Tanzania: Pressure Mounting On Government To Act On Exploitative Contracts

Tanzania: Pressure mounting on government to act on exploitative contracts

Wilfred Edwin, Special Correspondent, Nairobi
The East African

26th June 2006

Summary & Comment: A review of mining contracts was a priority identified when the President took office last year. The government has undertaken an in-depth evaluation of why revenue from mining activities is so small. Companies are obliged to pay $200,000 annually to local authorities and a royalty of 3 per cent of the value of exports to the government. Now legislators are demanding better profit sharing arrangements and fuller accountability to the communities where mines are located.

Pressure mounting on government to act on exploitative contracts

The mining sector in Tanzania has once again come under intense scrutiny with signs that government officials are beginning to yield to public pressure for a fresh look at mining contracts.

Last week, the government publicly acknowledged that major mining companies have been fiddling with figures to avoid paying the requisite duties and royalties. Deputy Minister for Energy and Minerals, Lawrence Masha, disclosed in parliament that a recent audit report by government appointed assayers Alex Stewart had noted that reports presented by large scale gold mining firms on their operations were not correct. Mr Masha said that the investigations by the assayers were still going on. "The preliminary report by the committee is ready. I request the MPs to be patient as such problems and many others will be sorted out after the review process," said Mr Masha.

Members of Parliament last week pressed the government for more action on mining contracts, with the legislators demanding better profit sharing arrangements and better accountability to the communities where the mines are located. Legislator Chacha Wangwe demanded a government explanation for what he described as the mining companies' "insignificant contribution to the communities" compared with the profits they were making. Companies are obliged to pay $200,000 annually to respective local authorities "depending on the tax regime of the district and additionally pay a royalty of 3 per cent of the value of exports to the Tanzanian government."

The government had in June 2003 entered into a contract with Alex Stewart (Assayers) Government Business Corporation of the USA to verify the cost of production, transportation of gold, and capital invested by large scale miners. The mining sector grew by 15.7 per cent in 2005 compared with 15.4 per cent in 2004, contributing 3.5 per cent and 3.2 per cent to GDP respectively. The Minister for Planning, Economy and Empowerment, Juma Ngasongwa, says the government has formed a special committee to undertake an in-depth evaluation of why the revenue accruing from mining activities is so small.

Dr Ngasongwa attributes the higher growth of the sector to additional investments in Tulawaka Gold Mine in Biharamulo. Gold is the main mineral export with 48.2 tonnes being exported in 2004, but its impact on economic recovery and job creation has been very minimal. Review of the mining contracts was one of the priorities identified by President Jakaya Kikwete when he took office last year. He promised to provide a fair balance between returns to investors and the country's interests.

Despite being the continent's third largest gold exporter behind South Africa and Ghana, Tanzania was cited by the United Nations Conference on Trade and Development (UNCTAD) as one country that, despite massive FDI inflows, had yet to attain the desired goals, including job creation. The report had advised that countries like Tanzania needed to add value to the raw minerals as is the case in South Africa and Namibia to benefit the local economy. Tanzania has had no mineral processing facility since the closure of the diamond-cutting firm Tancut in the late 1980s.

The drive to introduce value addition saw former President Benjamin Mkapa inaugurate the Mwananchi Gold Company Ltd, a multibillion-shilling investment aimed at processing gold. Two months ago, officials from the Barrick Gold Corporation visited the country on a similar mission.

Key public concerns over the mining sector have revolved around the lopsided contracts that the government has entered into with the investors, resulting in meagre returns and royalties, lack of transparency in the mining sector and poor social relations.