Why transparency in mining contracts is vital

13Oct 2021
Daniel Semberya
Dar es Salaam
The Guardian
Why transparency in mining contracts is vital

​​​​​​​TANZANIA is endowed with vast quantities and different types of natural resources whose extraction has been central to the country’s economic growth.

Participants follow a presentation on findings of Tanzania’s mining, oil and gas sectors at a Policy Forum debate held in Dar es Salaam last week. Photo/Daniel Semberya

Mining is one of the leading sectors in Tanzania with value of mineral exports increasing every year.

However, experts say that the country is not benefiting from these resources—some found in Tanzania alone—due to a number of reasons including secrecy in contracts.

In her presentation on 2021 Resource Governance Index (RGI): Findings for Tanzania’s mining, oil and gas sectors at a recent Policy Forum’s breakfast debate, Senior Africa Officer from Natural Resource Governance Institute (NRGI), Sophia Rwegellela, which was presented on her behalf by Senior Lecturer at the University of Dar es Salaam Dr Abel Kinyondo, she said that findings show that mining sector scored only 58 points out of 100.

She said although there has been an improvement of 9 points from the 49 points scored in the 2017 RGI, the increase is largely attributed to improvements in revenue management and not other equally important aspects.

Hence, the mining sector still falls in the weak performance bracket, she said.

On value realization, there was satisfactory score of 60 points, up by six points from the 2017 RGI score. The subcomponent of taxation attained a good score of 85 points, up 20 points from the 2017 score.

She further added that the RGI’s duty was to assess the legal framework and the practices that govern a country's extractive sector.

Commenting on the difference between the scores a country receives on the quality of its legal framework and how well a country implements the laws and rules in practice, she said that Tanzania's implementation gap worsened from 26 in the 2017 RGI to 29 in the 2021 RGI.

Rwegellela noted that the widened gap was largely attributable to a weak enforcement of rules on the subcomponents of local impact and state-owned enterprises.

For example, she stated that although rules for   disclosure of mitigation plans exist, the plans can only be accessed upon payment of a prescribed fee.

The government has not disclosed reports on its finances and operations in the past two years even though it is legally required to do so. The government has only disclosed partial information in press releases, she said.

The findings on oil and gas have indicated that the sector has scored 55 out of 100 points in the 2021 RGI. This translates into two points increase since the 2017 RGI. This improvement is largely attributable to Tanzania’s gains in revenue management, she said.

However, revenue management together with value realization and the broader enabling environment remain in the weak performance band. Regarding value realization, it scored 58 points, 7 points less than the 2017 RGI.

According to their findings, there is non-disclosure of contracts as well as limited disclosure of beneficial ownership information. Also, public officials are not required to publicly disclose their financial holdings in extractive companies.

On local impact, environmental mitigation plans are not publicly disclosed although this is required by law. Thus, rules governing compensation and resettlement fall in the weak performance band due to lack of laws and rules governing resettlement.

Meanwhile, the Tanzania Petroleum Development Corporation (TPDC) scored a satisfactory score of 61 points. However, she added that TPDC should disclose more information about its non-commercial activities. The corporation should also publish costs and revenues of its subsidiaries and its code of conduct.

On the other hand, revenue management scored 53 points, 13 points up since 2017 RGI but still in the weak performance band. Areas of weakness include national budgeting and transparency.

An online data portal that would disclose reserves, production and exports has not yet been established, she said, adding that the implementation gap has narrowed from 28 in the 2017 RGI to 18 in the 2021 RGI.

“The implementation gap of 18 and the low practice score of 49 shows that the government should ensure that the laws governing the sector are enforced,” she said.

In their recommendations, researchers suggested that Vice President's Office (Union and Environment) should create provisions in the legal framework that require disclosure of both Environmental Impact Assessment (EIA) and social impact assessment (SIA).

They added that the government should take steps to enshrine resettlement in the land laws to maintain consistency across both mining and land laws.

Further, they urged the ministry of minerals to stand by its June 2020 commitment to ensuring disclosure mining contracts, saying that would among others, enable citizens to understand the agreed terms of extractive projects and to hold the contracting parties accountable for non-compliance, incentivize government officials to arrange fair contracts and deter them from concluding contracts that are disadvantageous to citizens.

Also, the experts added that the ministry of minerals should be more cautious on amendments to Tanzania’s mineral laws which they said have afforded the government discretionary room to cancel and suspend contracts.

“This will improve rule of law and regulatory quality, creating a more conducive environment for investors,” the experts said.

Again, the ministry must improve governance of the State Mining Corporation (STAMICO) by disclosing annual reports, commodity sales information and joint venture projects as well as subsidiary information. This will allow citizens to scrutinize data to ensure revenues generated are managed in the interest of citizens.

On oil and gas sector, they have requested the ministry of energy to establish an oil and gas cadastre to improve public administration efficiency and transparency.

They argued that this will also make it easier for all government authorities to upload information into the public domain via an online portal, allowing citizens and other stakeholders to engage in dialogue about how the country’s resources are managed.

“Enforce oil and gas contract disclosure rules in order to enable citizens to understand the agreed terms of projects and hold each contracting party accountable for non-compliance,” they recommended. 

Ted F. Silkiluwasha, a participant, suggested that Tanzanians should be prepared to make the most of the entire value chain of the mining sector.

He said since the minerals are extracted here and sold outside the country, there are some costs which are incurred that people be aware of and grab as businesses opportunities with big investors.

“We should make it easy for the local people to do business with the investors who come here. The food they eat, medical services and education for children of people working for the mining companies should be provided by locals so that the value chain in the business create a multiply effect in the country,” he said.

Pascal Mayalla, another participant, said that although there are a total of 21 Production Sharing Agreement (PSAs), none of them involves locals.

Mayalla recommended that the government should borrow a leaf from Arab countries where oil belongs to the people and not the mining companies. He said by doing so, people will benefit from their resources.

Another participant, Lovelet Lwakatare, said that transparency in the mining sector is crucial for the resources to truly benefit all Tanzanians.

“Transparency remains a challenge because after having the data, it is easy to hold people accountable,” Lwakatare said.

Faheemah Patel concurred with other participants that correct data and transparency were vital for Tanzanians to grasp and learn how to use energy sustainably.

“The more information people have, the better,” Patel said.

Other findings indicate that Tanzania is the 4th largest gold producer in Africa after South Africa, Ghana and Mali.

The mining industry experienced an estimated 15.3 per cent growth in the first quarter of 2020 compared to 10 per cent growth during the same quarter in the previous year. There is an increase in mineral revenue collection from $84.5 million in 2015/16 to $202.7 million from July 2019 to April 2020.

There have been a number of changes in the mining industry and more are expected due to the 2017 Minerals Act. The government is trying to make the sector more attractive but there are still several restrictive regulations.

The changes in the legislations have increased the royalties, going up from four per cent to six per cent and an introduction of one per cent as well as clearing fees on the value of all minerals exported from the country. Also, the new laws give the government powers to acquire shares in major mining companies.

For instance, the amendments led to the establishment of Joint Venture Company known as Twiga Minerals Corporation Limited between the government (16 per cent shares) and Barrick Gold Corporation (84 per cent shares); and payment of compensation of $100 million from Barrick Gold Corporation as initial settlement of the agreed $300 million.