We’re holding an olympic blog series these couple of weeks focussing on gold, silver and copper mining in resource rich countries as well as on gold, silver and copper mining companies.
In hope of a Tanzanian gold in this weekend's marathon, Graham Gordon from Tearfund has written on recent developments in Tanzania's natural resource sector and how increased transparency would ensure all citizens can benefit from these resources. Graham Gordon is Senior Policy Officer, in Governance and Corruption, at Tearfund.
Tanzanian runner Samson Ramadhani is aiming for gold in the men’s marathon on Sunday, but the 2006 Commonwealth Champion is up against stiff competition in a discipline that East Africans have dominated since Abebe Bikila of Ethiopia won barefoot in 1960 - then repeated the feat (with shoes) four years later. Kenya are current champions when Samuel Wansiru smashed the Olympic record in Beijing.
However (tenuous link from Olympics to mining), it may be better for Tanzania that they don’t bring gold home as the promised benefits have not always come to bear from this precious metal.
Gold mining has been intensive since the start of the 1980s and global companies such as African Barrick Gold (Canada), Ashanti Gold (South Africa) and Resolute mining (Australia’s third largest gold producer) own or have significant shares in the mines. According to the latest EITI report, gold accounts for almost two thirds of mineral production and exports earned these companies $1.076 bullion in 2009.
But in the same year Tanzania only earned $57 million from mining royalties.
What can be done?
This is something that is currently being addressed and there are some encouraging developments.
A new Mining Act was passed in 2010, which increases gold royalties from 3-4% and calculates payments based on gross as opposed to net revenues. This could double annual royalties to the Tanzanian government. However (in what is known as a grandfathering clause), the royalties only apply to new contacts, so the challenge is to get companies with existing contracts to move to this new regime. This is not just a pipe dream as one company has already done so. Others must now follow suit.
Secondly, the latest EITI report from May this year (pp20-21) includes vital information such as production volumes, which will enable the Tanzanian Revenue Authority to verify that companies are paying the right amount of royalties on the amount of minerals extracted. The report also includes details of direct payments to local governments as well as payments according to specific projects, which will allow local communities to track payments and ensure that the money ends up where it should and contributes towards development.
Many challenges still remain, as Bishop Munga, member of the EITI Multistakeholder Group told me:
“We still need increased transparency in contracts and licences, information broken down according to all projects and the material presented in a way that local communities can understand and engage with.”
These will need to be addressed in subsequent reports and should be covered in a new EITI law that is planned for next autumn. Tearfund, as part of the Publish What You Pay Coalition, is calling for proposed changes to EU Transparency legislation to address these issues and make sure that the information about payments is relevant and useful to local communities.
However, by far the biggest challenge – and opportunity - comes from elsewhere.
This is predicted to lead to a rapid growth in this sector over the next ten years, potentially bringing in revenues of billions of dollars.
Various licences have already been granted for gas and oil exploration, including to the UK's BG Group, Ophir Energy, Royal Dutch Shell, Irish exploration firm Aminex Plc and Brazil's Petrobras.
One government official I spoke to sounded a warning bell about the future:
“Everybody understands that we made a mistake when we entered into agreements with the mining companies in that we provided incentives that were too generous. For oil and gas we need to negotiate a better deal for Tanzania.”
There is the chance to get a better deal for Tanzania, but the window of opportunity is small – maybe only a few weeks.
Tanzania has no current gas laws in place. There are plans to produce a new framework policy in September this year. At the same time the government is also keen to press ahead as quickly as possible with exploration and exploitation, as next month they also plan to launch a new licensing round in Houston, Texas.
Energy and Minerals Minister Sospeter Muhongo has gone on record to say that the new law would increase royalties on gas production from 12.5 percent to an unspecified level and the new signing fee would be introduced. These developments are to be welcomed, but are not enough.
Civil society groups that I met on my trip last month highlighted key issues such as the need for contract transparency on all new licences, including a debate in parliament before approval. In this way ordinary Tanzanians can see if they are getting a good deal for the oil and gas that is extracted.
There also needs to be more attention paid to how the oil, gas and mining industries can bring greater economic benefits to local communities – not only though the direct revenue payments but through supporting Tanzanian businesses as service providers – local economic linkages.
Tanzania may not be bringing any gold medals home, but they still have a chance to win a medal for their gas industry. Will they do it? In four years time at the Olympic Games in Rio, we will have an answer, but the hard work needs to start now.