ENERGY & MINERALS

by Ben Taylor

Still waiting on Acacia settlement
The long-running dispute between the government of Tanzania and Acacia Mining continues to drag on, though some parties have expressed optimism that an agreement may be close. The dispute relates to a US$ 190 bn tax bill demanded of Acacia by the government in 2017, citing claims of massively underreported mining output.

Speaking in February, the Minister of Constitutional and Legal Affairs, Prof Palamagamba Kabudi (who has more recently become Minister of Foreign Affairs), suggested a payment from Acacia and/or its majority shareholder, Barrick Gold, could come as early as March.

Around the same time, Barrick released a statement confirming that it and the government had “arrived at a proposal” that sets out the commercial terms to resolve the dispute. The Barrick statement added that this agreement is consistent with the agreement announced in October 2017, including economic benefits from Acacia’s operations to be shared with the government of Tanzania on a 50/50 basis, and a US $300m payment to the government “to resolve outstanding tax claims, to be paid over time on terms to be settled by the parties.”

Acacia itself has not been part of the negotiation process and issued a statement in response, reiterating that it had not yet seen the suggested deal with Tanzania.

Prof Kabudi’s anticipated March payment did not materialise, and in mid-March, the Tanzanian Attorney General, Adelardus Kilangi, said he anticipated the deal would be agreed with 1-2 months. He added that the appointment of a new CEO of Barrick Gold, Mark Bristow, in January 2019 had aided the negotiation process.

Analysts for RBC Capital Markets think Acacia minority shareholders do not have much choice in this case. If they reject the deal agreed, Acacia would land up facing expensive and lengthy arbitration hearings. Accepting the agreement could open the possibility of securing a better operating environment, one that would almost certainly be more profitable that the current situation, as the companies mining operations have been drastically scaled back. Accepting the agreement could also secure the release of Acacia’s employees from a Tanzanian jail.

At the time of writing (April 20), the situation remains unresolved – with Acacia’s shareholders yet to reach a decision on whether to back to the deal agreed between Barrick and the government.

Uganda-Tanzania oil pipeline construction expected to start in June
Energy Minister, Medard Kalemani, announced at the end of January that construction of an oil pipeline connecting Hoima in Uganda with Tanga on the Tanzanian coast was scheduled to begin in June this year. He was speaking following a meeting between Tanzanian and Ugandan officials in Kampala.

The execution of the 1,445 km long underground crude oil pipeline from Hoima in Uganda to Tanga in Tanzania will cost an estimated US $3.5 billion. It is expected to have the capacity to transport 216,000 barrels of crude oil every day. It will be 24 inches in diameter, and Uganda will pay Tanzania a reported $12.20 for every barrel of oil that flows through the pipeline. It will also be constructed in a way that enables it to heat the crude oil. On completion, it is expected to become the world’s longest heated oil pipeline.

Since the project’s inauguration in August 2017, there have been a series of technical meetings between the governments of the two countries but there were a number of issues that had not yet been addressed. Before the meeting in Kampala, Uganda’s Minister for Energy and Mineral Development, Irene Muloni, explained that the financial arrangements were one of the major reasons for the delay, setting back the goal of transporting oil by 2020.

The three principal companies involved in the project are Total Oil of France, China National Offshore Oil Corporation and Tullow Oil of the UK.

Liganga-Mchuchuma coal and iron project in dispute
In February, the government reignited a controversy surrounding the US $3 bn iron and coal Liganga-Mchuchuma project in Southern Tanzania, by signalling its intent to cancel the licence held by a Chinese company.
Minerals Minister Doto Biteko said the Mchuchuma-Liganga licence was troubling them and should be resolved forthwith. He instructed the National Development Corporation (NDC) to “rectify mistakes” in the mining agreement within 30 days.

The project is jointly implemented by NDC and Sichuan Hongda Group through a local venture called Tanzania China International Mineral Resources Limited (TCIMRL).

Mr Biteko said there were numerous investors ready to invest in the stalled Mchuchuma-Liganga project. The minister declared that he would be ready to shoulder the burden on the licence which has accumulated an unpaid royalty of $375,000 (over TSh 840 million).

TCIMRL responded by appearing to fault the government for not providing the promised tax incentives to ensure the implementation of the project, which it described as “risky”.

The company’s deputy chief executive officer, Eric Mwingira, told The Citizen that the project, whose contract was signed in 2011, would be up and running by now had the government not delayed.

According to Mr Mwingira, the company was asking for a 10-year tax relief for a project whose lifespan stretches between 50 and 100 years. He said the company was seeking tax incentives on import duty on cargo to be imported for the construction work, as well as incentives on spare parts and machinery and tax relief on fuel.

He said the Ministry of Finance and Planning was yet to gazette the investment incentives approved by the National Investment Steering Committee (NISC) and enshrined in the two signed performance contracts to make them legally operational. “We have been following up with the government, in meetings and letters but so far nothing has happened and we can’t drop the incentives because the projects are very risky and we can only hope that matters will open up soon as we have spent about $70 million and continue to lose,” he said.

He added that if the incentives had been endorsed as planned, Mchuchuma coal mine and power plant construction would have been completed more than three years ago, producing electricity, while the Liganga iron ore mine’s four-year construction period would have been almost complete.

Mchuchuma is said to have 428 million tonnes of coal while Liganga has 128 million tonnes of iron. The Chinese company’s plans include both mining and generation of 600MW of electricity. All the minerals will be processed locally to separate titanium and vanadium from iron ore.

The Liganga-Mchuchuma project has for many years been listed as a strategic national development investment but was in 2018 dropped from the list by finance minister Philip Mpango. TCIMRL was expected to invest $1.8 billion to establish an iron ore mine and iron and steel complex. Its power plant would be run by coal, with 250MW used for the industry and 350MW connected to the national grid.

Waste water spill at Mara North
In a development that cannot help in resolving the ongoing dispute between the government and Acacia Mining, a waste water leak occurred in March at the company’s North Mara gold mine. The toxic waste water was leaking from a waste rock storage facility and threatened to pollute local communities and their water supply.

Minerals Minister, Doto Biteko, gave the company three weeks to resolve the situation or face the mine being closed down. “The life of even one Tanzanian is worth more than their gold mining activities,” he told Reuters news agency.

Acacia issued a statement: “The spillage resulted from a security incident in which sections of the pipe used to transport water from the polishing pond to the Tailing Storage Facility (TSF) were either vandalised or stolen. The incident led to the switching off of the pump used to transport water to the TSF, and the water level in the polishing pond subsequently overflowed. Following the Mine’s remedial actions, the temporary overspill from the pond has been stopped.”

“The Mine has welcomed the support of the Government on resolving this issue, and is working closely with the authorities to implement improvements to security measures around the polishing pond in order to help prevent any reoccurrence.”

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