the growth and development of a sustainable and competitive mining industry in Tanzania.


The Act, which was intended to clear the imbalances and uncertainties of the past, unfortunately ended up with a framework likely to damage the confidence in Tanzania of both existing and prospective investors, the TCME added, and appealed to the government to take urgent corrective measures before extensive damage is done to Tanzanias budding mining industry.
