CHANGE IN THE MINING INDUSTRY ?

By Henry Kippin (henry[DOT]k[AT]fdevinfo[DOT]org)

Changes are afoot in the Tanzanian mining industry. Or are they? Speculation continues to mount as to President Kikwete’s eventual response to the major review of mining contracts now in his hands. The review – begun in November 2007 – sought to examine deals constructed between the Tanzanian government and international investors in the industry, and to recommend the means to ensure a ‘win-win’ return for all parties from the country’s natural resources.

Former Attorney General Judge Mark Bomani, who chaired the review, has had plenty of evidence to consider during the review process, especially following the recent publication of a critical report on the gold industry by a consortium of domestic and international NGOs. ‘A Golden Opportunity?’ alleges that Tanzania has suffered staggering losses in revenue through a lack of transparency in the industry, and inadequate legislation on mining revenue.

At the same time, noises from within the industry suggest that international investors are ‘not worried’ about the review process. According to Tanzanian Royalty CEO Jim Sinclair, ‘President Kikwete…will do nothing to disturb the balanced fiscal policies that have produced enormous growth in Tanzania’s economic base, most of it fuelled by international investors’.

Certainly mining issues were conspicuous by their absence from the 2008/9 budget – a fact criticised by MP’s such as Zitto Kabwe, himself a member of the Bomani committee. For him, the budget ignored the fertile area in mining that ‘continued to enjoy legal protection, which cost the country TShs 816 billion over the last 10 years’

The Issues
The issue of taxation is key to understanding debates over industry regulation. For the international companies, tax exemption and low rates are the trade-off for huge initial expenditure on exploration and production, and the expertise they bring to the table. The flipside of this is often alluringly low royalty rates, as well as payment ‘holidays’ and loopholes in corporate tax rules. For the companies, such returns are an adequate reward for their risk. Outside the industry, there is a widespread perception that resources are being ‘given away’ too cheaply.

Recommendations
The review committee proposed several measures to increase government returns from the industry: an increase in gold, copper and silver royalties from 3% to 5%, an increase in uncut diamond royalties from 5% to 7%, and for uranium, an increase from 3% to 10%. Another recommendation was to change the taxation system to ‘gross value’ from ‘net-back value’ – something already practiced in countries such as Ghana and Zambia.

The committee was perhaps emboldened by several other attempts to change the structure of extractive industries in the region. Reviews of contracts have already taken place in neighbouring D.R. Congo and Zambia, and in Zambia especially, new measures have significantly increased the tax burden for companies in the industry. It appears that similar decisions have been sidestepped in this year’s Tanzanian budget

– and the question next year will be how the government balances a need for foreign investment with the needs of its people (information from The Citizen, This Day, The Nation (Kenya) and IppMedia).

Reactions in Parliament
In July MP’s responded in parliament to the Bomani Committee report and urged the government not to waste time in implementing the recommendations made. They applauded Judge Mark Bomani and his team for an outstanding job. One CCM MP said the report had touched almost every aspect of the mining sector, but he was disappointed by the government’s statement that all laws governing mining would be reviewed only by April next year. “Honourable Minister for Energy and Minerals, you are giving these people another year to continue with this mess! Let’s act now.”

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