contents most capital invested in the ei is foreign sourced. foreign investors are always afraid of...
TRANSCRIPT
THE UNITED REPUBLIC OF TANZANIA
EXTRACTIVE INDUSTRY CONTRACTS; ROLE OF SAIs IN ENSURING TRANSPARENCY AND
ACCOUNTABILITY IN EXTRACTIVE INDUSTRY
By Eng. Dominic RwekazaAg. CEO, TMAA
Presented at: SADCOPAC/EAAPAC ACCOUNTABILITY CONFERENCE
HELD AT THE RADISON BLU HOTEL, LUSAKA, ZAMBIA FROM 12TH TO 15TH MAY, 2014
1. WHY CONTRACTS ARE NECESSARY IN EXTRACTIVE INDUSTRY (EI)?
2. POPULAR FORMS OF CONTRACTS IN EI
3. LEGAL MANDATES AND GOVERNANCE PROCESSES
4. IMPLICATION TO THE INDUSTRY
5. MONITORING AND AUDITING FRAMEWORKS
6. DEVELOPMENT ON TRANSPARENCY AND ACCOUNTABILITY
7. CHALLENGES OF EI CONTRACTS
8. ROLES AND FUNCTIONS OF TMAA
9. CONTRIBUTION OF THE MINING SECTOR TO THE ECONOMY
10. TMAA SUCCESS STORIES
CONTENTS
Most capital invested in the EI is foreign sourced.Foreign investors are always afraid of nationalization policies in most African countries.Foreign investors always look for predictability, prospectivity and profitability.Capital is mostly sourced from foreign financial institutions which seek guarantee in the forms of extractive contracts.
1. NECESSITY OF EI CONTRACTS
There are so far two popular forms of EI contracts, namely:a) Mining Development
Agreements (MDAs) for the case of the Mineral Sector.
b) Production Sharing Agreements (PSAs) for the case of the Energy Sector.
2. POPULAR FORMS OF CONTRACTS IN EI
3. LEGAL MANDATES AND GOVERNANCE PROCESSES
Mandate to sign any contract in the EI is provided under the respective sector governing legislation.For the case of minerals, only projects worth USD100 million and above are entitled for stability contracts, with review after every 5 years. All fiscal rates and imposts are stabilized with reference to the existing laws at the contract signing date.
3. LEGAL MANDATES AND GOVERNANCE PROCESSES
Procedures for awarding stability contracts are well spelt out in the regulation whereby the Government Negotiating Team (GNT) scrutinizes all necessary documents.GNT is composed of experts well versed with the respective industry in terms of knowledge and skills.EI contracts will be enforceable if:a) Approved by the Minister responsible for minerals
after review by respective Board(in the case of MDAs, Mining Advisory Board).
b) Registered by the Minister responsible for finance in the Tax Agreements Register.
cont…
4. IMPLICATION TO THE INDUSTRY
Most of the contracts carry clauses for Fiscal Stability and/or Tax Concessions.Well designed contracts attract investments to the industry hence economic booming of the sector.Booming of the industry is not always coupled with expected benefits in terms of Government revenue collection.That situation leads to expectation gap hence public outcry/dissatisfaction.
5. MONITORING AND AUDITING FRAMEWORKS
Mining related contracts (MDAs) are administered by the Minerals Department and audited by TMAA.
Taxable information resulting from audits is forwarded to the Tanzania Revenue Authority (TRA) for consideration and action.
Controller and Auditor General (CAG) audits both TRA and TMAA.
CAG’s audits reports are presented and discussed by Parliament .
TMAA audits of contracts is designed to obtain assurance for the Government in respect of:
a) Feasibility assertions contained in the feasibility reports.
b) Compliance to the requirements of the contracts.
c) Any abuse of fiscal concessions leading to non-realization of expected benefits.
d) Validity for continuity of the fiscal concession after economic changes.
5. MONITORING AND AUDITING FRAMEWORKS
PSAs are monitored and audited by the Tanzania Petroleum Development Corporation (TPDC).The audit is designed to confirm the fair share of the Government as documented in the respective PSAs. Tanzania is the member of Extractive Industry Transparency Initiative( EITI). Overall transparency issues are handed by TEITI in collaboration with respective organs such as Local Government Authorities, TRA, TPDC, TMAA, Tanzania Chamber of Minerals and Energy, etc.
cont…
6. DEVELOPMENT ON TRANSPARENCY AND ACCOUNTABILITY
Transparency and Accountability attains its legitimacy from: Cluster 111 of MKUKUTA [National Strategy for
Growth and Reduction of Poverty]; in that TMAA is committed to ensure that audit is compatible with the systems and structures of governance that uphold the rule of law and are democratic, effective, accountable, predictable, transparent, inclusive and corruption-free at all levels.
African Mining Vision adopted by AU Head of States in Feb., 2009 which calls for transparency, equitable and optimal exploitation of mineral resources to capture broad based economic growth.
6. DEVELOPMENT ON TRANSPARENCY AND ACCOUNTABILITY
During 2012/13 the Government undertook a number of measures. These include among others: Implementation of the Open Government Partnership
(OGP); Review of procurement and financial management
systems with a view to promote transparency and accountability;
Ensuring that institutions adhere to the established public reporting mechanisms; and
Investing in human and institutional capacity-building as well as promote active participation of society in the overall process of development.
In 2009, Tanzanian Government joined the Extractive Industry Transparency Initiative (EITI), in its efforts to promote transparency in the extraction of gas, oil and minerals.
TEITI continues to follow up on transparency and accountability of company payments and Government receipts in terms of revenues from natural resources.
In December, 2012 EITI Board declared Tanzania compliant with the EITI Rules and Standards.
Attainment of EITI Compliant Status requires preparation of annual EITI reconciliation reports. Three reports have been prepared since Tanzania joined the EITI; the latest report was launched in June, 2013.
6. DEVELOPMENT ON TRANSPARENCY AND ACCOUNTABILITY cont…
Due to conflicting objectives between investors, government and community, most of EI contracts create expectation gap in the industry.Contracts lead to low revenue contribution from the industry.Contracts create unfair treatment within the industry due to the facts that, projects worth less than USD 100 million lack such stability agreements.Contracts may cause political unrest hence industry instability.
7. CHALLENGES OF EI CONTRACTS
8. ROLES AND FUNCTIONS OF TMAA
AUDITBENEFITS
AUDIT INFORMATION
STAKEHOLDERS
• Reliable mineral production & sales data
• Reliable financial reports and tax returns
• Tax compliance
• Increased Govt. revenue
• Environmental compliance
• Sufficient mine closure funds
• Informed public
• MEM
• TRA
• NEMC
• NBS
• BoT
• MoF
• Mining entities
• General public
TMAA AUDIT ACTIVITIES
MINING ENTITY OPERATIONS
• Quality• Quantity• Value• Royalty due
Mineral Production
Mineral Sales/ Export
• Financial analysis
• Tax review
• Projections
CAPEX
OPEX
• Compliance
• Environmental budget &spending
Environmental Spending
Environmental Management
9. CONTRIBUTION OF THE MINING SECTOR TO THE ECONOMY
Mining contributes about 3.5% of GDP as per 2012 prices.
Large scale mines employed 8,024 people in 2013 of which 6% were expatriates. ASM employs directly more than 700,000 people.
Large scale mines paid about USD 196 million to the Government in form of taxes and royalties in 2013.
In 2011, large scale mines voluntarily committed USD 7.44 million to CSR projects representing 0.4% of their mineral revenues in the same year.
9. CONTRIBUTION OF THE MINING SECTOR TO THE ECONOMY
Gold exports accounted not less than 25% of total exports and 51.1% of non-traditional export earnings in 2012.
Spill-over effects of mining: notable sectors that have benefited from mining are Banking/Financial Services; Transport & Logistics; Manufacturing & Fabrication; Hospitality & Catering; Consulting (Environmental & Engineering Services).
cont…
10. TMAA SUCCESS STORIES
Key performances recorded by the Agency as part of the Government efforts to ensure a win-win situation between the Government and mining companies are:Analysis done by TMAA contributed to the
establishment of a new Model Development Agreement under the current mining code .
For the period covering years 2010-2013, a total of about USD 259 million has been collected as corporate tax from major gold mines as a result of TMAA’s audits in collaboration with the Tanzania Revenue Authority.
Substantial amounts of other taxes such as Service Levy have been paid to the Government after TMAA’s audits of the EI contracts.
GOLD EXPORTS BY 7 LARGE SCALE MINES(2000 – 2013, toz million)
MINERALS EXPORT VALUES BY 7 LARGE SCALE MINES
(2000 – 2013, USD million)
www.tmaa.go.tz
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
1,109.4
260.2
117.0
364.3
493.0597.7 640.8
783.1825.4
920.8
1,582.6
2,167.9 2,168.4
1,785.3
TOTAL ROYALTY PAID BY 7 LARGE SCALE MINES(2000 – 2013, USD million)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
32.8
7.53.5
10.614.4
17.319.0
23.4 24.327.3
46.9
64.7
74.1
70.8
REVENUE FORECASTING
HISTORICAL AND PROJECTED ANNUAL TOTAL GOVERNMENT TAKE, 2000-2035 (USD million)
CORPORATE SOCIAL RESPONSIBILITIES
CSR EXPENDITURE BY 7 MAJOR MINES
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