If I were Zimbabwe’s Minister of Mines

He is handling such an important Ministry. One that has been dogged by controversies and allegations of corruptions. There are a lot of things that the new Minister of Mines and Mining Development could do- but he does not have much of a runway  (till the 2018 elections) to do everything that needs to be done. There is investor interest, geo-surveys, production capacity, skills, energy, taxation regime, property rights, transparency and accountability. It is a lot- he will have to prioritise and focus more on addressing the regulatory aspect, legacy issues and capturing as much resource rents from current operating mines as possible.

If I were Winston Chitando this is what I would do in the next 100 days;

  1. Put a moratorium on new mining deals or investments until after there is clarity on the mining legal and policy framework. With the time-frame- in the run up to the new elections there is inexorable pressure to demonstrate results. The country is unlikely to make good deals negotiating from such a position. In any case, no new investment will have any meaningful effect on the economy before the 2018 elections. There are other things that can be done.
  2. Finalise the much talked of new ‘fiscal regime’ for the sector. Talk of this new fiscal regime has been on-going for the last 2 years, if not more. There has to be conclusion to these issues.
  3. Provide more clarity on the Indigenisation and Economic Empowerment Act amendments. Chitando is an industry man- he needs to reach out to that constituency and communicate the reforms around the Act. The chaotic implementation of the Act and the policy flip-flopping have really dented industry trust. It cannot be undone by one statement by Chinamasa in a Budget Speech. There should also be efforts to clarify what now happens to established Community Share Ownership Trust Schemes.
  4. Provide clarity on the platinum export tax (that has been ominously hanging as a hangman’s noose -over the platinum sector) and beneficiation.
  5. Work hard on providing direction on the principle mining legislation and policy framework. Reform of the Mines and Minerals Act has suffered a lot of false starts. There was a 2007 draft and there is currently a different 2016/2017 draft. If we are reforming our principal legislation (as I believe we should) then we should communicate that and begin that work in earnest. If we are not proceeding with those reforms then we should communicate the same. There is no such clarity at the moment.
  6. Clean up the State-Owned Enterprises (SOEs). Much of the rot in the mining sector is in SOEs such as the Zimbabwe Mining Development Corporation (ZMDC) and the Minerals Marketing Corporation of Zimbabwe (MMCZ) among others. There should be a complete overhaul of these institutions- new boards, new demands on their reporting and accountability, cutting wasteful expenditure.
  7. Push for a full investigation into the whereabouts of the $15Billion. This figure will not just go. It was too big, it was stated by then President himself, it is too garish. It will hang on any ZANU PF government like an albatross. It’s a mess Chitando may not be interested in getting himself in- politically. He must steel himself.
  8. Win over the citizenry. If there is one sector that is reviled for deep seated corruption and mismanagement it is the mining sector. This is due to the heightened expectations that the government whipped up when alluvial diamonds were discovered in Marange- and the consequent failure of government to meet those expectations. Who doesn’t recall Obert Mpofu- then Minister of Mines- stating that Zimbabwe will never beg again! Chitando must do things that demonstrate that mining will now be handled in a transparent and accountable manner. A clear minerals policy and presentation of the same at a multi-stakeholder and public conference would go a long way in doing this. A policy that commits to  full and dis-aggregated (by project) disclosure of mining revenues.
  9. To the extent possible support the RBZ in its efforts to mop up gold from artisanal and small scale gold miners. This will include supporting monitoring efforts and assessing the impact of paying miners in bond notes (even with the export incentive) as opposed to hard currency and adapting accordingly.
  10. I would seriously consider removing the export incentive for mineral exports. Our mineral sector is largely dis-articulated from the rest of the industry- therefore- miners are still going to export. The demand elasticity of most mineral commodities is not highly variable.
  11. Hold an investor’s conference (or multiple- in the right foreign capitals) only after finalising the minerals development policy and the reform of the Mines and Minerals Act. Prostating ourselves in foreign capitals is not something we aspire too but we do need foreign capital for our large-scale mining industry. This may happen post the first 100 day cycle.
  12. There are a lot of property rights issues that need to be addressed – the two that possibly need urgent attention is the bundling up of companies operating in Marange into the Zimbabwe Consolidated Diamond Company; and the involuntary ceding of land held by Zimplats to the government. For all these companies’ faults and our failure to negotiate good terms and manage our resources well- we must demonstrate that we respect property rights and abide by our laws. Gangsterism must be a thing of the past.
  13. Work on models that ensure that mines always have enough energy. Production has consistently been compromised by consistent electricity supply challenges. Mines must be prioritised and models where they secure they own power supply through the national grid should be explored.
  14. Get a hold of what is happening in Gache Gache.

*The views expressed in this blog are personal and do not in any way, shape or form represent the views of any organisation.

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The US Withdrawal from EITI: A Note from Africa

Gilbert Makore*

The US formally communicated its decision to withdraw from the Extractive Industries Transparency Initiative (EITI) on the 2nd of November. This was hardly surprising and was expected given an earlier decision to remove Section 1504 Dodd Frank Act that would have required mandatory disclosure of project level payment data by extractive companies.

The EITI allows for the public disclosure and reconciliation of payments made by extractive companies and those received by governments. Ordinarily, the US withdrawal should only really draw the ire of US citizens who, as a consequence of this decision, will be deprived access to this public disclosure. However, the US withdrawal has political implications for Africa and the EITI as a whole.

Withdrawing from EITI and doing away with the Section 1504 of Dodd-Frank regrettably sends the message that-in 2017- big oil is still winning. It has been reported that big oil companies such as Chevron and Exxon Mobil have actively campaigned against the SEC rule. It is tragic that they won. It is a classic case of government taking a back seat to big business. It is almost laughable that these companies are represented on the EITI international board.

When African governments refuse to sign up to global multi-stakeholder initiatives such as EITI, they often invoke nationalist rhetoric that these initiatives are foreign imposed. African governments point to the US and other European countries as pushing them to accept these initiatives when they themselves are not subject to the same. By clawing back on EITI and other transparency related reforms, the US effectively makes the position of African governments, that have been obstinate when it comes to recognizing the value of international initiatives, tenable. The withdrawal, in effect, undermines years’ worth of transparency campaign work that has been done by grassroots organizations across Africa and global networks such as Publish What You Pay.

It is duplicitous for the US to exhort African governments, to join and implement the EITI while concurrently withdrawing from the same barely 6 years after joining. That the letter from the Department of Interior talks of national laws preventing the implementation of EITI is disingenuous at best and, at worst, willfully misleading. This ostensibly inhibiting legal framework would surely have been a subject of public debate or at the very least subject to discussion within the multi-stakeholder group (MSG) or the EITI. In any case, the US, is well aware that the EITI allows for adaptation depending on context.

The US states that it will continue to politically and financially support the EITI oblivious to the fact that it politically undermines the initiative through its withdrawal. This reversal of significant public campaign wins (SEC rule on mandatory disclosure and EITI) represents a nadir for US global leadership on transparency and accountability in extractives, perceived or otherwise.

Regrettably, the withdrawal from EITI demonstrates the vulnerability of multi-stakeholder transparency initiatives. An in-country collapse of an initiative such as EITI, is essentially one bad political decision away and can be precipitated by a government withdrawal notwithstanding CSO protestations and continued private sector interest to see the initiative thrive. Tanzania’s recent withdrawal from the Open Government Partnership (OGP) amply demonstrated this.

The emaciation of CSOs in multi-stakeholder initiatives is also stark- our seats at the table are not of equal weighting. Let’s face it. The civil society coalition in the Kimberly Process Certification Scheme’s tripartite arrangement took the difficult decision of boycotting the KPCS Plenary and Intercessional meetings to protest the chairpersonship on the United Arab Emirates. This sent a message, an important message but it may very well be argued that CSOs were hardly missed and it was business as usual within the KPCS. The CSO protest against undue process at the 2016 EITI Global Conference in Lima would have also been cause for reflection.

The EITI will hopefully come out stronger despite this inadvertent involuntary wobble- precipitated by the US withdrawal. Navigating a world order characterized by a rise in nationalist fervor may, however, result in the initiative doing more to perfect its diplomacy than perfecting its original ideals. CSOs will have to form a real bulwark against an industry and political assault on the values of EITI.

For Africa, the perennial vulnerability of multi-stakeholder initiatives, means superintendence over the continent’s extractive resources cannot be wholly outsourced to international initiatives. There is, undoubtedly great value in these initiatives but there is ultimately no substitute for strengthening national laws, national institutions and continued mobilization of grassroots campaigning and monitoring.

 

*The views expressed in this blog post are personal and do not in any way represent the views of any organization.

 

 

Mildred Chiri- Here’s why I Will Miss Her

I took my first deep dive into data from the Auditor General’s reports in 2013. I was working with a colleague on a research project to pry into the goings on at the Marange diamond fields. To say I was shocked is an understatement. Here lay before us a real treasure trove of information and data. The reports we looked at then gave an account of the poor corporate governance and downright brazen corruption at state owned enterprises such as the Zimbabwe Mining Development Corporation (ZMDC). I remember the excitement I had; I pored through those reports with disbelief.

 

AG

Here was a quasi-independent ‘government agency’ doing such a great job exposing rot in state owned enterprise. Auditor General Reports are quite voluminous but surprisingly they are part fun (and of course part infuriating and sad). In the 2014 report on State Enterprises, the auditor general noted that;

The Chairman of the Mining Development Board (Godwills Masimirembwa- former ZANU PF Harare Province Chair and CMED Chair) retired from the Mining Development Board on June 30, 2013 and was paid US$ 261 000 as gratuity for his three and half years service on the board which is in contravention of the best principles of corporate governance which state that non-executive directors shall not receive excessive payments on contract termination. The gratuity payment was also not taxed in contravention of the Income Tax Act [Chapter 23:06] 13th schedule which states that any amount paid or payable to any person by way of gratuity constitutes gross income and should be treated as gross income and taxed under the Pay As You Earn ‘PAYE’ system.

The auditor general then recommended that ZMDC should consider a remuneration policy which is in line with Corporate Governance Practices and should comply with the Income Tax Act. SOEs are given a right of response in the reply and ZMDC in its response said;

The Corporation will adhere to the best principles of Corporate Governance and comply with the Income Tax Act. The Corporation will remit the PAYE on the gratuity in July 2014.

But hold on. Mildred Chiri and team were not satisfied with the response as it meant essentially meant tax-payers would bear the burden. In other words, Godwills Masimirembwa should pay his own PAYE as we all do. ZMDC should not do that for him. The Auditor then noted that;

By paying the PAYE in 2014 the Corporation utilises its resources, of which it should have withheld the PAYE through the system.

This initial research resulted in a report we titled Tracking the Trends: An Analysis of Diamond Mining Tax Contributions’ and also led us to another research project where we were looking at current disclosure practices in Zimbabwe’s mining sector. We sought to assess the extent to which the private sector, government and quasi independent institutions proactively disclose information relating to Zimbabwe’s mining sector.

As part of that research we wrote a bunch of letters to various government departments, Zimstats, Minerals Marketing Corporation of Zimbabwe, ZMDC and others. We also wrote to the Auditor General requesting a couple of reports. We already had most of these reports but were interested in testing the institution’s responsiveness.  And this is when I got newfound respect for that office and the work that Mildred Chiri was leading.

We got a response to our letter within 2 days of having delivered it. I remember getting an email and a call from the OAG’s office acknowledging our letter and requesting that we visit the office for a short meeting and to pick up the requested reports.

To be clear, when we wrote these letters, we were working for a local NGO but we intentionally did not the institutions we were affiliated to and the reasons why we had made our request. The idea was to request for information as ordinary citizens.

When we got to the office, all the reports we had requested had been put together. The courteousness on display and to which we were treated has stuck with me, three years on. We were casually asked why we wanted those reports and we mentioned that we were just interested in the work of the OAG office as citizens and that was good enough.

I distinctly remember that Valentine’s Day (14 February 2015) was around the corner post our meeting with the OAG’s office. We mooted the idea of sending the OAG flowers to show our appreciation of her and her team’s consistently sterling work. For no reason at all, we unfortunately, we did not go ahead with that plan.

What set Mildred Chiri apart, in my eyes, was how unassuming she was. She was not loud or boisterous. I would wager that more have gone through her reports than have heard her speak. She assembled such a great team and managed to keep those ‘civil servants’ motivated. You do not produce such reports year in year out on the back of so little resources without having and leading a great team.

Through the years, I have always pondered though- why didn’t she quit? She surely must have been frustrated. You produce good and factual reports that have clear indications for action; and those that have the authority to address concerns raised equally consistently ignore them. In my imagination, I think she stayed because she felt she had a moral duty to continue exposing rot. Sometimes you just have to do the right thing because it is the right thing.

I do not know the clear circumstances surrounding her departure and even the Finance Minister seems confused and appears to have bungled the dismal or whatever they are calling it. What I am pretty certain of is that her team will miss her, I will miss her and the nation will miss her. She was one of the good ones. Working in the muck but keeping her head high and doing the best she could. People often say we should build institutions and not focus on individuals. True. But individuals are important to. You can have the best institutions and systems and still have that individual- ask the Americans. For once I choose to focus on her, the individual. I choose to celebrate her and hold her up as a hero to my kids. Maybe, soon, I will find a way to give her those flowers she so deserves.

ANALYSIS OF AUDITOR GENERAL 2014 REPORT ON STATE ENTERPRISES: A FOCUS ON MINING STATE ENTERPRISES

 

Mukasiri Sibanda and Gilbert Makore

The 2014 narrative report on state enterprises and parastatals by the Office of the Auditor-General (OAG) reveals continued rot and mismanagement of public resources. This article takes particular interest in the findings pertaining to the Zimbabwe Mining Development Corporation (ZMDC), a state owned enterprise (SOE) advancing state interests in the mining sector.

ZMDC is involved in the extraction of gold, diamonds, graphite, platinum and asbestos among other minerals. It is its involvement in Marange diamond fields, where it owns no less than 50% stake in all the seven companies operating in Marange, which galvanised its position in mineral exploitation. The diamond entities in which ZMDC has an interest include; Mbada Diamonds (50%), Diamond Mining Corporation (50%), Jinan (50%), Marange Resources (100%) and Kusena Diamonds (100%).The only notable exception is Anjin Investments where ZMDC’s shareholding is 10% although the other 40% is said to be held by Government of Zimbabwe.

Minerals are finite sovereign assets and state equity participation warrants close public scrutiny to determine the extent to which the exploitation of the mineral assets is benefitting the citizenry. Scrutinising the role of direct state participation in mining is particularly important in the context of current international discourse on how corporations are bleeding Africa of critical development finance.

An analysis of the 2014 narrative report on state enterprises and parastatals by the OAG, therefore, becomes opportune and imperative as it provides for reflection on how ZMDC is faring on managing the country’s minerals assets. The findings from the OAG clearly show how poorly ZMDC is executing its mandate as a state agent in the exploitation of minerals.

Some of the findings from the report show that;

  • ZMDC’s latest audited group financial statements are for the year ended 31 December 2013. ZMDC is perpetuating its custom of sharing stale financial information. Timely audited financial statements are one of the key tenets of good corporate governance and their undue delay affects the integrity with which the company is managed. It is, however, important to note that Marange Resources (a ZMDC subsidiary) has its 2014 annual audited reports in place.
  • ZMDC has failed to honour statutory obligations to the Zimbabwe Revenue Authority (ZIMRA), pension funds and medical aid schemes. For instance Marange Resources owes statutory obligations amounting to $16,201,622 as at 31 December 2014 broken down as follows; $11,466,864 (royalties) $2,504,615 (depletion fees), $1,162,674 (depletion fees), $758,270 (Minerals Marketing Corporation of Zimbabwe commission), $167,892 (Pay As You Earn- ZIMRA) and $141,365 (National Social Security Authority).
  • Mineral reserves and ores are not known as no meaningful exploration has been done. This carries the risk of poor economic justification for disposing equity stake to investors as the quantity and quality of concerned mineral assets is unknown. In addition, fiscal plans are most likely to be undermined by poor confidence in revenue. This has been the case since the start of formal exploitation of Marange diamonds in 2010.
  • Joint venture partners have been enjoying dividends without honouring their committed capital investments.
Joint Venture Agreed amount (US$) Amount invested (US$) Variance (US$)
Mbada Diamonds (Pvt) Ltd 100,000,000   47,914,009 52,085,991
Jinan (Pvt) Ltd 200,000,000 134,853,491 65,146,509
Diamond Mining Corporation (Pvt) Ltd 1000,000,000   40,971,654 59,028,346
  • Corporate Social Responsibility (CSR) investment amounting to $3,163,091 lacked proof of receipt from beneficiaries and no breakdown of expenditure was availed. Included under CSR; $195,000 (Kimberly Process Certification Scheme Inter sessional meeting on 4-7 June 2013), $165,000 (Diamond mining conference in Angola & Turkey), $100,000 (Diamond expenses for Israel & China- Dewe L). These travel expenses dwarf the $250,000 given to Marange Zimunya Trust. It is unclear how travel to international conferences by senior executives constitutes CSR. It can be inferred that some of the CSR budgets that the companies tout as representing commitment to community social development are essentially personal and or executive expenses.
  • No proof of ownership of investment in Anjin (private) Limited, Jinan (Private) Limited, Gyme Nyame (Private) Limited, Diamond Mining Corporation and Global Platinum Resources (Private) Limited as share certificates could not be availed.
  • The OAG report noted that there is no Environmental Impact Assessment certificate for Marange resources, a ZMDC’s subsidiary. Notably, the state is both a player and a regulator in the mining sector its partiality in enforcing the rule of law shows double standards and dissipates confidence in mineral resource governance.
  • Mbada diamonds posted an operating loss of $49,651,859 in 2013 after making $56,015,647 profit in 2012. The entity’s current liabilities exceeded current assets by $89,916,504 (2013) and $57,383,887 (2012). The report expressed concern on the business’s ability to operate in the foreseeable future.
  • Marange Resources non-executive board members were given a cumulative total of 2,940 litres of fuel, $27,450 each as holiday allowances and an extra security payment of $758,000 over and above the approved remuneration rates. These payments were not taxed under PAYE contravening the Income Tax Act (Chapter 23:06).
  • The Chairman of the Mining Development Board retired from the Board on June 30, 2013 and was paid US$ 261 000 as gratuity for his three and half years service on the board.This is in contravention of corporate governance  principles which state that non-executive directors shall not receive excessive payments on contract termination.
    The gratuity payment was also not taxed in contravention of the Income Tax Act [Chapter 23:06].

Despite national political rhetoric on state resource ownership the OAG report clearly exposes the need to improve management of SOE that are participating in mining.  Where state participation in mining is not fully accounted for, socio-economic transformation leveraged on minerals resources will remain a pipe dream. It is important to note that the OAG 2014 Report is not the first to expose this decay in SOE. There is, therefore, a need for various actors to ensure that the findings from this report are urgently taken forward and considered.

RECOMMENDATIONS

  • The Ministry of Mines and Mining Development must swiftly act to address the rot as minerals are a finite resource. The Ministry must publicly state how it will address the findings from the OAG Report. ZMDC should be compelled to timeously release its financial information to stakeholders particularly given that this is a SOE.
  • The government must disclose Marange diamond joint venture agreements and all mining contracts to enable public oversight on how sovereign assets are being managed. Contract disclosure can act as a deterrent to cases where joint venture partners with government enjoy dividend income without making good of their committed capital injection.
  • The government must explore possibilities of recovering dividend income that was enjoyed by joint venture partners who failed to honour their capital contributions in full. The process of consolidating diamond entities should not reward truant joint venture partners who have failed to contribute required capital to justify their equity position in Marange diamond exploitation
  • The Parliamentary Portfolio Committee on Mines and Energy and the Committee on Public Accounts must ensure that the report findings are urgently considered. Parliament should investigate how the 40% government equity in Anjin Investments is being accounted for.
  • Civil Society through the Publish What You Pay (PWYP) campaign must make use of already existing and credible information reports of the OAG to raise public awareness and aggregate public demand for government accountability to stop the bleeding of public resources. Demand driven accountability can be coalesced through public awareness and understanding centred on abuse and leakages of public resources. An analysis of implications of poor management of public resources vis-á-vis provision of constitutional socio-economic rights would be vital.

###

For more information on the OAG Report Findings please get in touch;

Mukasiri Sibanda- (Economic Governance Officer, Zimbabwe Environmental Law Association)- mukasiri@zela.org

Gilbert Makore (Coordinator, Publish What You Pay- Zimbabwe)- gtmakore@gmail.com

Zimbabwe Environmental Law Association

26B Seke Road, Hatfield, Harare

Tel: +263 57360-3

Website: www.zela.org

Mining and the IMF Staff Monitored Program for Zimbabwe

The IMF published the Government of Zimbabwe’s Letter of Intent and the IMF Staff Report for monitoring that began in March and ended 17 April 2015. This is all part of the IMF Staff Monitored Program (SMP) that Zimbabwe voluntarily subjected herself to in 2013. The program is aimed at normalizing the country’s relationship with creditors and mobilize meaningful development finance. Should Zimbabwe meet all the quantitative and structural benchmarks under the IMF SMP this would demonstrate the country’s capacity to repay its debts and could unlock funding from not just the Fund but other agencies.

The government’s commitment to implementing various reforms under the SMP is, therefore, high particularly given the continued challenges in mobilizing development finance and a general choke-hold on the economy. In that regard the SMP becomes an important arena for tracking and monitoring progress with respect to various structural reform commitments.

Of particular interest in the recently published LOI and Staff Report are the points below;

Point 13 in the Staff Report: Authorities expect submitting the amended Mines and Minerals Act, including the fiscal regime for mining, to the Attorney General by end-March, to be submitted to Parliament in the third quarter of 2015. They have already started developing regulations to support the implementation of the amended Act, which would help strengthening the tax regime for the mining sector and improving mining revenue transparency. The authorities have committed to continue publishing the audited financial statements of the Zimbabwe Mining Development Corporation (ZMDC).

Point 23 in the Staff Report: In January 2015, the Indigenisation and Economic Empowerment (IEE) Act was amended to include new roles for the line ministries to approve indigenization plans, issue compliance certificates, and monitor implementation. Line ministries are required to define and publish the parameters for their respective sectors. To further clarify the policy, the authorities plan to publish a simplified summary of the law on the Zimbabwe Investment Authority’s website.

General Comments

It is highly likely that the amendments to the Mines and Minerals Act will be tabled before Parliament before end of 2015 and it is important to monitor and influence this reform process as much as is possible.

There is a commitment to publish the audited financial statements of ZMDC. This is a welcome commitment although its tempered by the fact that the government had (in a letter to the IMF on 3 November 2014) earlier committed to ensuring that the 2013 audited financial statements of ZMDC would be published by the end of 2014. This target was not met.

It is not clear if the new roles for the line Ministries address investor or investor confidence concerns. The IMF Staff report also concedes as much. There remains a lot of confusion in government, the general public and investors with respect to the interpretation and implementation of the Indigenisation and Economic Empowerment Act.

UPDATE ON THE PARLIAMENTARY PORTFOLIO COMMITTEE ON YOUTH, INDIGENIZATION AND ECONOMIC EMPOWERMENT MEETING – 7 MAY 2015

Matter: Oral evidence from the Permanent Secretary for Mines and Mining Development and the Permanent Secretary for Youth, Indigenisation and Economic Empowerment on progress made on the follow-up to the pledges made by mining companies to Marange- Zimunya CSOT.

The Permanent Secretaries did not attend the meeting but they sent in representatives at Directorate level.  These included;

Mr Hawadi- Ministry of Mines

Mr Tizoro- Acting GM- Zimbabwe Mining Development Corporation

Mr Masanga- Ministry of Youth Indigenisation and Economic Empowerment

Mr Mashonganyika- Ministry of Youth Indigenisation and Economic Empowerment

Mr Rangu Nyamurundira- National Indigenisation and Economic Empowerment Board

Mr Ngwarati- Ministry of Youth Indigenisation and Economic Empowerment

BACKGROUND

Five mining companies operating in Marange are alleged to have pledged to donate US$50 million into the Marange Zimunya Community Share Ownership Trust with each company in-putting US$10 million. The Trust was launched on 26 July 2012 but the ‘pledges’ have not been fulfilled and some of the companies in Marange have since stated that they never agreed to the pledges.

President Mugabe launching the Marange Zimunya Trust (photo credit: ZBC)

President Mugabe launching the Marange Zimunya Trust (photo credit: ZBC)

PROCEEDINGS

The Chairperson of the Committee indicated that the Committee wrote to the Ministry of Mines and Mining Development and the Ministry of Youth Indigenisation and economic Empowerment seeking information on the progress that has been made on the ensuring that mining companies that made pledges to the Marange Zimunya Community Trust had been honoured. The Chair also noted that the letters to both Ministries had requested evidence of correspondence between the Ministries and with the mining companies involved with respect to the issue of the Marange Zimunya Community Trust.

Outcome of the Committee Meeting and Oral Evidence from the Ministries

  1. There is no official communication that shows that the companies in Marange made pledges to donate to the CSOTS
  2. The Ministry of Youth Indigenisation and Economic Empowerment states that the pledges were verbal
  3. There is however no evidence (audio/meeting minutes) that shows that the companies made the pledges
  4. There Ministry of Youth Indigenisation and Economic Empowerment argues that the companies committed to the pledges and this is evidenced by the fact that it is the companies that produced the dummy cheques for presentation and not the Ministry
  5. The Ministry of Youth Indigenisation and Economic Empowerment has since written to the mining companies (March 2015) to get their official commitment with respect to the pledges and their plans to make good on the pledges.
  6. Out of all the mining companies, only Jinan has written back. Jinan’s letter back to the Ministry of Youth Indigenisation and Economic Empowerment was just an acknowledgement of receipt of the letter from the Ministry and does not necessarily commit to the ‘ pledges’
  7. ZMDC was not involved in the issue of pledges to the CSOT and was only invited to the launch
  8. There is no evidence of correspondence between the Ministry of Mines and Mining Development and the Ministry of Youth, Indigenisation and Economic Empowerment with respect to the Marange Zimunya Community Share Ownership Trust
  9. ZMDC met with the mining companies on 20 June 2013 and directed the mining companies to make contributions to the Trust (each contributing US$200 000 immediately subsequent to this meeting of June 2013)
  10. Marange Resources remitted US$250 000 and Mbada Diamonds remitted US$200 000 to the CSOT’s bank account
  11. Given the production challenges in Marange, the Ministry of Mines and Mining Development’s position is that these pledges be renegotiated down with a view to payment being spread over a period of time

Further Reading:

President Launches Marange Zimunya Community Trust 

Scam Fears in Community Trusts

Marange Community Share Ownership Trust Under Fire 

Community Share Ownership Trusts in Zimbabwe’s Mining Sector: The Case of Mhondoro-Ngezi 

REPORT BY: PUBLISH WHAT YOU PAY ZIMBABWE

Publish What You Pay Zimbabwe is a coalition of civil society and community based organisations united in their call for a more open and transparent mining sector in Zimbabwe.

DISPUTES EXPOSE POOR MINING AGREEMENTS

By: Mukasiri Sibanda* (Guest Blogger)

In Zimbabwe, Mining Agreements (MAs) or contracts are not publicly available and accessible. This is so despite that constitutionally speaking; minerals are public assets and must be publicly accounted for. Secretive MAs may have harmful tax incentives which may prejudice mineral revenue flows to the public purse and consequently inhibit broad based socio-economic development.

In 2014, Zimbabwe was ranked 156 out of 175 countries on Global Corruption Perception Index released by Transparency International. Given such high levels of corruption in the country, the secrecy surrounding MAs presents opportunities for corrupt public official and corporates to benefit at the expense of the nation. Secretive MAs have been identified as one of the causes for the failure of resource rich countries to leverage on natural resources to attain socio-economic transformation that lifts the poor out of poverty.

The news surrounding the tax dispute between Zimbabwe Platinum Mines (ZIMPLATS) and the Zimbabwe Revenue Authority (ZIMRA) clearly demonstrates the imperative for full disclosure of mining contracts or mining agreements. Zimplats is one of the largest platinum mining companies in Zimbabwe and operates out of Mhondoro-Ngezi. The company is listed on the Johannesburg and Australian Stock Exchanges and is largely owned by Implats. A local weekly newspaper, the Financial Gazette, carried a story on 26 February titled “ZIMPLATS Wins Tax Dispute”.

According to the story, ZIMPLATS entered into a Mining Agreement (MA) with government in 1994 which stipulated that royalty rates will be paid at 2.5% of fair market values. Further, the MA exempted ZIMPLATS on payment of Additional Profit Tax. These fiscal incentives are known as stabilisation clauses which are used as a tool to attract investments in a sector through the insulation of tax incentives from potential future changes in legislation.

ZIMRA argued that the MA agreement clause on stable 2.5% royalty rates was not binding since  requisite Statutory Instrument (SI) was not issued as stipulated by the Income Tax Act (Chapter 23:06) whereas Zimplats argued otherwise (case number 12292/11). Justice Lavender Makoni in favour of Zimplats citing that “the definition of taxes under Income Tax Act (Chapter 21:05) does not include royalties under the Mines and Minerals Act (read with Chapter VII of the Finance Act (Chapter 23:04).

The period under consideration in this dispute is 1 January 2004 to 30 September 2010. ZIMPLATS argued that it had paid royalty rates at 3% and 3.5% which were above the stipulated 2.5% in its MA with government. The overpayment amounted to US$6,057,146.00. It must be noted that royalty fees for platinum have since been further repeatedly revised upwards to 5% on1 January 2011 and 10% on 1 January 2012. Experts estimate that ZIMPLATS may claim up to US$120 million from ZIMRA. It is, however, noteworthy that ZIMRA has been complying with the reviewed royalty rates and has not demanded restitution as Justice Lavender Makoni noted in her judgement.

On another separate note the dispute between ZIMRA and ZIMPLATS on Additional Profit Tax (APT) payment amounted to $50.4 million from 2002 to 2011.

Royalties

These stabilisation clauses pertaining to flat royalty rates of 2.5% and the waiver of APT when added up shows that the public purse is at risk of losing over $176million. This becomes glaring when one considers the 2011 national budget statement which lamented poor royalty revenues despite booming mineral prices.

It is interesting to note that the MA that ZIMPLATS had with government was concluded in 1994. During this period, agriculture and manufacturing were the mainstay sectors of Zimbabwe’s economic growth. This has since changed as mining is now the lead economic sector after surpassing agriculture and manufacturing based on its contribution to both the Gross Domestic Product (GDP) and export earnings.

The country’s 5 year (2013-2018) economic blueprint, the Zimbabwe Agenda for Sustainable Socio Economic Transformation (ZimAsset) is anchored on judicious exploitation of mineral assets. Yet MAs that were entered into over 2 decades ago are likely to encumber whatever plans are in place of fully capturing mineral resource rents and fully beneficiating the country’s mineral assets. These unbeneficial tax incentives should be put in the context of the fact that mineral resources are wasting assets that cannot be recovered once exploited. In addition, the failure to judiciously exploit the country’s mineral resources means that treasury is starved of much needed revenue and this has the knock-on effect of stifling much needed investments in creating social safety nets to ameliorate the plight of many poor Zimbabweans.

Reviewing of MAs to unlock the mining sector’s potential in line with the new economic status of mining is critical to the realisation of ZimAsset’s transformation agenda. MAs should be publicly accessible and it is disheartening to note that the details of the much touted recent $3 billion platinum MA between Russian investors and government are not public. Do we have to wait for disputes to start exposing the malcontents of this MA as is the case with Zimplats? Zimbabwe should follow the lead of countries such as the DRC and Guinea in publishing mining contracts or mining agreements. This helps plug opportunities for corruption and ensures that public officials negotiate in good faith knowing full well that the mining agreements will be subjected to public scrutiny.

* Mukasiri Sibanda is an Economic Governance Officer at the Zimbabwe Environmental Law Association ( a member of Publish What You Pay Zimbabwe)