20 June 2017

Tanzania: Stage Set to Renegotiate Mining Deals

Photo: The Citizen
President John Magufuli bids farewell to the executive chairman of Barrick Gold Corporation, Prof John Thornton, after holding talks at the State House.

As the dust is settling after the government agreed to resolve its dispute with Acacia Mining through discussion, the stage is now set for renegotiation of the mining deals that have been denying the country of its fair share from its mineral resources.

Acacia Mining which operates three mines in northwest Tanzania--Bulyanhulu, Buzwagi and North Mara, is being accused of operating illegally and cheating the country of tens of billions of dollars by understating by more than 10 times the gold and copper concentrate levels in its mineral exports.

Following a release of reports by two Presidential committees that investigated mineral exports by Acacia Mining, the head of Barrick Gold, Acacia's largest shareholder John Thornton, flew in to meet President John Magufuli where they agreed to negotiate a resolution for the escalating dispute over Acacia Mining operations in Tanzania.

The context of the dispute is increasingly typical of Africa's mining industry. The government is seeking more tax revenue from a foreign mining firm that was initially wooed into the country by generous tax concessions.

The state also wants to generate more value and jobs by smelting Acacia's concentrates domestically, rather than abroad. Though richly endowed with mineral deposits, Tanzania has not obtained its fair share of its mineral riches thanks to mining contracts which granted mining companies with generous deals in terms of taxes and royalties.

And this situation reflects the reality of the mining industry in Africa where countries earn little from their mineral resources. Former Bostwana president, Festus Mogae provides the context of signing of poor contracts which have seen countries earning little from their mineral riches.

Speaking at a meeting of the Africa Development Bank (ADB) in December 2008, he said most mining contracts in Africa were negotiated in the 1980s and 1990s when low world prices and high political risks discouraged foreign investments in the continent's mining sector.

African countries had to entice investors by granting incentives such as extensive tax and royalty exemptions. Consequently, many countries earned very little from such contracts.

The former Botswana leader said that was why it was necessary to renegotiate some of the contracts using our best resources with the mining companies. Nine years later, in Tanzania, President Magufuli grabs the bulls by the horns.

He banned exports of mineral concentrates from Acacia Mining, formed two committees of experts to investigate. The first committee accused the mining company of cheating the country of tens of billions of dollars by understating by more than 10 times the gold and copper concentrate levels in its mineral exports.

The second investigating team presented their findings based on the historical economic and legal aspects of the export of metallic mineral concentrates and accused Acacia Mining of operating without having proper registration documents and was under declaring revenue and tax payments of the number of years by tens of billion.

It is after the release of the findings of the second team that President Magufuli declared enough is enough: "If they accept that they stole from us and seek forgiveness in front of God and the angels and all Tanzanians and enter into negotiations, we are ready to do business."

Two days later, Barrick Gold head, John Thornton, flew in to meet President John Magufuli and agreed to negotiate a resolution to the dispute. And according to a statement from State House, the government and Barrick agreed to repay for the losses incurred and co-operate to build a smelter in the country.

Mr Thornton said he was "very optimistic" a solution could be reached after what he described as "very extensive and productive discussions". "I've assured the president we're very interested in sitting down and reaching a resolution which is a win-win," he said.

"A win for Tanzania, a win for Barrick and our subsidiary company Acacia." he said confirming the meeting but not its details.

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