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New report slams Buzwagi contract

March 12th, 2008

A NEW report issued by several faith-based and civil society organisations has slammed the Buzwagi gold mine deal, saying members of parliament and the general public were hoodwinked by ex-minister for energy and minerals Nazir Karamagi into thinking that the upcoming project would pay huge taxes to the government.

’’The (former) Minister for Energy and Minerals, Nazir Karamagi, has told parliament that the Buzwagi gold mine will yield $198.9m (approx. 240bn/-) in royalties and other taxes over a 10-year period, which is around $20m (approx. 24bn/-) per year,’’ says part of the report titled ’A Golden Opportunity - How Tanzania is Failing to Benefit from Gold Mining’ unveiled this week.

It adds: ’’He (Karamagi) also said that the mine would pay an additional $50.3m (approx. 60bn/-) in payroll taxes over the ten years - this revenue is about 16.6 per cent of total turnover from the mine, based on current gold prices.’’

However, none of these projected revenue collections forms any part of the signed contract itself, and according to the report: ’’It appears they have been put forward to hoodwink parliament and silence calls for parliamentary scrutiny of the contract.’’

According to calculations made by the report authors Mark Curtis and Tundu Lissu, the total amount that the Buzwagi mine owners, Canada’s Barrick Gold Corp., would pay in tax (minus royalty) amounts to just $583,980 (approx. 700m/-) per year for the duration of the mine.

’’This figure is derived from $200,000 in district council rates and taxes, $200,000 in road toll contributions, $125,000 in contributions to the empowerment fund, $10,000 in other taxes, duties, fees or imposts of general application, and $48,980 in land rent at the rate of $2,000 per square kilometre,’’ says the report.

When contacted for comment, Barrick Gold Tanzania spokesman Teweli K. Teweli dismissed the report findings as fabrications and mere speculation.

’’The figures quoted in the report are just fabrications - there is nothing factual. The authors did not even take the trouble to talk to Barrick and ask for correct figures on the amount of taxes we shall pay from the Buzwagi mine,’’ Teweli told THISDAY.

The report authors are heavily critical of the contents of the Buzwagi mineral development agreement, saying the deal was of ’’extraordinary benefit to Barrick while offering decidedly little to Tanzania’’, just like other controversial mining agreements signed between the government and foreign companies.

It notes that, among other things, the 25-year Buzwagi contract commits the government to maintain the current tax levels in the country throughout the lifespan of the project, which is estimated at 10 years at least.

’’Perhaps most bizarrely, the contract commits the parties, in the case of a dispute, to enter into arbitration in London, not Tanzania,’’ says the report.

It adds: ’’A clause states that the London Court of International Arbitration be the administering body. This is consistent with paragraph 5(3) of Schedule 4 to the 1998 Mining Act, which stipulates that disputes between investors and Tanzania government shall be settled under the aegis of the International Centre for the Settlement of Investment Disputes (ICSID), an arm of the World Bank’’

The report further notes that the contract was signed in a hotel in London, rather than in Dar es Salaam, ’’which aroused considerable critical media and parliamentary comment.’’

Buzwagi, which will become Barrick’s fourth gold mine in Tanzania, has proven and probable gold reserves pegged at 3.6 million ounces.

The mine is scheduled to begin production mid-next year at a cash cost of $300 per ounce, and is expected to produce 250,000 ounces of gold per year in the first five years of production.

Barrick plans to invest up to $400m (approx. 480bn/-) in the mine located in Shinyanga Region.

The report highlights millions of dollars in lost government income from the mining sector occasioned by a combination of reasons, including tax loopholes, an unfavourable mining regime, and tax evasion.

’’Tanzania is one of the ten poorest countries in the world. At the same time, Tanzania possesses around 45 million ounces of gold, which at the current gold price means this country is sitting on a fortune of up to $39bn,’’ says the report.

It warns that since minerals are a dwindling resource, it is important for the country to earn a windfall from gold while reserves last.

’’The country’s proven reserves of 45 million ounces are being extracted at a rate of over 1.6m ounces a year, meaning that they may last 28 years. But three of the country’s six large-scale gold mines are set to close within ten years,’’ cautions the report.

It recommends major policy changes by the government in the mining sector, including a review of mining and tax laws, engaging donor support, developing a strategy document to outline how government plans to harness mining revenues for national development, strengthening parliamentary scrutiny, introducing independent audit, enforcing public disclosure, and creating local accountability.

The report published by the Christian Council of Tanzania, National Muslims Council of Tanzania (BAKWATA), and the Tanzania Episcopal Conference (TEC) was financed by the Norwegian Church Aid and Christian Aid.


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