Sickening irresponsibility on mineral royalty tax
By Editor
Friday March 30, 2007 [02:00]
Who benefits from mining? What is the myth and what is the reality?
These questions have been up in the air for a long time now. Exploitation of mineral resources constitutes a very significant element of our national wealth. Mining uses a non-renewable resource which means that there is an “economic rent” that belongs to all Zambians which at present is appropriated by the mining industry.
It is this fact that justifies an adequate mineral royalty tax. There is a growing worldwide consensus which is to charge the “economic rent” corresponding to resources. During 2006, preceding the general elections finance minister Ng’andu Magande made several loud, but now worthless public announcements that government was going to revise the mineral royalty tax. However, as we have seen from the 2007 budget proposals, there is little to show for it. Magande must learn to walk the talk and not just talk the talk. In America they have a saying; talk is cheap.
We know that the 2006 IMF mission at the invitation of government held meetings with Evans Chibiliti, the Secretary to the Treasury and chair of the technical committee examining development agreements and the fiscal regime for the mining sector. What did Chibiliti do?
Did he invite all the stakeholders and existing mining houses with development agreements for a discussion? From what we have gathered, no meaningful discussions have taken place to-date either with the mining houses or stakeholders. Yet we know from reading the IMF recommendations on mineral royalty taxes, which report neither the Ministry of Mines nor Cabinet has seen or discussed, that Magande carelessly accepted the IMF recommendations and proposed those he could get away with under the 2007 budget.
Why did Magande and Chibiliti ask for advice from the IMF, whose sole purpose for its survival is to articulate the “Washington Consensus” imperialist policies that have failed for decades in all developing countries? Why did Magande and Chibiliti not seek advice from South Africa, Chile, UK, India, Bolivia, and Venezuela, among others?
Eva Jolly, the senior advisor to the World Bank on corruption is right when she said she was shocked to see Zambia being deprived of rent for its land through the mining contracts. And we also agree with her that it is time Zambia renegotiated the mining contracts.
We have carefully looked at the development agreements and in most cases under the current development agreements fiscal stability provisions that guarantee that the fiscal regime will not be made more onerous during the stability period of 15 or 20 years. Stability provisions provide that the corporate tax rate will not be increased and the allowable deductions and allowances will not be reduced.
New taxes or new fiscal measures will not be imposed.
If the stability provision is dishonoured, for example, the government has committed to make up for changes to ensure the mining company is fully compensated.
However, if the current legislated fiscal administration were made more generous, the mining company would gain from this change. So it is a win-win situation for all development agreement holders and a lose-lose situation for government. The stability provisions benefit the mining company, protecting the company from tax and royalty increases, while permitting the company to benefit from any tax or royalty decreases.
And we have to ask; why have parliamentarians not seen the development agreements? Why is government hiding these agreements from Parliament and therefore the public? In Chile, the world’s principal copper producer whose exports constitute 40 per cent of global copper supply, a pivotal public debate has developed over the past few years concerning the mining sectors’ tax contribution.
During the period 1990 to 2001, the government-owned copper mining conglomerate Codelco paid around US $10.659 billion to their treasury, while the private mining companies only contributed US $1.638 billion in spite of their production being 25 per cent greater than Codelco.
In addition, taxes paid by Codelco per metric tonne of copper produced represented 28.7 per cent of the final price, while taxes paid by private mining companies amounted to only 5.3 per cent.
It is therefore estimated that the total of lost tax revenue during that period amounts to US $10 billion. In the face of public and parliamentary opinion, the Chilean government decided to put forward appropriate mineral royalty tax legislation.
In Colombia the history of royalties starts with the Constitution of 1991, in which it provides for an “economic compensation by way of royalty” for the exploitation of non-renewable resources. The royalty rates range from three per cent to 12 per cent for different minerals.
It also establishes the right to a share in these royalties for local communities and municipalities where exploitation takes place. It is obviously clear that neither Magande nor Chibiliti can make bold decisions on behalf of our country, as they appear to exclusively rely on IMF for all and any advice on budget issues.
We are aware that neither the Ministry of Mines nor Cabinet were availed the so-called IMF recommendations on mineral royalty tax. We must ask, what does the IMF know about mining?
Zambia’s development has been intrinsically linked with mining. The nature of the challenge is clear. It is to create a situation in which Zambia and its people can benefit and have a direct share in the wealth created by exploitation of our mineral resources in a way that it helps the quality of life of all Zambians.
As it is now in Zambia, no mining exploration or mining concessions are available for Zambians to invest, since almost the whole country has been given to foreign investors, with an exception of very few Zambians where foreign investors have appointed Zambians in superficial roles as “nickel and copper plated” directors and legal advisors in the role as Mr Fix-It. Surely this madness cannot go on.
We therefore insist that President Levy Mwanawasa appoints a committee of eminent citizens to inquire and recommend as to how best Zambia can move forward in attaining financial and development benefits from its natural resources for the greater good of Zambia. This is the way forward.
Labels: EDITORIAL, EVA JOLLY, MAGANDE, MINING CONTRACTS
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Magande quiet on mine contracts
By Kingsley Kaswende
Friday March 30, 2007 [02:00]
Finance minister Ng'andu Magande yesterday remained mute on whether the government will proceed to renegotiate the contracts with mining firms. When contacted over the issue, Magande, through his secretary said he had a “busy schedule” and could not attend to any questions. This was after he had earlier agreed to give an interview to this reporter on this issue.
There have been mounting calls for the government to renegotiate the mining contracts to allow the country benefit from high copper prices. The recent call is from the visiting special advisor to the Norwegian Minister of Development Cooperation on anti-corruption and money laundering, Eva Jolly, who said on Wednesday that she was very shocked to see Zambia being deprived of rent from its land through the mining contracts.
Jolly said time was up for Zambia to renegotiate the mining contracts. “Looking at them (mining firms), I am very shocked that Zambia is being deprived of rent of its land. I think maybe time has come to renegotiate these contracts. These contracts are depriving you of too much,” she told parliamentarians. Jolly is likely to meet with Magande next Monday.
While presenting the national budget last month, Magande said the government would seek negotiations with mining companies “so that there is mutual consent by contracting parties to revise the tax regime.” In the budget speech, Magande proposed to increase the country’s royalty tax on copper mining from 0.6 per cent to three per cent. However, the taxes’ increase would not affect the current mining operations, Magande later said, because most of them had entered into long-term contracts with the government.
On the other hand, mining firms are not prepared to renegotiate, the Chamber of Mines of
Zambia (CMZ) recently said. CMZ general manager Fred Bantubonse said development agreements were legal documents which both parties entered into voluntarily. “If authorities come up with a harsh fiscal regime, the impact may come later than now when investors decide not to invest,” Bantubonse said.
Last week justice minister George Kunda told Parliament that the development agreements entered into with mining companies were above the law. Kunda warned that the consequences of breaching the development agreements would lead to harsh penalties and that Zambia could be taken for international arbitration. He, however, said the development agreements provided for re-negotiations and the government would like to re-negotiate.
Labels: CMZ, EVA JOLLY, MAGANDE, MINING CONTRACTS
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Freedom of information legislation is critical - Jolly
By Speedwell Mupuchi, Masuzyo Chakwe and Bright Mukwasa
Friday March 30, 2007 [02:00]
VISITING Norwegian special advisor to the Minister of Development Co-operation Eva Jolly has said freedom of information legislation is critical to the fight against corruption. At a media breakfast organised by Zambia Union of Journalists at InterContinental Hotel yesterday, Jolly said the fight against corruption demanded critical access to public information. She encouraged journalists to keep the impetus of fighting corruption to help eliminate poverty and imbalanced access to social services. "Access to information is very important and matters most in the investigation of corruption. There is need for legislations to be operational," Jolly said. "We cannot underrate the crucial role that the free press plays in the fight against corruption," Jolly said.
She said journalists needed to be free to request government and public officials for particular information, which was in the public interest. "My country has this in place. Officers could be asked to offer information of public importance by members of the public and journalists. Sometimes they even ask for bills public officers used on a trip and this promotes transparency," she said. Jolly said public officers needed to declare their assets before and after leaving office so that people could assess whether or not the wealth they amassed was reasonable. She urged Parliament to prioritise domestication of the African Union and UN conventions on corruption.
She also said donors intended to set up an asset recovery centre where they could train prosecutors on how to handle corruption cases and recovery of assets back to developing countries. "Maybe it could be set up in Brussels but anyway that's under discussion . We need such concrete measures to be able to repatriate resources back to developing countries affected by corruption," Jolly said.
And speaking at the same occasion, Evangelical Fellowship of Zambia executive director Bishop Paul Mususu (EFZ) said it was difficult to fight corruption because the press was muzzled. Bishop Mususu urged the international community to help Zambia domesticate many international instruments it committed itself to. He also hailed as progressive Jolly's comments on renegotiation of mine contracts. Bishop Mususu said no law was divinely ordained because people could renegotiate. "We have a lot of holes in our country where mining has taken place, all our wealth taken and nothing to show for the benefit of this country," Bishop Mususu said.
He said presently, it appeared government was only interested in a showpiece of mines opening and a booming economy without caring for Zambians. Bishop Mususu said there was a moral aspect of human life to the mining contracts. "That should come strongly in everything we do. Even if it was of a legal implication but morally is it fair the way we are doing it?" he said.
And at a dinner hosted for her at Norwegian Ambassador Terje Vigtel's residence on Wednesday night, Jolly praised the Task Force on Corruption for the wonderful work they were doing. She hoped that the Task Force's mandate would be reinforced and put into the constitution to enable it inquire into incidents happening now, not just those of the previous administration.
Jolly said there was no political will to go after corruption in most developing countries. She said there was a huge difference between what was being said and what was being done. And Ambassador Vigtel clarified that Jolly was not a senior World Bank advisor on corruption but a Norwegian government advisor who was carrying out an assignment for the World Bank.
Labels: CORRUPTION, EVA JOLLY, GOVERNANCE
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World Bank official urges govt to renegotiate mining contracts
By Speedwell Mupuchi
Thursday March 29, 2007 [02:01]
SENIOR advisor to the World Bank on corruption Eva Jolly yesterday said she was very shocked to see Zambia being deprived of rent from its land through the mining contracts. And Jolly said time was up for Zambia to renegotiate the mining contracts. Addressing members of the African Parliamentary Network Against Corruption (APNAC) at Parliament yesterday, Jolly said some Western companies were plundering African countries by using corruption to get good contracts. "They are honourable but they are using corruption to get good contracts. Corruption is still in use despite the fact that now we have an international convention forbidding it," she said. Jolly urged people to fight for transparency in the so-called tax haven as they fight corruption.
She also said senators in the US estimate that they are deprived about US $40 billion a year through tax havens which she said were also used for transfer pricing. "I think this is an interesting question for Zambia because you have contracts in mining industry which require getting tax on results but it is very difficult to calculate what this result is," she said. "Probably you don't have specialised people to look into the mining companies. It's much safer for you probably to have loyalties than to have taxation on the benefits. Then you can have loyalty on each tonne of copper being exported. It is then easier to control."
Jolly said she was very shocked with Zambia's mining contracts. "Looking at them, I am very shocked that Zambia is being deprived of rent of its land. I think maybe time has come to renegotiate these contracts. These contracts are depriving you of too much," she said. She said Zambia had several arguments to take forward over the issue. "If you can prove that these contracts were elaborated with corruption within them, they can be cancelled... If you can prove that the negotiators from the Zambian side were paid from the mining industry then you can cancel them," she said. "That is the most dramatic way of doing it."
Jolly said there were 70 tax heavens with a third of world wealth. She explained that these are places where authorities do not co-operate with judicial authorities. She noted that money from African countries was getting into European banks without problems. She said huge Western companies were using corruption of African leaders in their own interest. Jolly said till 2003 when the United Nations Convention against corruption was put in place, most countries could still keep money corruptly obtained from other countries.
Jolly also noted Zambia was getting help to retrieve money allegedly stolen by former president Frederick Chiluba. He said lawyers that helped Chiluba's money laundering were not satisfied that the international community was helping Zambia get the money. She said the lawyers were not satisfied because they were used to laundering money and that the case was symbolic and must be carried out because it was self-financing as the country could get the money back. "And you have to win because this is the first time you have democracy, you can really have a conviction of a former leader to pay back the money," she said.
Jolly said although it was expensive, Zambians needed to be steadfast. She said she was working with the World Bank to have a permanent revolving fund for asset recovery. She also said it was important for Zambia to have a non-corrupt and well-functioning anti-corruption and money laundering institution. Jolly, now a former Norwegian-French examining magistrate who served for 20 years as a judge, proposed an establishment of a Financial Intelligence Unit that would monitor financial flaws in and out of the country.
Mbabala UDA member of parliament Emmanuel Hachipuka said he could not comprehend how the National Assembly could be made to allow the development agreements to be above the Zambian constitution. He said he felt President Mwanawasa and the Speaker of the National Assembly had roles to play to state that the bill on mining contracts was ultra vires the constitution.
Hachipuka wondered how it was possible to arm-twist Parliament to the extent of placing development agreements above the constitution.
APNAC chairperson Given Lubinda announced that his organisation would start mobilising resources to deal with issues of the mining agreements. Regional Parliamentarian Network against corruption representative Catherine Namugala said corruption was to a large extent responsible for Zambia's poverty. She passionately appealed for help to repatriate resources from Western countries to address poverty and disease in Zambia.
Labels: APNAC, EVA JOLLY, MINING, MINING CONTRACTS, World Bank
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