Maravi

(NEWZIMBABWE) Biti: eating what you haven’t killed

Biti: eating what you haven’t killed
02/08/2012 00:00:00
by Resources Exploitation Watch

The following report was presented to the full trustees meeting of Resources Exploitation Watch in Durban on July 27, 2012, by the Sub-Committee on Revenue Watch:

THE whereabouts of the Government of Zimbabwe’s dividends from the Marange Diamond Fields continue to be topical with Minister of Finance, Hon Tendai Biti, making serious allegations of receipts plunder by the Zanu PF functionaries within the echelons of these mining activities.

In his 2012 mid-term Budget Statement, Minister Biti argues that from the projected US$600m, the treasury only received less than US$200m. He further intimated that the mining concerns continue to extract the resources and dispose the returns clandestinely. This assertion makes sad reading immediate as it comes soon after the certification of Anjin, Mbada and Marange Resources by the Kimberly Process Certification Scheme.

When crafting a national budget and establishing sources of the projected income, the fiscal authorities are expected to ensure that the source of revenue meets, inter alia, three key attributes.

Firstly, the source of revenue must be legal and governed by a distinct legal framework that regulates it. This entails that the presence of a clear legal frame work will eliminate or minimise revenue leakages, empowers the government to audit the source of revenue and also provide for criminal sanction should revenue remittance defaults arise.

Secondly, the source of revenue must be free from any political or economic encumbrances, either domestically or externally. This means that the subsistence of the source of revenue must not be subjected to embargoes or other inhibitions by whosever so that the tenure and security of the source of revenue is least interrupted to ensure continued harvest of revenue.

Thirdly, the source of revenue must have the total political will and support of the political actors (all of them in their diversity). This is key in ensuring that there is policy consistency at all time regardless of which political party or parties are in government in order to ensure that the source will not suffer any undue political interference.

Commercial and large-scale diamond mining started in Marange less than four years ago. To date, the aggregate investment of the five mining companies is circa US$800m and by far the biggest investment in Zimbabwe since 2000. These various diamond mines are largely a 50-50 joint venture between Zimbabwe Mining Development Corporation (ZMDC) and other foreign investors.

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ZMDC is a wholly-owned government of Zimbabwe entity and was established by an Act of Parliament, the Zimbabwe Mining Development Corporation Act, 31 of 1982. Its mandate is to, on behalf of government of Zimbabwe, conduct profitable and commercial mining ventures, jointly or solely.

In 2009, under serious budgetary pressures, a deal was struck with these mines to remit monthly to treasury funds to cover for “key government expenses, which include the civil service wage bill...” This development is unprecedented in the history of extractive mining in this country since the arrival of the Pioneer Column.

There is no mining house that had made payments to government in that fashion. Even Tony Rowland of the Lorhno fame would not have acceded to such request. To date, these diamond mines have contributed more than US$380m to the fiscus.

A common definition of a dividend is “a sum of money paid regularly by a company to its shareholders out of its profits.” These remittances from diamond mines cannot be classified as dividends because dividends, by their nature, are declared after a successful 12 months business calendar year showing surplus of after payments of all operating, fixed and statutory payments.

These remittances Biti is referring to are not outstanding statutory payments because all these five mines are up to date on their PAYE, VAT, royalties and income tax obligations. They may, however, qualify as shareholder’s loan. What makes this arrangement unique and unheard of is the fact shareholders (GoZ) want to receive funds before full recovery of the investment made.
Worldwide, investors always ensure that they have fully recover their investment before settlement of dividends.

Minister Biti has alleged, without providing empirical evidence, that these diamond mines are not remitting the funds to treasury as earlier agreed and are therefore siphoning the funds into a parallel economy that is being used to build a war chest for Zanu PF ahead of crucial elections. He further alleges that some of the key people in this diamond mining operation now own private jets and a string of concubines.

There is no law on our statutes that bans acquisition of jets by black people. It’s commonly known that any failure to remit a statutory payment to ZIMRA or Treasury attracts a fine. Why has Biti not garnished the bank accounts of these mines or better still not fined them?

The truth of the matter is that the arrangement to remit monthly payments is not legally-binding and therefore carries no criminal sanction. The arrangement was and is a mere gentlemen agreement reached to address a revenue deficit crisis that prevailed at that particular time and still continue to be with us. As a leading and prominent lawyer, Biti should have sanitised the arrangement and made it legally binding for both parties.

Section 33 of the Zimbabwe Mining Development Act states that “where in a financial year the revenues of the Corporation are more than sufficient... The corporation shall pay out of the surplus such dividends to its shareholders (Government of Zimbabwe, in this case) as the Board may determine in relation to that year.”

So the current and valid legal position is that ZMDC pay dividends once a year to treasury. Any other arrangement outside this provision is simply benevolent but not binding.

It is, therefore, an abuse of this gentleman’s agreement to demand these other diamond mines to perform when a number of variables have changed from date of initial “commitment” to date. For instance, diamond prices were circa US$70.00 per carat and have now plummeted to US$15.00 per carat. The United States has intensified its attack on Marange by now forcing all Indian cutters and polishers to declare that their diamonds used are not of Marange origin. This has seriously affected the number of bidders and as such when supply exceeds demand, prices drop.
Further, the Eurozone crisis has now affected demand prices for many commodities and diamonds are not spared.

It’s also important to mention that, according to Reserve Bank of Zimbabwe, platinum still accounts for more than 45% of the mining receipts and by far the biggest earning commodity. There is no mention of the portion of the platinum receipts paid monthly, let alone annually to Treasury. Why has Treasury not made initiatives to ensure that Platinum mines also contribute to civil service wage bill?

Upon taking over the Ministry of Finance in 2009, Biti declared that the budget was going to operate on an “eat what you kill basis”. The inclusion of the diamond receipts in his 2012 forecast simply promised people food that was yet to be “killed”.

It will be indeed in the national interest if Minister Biti drops an activist approach on the diamond receipts matter and tell the truth.

Labels: DIAMONDS, TENDAI BITI

posted by MrK @ 2:37 AM