Stakeholders hone skills on mine revenue monitoring in Malawi
By Marcel Chimwala
Stakeholders in the minerals sector had a rare opportunity to sharpen their skills in monitoring revenue accrued from mining projects thanks to a training workshop that was held at Lilongwe Hotel on June 6.
Organised by the Natural Resources Justice Network and Citizens’ for Justice with funding from Oxfam, the workshop was meant to build capacity of Government, CSOs and Media in contract monitoring using the economic data publicly displayed by mining companies listed on the stock exchange.
The workshop engaged Canada-based prolific trainer Don Hubert, President of Resources for Development Consulting, who enlightened the participants on financial processes associated with mining projects, which without clear monitoring and engagement by stakeholders can be manipulated by multinational mining firms for their own selfish gains.
Using Mkango Resources’ Songwe Hill Rare Earth Project in Phalombe as a case study, Hubert said it is necessary that stakeholders understand mining project economics to maximize revenue from mining projects.
He noted that while mining projects can contribute to growth in gross domestic product (GDP), modest employment generation, some infrastructural development and company-directed corporate social responsibility, the main benefits are the taxes to be paid to the central government.
Resource rich countries like Malawi have to understand project economics besides becoming EITI (Extractive Industry Transparency Initiative) compliant because multinational companies can take advantage of lack of knowledge on revenue monitoring among the citizens to maximize their gains through transfer mispricing which robs the mining country,
Hubert took the participants through project economics for Songwe Hill and the analysis proved that using data from the pre-feasibility study that the miner completed, the government’s share of revenue would be better than the mothballed Kayelekera Uranium Mine in Karonga.
He, therefore, recommended that it is appropriate for a country to apply fiscal terms that are contained in the laws as reflected in the Songwe Hill feasibility study rather than coming up with a development agreement with a mining investor as was the case with the Kayelekera Mine.
In the development agreement for the Kayelekera Mine, the government reduced the royalty rate for the project from 5% to 1.5-3% in exchange of 15% shareholding it acquired in the project. The trade-off resulted in significant loss of revenue for the government as the investor, Paladin Africa, never declared any dividends to the government as a shareholder since the mine did not turn out to be a profitable venture [Paladin Africa did not declare a profit].
Good practice in the extractive sector is to move away from project-by-project negotiations as discretionary power is often abused and generates uneven playing field for investors,
said the trainer whose consultancy’s aim is to assist citizens of resource rich development countries to secure a fair share of government revenue from petroleum and mining projects.
Hubert has just completed a three-year posting in Mozambique where he worked on the extractive sector for the United Nations, bilateral donors and non-governmental organizations.
His current work focuses using contract analysis and project economic modeling to strengthen extractive sector governance. He has conducted economic analyses of extractive sector projects in Belize, Cambodia, Chad, Kenya, Mozambique, Tanzania, Uganda and Zimbabwe.
Take a look at Oxfam Zimbabwe and Publish What You Pay Zimbabwe’s recent study by Resources for Development (Don Hubert) “Government Revenues from Mining: A Case Study of Caledonia’s Blanket Mine” (May 2016).
The piece “Stakeholders hone skills on mine revenue monitoring in Malawi” featured above was initially published in Malawi’s Mining & Trade Review Issue Number 39 that is circulating this July 2016.
The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.