By Prof Handley Mpoki Mafwenga

[Ph.D, MSc, LLM, MBA, PGDTM, ADTM, LLB, AICSA (UK)]

Macro-Fiscal Policy, Advocacy and Tax Expert (Gov-URT)

Ministry of Energy and Minerals [TMAA]

THE OVERSIGHT ROLE OF TANZANIA MINERALS AUDIT AGENCY (TMAA): A Focus on the Monitoring of Mining Investment,

Production and Transportation of Minerals

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CONTENTS

ABSTRACT ............................................................................................................................................. 2

1.0 INTRODUCTION ........................................................................................................................ 3

2.0 INVESTMENT ............................................................................................................................. 5

3.0 AUDIT OF MINERAL PRODUCTION AND EXPORTS OR TRANSPORTATION OF

MINERALS ............................................................................................................................................. 7

3.1 Scope of Minerals Audit and Monitoring ............................................................................ 7

3.2 Audit and Monitoring Measures .......................................................................................... 8

4.0 FINANCIAL AUDIT AND TAX REVIEW .............................................................................. 12

5.0 MONITORING ENVIRONMENTAL MANAGEMENT ACTIVITIES .................................. 13

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ABSTRACT

Tanzania has a conducive and prospective geological environment with abundant potential of economic

mineral deposits. From 1979 to 1997, the mineral sector was administered under the Mining Act of 1979

which provided insufficient incentives to attract foreign and local investment due to the political instability

caused by war between Uganda and Tanzania including among others, thereby reducing confidence to

investor to come to invest in Tanzania. In 1997, the Government opened doors to FDI in the mineral sector

through capital, technology and expertise. Hence, there were in place the Financial Laws (Miscellaneous

Amendment) No 27 of 1997 which preserved room for fiscal incentives aimed at attracting both local and

foreign investors, formulation of the Mineral Policy of 1997, enactment of the Mining Act of 1998 which

repealed the Mining Act of 1979 and Tanzania Investment Act, 1997. These altogether played a major role

to attract investment in Tanzania.

However, the contribution of the sector to the economy was inadequately monitored causing for the public

outcry. In that, one of the measures taken by the Government was to strengthen the monitoring and auditing

of minerals production and export of major gold mines. M/S Alex Stewart (Assayers) Government Business

Corporation (ASAGBC) was engaged under Section 16 (5) of the Mining Act, Cap. 123 through the

Contract signed with the BOT to undertake gold auditing of the major gold mines in the country from June,

2003 to August, 2007, this included, building capacity of nationals to take over the minerals auditing

activities in the future. However, operation cost under ASAGBC was 1.9% of the market value of the

audited gold exports, which is equivalent to 64% of royalty paid by the major gold mines. This was high

compared to the services rendered; therefore, on 15th August 2007 the Gold Audit Program (GAP) was

formed under the MEM to take over the activities undertaken by ASAGBC.

In July 2009, the Mineral Policy of 2009 came into being stipulating, among other things, the establishment

of the minerals auditing institution that would take over the functions undertaken by the GAP with increased

scope to cover large, medium and small scale mines for all minerals so as to maximize the benefits from the

mining industry, thereby enhancing socio-economic development. On 2nd

November, 2009 the Tanzania

Minerals Audit Agency (TMAA) was established as a semi-autonomous Institution through GN No. 362

under the Executive Agencies Act, Cap. 245 to take over the functions undertaken by the GAP under the

Commissioner for Minerals

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1.0 INTRODUCTION

TMAA was established followed the Mineral Policy, 2009 which was responding to weaknesses

identified in the GAP by a 2008 review. These included limited expertise in personnel, limited

scope of work as it only covered gold, inadequate funding, lack of autonomy and weak degree of

harmonization and coordination with other sectors such as, forest, water, environment and financial

institutions (Muganyizi T.K 2012)

TMAA is mandated under the Provisions of the Mining Act, 2010 to monitor and audit mining

operations of large, medium and small scale mines for all minerals in respect of revenue generated,

capital and operating expenditure; environmental management, environmental budget and

expenditure for progressive rehabilitation and mine closure (TMAA, 2011). The aim of TMAA is

to maximize Government revenue from the mining industry through effective monitoring and

auditing of mining operations and ensuring sound environmental management in mining areas. The

major roles and functions of the Agency are shown in Table1 (TMAA, 2011). The Agency is also

mandated to counteract minerals smuggling and minerals royalty evasion in collaboration with

relevant Government authorities, and to examine and monitor implementation of feasibility reports,

mining programs and plans, annual mining performance reports, and environmental management

plans and reports of mining companies (TMAA, 2012).

The TMAA visits major, medium and small mines every year. It checks records, including main

accounting summary records and underlying documentation and invoicing. After the visit, it drafts

a report containing its conclusions both for royalties and other tax purposes (including income

taxes); identifying total amounts affecting each tax liability. Final audit reports by the TMAA are

copied to the Minister responsible for Energy and Minerals, the Minister of Finance and Economic

Affairs and the Commissioner General of the Tanzania Revenue Authority. The TMAA and TRA

have mutually complementary skills (Muganyizi T.K 2012).

The TMAA and TRA do meet quarterly to discuss mutual concerns and all indicators point to

improved mode of cooperation. Some interventions towards addressing this problem have been

initiated, including the signing of a Memorandum of Understanding between the TRA and TMAA

and exploring the possibility of implementing joint audits (Muganyizi T.K 2012).

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FIGURE 1: TMAA PERFORMANCE VALUE CHAIN IN THE MINERAL SECTOR

SOURCE: Tanzania Minerals Audit Agency (2013)

TABLE 1: TMAA ROLES AND FUNCTIONS

Roles and Functions

1. To monitor and audit quality and quantity of minerals produced and exported by large, medium

and small scale miners; to determine revenue generated to facilitate collection of payable

royalty;

2. To audit capital investment and operating expenditure of the large and medium scale mines for

the purpose of gathering taxable information and providing the same to the Tanzania Revenue

Authority (TRA) and other relevant authorities;

3. To monitor and audit environmental management, environmental budget and expenditure for

progressive rehabilitation and mine closure;

4. To collect, analyse, interpret and disseminate minerals production and exports data for

projecting Government revenue, planning purposes and decision making in the administration

of the mining industry;

5. To counteract minerals smuggling and minerals royalty evasion in collaboration with relevant

Government authorities;

6. To assess values of minerals produced by large, medium and small scale miners to facilitate

collection of payable royalty;

7. To advise the Government on all matters relating to the administration of the mineral sector

with main focus on monitoring and auditing of mining operations to maximize Government

revenue;

8. To promote and conduct research and development in the mineral sector that will lead to

increased Government revenue; and

9. To examine and monitor implementation of feasibility reports; mining programs and plans;

annual mining performance reports; and environmental management plans and reports of

mining companies.

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2.0 INVESTMENT

The formulation of the Mineral Policy of 1997; enactment of the Mining Act of 1998 which

repealed and replaced the Mining Act of 1979; and establishment of fiscal incentives aimed at

attracting both local and foreign investors resulted into increased large scale exploration and

mining activities, including the opening of 6 large scale gold mines (1998 – 2005)..

TABLE 2: MAJOR GOLD MINES IN TANZANIA (1998-2009)

Name of Mine Location of the Mine Production Inception

Golden Pride Mine Lusu,Nzega-Tabora February,1999

Buhemba Gold Mine Buhemba Musoma Mara 2002

Geita Gold Mine Geita-Mwanza August 2000

Bulyanhulu Gold Mine Bulyanhulu-Kahama-Shinyanga July,2001

North Mara Gold Mine Nyamongo-Tarime Mara August, 2002

Tulawaka Gold Mine Biharamulo-Kagera June,2005

Buzwagi Gold Mine Buzwagi-Kahama-Shinyanga May,2009

Apart from strengthening monitoring and auditing of minerals produced and exported by major

gold mines which gave room for the establishment of the TMAA, the creation of the TMAA was

also motivated in order to absorb capacity challenges facing the TRA. Indeed, as pointed out by the

International Monetary Fund however, TRA itself lacked capacity to audit sophisticated taxpayers

such as mining companies which further contributed to their minimal contributions to revenue

collection, as tax evasion or under-reporting was quite frequent (Nordic et al, 2009)

Since 2005, there has been continued progress made in the development of the Kabanga Nickel

Project with a significant investment to date of over USD 205 million in drilling and evaluation

studies.

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Figure 2: Historical Foreign Direct Investment Flows into Tanzania - Mining (1997 – 2009)

SOURCE: Tanzania Investment Center (2010)

Foreign Direct Investment (FDI) had significantly increased in Tanzania ranking as one of the top

non-oil African countries in terms of FDI receipts, which was fuelled by the opening up and

development of the country’s mining sector. During this period a number of large gold mines were

established including Bulyanhulu in Kahama district with a capacity of 450,000 ounces and Geita

Gold with a capacity of 650,000 ounces (UNCTAD, 2008).

Figure 3: FDI Flows in Mining As Compared To the Total FDI Flows

SOURCE: Tanzania Investment Center (2013)

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Figure 4: Historical Gold Export For By Seven Major Gold Scale Mine [1999-2012(Toz Mil)]

SOURCE: Tanzania Minerals Audit Agency (2012)

3.0 AUDIT OF MINERAL PRODUCTION AND EXPORTS OR

TRANSPORTATION OF MINERALS

Scope of Minerals Audit and Monitoring

TMAA ensures that mining entities comply with the quality of disclosure pertaining to the Data

and reporting requirements in line with Section 100 of the Mining Act, 2010 which stipulates

clearly reporting requirements by holders of prospecting and mining licenses and the Second

Schedule of the Act which outlines explicitly the information to be submitted to the licensing

authorities (Intergovernmental Forum (IGF), 2010).

TMAA Auditors are always stationed at the mines for witnessing, recording and reporting on a

daily basis mineral production and exports activities undertaken by the mine. Likewise, TMAA in

collaboration with the Zonal Mines Offices, monitor and audit production and sales of building

materials and industrial minerals in the Eastern, Southern, Lake Victoria, Central, Western zones

by using “Sales Vouchers”. The audit aims at ensuring that the Government collects maximum

royalty from mining activities.

TMAA also monitors and audits gold producers who use vat leaching technology to recover gold

from tailings in Mwanza and Geita regions. During the year 2013, a total of 20 elution plants were

audited from which 410 kilograms of gold worth TZS 24.7 billion were recovered. Total payable

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royalty amounted to TZS 981 million, up 326.5% as compared to TZS 230 million realized in

2012.

FIGURE 5: Vat LEACHING TECHNOLOGY TO RECOVER GOLD FROM TAILINGS

SOURCE: Tanzania Minerals Audit Agency (2013)

Audit and Monitoring Measures

Gold Monitoring by the TMAA in the large, medium and small-scale mines is performed in three

categories namely; (1) External Monitoring where mines are being heisted by bandits, raids or

intruders; this type of Monitoring are focused to purely outsiders or outsiders that would be in

syndicate with insiders; (2) Internal Monitoring where TMAA collaborates with the companies to

monitor Mine employees that could steal gold or gold bearing materials through organized or

networks involving employees; and (3) Smuggling where TMAA Monitors unfaithful miners and

gold traders who would deprive the Government from its revenue in form of royalty.

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Figure 6: Summary of Key Financial Statistics of Major Gold Mines from 1998 to

2011(Amount in USD Mil)

SOURCE: Tanzania Minerals Audit Agency (2011)

TMAA counteracts minerals smuggling, illegal mining1 and minerals royalty evasion in

collaboration with the Minerals Department, Tanzania Airports Authority, Tanzania Police Force,

Tanzania Revenue Authority and Immigration Department. In July 2012, TMAA established

Minerals Auditing Desks at three major airports in the country in order to inspect and verify

minerals transported to and out of the country via Julius Nyerere International Airport (JNIA),

Kilimanjaro International Airport (KIA) and Mwanza Airport (MA). During year 2013, TMAA

seized minerals worth TZS 2 billion in thirty two (32) different minerals smuggling attempts at

JNIA, KIA and MA. Since July 2012 to December 2013, minerals worth TZS 15.03 billion were

seized in thirty seven (37) different minerals smuggling incidents in the three airports.

Possible mechanisms for gold Monitoring include but not limited to (1) Sanctioning a research on

gold theft; by using metallurgical accounting to calculate gold losses through processing; and (2)

Using statistics on mercury and cyanide usage by the small scale miners to estimated total gold

production and compare the same with reported gold production.

The Measures that are currently in place include Sampling of exported gold bars which are

provided to the TMAA modern laboratory which provides laboratory services on behalf of the

1 What is Illegal Mining?

One of the main criteria used to define illegal mining is the absence of land rights, mining license, exploration or

mineral transportation permit or of any document that could legitimate the on-going operations. Illegal mining can be

operated in the surface or underground.

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Government as well as commercial services for mineral explorers, miners, mineral traders, buyers

and exporters for assaying to determine the quality and quantity of fine gold and silver. TMAA

Laboratory receives all sorts of mineral ores, concentrates, bullions, rock and soil samples from

individuals as well as corporate entities to ascertain mineral contents. Thereafter, the gross value of

exported minerals and payable royalty is computed by applying mineral prices obtained from the

London Metal Exchange (LME). Likewise, Mines have CCTV cameras and security guards around

high risk areas at the processing plant. On Gold Bars (Bullion) TMAA Mineral Auditors observe

all smelting sessions in their respective gold rooms which include Pouring, Marking, Weighing and

Sampling of ingots.

TMAA Laboratory provides the following services:

• Sampling • Sample preparation (crushing, pulverization, splitting, sieving) • Moisture analysis

• Drying (oven) • Fire assay - Gravimetric finish, AAS Finish. • XRF analysis • AAS analysis

• Precious metals identification - gold, silver, Platinum Group Metals • Gold Quick Acid Test

• Gold Smelting and Refining • Rock and mineral identification • Jewelry verification for gold

(karat value) • Gemstone identification and valuation - diamonds and coloured stones • Supply of

de-ionized water (distilled water)

TMAA employs the following procedures, either separately or in a combined package, to meet

specific requirements:

• Drying (Oven) • Crushing • Splitting • Pulverization to 95% passing 106 microns using chrome

steel mill • Gold Quick Acid Test • Determination of gold and silver contents in bullion, rock and

soil samples using fire assay with Gravimetric Finish or AAS Finish • Determination of base

metals in bullion, rock and soil samples • Acid Digestion, AAS Finish • XRF determination of

metallic elements including Gold, Copper, Iron, Nickel, Zinc, Tin, Chromium, Lead

Strict cardinal rules are adopted by the large scale miners, which lead to termination of employees

who are caught stealing gold. In the same vein, the Mining Act of 2010 prohibits any person other

than a mineral right holder or licensed buyer to possess or dispose any minerals and heavy

sanctions and penalties are imposed to offenders. Moreover, measures like Securing gold products

in Vaults and Safes with maximum protection is essential and they are currently in use; this goes in

tandem with the Control of movement of employees and equipment within high security areas.

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Table 1: Physical audit of Minerals Production and Exports (Quantity and Quality of

Minerals)

Other Monitoring measures include, Random schedules for gold bullion shipments using

helicopters/airplanes from the mines’ airstrips; Intelligence and information sharing among

stakeholders on gold theft prevention; Establishing proper marking and tracking system of bullion

bars; Reducing communication in high risk areas, such as restriction on use of mobile phones;

Gold finger printing profile for the mine so as to be able to prove ownership of gold and reclaim

such; or to have a clear proof of ownership to present in court cases.

Figure 7: Gold Exports Value by Large Scale Gold Mines (2000 -2013)

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SOURCE: Tanzania Minerals Audit Agency (2013)

4.0 FINANCIAL AUDIT AND TAX REVIEW

TMAA audits capital and operating expenditures and revenue generated by the large and medium

scale mines for the purpose of gathering taxable information and providing the same to TRA and

other relevant authorities.

Auditing financial records of Mining entities enables enhancement of the quality assurance on the

Disclosures that would enhance tax base and tax net. In the Financial audit and Analysis, TMAA

Verifies the authenticity of revenue declared, capital and operating expenditure incurred by the

mining companies in the course of mineral production and other supportive operations. In the same

vein, in the Tax Review and Analysis TMAA Examines tax accounting of mining companies in

order to determine whether accounting methods used were appropriate and in compliance with

statutory provisions.

Moreover, given the significance of mining sector to the national economy, TMAA on the large

and medium scale mining projects performs the Revenue Forecasting which is pertinent aspect of

public finance and economic planning based on available historical, current and future economic

variables. TMAA analyses production plans and financial budgets and perform revenue forecasts.

This enables TMAA to share policy recommendations on industry outlook with other Government

organs.

The Government is currently receiving technical assistance from the Norwegian Government in

revenue forecasting and management of revenue flows from the extractive industries (mining, oil

and gas). Representatives from ten Government institutions (MoF, MEM, TRA, BoT, TPDC, NBS,

NDC, Planning Commission, TEITI and TMAA) have been undergoing a 3-year capacity building

program since January, 2012. In that, TMAA has successfully applied acquired knowledge in

modeling to forecast Government revenue from the eight (8) active large scale mines which are:

Bulyanhulu Gold Mine (BGM), Buzwagi Gold Mine (BZGM), Geita Gold Mine (GGM), Golden

Pride Mine (GPM), North Mara Gold Mine (NMGM), Tulawaka Gold Mine (TGM), TanzaniteOne

Tanzanite Mine (TTM) and Williamson Diamonds Mine (WDM).

The forecasts cover mineral royalty, local government service levy, corporate tax, withholding tax

on dividends and interest, and withholding tax on technical service fees except payroll taxes,

mineral rights rents, import and excise duties, stamp duty, fuel levies and VAT.

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Figure 8: Projected Mine Output, Revenue and Government Take (Undiscounted)from Eight Major Scale

Mines (2014-2023)

SOURCE: Tanzania Minerals Audit Agency (2014)

Audit of financial records and tax review conducted by TMAA in collaboration with TRA has

accelerated payments of corporate tax by Geita Gold Mine Limited and Resolute Tanzania Limited

and alternative minimum tax by Williamson Diamonds Limited. The three companies paid a total

of TZS 24.68 billion as corporate tax in 2013.

5.0 MONITORING ENVIRONMENTAL MANAGEMENT ACTIVITIES

Despite the economic importance of the mining industry, there are serious environmental effects

associated with it. The effects start at the exploration stage, extend through the extraction and

processing of minerals, and continue after the mine has closed. The type and extent of the effects

can vary from one stage to another.

An environmental audit is a systematic, documented, periodic and objective evaluation of how well

environmental regulatory requirements and commitments are met. The challenge to the auditor

normally is selecting and determining the scope of the audit. Both large and small-scale mining

operations have an impact on the environment. Mineral resource activities affect all environmental

media – land, air, water, and associated flora and fauna – as well as the human environment –

individual health and safety, local community lifestyles, cultural survival, social order and

economic well-being.

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TMAA monitors environment management activities in mining areas that would reduce or mitigate

environment risks. In that line, the Agency reviews Environmental Management Plans (EMPs) and

rehabilitation programs and environmental reports, conducts physical inspection at mine sites to

verify implementation of EMPs and Verify the Environmental Budget so as to have a high degree

of confidence regarding adequacy of funds set aside in the budget for environmental Conservation

and Progressive rehabilitation and therefore, ensuring sound environmental management during

life of mines and after closure.

In mining activities, TMAA focuses on the six possible areas in which EMA Act, 2004, Mining

Act, 2010, regulations, Mining Licenses and Agreements with the mining companies, as well as

proactive policy interventions, can be designed. The six areas are land and water use; waste

management; chemicals and pollutants; tailings disposal; human health risks; and potential

environmental risks and the plans to mitigate these risks.

TMAA conducts the environmental audit in line with the appropriate environmental standards for

surface and ground water management which are stipulated under Part III and Part VII of the

Environmental Management (Water Quality Standard) Regulations, 2007 provide water quality

standards and penalties respectively. In that, TMAA requires mining entities to submit

Environmental Impacts Statements (EIS) and Environmental Management Plans (EMP)

(Intergovernmental Forum (IGF), 2010). TMAA also ensures that mining entities conduct

environmental monitoring on biodiversity and publish reports that are readily accessible to the

public. This is because, Section 66 (1) of the Environmental Management Act, 2004 requires the

Minister responsible for Environment to ensure that conservation of biological diversity is attained

by project proponents (Intergovernmental Forum (IGF), 2010).

Likewise, TMAA ensure that (1) closure plans are prepared by mining entities to high standard and

are updated regularly in line with the Section 47(d) of the Mining Act, 2010 which require holders

of special mining license to prepare and update mine closure plans in line with Regulation 206(4)

of the Mining (Safety, Occupational Health and Environment Protection) which require mining

entities to review and update their mine closure plans; and Regulation 206(1) of the Mining

(Safety, Occupational Health and Environment Protection) which require holders of special mining

and mining licenses to prepare and submit mine closure plans; (2) have the institutional capacity to

monitor and enforce mine closure provisions and that companies commit provision of adequate

financial assurance prior to commencement of mine operations in line with the Regulation 207 of

the Mining (Safety, Occupational Health and Environment Protection) Regulations, 2010 which

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require mining entities to post environmental rehabilitation bond during mining

phase(Intergovernmental Forum (IGF), 2010).

REFERENCES

Intergovernmental Forum (IGF) on Mining, Minerals, Metals and Sustainable Development,

(2010); “Strategies and Implementation Status Made by Tanzania as Per

Mining Policy Framework”

INTOSAI Working Group on Environmental Auditing (WGEA) (2010); “Auditing Mining:

Guidance for Supreme Audit Institutions”

Muganyizi T. K. (2012); “Mining Sector Taxation in Tanzania” Institute of Development Studies

(ICTD) Research Report 1: Tanzania Revenue Authority

United Nations Conference on Trade and Development (UNCTAD), (2008); “Transnational

Corporations, and the Infrastructure Challenge” World Investment

Report