Malawi lost about K19.6 billion through tax exemptions and royalties in the Kayelekera Uranium mining deal in the past five years Paladin Africa has been operating in the country, a Berlin-based consultancy and publishing house OpenOil has revealed.
But Minister of Finance Goodall Gondwe has rubbished the report as ‘nonsense’, saying the amount of money mentioned is way too high.
The Kayelekera uranium deal drew public wrath over concerns about lack of transparency and authorities’ failure to consult the public as people questioned the concessions for royalty rates and income tax that were offered to the multinational mining company.
In a Narrative Report on Kayelekera Uranium Mine, which was released by OpenOil with the assistance of Rachel Etter Phoya and Grain Malunga, of the Malawi Chambers of Mining, reveals how Malawi has so far lost and paints a gloomy future for the Malawi’s first biggest mining project.
OpenOil is a company based in Berlin to create an open data framework for managing natural resources at national level as it believes it was the only way natural resources will be sustainable in the long run.
OpenOil, using a financial model and analysis of Kayelekera, obtainedthrough public domain data from Paladin Energy’s technical, annual and financial reports submitted to the Canadian andAustralian stock exchanges where it is listed, reveals that government should have received K8.7 billion ($12 million) from royalty payments only.
“There has been no government revenue from income tax and dividends because of incurred losses. Reduction of the general royalty rate for this project has cost government K10.9 billion ($15 million) so far.
“The model shows that even if 5 percent royalty (as legislated) were to be applied going forward instead of the agreed 3 percent, it would only increase the break-even price by K730 ($1) per pound, to K 43 070 ($59) per pound.
“Most significant for the model is the reduction in royalties from 5 percent to 1.5 percent for the first three years and then 3 percent thereafter in exchange for the reduction in corporate income tax and the exemption from resource rent tax, the government received 15 percent equity in Paladin Africa. For 10 years, the company was allowed to import duty-free.
“This reveals that keeping the royalty rate at 3 percent will have little bearing on the company’s decision to reopen the mining project, and that the price, and reducing operating costs, are more important for the project’s future,” reads the report.
It bemoans limited information on interest payments, management fees and other payments that may have been subject to a withholding obligation, saying: “Government should disclose past actual revenues from the project to calibrate the model against.”
In an interview, Malunga said the report was saying that in a normal royalty rate, Malawi could have collected $27 million by now if the royalties were paid according to the Mining Act.
He, however, said the perceived losses should be read in context that Malawi also gained from the deal through value added tax (VAT) payment and employment.
“Malawi made sacrifices for the project to be viable. The company did not make any profit over the years they operated in the country that is why they did not pay income tax and dividends,” he said.
When put to him that the country lost about $27 million Gondwe said: “We have not quantified our losses yet, but that figure is absolute nonsense. That is a lot of money.”
One of the activists in the extractive industry Rafik Hajat, told Nation on Sunday that the legislative framework in the country is impacting negatively on the industry as most of the Acts are either old or are too broad to address specific issues.
“Even the mining draft bill is full of holes. The civil society pointed out 147 amendments, but we do not know whether they were carried on board,” said Hajat.
He said as long as the legislative framework remains unchanged, the country will continue losing out in such deals because the mining companies are big as compared to Malawi, arguing: “They are like David and Goliath on the negotiating table. We will keep on losing money like the Kayelekera deal,” he said.
He further said the civil society demanded the establishment of a trust fund in communities where a certain percentage of the royalties should be deposited for the community to directly benefit.
Institute Of Chartered Accountants In Malawi (Icam) 2014/2015 pre-budget memorandum suggested to government to make annual tax budgets, which contain information on tax concessions, available to the public.
“This evens the playing field and ensures that such concessions are fiscally and commercially defensible. Further tax concessions should not cover the entire period of the investment, particularly when it comes to extractive industries,” reads part of the prebudget memorandum.
Icam observed that transparency on tax concessions was one of the most significant and interesting global economic developments of the past few years of the emergence of Africa as a competitive region for business.
In 2014, production at Kayelekera was suspended as a result of the crash in uranium prices following the Fukushima nuclear accident and the mine is now under care and maintenance.
In the report, it was revealed that Paladin Africa has lost K282.5 billion ($387 million) to date because of the uranium price slump and the high operating costs related to electricity access.
For the future, the report observes that Kayelekera needs a break-even price of $58 per pound to be able to reopen the mine profitably.
Problems regarding proceeds from the mining industry in country may be a thing of the past when Malawi becomes a member of the Extractive Industry Transparency Initiative (Eiti) throught the local initiative called Malawi Extractive Industry Transparency International (Mweiti). The initiative, among other things, aims at laying bare proceeds of mining companies, taxes they pay to government and what government uses the proceeds for.
Recently, a Mweiti delegation was in Abuja, Nigeria to learn from its counterparts as Malawi prepares its first report to Eiti in this first quarter of the year for consideration as a member.