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Fresh twist in mining sector

Discussion in 'Jukwaa la Siasa' started by PELE, May 3, 2010.

  1. P

    PELE JF-Expert Member

    May 3, 2010
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    Fresh twist in mining sector

    By Guardian on sunday team

    2nd May 2010

    Just days after Parliament passed the 2010 Mining Act, the Tanzania Chamber of Minerals and Energy is pushing to amend the Act before President Kikwete signs it into law, The Guardian on Sunday has learnt.
    Tanzania one of Africa’s rich countries in terms of mineral reserves finally passed the much-awaited Mining Act, amid stiff opposition from investors and activists, paving the way for what President Kikwete called a win-win situation.
    While the activists cried foul that the Bill was hurried to be tabled before the Parliament last week, without giving Tanzanians enough time to debate it thoroughly, some foreign investors see the new law as anti-growth that will kill the $3billion industry.
    However, to the government, the just passed 2010 Mining Act is what millions of Tanzanians have been gunning for during the past decade.
    But, the Chamber says the Act creates imbalances, uncertainty and instability for current and prospective investors. In a statement this week, the Chamber’s members said, if it is not amended, the Act will seriously damage the country’s image and could negatively affect foreign direct investment in the future.
    The Chamber an umbrella organization for investors in the multibillion-dollar mining industry says the Act is a worrisome step backward to the days of state control over production, but the bill has otherwise been lauded as a long overdue revision of the 1998 law that allowed multinational firms to profit from the country’s rich natural resources without paying appropriate royalties.
    The bill was tabled before Parliament last week, putting it on track to be signed into law before the country’s general election in October.
    The Chamber is mainly irked by Section 10 of the Act, which gives the Minister of Energy and Minerals powers to have free-carried shares in any new mining project signing the Mineral Development Agreement (MDA).
    Part of Section 10 reads, “The Minister may, by regulations, prescribe the level of Government free-carried interest and public equity participation in any mining operations under a special mining license depending on the type of minerals and level of investment requirements.”
    Members of the Chamber are concerned that because the Act does not explicitly state the number of shares that the government may freely acquire, prospective investors may hesitate to invest in the country.
    Apart from free-carried shares, this section also dictates strong public equity participation in mining as well as giving the government an option to finance any mining operation under a special mining licence.
    Minister for Energy and Minerals William Ngeleja said the Act is aimed at shifting the ownership of mining firms from foreign investors and increasing local participation.
    “The minerals are godly given gifts to Tanzanians…they should therefore participate not as spectators but as players and this is what the clause is aiming at,” Ngeleja said.
    “We had a situation previously where foreign investors enjoyed 100 percent ownership while the locals got nothing,” he said. “The government will retain free-carried shares and then sell them to locals. We shall be very reasonable in deciding how many shares the government should retain…we are not aiming to nationalise anything, but to give locals active participation.”
    Another contentious issue is the new clause that bars the minister from issuing mining licences to any foreign project below $100 million.
    The Chamber’s concern is that this clause may discourage potential investors who want to invest in medium-scale mining projects before moving into larger-scale projects, but Ngeleja said it is meant to block petty foreign investors whose main intention is to enjoy incentives issued by the government.
    At the public hearing in Dodoma last week, Bariadi MP Andrew John Chenge who drafted the 1998 Act when he was Attorney General argued that for the size of the country it would be unfair not to licence investments below $100million, but he was unsuccessful in persuading fellow MPs.
    Foreign investors also point out at an unpredictable fiscal regime, which may deny the country potential investors in the minerals sector. Fiscal regime is vital in deciding whether to invest in a country or not especially for the multinationals.
    “Distorted as it is, the new Act only deals with half of the story, while leaving considerations for fiscal and regulatory regime, to further speculations and uncertainties, and therefore further eroding investors’ confidence in making long term investment decisions, ” a statement by the Chamber reads.

    A perfectly timed Act?
    Politically, the new Act will be a big boost for President Kikwete in his bid for re-election in October, particularly after top members of his party have criticized his regime for failing to take serious measures to tackle grand corruption.
    One of the cornerstones of Kikwete’s 2005 campaign was mining industry reform, which he described at the time as a win-win endeavour.
    He finally made good on his campaign promise in October 2007 when he surprised even his own party by forming a Presidential Mining Review Committee that included a member of the opposition party, Zitto Kabwe.
    The new Mining Act, which is a product of the Mineral Policy of 2008, has taken into consideration the recommendations of Judge Mark Bomani’s committee, as well as the Kipokola Commission, Lawrence Masha’s fiscal regime study and a comparative study of mining policies in Botswana, Namibia, Ghana, Angola, Canada and Australia.
    The law seeks to formalise small-scale mining by ensuring that all small-scale miners are recognised and protected by the law.
    Kikwete also promised to ensure that the tax structure is reformed in order to give Tanzania a fair chunk of revenues from minerals exports, a $1.2billion-a-year business.
    In the new law, royalty calculations will be based on a gross value system instead of the current netback value—a move expected to double royalties. Royalties in gold will be adjusted to 4 percent of the gross value earning posted by any large-scale mine, up from 3 percent previously calculated based on netback value.
    For tanzanite, diamond and uranium, the new royalties rate will be 5 percent, also up from 3 percent previously, while all other minerals will be taxed 3 percent.
    According to the proposed Act, large-scale gemstone mining will be done in a 50/50 joint venture between local and foreign investors, and the export of rough or unprocessed gemstones will be banned altogether.
    This portion of the Act is meant to keep more jobs in the processing of gemstones, particularly tanzanite, in the country. Currently, tanzanite is typically mined in Tanzania, where about 400 people work in the industry, but is then sent for processing in India, where the tanzanite industry alone employs more than 20,000 people.
    The new Mining Act will impose three conditions on all transfers of mineral rights from one party to another. Local transfers will incur a 1 percent fee, and overseas deals will face a 2 percent transfer fee. All companies transferring ownership will have to obtain a tax clearance from the Tanzania Revenue Authority.
    Over the past decade the mining sector has paid a total of $663million in taxes. Meanwhile total gold exports grew from $26.6million in 2000 to $1billion a year by the end of 2008.

  2. P

    PELE JF-Expert Member

    May 3, 2010
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    Minerals boss Kafumu sets Mining Act in perspective

    By Rodgers Luhwago

    2nd May 2010

    The Commissioner for Minerals, Dr Peter Kafumu, this week assured both local and foreign investors that Tanzania was not going back to the era of a State-controlled-economy or nationalisation, following the introduction of a new Mining Act.
    “For any successful mining anywhere in the world, the mining sector has to be private led. There is no cause for alarm, and Government will never backtrack on this,” Dr Kafumu emphasised in an interview with this newspaper yesterday at his Dar es Salaam office.
    He admitted, however, that the mineral sector faced challenges following low integration with other sectors of the economy, little contribution to the GDP compared to the sector growth and slow development of small scale mining.
    The other challenging areas included low capacity of the government to administer the sector, low level of value addition of minerals and environmental degradation.
    “The new policy aims at strengthening integration of the mineral sector with other sectors of the economy, improving economic environment for investment, maximising benefits from mining and improving the legal environment,” he said, adding that it also aims at strengthening capacity of administration of the sector, developing small miners, promoting and facilitating value addition to minerals and strengthening environmental management.”
    According to the 2009 Mineral Policy, the government will remain as the regulator and facilitator of the sector, promoter of private investment, and will participate strategically in mining projects.
    In ten years beginning 1997, the sector recorded considerable achievements through the implementation of the 1997 Mineral Policy which created a conducive environment for private involvement, increasing the contribution of the sector to the Gross Domestic Product from 1.4 percent to 2.7 percent (at 2001 prices) and increasing Foreign Direct Investment from $1.3billion to $2.5billion through exploration and mining projects.
    During that period, six large scale gold mines producing an average 50 tonnes of gold compared to less than one tonne produced by small scale miners were commissioned as well as increasing mineral exports from $26.66million to $1,003.21million.
    The Commissioner also vehemently defended the newly passed Mining Act, saying the new law sets a new era in the country’s lucrative minerals sector.
    Since it was passed by the Parliament last week, some foreign media have reported that Tanzania was eyeing ‘nationalisation’ in the minerals sector, by introducing a clause that gives the government a mandate to acquire free carried share in any mining project.
    According to the Tanzania Chamber of Minerals and Energy, the overall scheme of the Bill seems to have hinged upon Article 9 of the Constitution which states that Tanzania will be built through a pursuit of the policy of socialism and self reliance which emphasises the applications of socialist principles.
    But the Commissioner refuted the ongoing rumours, insisting that the new Act wasn’t aimed at introducing nationalisation as feared by some foreign investors. Dr Kafumu who is seen by insiders as the mastermind of the new Act described foreign investors as anti-growth, assured the public on Friday that the new Act will create a win-win situation.
    Speaking during a live radio show in Dar es Salaam, the Commissioner explained: “In preparing the Bill we involved as many stakeholders as possible, including key players in the sector, members of the diplomatic corps, legislators and the general public. Stakeholders were involved in preparing the Bill through consultations, workshop and public hearing session.
    The commissioner outlined areas in the new Bill that have been improved as including improvement of government’s oversight of all mining matters through establishment of eight mining zones, Mining Advisory Board and creation of 14 opportunities for Assistant Commissioners of Minerals.
    Other areas improved in the Bill include payment of reasonable compensation to people for their lands before eviction upon discovery of minerals, including resettling them and local purchase of consumables such as foods instead of sourcing them from outside the country.
    Previously villagers were subjected to severe humiliation since compensation for their lands did not take into consideration the amount of minerals in their areas. In line with this, Dr Kafumu said the laws governing lands would also be reviewed to harmonise compensations.
    Also improved in the Bill include increment of royalty from three per cent to five and expansion of the size of exploration area from 200 to 400 square kilometres. Dr Kafumu added the new Bill also want mining companies to register with Dar es Salaam Stock Exchange(DSE) upon posting profit so that locals can buy shares.
    Reacting on exportation of copper concentrate abroad with no proper supervision, Dr Kafumu said Tanzania has only one gold mine of Bulyanhulu whose copper concentrate is exported for smelting.
    According Dr Kafumu, copper concentrate from Bulyanhulu Gold Mine has a unique chemical compound that makes it difficult to separate sand from Gold, Copper and Silver, hence necessitating exportation to either Japan or China for smelting and refining.
    He said the government always maintains close monitoring of the exportation of the concentrate to ensure Tanzania Revenue Authority (TRA) gets what it deserves in terms of royalty. Such a monitoring role, according to Dr Kafumu, is performed by mineral inspectors and Tanzania Minerals Audit Agency (TMAA) officials. TMAA replaced Alex Stewart (Assayers).
    Dr Kafumu’s explanation comes against a backdrop of misgivings on the Bill from key players in the mining industry such as Barrick Gold Tanzania Limited and Tanzania Chamber of Minerals and Energy (TCME).
    Speaking to The Guardian on Sunday last week, Barick Gold Mine Tanzania Limited Executive General Manager Deo Mwanyika remarked that the new Act will impact negatively on the sector, among the major consequences being compulsion by investors to seek destinations with less stringent rules.
    “In terms of large scale mines, the Bill has brought in fundamental changes which will be carefully and cautiously scrunitinised by would- be investors, Clearly the changes are likely to impact the sector negatively from a growth point of view because investors are likely to look for other destinations with less stringent rules.”
    Mwanyika told this newspaper last weekend.
    According to Mwanyika, it is challenging and always a huge disincentive to develop large capital intensive projects with such conditions like free carried interest in a country with inadequate infrastructure support and unreliable power supply.
    He said the public should not be taken by surprise if they find that projects such as Kabanga Nickel and Mchuchuma Iron/Coal do not take off as a result of the stringent rules in the Bill. However, Mwanyika banks his hopes on the fiscal incentives that should be read together with the Mining Bill.
    “All in all the fiscal incentives which should be read with the Mining Bill for stabilisation purpose will be a turning point if indeed the country is keen to attract investments. This part is yet to be finalised and stakeholders are eagerly waiting to be fully engaged,” he said.
    The CEO, however, expressed dismay over the manner in which the Bill was passed, saying the process of getting it passed was highly politicised. “In the end it was desirable to bring the seven years of uncertainty to an end,” he added.
    “Unfortunately, due to many competing stakeholders’ interests in an attempt to find the balance, the Bill itself ended up with provisions which have brought uncertainty which it sought to stop in the first place; this will be detrimental to long term, capital intensive, project financing and growth of the sector which faces acute competition of global capital,” he added.

  3. M

    Magezi JF-Expert Member

    May 3, 2010
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    We need the mining companies to pay tax.