25 extractives companies in initial EITI reporting exercise

By Chiku Jere

Malawi Extractives Industry Transparency Initiative (MWEITI) has short-listed 25 extractives industry companies to be included in the production of first ever Extractives Industry Transparency Initiative Standard (EITI) Report scheduled for submission to EITI International Secretariat by April 22, 2017.

This was disclosed during the EITI Reporting Workshop for Mining Companies held at Simama Hotel in the Capital City Lilongwe on January 10, 2017, as the country intensifies its efforts to attain ‘compliant’ status for EITI, a global standard for governance of oil, gas and mineral resources that promotes transparency and accountability in the extractive sector.

As per requirement, MWEITI Multi-Stakeholder Group (MSG) contracted Moore Stephens International, a London-based global accountancy and consulting network as an ‘Independent Administrator’, to assist in the production of the Report, documenting company payments as well as government receipts, covering July 1, 2014 to June 30, 2015 period.

With the help of MSG and MWEITI Secretariat, the Independent Administrator uses a robust yet flexible methodology for monitoring and reconciling company payments and government revenues from the extractive industries to compile the EITI Report which discloses information on tax, royalties, rents, licences, contracts, and production, among other key elements around resource extraction.

It is through these reports, supposed to be submitted annually, that the ‘candidate’ country, which Malawi is, is assessed on whether it is meeting the EITI Standard.

Addressing participants during the workshop, Moore Stephens’ Head of Office, Ben Toorabally, said experience drawn from numerous countries shows that participation in EITI process has many advantages to companies as it facilitates the creation of an open-society-like environment of doing business.

This, he explained, helps expel the aura of mistrust among stakeholders in mining industry, as information about transactions between companies and government is accessible to the public.

As a result, companies involved do not face difficulties in earning public social licences for their operations given the trust earned through open dealing. In the same way, bickering between interest groups such as civil society organisations (CSOs) and communities is dealt with, since the public is able to appreciate contribution companies are making to the economy,

he said.

Toorabally also said the open-society environment of doing business attract investments as it removes fears from prospective investors of having to indulge in corruption when seeking business permits.

And more advantageous to companies and countries that embrace and participate in EITI process is the fact that their credit rating is improved as they are deemed trustworthy, a scenario that draws interest of international lending institutions that provide loans,

he said.

During the workshop Toorabally’s colleague, Rached Maales, Moore Stephens’ Assistant Manager, took participants through a presentation that tackled EITI reporting process.

He also presented a prescribed form referred to as “Reporting Template” on which the selected companies will enter the required information.

The eight-sheet form includes: Identification sheet, Summary Reporting Template, payment flow details (by receipt number), social payment details, production details, export details, beneficial ownership and public interest.

Moore Stephens International started work last year and has been collecting relevant information from various government entities such as Malawi Revenue Authority (MRA), Ministry of Natural Resources, Energy and Mining (MNREM) and Public-Private Partnership Commission (PPPC).

This led to the selection of 25 companies, out of the   registered 900 that have licences in the country’s mineral resources industry.

The selected firms, 21 dealing in mining and four in oil and gas exploration, were picked after they were deemed to have reached the set threshold of material contribution to government entities – MRA and the Department of Mines – between July 1, 2014 and June 30, 2015.

The materiality threshold for the section of these companies for 2014/15 Financial Year (FY) reconciliation scope is pegged at MK5million contribution for mining and MK0 for Oil and Gas.

Government entities are supposed to prepare a separate reporting template for each extractive company and send a nil reporting template for companies that did not make any payment in the stated period.

Each template must be signed off by board level or senior level manager of both extractive company as well as the Government Entity and certified by a registered Independent Auditor for companies and The Auditor General for Government Entity, all applying agreed-upon procedures based on international standards.

The list of mining companies included are

• Mota-Engil Ltd
• Mota-Engil Minerals & Mining
• Paladin Africa Ltd
• Shayona Cement Corporation
• Lafarge Cement Corporation
• Cement Product (MW) Ltd
• Terrastone Ltd
• Cilcom Ltd
• Mchenga Coal Mines Ltd
• Optichem Malawi (2000)Ltd
• PSM Investments
• Kaziwiziwi Coal Mine Ltd
• Kaziwiziwi Mining Company
• Globe Metals & Mining Ltd
• McCourt Mining Ltd
• Malcoal Mining Ltd
• Zunguziwa Quarry Ltd
• Lancaster Explorations Ltd
• Intra Energy Trading Limited
• Premier Construction Equipments Ltd
• Nyala Mines Ltd

Oil and Gas companies include

• Hamra Oil in Joint Operating Agreement with Surestream Petroleum
• Pacific Oil Limited
• RAKGAS MB45
• SacOil Holdings Limited

The administrator’s analysis of extractive revenues collected during the 2014/15FY shows that the mining sector contributed 79.89% to the total government revenues from the extractive sectors and approximately 90% of this revenue collection was done by MRA.

The 100% revenue that was made through extractive companies payments to the state coffers was MWK7,077,734,640, with mining contributing MWK5,654,669,080, which is 79.89% of the chunk, Oil & Gas contributed MWK136,282,560 translating to 1.98%, while the remaining 18.18%, an equivalent of MWK1,286,783,000 came from forestry.

The administrator failed to gather information about Malawi’s artisanal activities as the artisanal sector is not organised to allow the availability of reliable revenue information.

Chamber of Mines and Energy President, Dean Lungu, who represented the private sector, but also officially opened the workshop on behalf of the excused Guest of  Honour, Director in the Ministry of Finance and MWEITI MSG chairperson, Crispin Kulemeka, acknowledged the role the private sector has in the EITI implementation process in Malawi.

He said for Malawi to attain an EITI ‘compliant status’, companies are expected to play their part of disclosing quality information of payments they make to Government.

Lungu noted that the quality and impact of the EITI Report depends on the quality of payment and receipts data that is submitted to the Independent Administrator and he assured that the Chamber will ensure that companies cooperate fully in supplying the required information.

This reconciliation process depends largely on the quality of the payment and receipts data submitted by Government Departments and Agencies and natural resource companies, therefore, it is expected that this workshop will impart the necessary skills that will ensure quality of reporting by the relevant entities,

he said.

Without mincing words, Lungu described Malawi as a ‘very corrupt country’:

None of us here can dispute that. But as Chamber, we have made it one of our objectives to help rid our beloved country of this embarrassing vice by embracing and promoting initiatives like EITI, which promotes transparency and accountability.

He quoted his counterpart, President of the Philippines Chamber of Mines Benjamin Philip Romualdez as having once branded mining as the most misunderstood industry in the world, an assertion which Lungu said he agrees with.

He said this is so because investors, CSOs, communities and government, all, have different interests and objectives as regards mining, which result in bickering and conflicts.

But he said EITI provides companies with a tool that addresses the situation.

It brings coordination between players of different interests in the mining industry, which eventually leads to common understanding of the mining industry big-picture goal – to improve the economy,

he said.

Lungu said enhanced transparency and accountability derived from the country’s   adherence to EITI will reduce corruption and in so doing improving business environment, a situation which will attract investors into Malawi, and eventually shoring up the economy of the country.

He pledged that the Chamber will ensure that companies operate in a credible and transparent manner in their submissions of payments, which he said the Chamber believes will positively contribute to the Gross Domestic Product (GDP) of the country and also brighten the climate of investment in the sector.

He urged the companies to avoid shoddy dealings saying the Chamber will not shield any company that will indulge in malpractices.

Then Lungu said he was pleased that some mineral rights holders were being commended for not only participating but also actively pushing for a meaningful EITI process in Malawi and urged them to maintain that path.

EITI is based on the principles agreed in 2003, which state that the wealth from a country’s natural resources should benefit all its citizens and that this requires high standards of transparency and accountability.

The Genesis of EITI in Malawi is the Open Government Partnership (OGP) initiative, which the Malawi Government joined in 2013 as part of its reform agenda.

Malawi joined other 70 countries in making a high-level Open Government Declaration to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance and EITI became commitment five of the OGP.

***

The article above was initially published in Malawi’s Mining & Trade Review Issue Number 46 that is circulating this February 2017.

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