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)

DECLARATION OF THE 6th ALTERNATIVE MINING INDABA- “MAKING NATURAL RESOURCES WORK FOR THE PEOPLE”

DECLARATION OF THE 6th  ALTERNATIVE MINING INDABA

 “MAKING  NATURAL RESOURCES WORK FOR THE PEOPLE”

 12th  February 2015,  Cape Town, South Africa

We, the representatives  of  over  300  members  of  Civil  Society  Organisations;  Faith  Based Organisations,   Pan-African   Networks  and  Organisations,   Labour   Movements,   media, international  partners  and Community  Based  Organisations,  have met from  9th    –  12th February,  2015,  in Cape Town  to share experiences and deliberate  on the role  and the impacts of extractives on communities, the environment, animal life and society at large. This  marks  the 6th   year  of  the Alternative  Mining  Indaba  (AMI)  which has  grown from  its modest 40 to over 300 international delegates, and in particular from Africa.

Cognisant  of  the failure  to fulfil  the Millennium  Development  Goals  (MDGs)   and the subsequent efforts towards the Sustainable Development Goals (SDGs) and the post-2015 agenda, financing for development should remain a national obligation.

We are convinced that the capitalist system puts profits  above people, and fails to sustain harmonious relations within  society. The failure of African governments to fulfil regional instruments, including the Africa Mining Vision (AMV),  is a demonstration of its weak governance.

We   have  further  noted  the flagrant  violation  of  ethical  and legal  standards  and believe  that without  principled,  just  and effective  regulation  of  the extractive  and related industries, people will remain impoverished.

We are cognisant of trade and investment policies that have had a negative impact on governments’ ability to fulfil its development agenda and lift communities out of poverty. Governments  have an opportunity  –  and  duty –  to ensure  that natural  resources benefit  more  people  more  widely  and that companie s operating  in  their  respective countries are acting according to ethical and legal standards.

We call upon all African governments to commit to rising to the challenge set  forth in our priority  recommendations  and make citizen-centred  decisions about  the investment of natural resources.

  1. Taxation and Illicit Financial Flows (IFFs)

1.1  There  is widespread consensus and  evidence  of  the devastating  impacts  of  Illicit financial flows (IFFs), tax avoidance and tax evasion on Africa’s ability to address its development and poverty challenges.  There  is therefore  an urgent need for African governments, individually and collectively under the leadership of  the AU to step up actions to stop  the bleeding of resources from  the continent. The launch of  the high level  panel  (HLP) report  on IFF  in  Africa led  by  former  president Mr  Thabo  Mbeki provides an opportunity  for  African  governments,  civil  society  and citizens  to join hands   and  push   for  real   transformative   changes  in   the  international   financial architecture. We support the need for a global framework that enables enhanced domestic resource mobilization, clamping down on corporate tax malpractice and putting an end to illicit outflows of resources from  the continent.

1.2 To realise the above, we call on the African Union  (AU) and African governments:

1.2.1   To  establish  and situate  a specific  agency within  the AU  and its  related processes as the leading African institutional space for dealing with  Illicit financial flows and asserting its eminence and legitimacy in relation to other international bodies in order to play  a greater and more active  role  within  the G20  and OECD processes and not consider Africa’s role as passive.

1.2.2  To strengthen the role of regional and continental groupings such as RECs, UNECA   and  ATAF  by    putting  in   place   adequate  institutional   and  political mechanisms   that  ensure a  clear   vision,   roadmap  and  action  plan  for  the implementation  of  key  measures to tackle  illicit  financial  flows.  Such mechanisms must ensure and protect the role for civil society and citizen’s participation.

1.2.3  To  review their   fiscal  policies  domestically  and regionally  and remove tax incentives  that  erodes their   tax  bases and  promotes tax  competition.  African governments should learn from  other regional experiences, where governments are willing and able to tackle IFFs through the use of innovative country specific anti-tax avoidance practices.

1.2.4  To send a clear and firm message to the international community and call for cooperation in stopping IFFs from  Africa. Since this  is not only an Africa problem, finding  a solution  to  these  challenges  requires  international  cooperation  and leadership to support Africa and not undermine the continent’s efforts.

  1. Transparency and Accountability

2.1      We  call  for  the   real-time  disclosure  of  all  project-level  mining-related  permits, licenses,  compliance  reports,  monitoring results  (including  air,  water, waste  and health) and contracts in a public registry available both online and as a hard copy.

2.2      We call for the  public disclosure of all relevant contractual and fiscal terms relevant to  EI   projects  to  allow  critical  interrogation  of  the  timing and  magnitude  of extractive industry revenue flows.

2.3      We  call  for  the   real-time  public  disclosure  of  beneficial  ownership of  Extractive Industries companies, including, those entities providing services via  government contracts and beneficiaries of trusts.

2.4      We  call  on governments  to adopt  whistle  blowing  protection mechanisms  that incentivise those who publicise corruption and  illegal  government and corporate activities.

  1. Environmental rights and community monitoring

3.1      We call on governments to support mining community initiatives in  tracking and assessing multi-national corporation activities and mitigate the social, cultural and environmental impacts of those activities.

3.2      We  call on governments and MNCs  to negotiate with communities as opposed to consulting, since the latter is inadequate and diminishes our real rights  to negotiate the use of  our land  and environment. Consultation  fails  to include  the right  to say NO.

3.3      We  call  for  the adherence  to the international  law  principle  of  Free,  Prior  and Informed  Consent as  a continuous process, rather than a once-off  practice and adequate government investment in environmental compliance and enforcement.

3.4      We  call  on government and MNCs  to accept,  that where mining is unavoidable and   communities are   relocated,    that   communities be   compensated   in accordance with  the real  value of the land, including the value of the mineral resource under the land and pecuniary rights.

3.5      We call for the  rational and just utilisation of the land and the environment and an end to looting and land grabbing for foreign food production, mining and other forms  of  extractives.  Where the  environment  and livelihoods  are degraded  or destroyed, these actions should lend itself to stringent recourse.

  1. Access to Remedy: Litigation and Mining

4.1      We call on government to revoke mining licenses where there is non-compliance to

Social and Labour Plans (SLPs) that have been agreed to.

4.2      We  call  on government to give effect  to the fact  that SLPs  and Environmental Impact Assessments (EIAs) are public documents which should be readily available to the public.

4.3      We call on government to ensure that SLPs are actually and effectively negotiated with   communities and  workers. We   further   call   on  an  inclusive   process  with communities, as it pertains to EIA.

4.4      We call on government to strengthen judicial systems and to provide equal access to justice for mining communities.

4.5      We   call   on  governments   to  provide adequate   resources for   human  rights commissions to investigate; monitor and take action against human rights  abuses in the extractives sector.

4.6      Cognisant  of  the extreme danger of  climate  change to Africa,  where 200  million people are anticipated  to perish this century because of  droughts  and floods, we demand a proper accounting, mitigation and compensation for the  extremely high proportion of Africa’s greenhouse gas emissions that come directly and indirectly from  mining and smelting.

5.2.3  Investigate  what policy  and laws  must be enacted  at both national  and regional  levels which will  encourage cooperative formations  that can help ASM communities to  thrive  together and  ensure safety and  benefits  for  miners  and communities. ASM activities should also be part of  the policy process at grassroots levels.

5.2.4   Legislation  must be  empowering for  ASM  and for  the  communities that depend on it for their livelihoods and must not be  prohibitive especially where no other alternatives are available to communities living in poverty.

5.2.5  Legislation and Policy should ensure that Artisanal  industrial  beneficiation is funded and supported in order to create industrial capacity at local level that can serve as alternatives to mining for communities living in poverty.

  1. Women and Extractives

6.1      We call  on government to ensure the equal  inclusion of women in  all decision- making processes that directly or indirectly affect them.

6.2      We call on government to create adequate platforms for women to organise and that these platforms are protected.

6.3      We  call  on governments  to amend mining  and labour  legislation  to effect  the gendered re-engineering of the workplace and ensure the enforcement of the law; particularly as it relates to women in the workplace.

  1. Mining, Health and Labour

7.1      We  insist  that the extractive  industry  accepts  its  responsibility  for the  health  and safety of mine workers and communities and to compensate those directly and indirectly impacted. This is especially important for those who have suffered from tuberculosis; silicosis and other mining related illnesses.

7.2      We   call   for  the   regulated   development and  implementation   of   sustainable monitoring  systems in  all  mining  operations  throughout  the  African region.  The monitoring systems must be:

7.2.1   linked to production;

7.2.2   implemented and enforced independently from  industry;

7.2.3   capable of adequate monitoring of exposures and health;

7.2.4   Capable of  adequate monitoring on a  global  and societal  basis,  so  as  to monitor the broader effects of mining on communities.

7.3   We call on the Medical Bureau of Occupational Diseases (and other bodies throughout the  region   charged with   the  administration   of   compensation   for occupational  lung  disease) to fulfil  their  statutory  obligations and requirements, including   the  obligation   to  provide  detailed   reports   on  the  exposure  of mineworkers to harmful toxins, which includes data on:

7.3.1   What mineworkers are exposed to;

7.3.2   The levels of exposure; and

7.3.3   How many mineworkers have been exposed.

7.4   We  call  on all  corporations involved  in  mining throughout the  region  to include details of dust monitoring and the mitigation of risk of exposure to dust on their mines in their  due diligence reports.

7.5   We  call  on the AU to harmonise the standards,  regulations,  policies  and practices relating to occupational health and safety regionally.

We  hereby affirm  our commitment to the above  stated  issues  and pledge our on-going support on the same with  unflinching resolve. We are also committed to working together with  governments, corporations, communities and other progressive forces to ensure that these demands are met.

Declared at the 6th  Alternative Mining  Indaba held in Cape Town, South Africa in February

2015  with  participants from:  Angola ,Argentina, Australia, Belgium, Botswana, Cameron, Canada,  Chad, Colombia,  Congo, Democratic  Republic  of  Congo, Ethiopia,  France, Ghana, India, Ivory Coast , Kenya, Lesotho, Madagascar, Malawi, Mozambique, Niger, Nigeria and  Norway,  Republic  of  South  Africa, Senegal  ,  South  Sudan  ,  Swaziland  , Sweden , Switzerland , Tanzania , Togo, Uganda, Zambia, Zimbabwe.

The Alternative Mining  Indaba is supported by  Economic Justice Network of FOCCISA; Oxfam South Africa; Oxfam America; Bench Marks Foundation; Open Society Foundation of South Africa; OSISA; Diakonia; Norwegian Church Aid (NCA)  and Kairos.

  1. Artisanal mining

5.1      We call  upon government to decriminalise artisanal  mining, so  that miners can be trained;  safety  standards  can be maintained  and whole  communities  can be liberated from  the oppression of criminal gangs.

5.2      With  reference  to 5.1,  proactive  measures must be  found  inter  alia  through the formation of a national Commission which will bring the activities of artisanal miners into the mainstream protection and support of the state.

In addition, this national Commission should:

5.2.1   Consider  how  markets  for  the   sale  of  ASM  mined  minerals  and for  the purchase chemicals such as  mercury, can be created to ensure the regulation  of the sector and the protection of human and environmental health.

5.2.2   Pay  special  attention  to  the  intersections where women  are  faced  with violence,  oppression and  exploitation   in  order to  ensure that  protections   and safeguards  are built  into the legislation  which decriminalises  ASM and brings the sector under the protection of the state.