More questions than answers: Who are the local partners of the $4.2 billion platinum deal?

President Mnangagwa and his VPs meets businessmen in Harare (Immage: Source)

With platinum resources second only to South Africa, is Zimbabwe primed to achieve sustainable socio-economic development impact from the exploitation of its mineral resources, if the government can be accountable for how it is parcelling out those assets and the public demands critical disclosures?

Without transparency, it is difficult for the public to hold government and corporates to account on negotiating fair mining deals that optimises mining benefits for citizens.

The groundbreaking $4.2 billion investment deal in the platinum sector between government and Karo Resources from Cyprus was hailed as a turning point by the state media, following on from the enthusiastic showing by the Minister of Mines, Winston Chitando who announced that Zimbabwe’s mining landscape will never be the same again.

If implemented fully, the project will directly employ 90 000 people – 15 000 and indirectly 75,000, he said.

All good news.

The Karo Resources deal would be a massive investment considering that Zimplats, the country largest platinum mine employed a total of 5 941 people during its 2017 financial year: 3 063 on full time basis and the remainder 2 878 on contract basis.

Karo compounded the excitement by declaring that the project will grow Zimbabwe’s Gross Domestic Product (GDP) by 20 percent!

Rightly so, the Constitution through Section 315 (2) (c) provides for an Act of Parliament to enable “transparency, honesty, cost-effectiveness and competitiveness” during negotiation and performance monitoring of mining agreements.

Chitando has promised to make public, “over the next few weeks,” some of the disclosures around the $4.2 billion deal.

Public disclosure of mining agreements is a critical enabler for deals that target to optimise mining benefits to citizens since the public has an opportunity to scrutinise the terms and conditions of the contract.

As envisioned by the African Mining Vision (AMV) — which was agreed to by African head of states in 2009 — communities must scrutinise the fairness of mining agreements with emphasis on: angles for fiscal linkages; human resource development, upstream/downstream linkages; infrastructure linkages; and research and development linkages.

Pertaining to fiscal linkages, it is necessary to leverage on mineral resource exploitation to mobilise a fair share of tax revenue from mining activities to fund programmes that enhance progressive realisation of Socio-Economic Rights (SERs) like health and education, that are enshrined in the Constitution.

Because the $4.2 billion agreement is not public, it is difficult to check whether Karo Resources will pay a fair share of tax revenue from exploiting the country’s rich platinum deposits.

Ominously, government has not fared well in the past on mining fiscal linkages. A drawback is that the Mines and Minerals Act does not provide for competitive bidding on known lucrative mineral deposits as encouraged by the African Mining Vision.

Competitive bidding creates opportunities such as huge signing on fees and better fiscal terms. As much as we celebrate the $4.2 billion platinum deal, it is sad to note that the economic value of platinum resources given to the investors is not known. Therefore, government must prioritise geological knowledge to ascertain the quantity and quality of mineral resources in order to negotiate better deals.

Another contentious issue is that of toxic tax incentives, for instance, platinum houses holding special mining lease agreements have been paying 2.5 percent mineral royalty fees against 10 percent prescribed by the Finance Act. It is noteworthy that the 2018 national budget statement provided for all platinum houses to pay 2.5 percent royalty rate despite consistently lamenting poor mining contribution to the fiscus (national budgets 2010-2017).

Mining is associated with heavy infrastructure investments, water, power, transport and communication infrastructure. To maximises infrastructure linkages, other economic activities like agriculture, with no capacity to develop mega infrastructure, must have access to infrastructure developed by mining operations.

Some features around the Karo Resources deal are welcome: a 600-megawatt thermal power station will be built, 250MW to service the mine, processing and refining. The excess 350MW will be released to the national grid to help to ease power shortages, which augurs well for the development of other economic sectors. It is also vital to point out that this will ease foreign currency shortages because Zimbabwe is relying on power imports from Mozambique and South Africa to plug power deficits.

Another critical area that could have been open for scrutiny if the $4.2 billion deal was public include the promotion of small to medium enterprises to supply goods and services required in the mining. The development of upstream or downward industries is quite important to avoid an unhinged mining sector to the country’s economy. Procurement, notably constitute the largest share of revenue consumed in mining operations.

Commendably, it was disclosed that Karo Resources will process it platinum right up to the last final stage of recovering precious metals like platinum, palladium, rhodium and gold locally. Contract disclosure will then allow public performance monitoring on this deal to hold the investors and government to account.

The conversation on sustainable development impact of mining would not be complete without discussing environmental rehabilitation and mine closure plans and costs. More importantly, Free Prior Informed Consent (FPIC) of communities to be affected by mining operations must not be overlooked.

Elections are drawing near, focus on electoral reforms seems to be the only game in town. The $4.2 billion platinum deal and related deals in the lithium sector is a reminder that mineral resources governance reforms should not be dislodged from the country’s development agenda. An Act of Parliament that enables public transparency in negotiation and performance monitoring must be urgently put in place as required by the Constitution, Section 315 (2) (c).

If government is serious about anchoring socio-economic development on mining, ascertaining the quality and quantities of our mineral resources is a must. This would enable competitive bidding necessary to optimise mining linkages across the value chain. Parliament and civil society must hold the Minister of Mines to account on his promise to disclose the clauses of the $4.2 billion mining agreement in the coming weeks.

However, the question that urgently needs answers is: who are the local partners for Karo Resources, the ones who will have 51 percent equity stake in this mining venture? Beneficial ownership is important to curb corruption by unmasking the natural persons who are benefiting from this deal.

 

By Mukasiri Sibanda for The Source