Malawi losing mining revenue due to inadequate legal framework – Mining & Trade Review

Delays in enacting new law recipe for chaos in mineral sector

…Malawi losing mining revenue due to inadequate legal framework

By Chiku Jere

Malawi is losing a lot of revenue it could generate from its diverse mineral resource base due to lack of adequate legal framework to manage a modern mining industry as the government is delaying the process to have a revised Mines and Minerals Act in place.

The country is still using the Mines and Minerals Act (1981) which is an archaic legislation that was enacted during the one party regime, and vests the control of the country’s resources in the Life President on behalf of the people.

The Revised Law when adopted will put the power to control the resources in the hands of the State on behalf of the people of Malawi.

Stakeholders in the extractives industry believe adoption of the revised law is the only tool that will collectively address a myriad of problems that have arisen in the sector.

The government is struggling to address a number of problems including loss of revenue due to smuggling of minerals, unregulated artisanal and small scale mining activities, poor negotiation of mining development agreements with mining companies, under declaration of taxable revenue and transfer mispricing by mining companies because the country does not have a powerful legislation to manage a modern mining sector,

says Quadria Muslim Association of Malawi (QMAM) Project Officer for Extractives Biswas Ismael.

QMAM is a faith based organisation which is implementing a mining governance project dubbed Upscaling Mines and Minerals Bill Project in mining districts of Mangochi and Ntcheu with financial support from Norwegian Church Aid (NCA).

The project involves empowerment of local communities and district stakeholders on mining issues in order to propagate a transparent mining regime that responds to the current trends in mining activities and benefits the people by among others calling for the enactment of the Revised Mines and Minerals Bill.

Ismael explains that, so far, the evaluation of project points to lack of proper legal framework governing the mining sector as a major drawback that is fuelling injustices that have deprived the nation benefits from natural resources and subjected communities in mining areas to suffering in the face of mining activities.

He says despite the government showing political will to transform the mining sector into a driving force for the national economy, less progress to rectify the problems that exist in the sector by enacting the proposed Mines and Minerals Bill (MMB) has been made, two years after it was drafted.

But the resounding verdict that our interaction with the people discovered is that the 36-year-old law currently in use deprives the citizens’ right to development as enshrined in the Constitution of Malawi in the sense that it does not provide mandatory remedies to many injustices prevalent in the sector,

says Ismael.

Economic Justice Coordinator for NCA, Thokozani Mapemba says it is imperative that the country has to enact the revised law as soon as possible because the present legal framework has been rendered ineffective.

Additionally, loopholes in the current law have led to chaotic mining practices, some of which have resulted in environmental degradation with impunity. The country can put a stop to this kind of self-damaging acts by enacting the new law just now and rolling out its enforcement,

says Mapemba.

Advocacy

201711 Malawi Mining & Trade Review NRJN CSO march outside parliament

CSOs through Natural Resources Justice Network (NRJN) have been waging a campaign to have the new draft Mines and Minerals Bill (MMB) debated and passed by parliament, stressing that the law will provide a much needed direction in terms of governance and management of the extractives sector.

A petition, which NRJN Board Chairperson Kossam Munthali recently led the communities from mining areas to present to parliament, represents the pinnacle of a desperate push to expedite the enactment of the Revised Mines and Minerals Act.

In the petition, Munthali says the present law contravenes the tenets of transparency and accountability as it promotes secrecy on contracts and licenses that are agreed between Government and Mining Companies without public scrutiny.

 This scenario opens the possibility for corruption and mismanagement and defeats unity of purpose and direction as it does not ensure consistency, predictability and fairness,

he says.

Programme Officer (Extractives) for the Centre for Environmental Policy and Advocacy (CEPA), Cynthia Simkonda, comments that it is unfortunate that Malawi continues to use the Act which has resoundingly been branded as archaic.

Simkonda says the delays in enacting the new law is not only denying citizens the benefits they could get from its provisions such as community development agreements, but also posing several challenges as the legislation was designed to mitigate licence disputes, and enforce adherence to community development agreements which will reduce hostilities towards investors.

On the private sector side; Coordinator for Malawi Chamber of Mines, Grain Malunga, says the need to enact the new law as soon as possible cannot be over-emphasized, as the creation of a vibrant extractives industry that will help move the ailing national economy to greater heights depends on the law.

Countries across the globe are competing for foreign direct investment and the delay in embracing the new law continues to affect Malawi as an investment destination, as investors are not certain of the country’s legislative environment,

says Malunga.

Ills of present law

The Malawi Extractive Industry Transparency Initiative (MWEITI) Report observes that the law, in its present form, does not ensure greater revenues from companies, let alone enforce company accountability to Government, the environment and Malawian citizens.

But much as the brunt side of the ineffectiveness of the current mining legislation has been felt by the whole country due to loss of revenue, the ones who have been directly hit by the injustices that go with extraction of minerals are the communities living in the vicinity of mining activities.

In Ntcheu for example, the community around Chimwadzulu Mining area did not know that their land was leased in 1970 until recently when the Nyala Mines, a third company that has been operating in the area, expanded its operational boundaries to the people’s garden arguing that the people are operating in the leased area.

This led to confrontations between communities and the mining company which resulted in arrest of one of the community members.

Government Response

Government has made ceaseless promises to enact the law but nothing has come out yet.

In Mining & Trade Review’s last enquiry about the Bill mid last year, the then Minister of Natural Resources, Energy and Mining Bright Msaka indicated that it was with the Attorney General’s office going through the final process before it is submitted to cabinet and finally parliament.

Msaka admitted that a sound and comprehensive modern mining legislation is needed in order for the government to develop the minerals sector.

Probably, the Bill will be tabled in the ‘next seating’ of parliament,

said Msaka then, but up to now the law is still on the shelves at Capital Hill.

Msaka’s predecessor Aggrey Masi has continued singing from the same page.

Noticeably, mining issues have being relegated to the periphery as was unequivocally evident in President Peter Mutharika’s 2016/17 State of Nation Address (SONA).

The speech had only two paragraphs on mining, which, ironically, avoided the mentioning of the MMB, but only focused on the marketing of the countrywide airborne geophysical data which was launched last year.

On the part of MPs, what has been heard so far, are solemn promises to pass the law “once it is presented in the House” coming from Parliamentary Committee on Natural Resources and Environment (PCNRE) Chairperson Welani Chilenga.

Mining sector modernisation

The delay in passing the revised mining law is holding the country back from keeping pace with the rapid modernization of mining codes as many countries in Africa and the world at large have done.

James Chatupa, a seasoned geologist and independent analyst of the extractives industry notes that in order for the sector to move towards vibrancy, legislation that guides operations needs to be in place to improve efficiency, transparency and sustainability of the sector.

In his write-up presented to participants at a Knowledge Exchange Workshop on Stakeholders’ Oversight Role of the Mining Sector in Salima, Chatupa says in order to register tangible progress in terms of effective management of natural resources, the country needs a piece of legislation respected by all stakeholders in the mining sector.

He says, so far, the government has made positive steps in preparing the country towards achieving an economically sensitive extractive sector, but lamented the slow pace at which Malawi is moving to enact the law that will direct the whole process.

It seems that on one hand, Malawi wants to make progress, but on another, the country is pulling itself backwards,

says Chatupa.

He urges relevant authorities to facilitate quick decision-making if Malawi is to move forward and eventually reap the economic fruits that the mining sector is promises.

Scandals

So far, Malawi has paid dearly in sticking to the use of the outdated mining law with the nation losing revenue through unfair contract agreements between the government and mining companies.

As this is not enough, lack of a coherent law governing the sector is also exposing citizens to dangers of conflict, accidents as well as environmental damage.

Poor decision making by the government coupled with porous legal framework is also proving costly to the nation with regards to the Kangankunde Rare Earth Mining Project in Balaka as the investor, Australia’s Lynas Corporation, is failing to develop the resource it purchased for US$4-million (about K2.5-billion) due to legal complications.

A previous tenement holder, South Africa’s Rift Valley Resources, sued the Malawi Government claiming US$100 -million and obtained an injunction against the development of the mine on the grounds that the government erred by not renewing its exclusive prospecting licence for the Kangankunde resource, whose rights at that time were with Rare Earth Company.

The government is also in conflict with Nyala Mines after it  refused to renew its mining licence for corundum at Chimwadzulu Hill and Ilomba Granite which wants the government to extend its 25-year mining licence that was previously renewed in 1995.

There is also another wrangle between the government and oil companies which led to suspension of oil exploration for a year pending review of the licences. The government has opted for renegotiation of the petroleum sharing agreements which were signed in 2014 a few days before elections.

If this is not enough, in Mangochi the government is trying in vain to stop the communities in TA Namavi and Mankanjira from conducting illegal mining which has resulted in deforestation, siltation of rivers and child labour.

Efforts by the Department of Mines to calm the situation is proving futile as people are penetrating deep into the mountains running away from community members and police who were hired to stop the people from mining.

However, a powerful mining legislation that carries the aspirations of the people could have prevented these scenarios on the onset.

It could further raise the status of the communities where mining activities are taking place in line with the mining policy of 2013 which gives room of empowering communities to take part in mining activities.

Conclusion

Malawi extractives industry, though described as ‘infant’ by many commentators, has been touted to have the potential of transforming the economic fortunes of the country.

Sadly, it seems efforts to have the sector contributing significantly to the country’s ailing economy seem to be frustrated by the system.

So to sum it up, the link between having proper legal framework guiding undertakings in the mining sector and the resulting impact on the economy cannot be over-emphasized, given the narratives above.

***

This piece was initially published in Malawi’s Mining & Trade Review Issue Number 55 (November 2017).

The full edition is available for download here. This monthly publication is edited by Marcel Chimwala.

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