19 July 2013

Malawi: Can Oil and Water Mix in Malawi?

Photo: Kate Webb
Lake Malawi.

Ngara — Civil society's shorthand for Malawi's drive to expand its extractive resource sector is T2 - "trouble or treasure".

While Malawi has dabbled in mineral exploitation in the past, it only formed a mining and minerals ministry in December 2012. The country hopes to ramp up the sector's contribution to GDP from less than two percent a few years ago to a forecast 20 percent by 2016; currently, the sector's contribution to GDP is about 10 percent.

Mines minister John Bande said the country's new approach to the minerals sector would rebalance an economy reliant on agriculture amid "climate-related challenges" and global anti-smoking campaigns that have reduced demand for tobacco - Malawi's main foreign currency earner.

But Malawi's plans are causing tensions with neighbouring Tanzania over the disputed border in Lake Malawi, which is being explored for oil. Civil society has also warned that the push to exploit minerals is racing ahead of any comprehensive legislative regulatory framework. Communities in potentially mineral-rich areas, meanwhile, say they fear their livelihoods are being threatened by a get-rich-quick gamble.

Living off the lake

Ngara, a northern village on Lake Malawi, has about 1,400 registered households, but its population swells for months on end as fishermen and their families come for what is widely considered the best spot for catching the local usipa fish.

Bwaia Maxwell, 60, has fished Lake Malawi since 1971 and has a crew of eight. On a good day, they make about 120,000 kwacha (US$363) from the usipa catch.

"We are not supporting that [oil extraction]," he told IRIN. "And there are thousands of fishermen working on the lake. We live off the lake, and when the oil starts, it will kill the fish, and then we will not have any work. Fishing paid for my children's schooling and everything else. We won't allow it, but there is nothing we can do. We don't have a voice."

Fishing fuels all of Ngara's economic activity, from providing start-up capital for taxi businesses to supporting service enterprises like hair salons.

Elizabeth Kaira, 48, a mother of five, has worked as a fish trader for 30 years. She makes a daily profit of about 50,000 kwacha ($149), and sells the fish in the capital Lilongwe, the city of Blantyre, and in neighbouring Zambia as well.

"They don't need to take the oil," she told IRIN. "We earn a living from the lake; it pays for our life. The water we use for drinking. If it is contaminated, it will be no good for us to use."

Ngara community leader Manuel Kanyika told IRIN, "I accept the oil extraction as a source of wealth. We have experienced fuel shortages, and it might be a solution if we have our own oil. [But] the fish - that is our wealth. Oil will have a negative impact on our lives. It is good for government, but what benefit will it have for individuals here?"

Laws needed

Catch from the lake is estimated to provide 20 percent of the protein requirement for Malawi's population, according to Christopher Mwambene, executive director of Coordination Union for Rehabilitation of the Environment (CURE), a Blantyre-based environmental NGO. He told IRIN that about 1.7 million Malawians rely "exclusively" on the lake. Tanzanians and Mozambicans derive livelihoods from it, as well.

Though Mwambene agrees Malawi must find additional revenue sources, he says the rush to bring the minerals sector on line carries inherent dangers, from the resource industry's reputed lack of transparency to the government's poor capacity to engage with the industry.

"There are always risks in economics, and the higher the risk, the higher the returns. The epicentre [of oil exploration] is in the northern part of the lake, and if something happens like in the Gulf of Mexico [2010 BP oil spill], the pollution would be concentrated, and there would be no capacity to address it," Mwambene said.

There is also no guarantee the shift towards resource extraction will bring tangible benefits to all Malawians, he says.

Rheinford Mwangonde, executive director of the Lilongwe-based NGO Citizens for Justice , told IRIN, "If you are engaging an industry which is very strong, very shrewd and without proper laws [or] enough capacity to implement [them], the contracts are going to be very poor, and Malawians will not make anything from it. That's the problem with this big rush, and government says it is going to rush. But it has not put its house in order."

Leonard Kalindekafe, principal secretary of Malawi's mining ministry, told IRIN the NGOs' concerns were well-founded and that the absence of a regulatory framework was problematic: "We have to sort it out. They are right."

He said the government was relying on mining laws from 1981, petroleum exploration legislation from 1983, and laws such as the 1968 Explosives and Blasting Act. "The challenge there is we must quickly move towards revising existing laws and, if those laws don't exist, produce new laws, and there are so many of these [new laws needed]. So we have to move very, very quickly in a short period of time. Otherwise, if the sector booms and we don't have good laws and policies, it is going to cause problems."

New mining legislation is expected "by Christmas", but for now contracts are being drawn up on an individual basis, Kalindekafe said, adding that any decision on oil extraction from the lake was several years off.

"It's a lot of pressure. But what is the alternative? There is no alternative. This country cannot sit and be poor or continue to be poor - the alternative is doing nothing, and that to us is a non-starter."

Bright Phiri, biodiversity programme officer at the Centre for Environmental Policy and Advocacy, told IRIN, "People see mining as the only mechanism to allow Malawi to climb up the ladder. But mining should be seen as catalyst to economic growth, and we should not lose focus on agriculture. Minerals are not [a] renewable resource."

Investment environment

Unlike its regional neighbours, Malawi has no tradition of large-scale commercial mining, and the extent of its mineral reserves has yet to be mapped. Still, there is interest on the part of the extractive industries. Surestream Petroleum, a British-based company, was awarded an exploration licence covering 20,000sqkm of Lake Malawi in 2011.

Malawi has also known reserves of uranium, coal, rare earth minerals and niobium. The $300 million Kanyika Niobium project, a joint Chinese-Australian venture is expected to begin operations in 2015 and to have an annual production of 3,000 tons of niobium oxide, an ingredient for "superalloys", and 150 tons of tantalum, a cell phone component. Mkango Resources [ www.mkango.ca ], a Canadian-based company, has been granted rare-earth prospecting licences covering 1,751sqkm in southern Malawi.

But the reception for foreign investors in Malawi has not always been to their liking.

Gregory Walker, international affairs general manager of Paladin Energy, told IRIN the Australian company's initial $300 million investment in the Kayelekera uranium mine, some 50km west of Karonga, had climbed to more than $500 million, with little to show for it.

The mine was "a pathfinder" for the country's anticipated mineral revolution, but "the difficulty with Malawi is that there was no track record [of commercial mining]. So there was a leap of faith [by Paladin]," he said. "Malawi now has a track record - and it is not good."

He said government was not supportive of the enterprise, which has "has never made a cent". Paladin had so far spent $15 million on community projects, the lion's share for a state-of-the-art water system in Karonga, Walker said, but the company has still faced criticism over health concerns and its community-development obligations.

All it would take for the government to head-off such criticism would be a two-line statement saying the company was abiding by its contractual commitments, but this was not forthcoming, he said.

The government is a 15 percent shareholder in Paladin, but it profits from 3 percent of the uranium royalties regardless of the company's performance.

When the mine was conceived, the uranium price was $70 a pound "and expected to go north. Today it is $39.50... No one factored in the impact of Fukushima [the 2011 Japanese nuclear disaster] and the impact that had on the demand for uranium." Paladin must choose between closing the operation or "soldiering on" in hopes that uranium prices will eventually rise, he said.

A teacher at Kayelekera Village, who declined to be named, said it was Paladin's responsibility to help the community, and not the government's, and dismissed its claims of losses. "If they are not making money, they would have closed already, but they are still doing the same thing. That means they are still making profits. If you don't make money in business, you stop doing it."

Jim Nottingham, Paladin's corporate social responsibility officer, told IRIN: "When we came here people thought the presence of the mine was going to transform the north, and a lot of people were going to be rich, but it has not happened that way. There has been a lot of disappointment and frustration. I have had to explain that development is a process, and it is a little slower than a lot of people were expecting."

[ This report does not necessarily reflect the views of the United Nations. ]

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