Tax policies that favour foreign coal and weak enabling infrastructure have wiped out 75 percent of Malawi’s fossilised carbon industry in two years, the Weekend Nation has learnt.
Of Malawi’s eight major coal mining operations six, representing 75 percent of the industry, have closed during the period-killing roughly 1 500 jobs, according to leading industry players.
That has left 9 000 Malawians destitute based on the National Statistical Office (NSO) average of five people per family in Malawi.
Only two coal mines-Mchenga and Kaziwiziwi in Rumphi-are still operational. The affected mines include Jalawe, Lisikwa Investment, Njati, Illard, Khachira and DDY Trading.
At its peak, the coal industry was employing over 2 100 people, but now only 600 are barely clinging to their jobs, according to president of Malawi Chamber of Mining Grain Malunga.
That means over 70 percent of the coal industry workforce has been wiped out at the hands of government policies that have left local job creators uncompetitive on the coal market.
Mchenga Mine manager Johnson Dandadzi also confirmed in an interview that Mchenga mine, like others in the Northern Region, were on the deathbed because they can no longer sell their coal either locally or internationally.
According to Malunga, the most crippling policy for the country’s coal industry is government’s decision to impose 16.5 percent value added tax (VAT) on local coal while removing import duty on foreign coal.
Consequently, imported coal is now flooding the local market at prices locally produced coal cannot compete with.
Furthermore, poor transport infrastructure from the mines in Northern Region to manufacturing firms some 850 kilometre (km) away in the Southern Region is a further constraint as it makes local coal even more expensive.
Add the tough macroeconomic environment-especially the high interest rates currently above 40 percent, which is more bruising for a capital intensive industry such as mining-and you have an industry squeezed to a corner.
Malunga-a former director of the departments of Geological Survey as well as Mines; principal secretary for the Ministry of Natural Resources, Energy and Mining who also became its Minister later on-does not understand how government could be so rough on its own producers.
How can government, he wonders, say in one breath it wants to develop the local mining industry while refusing to protect it from unfair competition in the other?
Malunga said the exemption of duty on imported coal has rendered local coal uncompetitive despite the country having a high grade product compared to the imported energy stone.
“Selfish interests of few individuals in government are killing the industry. By allowing imported coal to come into the country duty free is a way of killing the sector. Malawi coal is subjected to VAT,” he said, adding that the local coal is out-priced.
On average, Malawi coal is supplied to clients at an average total cost of K150 000 per metric tonne ($190)-with $80 as selling price while $110 is transport per tonne, industry captains told Weekend Nation.
On the other hand, imported coal lands at K113 850 ($165) per tonne, including transport, which is 24 percent cheaper for users than Malawi’s energy stone, according Dandadzi.
Malawi imports around 70 000 tonnes of coal annually duty free, making government lose about K2.4 billion annually in import duties from the mineral, according to our calculations.
Apart from uncompetitive prices that imported coal gives, inadequate and expensive capital for operations and expansion as well as distance from where coal is mined to the areas coal is used are also serious constraints to the industry.
“Most of the coal users are in Blantyre, Lilongwe and Chikwawa. Distance to our markets is between 600 and 850 km. Transportation is expensive; it costs more than the value of coal. If there was North-South railway line connectivity the problem could have been solved because currently we only carry about 30 tonnes per trip, which is small volume,” Dandazi said.
“Our [production] volumes have reduced from 6 000 tonnes per month to 2 500. It is hurting. Mozambique coal’s duty free status need to be reviewed to level the playing field. Our coal is good, but our main problem is delivery,” he said.
He said with the reduction in production of coal his company has cut the workforce from 450 to 240. At its peak, Mchenga was directly employing over 550 people.
He added that if government cannot review duty free status for Mozambique coal because of Southern Africa Development Community (Sadc) trade protocols, it can impose carbon tax on Mozambique coal.
“There are environmental concerns on Mozambique coals and it is not good as compared to Malawi. Government must regulate coal coming into Malawi from Mozambique,” he said.
But director of Mining Charles Kaphwiyo, in a telephone interview last week, said his ministry could not say anything on the issue because it does not determine taxes or trade policies.
“It is our sector that is being affected and there is nothing they can do about it,” he said.
Ministry of Trade spokesperson Wiskes Nkombezi referred the matter to the Ministry of Mining or Ministry of Finance, Economic Planning and Development.
But he speculated that Treasury could be using Sadc trade protocols that advocate removal of trade barriers as the basis for exempting Mozambique coal from duty.
One mine owner, who closed operations, insists that the importation of coal without duty payment has disadvantaged the local industry.
He said in Karonga District alone, where four mines have ceased operations, 600 jobs have been lost.
“This issue has totally disadvantaged the communities around the mines as loss of employment has pushed poverty to the highest levels in these areas,” he said, opting not to be identified.
But some leading local coal users say their decisions are based on the bottom line and anything that helps cut costs is preferred.
In an interview last week, Press Cane Limited general manager Christopher Guta said it would not make business sense to buy expensive coal from Malawi when he can get cheaper coal from Mozambique.
Said Guta: “Much as one can have very good national sentiments, if the coal arrives at my factory at the price that does not make business sense and somebody offers me a price that makes business sense and that coal is coming from outside Malawi, I will go for that. Under normal circumstances I will give the margin of preferences to Malawi products, but if that margin is exceeded I have no choice, but to make a decision that makes business sense.”
Guta agreed that Malawi coal is quality competitive, but transport costs are out-pricing it, saying distance between Tete and Blantyre is much shorter than Mzuzu to Blantyre.
EthCO general manager Lusubilo Chakaniza said her company still buys coal from Kaziwiziwi, but it is in small quantities.
When contacted, Treasury spokesperson Nations Msowoya referred the matter back to Trade and Mining ministries.
Malawi Revenue Authority (MRA) spokesperson Steven Kapoloma said his organisation does not speak on tax policy matters.
But he explained that under the Sadc Trade Protocol, coal was one of the products that enjoy duty free entry; hence, no import duty is applicable.
“Coal from Mozambique is duty free, but subject to import VAT of 16.5 percent since Mozambique is a member of Sadc. Coal produced in Malawi is subject to 16.5 percent VAT. This Domestic VAT of 16.5 percent is claimable so long the company using the coal is registered with MRA Domestic Tax Division,” he said.
Coal meets 2.4 percent of Malawi’s energy needs while electricity provides 2.8 percent; petroleum products meet 6.4 percent while the rest (88.5 percent) comes from fuel wood, according to a December 2013 Policy Brief produced with support from the United Nations Environment Programme (Unep) and the United Nations Development Programme (Undp) through the Malawi Poverty and Environment and Initiative Project. n