ENERGY & MINERALS

by Roger Nellist

A milestone for the Stiegler’s Gorge Hydropower project
In April the huge and environmentally controversial Stiegler’s Gorge Hydropower Project on the Rufiji River in the Selous Game Reserve witnessed a major milestone when the Tanzanian government issued Performance Guarantees and made an advance payment of almost US$310 million to the foreign contractor that will be undertaking the project. The contractor is a joint-venture of two Egyptian companies: Arab Contractors and Elsewedy Electric S.A.E.

The Stiegler’s Gorge contract between the Tanzanian government and the Egyptian consortium was signed in December 2018. Two months later, in February 2019, the government handed over the site.

Upon completion the project is projected to generate up to 2,115 MW of electricity for the national grid, adding very substantially to Tanzania’s current generation of about 1,600 MW from all existing power projects. This will provide more than enough electricity to support the growth of the Tanzanian economy in the foreseeable future as the country targets attainment of Middle-Income status during the next decade. Excess power could be exported to neighbouring countries.

The provision of a reliably adequate supply of electricity to support the country’s expanding industrial base is obviously the most important feature of Stiegler’s Gorge, but the government also expects the project to generate some 6,000 new direct jobs. Construction work is scheduled to take 3 years.

The total cost of the Stiegler’s Gorge project is put at around US$3 bil­lion. At the payment ceremony in April in the Ministry of Finance it was explained that the $310 million was the (70%) foreign exchange component of the agreed total Advance Payment due under the project contract; the remaining 30% local currency portion will be paid once the contractor has finalised certain contractual processes. The Advance Payment constitutes 15% of the total project cost and allows the contrac­tor to mobilise and commence construction work.
It is understood that the project is to be fully funded by the Tanzanian government. In his June 2019 Budget in Dodoma the Finance Minister, Phillip Mpango, allocated 4% (TSh 1.44 trillion; approx. US$600m) of the national budget towards construction of the Stiegler’s Gorge project in the coming year.
Responsibility for the Stiegler’s Gorge power project rests with the Ministry of Energy. At the end of May in his own Parliamentary budget session, the Minister for Energy, Dr Medard Kalemani, also tabled project funding requirements for his Ministry in the coming financial year of TSh 363 billion for the third phase of the Rural Electrification Agency (REA) and TSh 60 billion for the extension of the Kinyerezi 1 gas-to-power project.

Government piles on the pressure on Acacia Mining and Barrick Gold
With apparently little recent news of interest concerning Tanzania’s petroleum exploration and development activities, the country’s extrac­tives news is dominated by the continuing saga over Acacia Mining and the efforts by its Canadian parent company – Barrick Gold – to sort out the complicated situation involving Acacia and the Tanzanian government. It is a long-drawn-out saga, with big reputational and financial implications for the two international corporates as well as the government. Acacia Mining (listed on the London Stock Exchange) is Tanzania’s largest gold producer and Barrick is one of the world’s major gold mining companies.

Acacia has been accused of massively under-reporting gold exports, of smuggling out gold concentrates, of underpaying taxes, of operating and concealing foreign accounts, of not respecting other important pro­visions in its Mining Development Agreements and generally of poor management at its three operational gold mines in the country (includ­ing of adopting a high-handed manner in its community relations and failing to comply with environmental laws). As a consequence, in 2017 and 2018 the government banned further gold concentrate exports by the company and demanded back payment of taxes amounting to a staggering US$190 billion. Last year, a few senior Acacia employees were also arrested and jailed.

In an attempt to resolve matters, Barrick then engaged directly in high-level negotiations with the government, excluding Acacia from all the discussions. A cooperation framework agreement was reached at the end of 2018 in which it was anticipated that the future economic benefits derived from Acacia’s gold mining operations would be shared with the government on a 50/50 basis and that an early payment of $300 million would be made by Acacia to government “to resolve outstanding tax claims”. However, unhappy at being excluded, Acacia then challenged those proposed arrangements, asserting that its own Board must first approve them. Apparently, it has also launched an arbitration case against the government through an international tribunal.

However, in the middle of May 2019, with no payment yet made and final terms not quite settled, the government further ratcheted up the pressure on Acacia and Barrick by announcing in a letter to the com­pany’s three gold mines (at Bulhanyulu, North Mara and Buzwagi) that it would no longer recognise any agreements with their holding company, Acacia. In a news statement the government spokesman, Dr Hassan Abbas, announced that Acacia was “operating as a rogue company that was disdainful of the Tanzanian authorities and the laws of the land”, adding that “Acacia management is loathed” and “The government does not want the presence of Acacia in any form in the country”. Perhaps ominously, Abbas said that Acacia stood in the way of the government reaching an amicable deal with Barrick and chal­lenged Barrick to sort out the problem or risk not concluding a deal. Declaring Acacia “unwanted in Tanzania” the government told Barrick: “Solve Acacia or no deal”. The government made clear it expects a new mining operating company to be established in which it has a share and there is no presence or involvement whatsoever by Acacia.

With media headlines like “Why Tanzania wants Acacia to pack and go”, Barrick – which holds 64% of Acacia’s shares – then moved quickly to affect a full take-over of Acacia, seeking to buy the remaining 36% shareholding. It proposed to do so by offering Barrick shares to Acacia’s minority shareholders in a shares-swap, but at a discount on the current share trading price. The proposal valued Acacia at about $787 million. However, at the end of June Acacia rejected that bid, accusing Barrick of trying to take advantage of its troubles. More optimistically, though, it did signal that acquisition of its minority shares by Barrick at a fair price “would be an attractive solution” to its Tanzanian impasse.

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