Paladin’s Kayelekera uranium raw deal just not sustainable for Malawi

In the wake of the Kayelekera scam, Malawi needs to realise that tax is a governance issue. …. The cost of tax incentives given to Paladin is enormous. We can’t sustain it.

Malawi gov’t and Paladin: Act on Kayelekera uranium raw deal now!  Nyasa Times, By Veronica Maele-Magombe July 30, 2013  Since last week’s stinging observation by UnitedNations (UN) Special Raportuer on the Right to Food Olivier De Schutter regarding Malawi’s Kayelekera Uranium Mine deal, two elusive culprits remain pretty much intact in their hard shells. It is as if the country’s most guarded contract between government and Australian company, Paladin Africa Ltd has not been unravelled as the worst possible swindle.

De Schutter’s rebuke of the Kayelekera agreement might have further
dismantled the whole concept of ‘tax incentives’ to foreign investors
in poor countries, but, there is one thing still buried – suspected
bribes.  We all know that for decades, the extraction of Africa’s
precious resources has become a hideous lucrative business flourishing
on the corruption of Africa’s political elite by western investors.

Just recently, you just had to look at the stubborn faces and dodgy
speak of government officials when asked about the Kayelekera uranium
deal and listen to the jumpy rhetoric from Paladin officials to
appreciate the existence of black spots in the pact.

According to Paladin, ‘the original request for the Development
Agreement to be kept confidential was made by Government.’ The two
have evaded transparency and used secrecy and misinformation – a
mentality that might not be subdued by the UN Raportuer’s damaging
criticism.

Despite growing public dissatisfaction purporting to the full-terms
and conditions of the Kayelekera mining contract, Paladin angrily
reiterated that Kayelekera is a done deal at the beginning of this
year. It cannot be renegotiated until the expiry of the 10 year period
of the current contract. Of course, to poor Malawians the only thing
that explains such savage attitude of greed and exploitation is the
parasitic motivation enshrined in ‘bad capitalism’ that it doesn’t
matter whether one is milking the thinnest hungry cow.,…..

Until De Schutter’s remarks, opposition politicians and civil society
activists who have ceaselessly highlighted Kayelekera as a raw deal
were being mocked as a bunch of noise-makers seeking undue attention
and lacking the intellect to understand the economics of mining. By
the way, Kayelekera has been operating on massive losses due to low
world uranium prices!

When in 2011, former Reserve Bank Governor Perks Ligoya lambasted the
Kayelekera deal and outlined that Malawi gave out ‘a lot of
concessions and funny conditions’ to Paladin, the company responded
putting up its usual card. Kayelekera was a ‘high risk investment’ and
concessions to the company, which the Government of Malawi voluntarily
granted, reflected the company’s role as a ‘pathfinder.’

Now, Government and Paladin, the two evasive culprits who have long
played hide and seek in front of poverty-stricken Malawians have been
thoroughly undressed and forcefully given bitter tablets of shame to
swallow. And who is the first to partly pull his head out of the sand?
The Minister of Mining, John Bande, of course.

Bande has already jumped to the rescue and in his attempt to wipe
government’s embarrassment revealed last Wednesday that actually,
‘ignorance’ is the major reason why the country signed bad contracts.
He has further underlined that efforts are underway to tighten laws to
curb ‘mineral robbery’ and ensure proper handling of mining deals.

But Bande seems to deliberately confuse ignorance, lack of mining
expertise, poor negotiation skills with negligence and corruption.
Hand on heart, didn’t kickbacks loosen the bolts and nuts of the
Kayelekera contract? Possibly following De Schutter’s frank talk one
ruling party ‘village idiot’ might reveal how he was flown to Sydney
on the sidelines of the Kayelekera deal where his promised suitcase
stashed with US dollars was never given to him. Does government really
care about negotiating a fair win-win deal for its people? Of course,
not.

When confronted by exploitative western negotiators who talk through
their noses government representative find themselves giving away the
bargain more so when they have been palm oiled with foreign-currency
denominated tokens. It does not occur to our leaders that they need to
maximise the return on our resources by signing fair deals because
their personal interests matter most. The Keyelekera scam has shown
that lack of national interest in our leaders is the underlying reason
why Malawi remains poor.

Thus, De Schutter’s is right to condemn Malawi for failing to collect
maximum remittances from Kayelekera because of ‘too favourable’
incentives to Paladin. Why is Government pampering foreign investors
with incentives and intrinsic loopholes which are aiding tax evasion
and illicit financial flows? All of that leading to loss of funds
which could have been allocated to critical national programmes, for
instance, food security in poor households who at the moment are
vulnerable due to rocketing maize prices and looming hunger.

Little wonder, with the begging bowl out and about, government has
failed to allocate K18.3 billion to the National Food Reserve Agency
(NFRA) to purchase the requisite 80, 000 metric tonnes of maize in the
2013/2014 national budget, and instead only assigned a meagre K1.3
billion. This, against the loss of revenue from special tax incentives
to Paladin estimated at almost K67 billion (US$205 million) since the
installation of the mine.

More obscene is the projected loss of almost K92 billion (US$281
million) which Malawi will incur over the company’s 13-year tenure. In
contrast, the country is presently still experiencing drug shortage in
hospitals including serious lack of crucial clinical equipment,
medical supplies as well as school blocks, teaching and learning
materials. Over the past six months, government has accrued K1.3
billion of un-paid salaries for 7 849 newly recruited primary school
teachers.

Of course, after swindling poor countries like Malawi, western
companies bank their profits in global capitals and off-shore tax
havens. They buoy their shares, making a fortune as their listed firms
stand perched on the guild of stock exchanges. Then, western
governments concomitantly apportion proceeds from their financial
systems lubricated by revenue from poor countries and patent ‘aid
packages’ back to the so-called poor countries.

Tax incentives which have been part of an unfair economic paradigm
promoted by western fiscal pillars IMF and World Bank, have helped the
west control business and own capital in poor countries. But, with
western economies in turmoil and surviving on cut-throat austerity
budgets, aid dependency is no longer a viable option for Malawi. Tax
revenue matters more than ever before.

The Kayelekera fiasco speaks volumes of domestic negligence and
international exploitation. At one point, it was reported the Malawi
Government did not know the quantity of uranium which was being
exported by Paladin. In fact, Paladin bought vital geological
information regarding the Kayelekera Uranium Mine from a USA firm, PRI
at a cost of US $10, 0000 (K3, 973, 583. 63). This, after government’s
failure to provide the key geological information for Kayelekera
through the Department of Mines, a situation which led to loss of
revenue including inability to further collect 15% withholding tax.

Did it surprise anyone that two western companies: Paladin and PRI
sold each other sensitive information which should be owned by the
Malawi government. No! Because government was sleepy enough and the
rest is the normal modus operandi called ‘reaping off poor countries.’
To cleanse its image off mounting bad press, Paladin in April this
year announced that it was to unveil to the public details of the
‘confidential agreement’ that it signed with the Malawi government. Lo
and behold! Paladin had been instructed by the Ministry of Mining to
do so in a bid to prove that Malawi did not get a ‘raw deal.’

Besides environmental concerns, Paladin has been dodged with reports
of salary disparity between local workers and expatriates. One would
speculate that though employees have resorted to striking before, they
have also feared aggressively demanding better working conditions
because if they did, they would either be fired or if they vehemently
protested, find themselves facing a similar fate like South Africa’s
2012 Marikana mineworkers shot randomly by police. That is the story
of how African governments continue to neglect the very needs of their
people in favour of satisfying the gluttonous desires of foreign
investors…….

In the wake of the Kayelekera scam, Malawi needs to realise that tax
is a governance issue. Aid has failed to develop poor countries. It
never will. The cost of tax incentives given to Paladin is enormous.
We can’t sustain it. Everyone agrees, our tax framework should be
completely overhauled to stop existing revenue drainage.

Instead of a haphazard ‘mining policy’ we need a robust ‘mining code’
that offers transparency, accountability and is in tandem with
development goals. The demand from poor Malawians to Government and
Paladin is clear now: act on the Kayelekera raw deal accordingly. It
is a matter of urgency.http://www.nyasatimes.com/2013/07/30/malawi-govt-and-paladin-act-on-kayelekera-uranium-raw-deal-now/

Malawi and the Kayelekera Paladin uranium mining ripoff

Malawi gov’t and Paladin: Act on Kayelekera uranium raw deal now! By Veronica Maele-Magombe Nyasa Times, By Veronica Maele-Magombe July 30, 2013 ”……one cannot underestimate the ‘politicking’
surrounding foreign investment. There is the brainwashing and fear
that African leaders endure in their struggle to appease donors who
are sometimes capable of clamping on aid or trade deals if a poor
country like Malawi is ‘hostile’ to western investors. In the un-coded
diplomatic language of foreign investment it means, treat business
clients from the west well and we will handle your aid and loan
cheques accordingly.

Western leaders have continued to hypocritically talk about fair trade
and dealings with Africa whilst winking an eye to their investors.
And, tightening the shackles of neo-colonialism on their behalf has
been IMF – convincing poor countries to lure foreign investor with a
portfolio of incentives. Just last year, IMF advised poor Gambia to
reform its tax system so that the country avoids discouraging foreign
investors with many taxes. Resident Representative, Meshack Tunee,
noted:

‘Our assessment through the technical assistance of IMF in The Gambia
[has] indicated that the tax system is a little bit outdated. There
are so many taxes that don’t even yield enough revenue to warrant
collecting them’.

In De Schutter’s observation, customs and excise duty exemptions,
value added tax on mining equipment and special deals on the rate of
royalty owed to government have proved to be fiscally absurd. With
growing ridicule over western-imposed economic policies, some poor
countries have started to abandon incentives to foreign investment. It
has been an inevitable shift with the entrance of the aggressive
Chinese dragon into global trade. Equally exploitative but offering a
new approach to trade and investment China might, however, like the
west be wantonly reaping off Africa.

On his recent African tour, US President Barack Obama tried to dampen
suspicion that his country is threatened by China’s growing trade and
investments on the continent and instead advised that Africa should
strive to get a fair deal, of course, as if his government would have
said the same 20 years ago.

Interestingly, with increasing mobility of investors and fading
barriers to global capital flows rich countries are assertively
reforming their tax infrastructure to ensure maximum collection of
revenue from foreign companies. Speaking on 15th June this year at the
pre G8-Summit, British Prime Minister David Cameron openly advocated
for ‘proper companies, proper taxes and proper global rules’ that
guarantee transparency so that both rich and poor countries equally
benefit.

In his ‘Open for Growth – Trade, Tax and Transparency’ speech attended
by some African leaders, Cameron emphasised that the issue of tax
matters because when companies don’t pay their taxes we all suffer as
a result. But lacking similar seriousness are poor African countries
like Malawi……..http://www.nyasatimes.com/2013/07/30/malawi-govt-and-paladin-act-on-kayelekera-uranium-raw-deal-now/

United Nations blasts the unfair Paladin-Malawi uranium minng deal

UN rubbishes Malawi’s Paladin uranium deal, fertilizer subsidy By Hudson Mphande, Nyasa Times July 23,  2013  United Nations Special Raportuer on the Right to Food Olivier De Schutter who was in Malawi for an assessment of the food situation in the country has rubbished Kayerekera uranium mine deal between Malawi and Australian Paladin Mining Company saying the Southern African country has had a raw deal that is robbing the poor.

The UN Raportuer said the uranium mining deal was one of the investments in Malawi through which the country is losing resources that could otherwise make a difference in food security and other pro-poor initiatives. He said in the life span of the mine Malawi is expected to lose almost US$281 million…

“Mining companies are exempt from customs duty, excise duty, value added taxes on mining machinery, plant and equipment. They can also sign special deals on the rate of royalty owed to the government. I believe that there are more reasons that investors would come to Malawi without such incentives,” he said.

De Schutter was addressing journalists in the capital Lilongwe at the end of his 11-day tour of the country.

He bemoaned that due to illicit financial flows, tax envasion as well as tax incentives that the country offer to both domestic and foreign companies currently Malawi was failing to get maximum use of its resources.

De Schutter said that revenue losses from special tax incentives to Paladin Africa Mining alone are estimated at almost K67 billion (US$205 milion) since the mine started its operations and could reach almost K92 billion (US$281 million) over its13-year lifespan.

“Paladin alone is costing the budget more than US$20 million (almost K8 billion) a year in taxes,” he said.

He added: “I am convinced that unless combined with a comprehensive enhancement and optimisation of tax revenue, current macro-economic reforms may not have substantive positive impacts. There is need for
Malawi to examine its national tax laws and policies towards preventing illicit capital flight. As mining develops, Malawi can simply not afford business-as-usual.”

The UN Special Raportuer said it is estimated that the country has lost over 10 percent of its growth domestic product (GDP) to illicit outflows and tax evasion over the period 1980 to 2009……..

De Schutter also specifically expressed concerns on the country’s current minimum wage currently at K371 ($1.12) per day, describing it as the lowest in the world…… The UN special rapporteur said he will give a report and his recommendations to both the UN Human Rights Commission and the Malawi Government. http://www.nyasatimes.com/2013/07/23/un-rubbishes-malawis-paladin-uranium-deal-fertilizer-subsidy/

Paladin’s Kayelekera Uranium Project – exploitation in Malawi

THE CASE OF PALADIN’S KAYELEKERA URANIUM MINE: REPORT RELEASED ON THE REVENUE COSTS AND BENEFITS TO MALAWI, Mining in Malawi, 23 May 13 The Australian mining company Paladin Energy and its subsidiaries along with the Malawi-based Kayelekera Uranium Project, in which it has an 85% stake, were the subject of much discussion this evening in Lilongwe at the launch of the report The Revenue Costs and Benefits of Foreign Direct Investment in the Extractive Industry in Malawi: The Case of Kayelekera Uranium Mine. The report explores what it describes as Malawi’s largest Foreign Direct Investment* and the extent to which Malawi is benefiting. It concludes that ”Malawi is getting a raw deal from the mining and exploitation of uranium by Kayelekera Mine”…….

At the launch of the report, Dalitso Kubalasa and Collins Magalasi, the executive directors of MEJN and AFRODAD respectively, spoke briefly before AFRODAD’s Tafadzwa Chikumbu presented the research findings. This paved the way for a lively question and answer session with questions raised about whether or not parliament is ready to renegotiate the terms of the agreement with Paladin, what has happened to the man who lost his sight due to “kayelekera radiation” and if mining revenue in Malawi therefore “dirty money”.

This discussion was followed by the official launch of the report by the Second Deputy Speaker of Parliament Juliana Mphande who exclaimed that she was “appalled to note that incentives offered to Paladin have severe implication to Government revenue and require attention of parliament”. She outlined the areas requiring parliamentary investigation and debate…..

Below is a summary of the main findings:

• ……….Corporate tax 27.5% reduced from 30%. Since the declaration of commercial production (2009), no corporate tax has been paid but an estimated MWK 4,55 billion has been received by the Government from payroll taxes, withholding taxes and non-residence taxes.
• Royalty rate reduced from 5% to 1.5% (years one to three, 3% thereafter, with no increase for remained of life span of mine according to Mining Development Agreement). As of October 2012, Paladin had paid a total of MWK 800,856,231 in royalties (approx. USD 3 million given exchange rate fluctuations since 2009). If the royalties had been at 5%, the government would have received over MWK 1.3 billion more……Government has a 15% stake in the mine, but has not benefited as Paladin Africa (subsidiary of Paladin Energy) has been making losses since 2009. This means that the government would not have benefits from resource rent even if it had not been reduced to zero in the Mining Development Agreement……..
• ……
  • Government has a 15% stake in the mine, but has not benefited as Paladin Africa (subsidiary of Paladin Energy) has been making losses since 2009. This means that the government would not have benefits from resource rent even if it had not been reduced to zero in the Mining Development Agreement…..
  • ……
    • Illicit capital flight is likely through suspected transfer pricing, the complex network of companies with subsidiaries registered in countries with low taxation regimes….

The challenges that are facing the mining sector in Malawi can be summed up as the lack of necessary human capital, poor linkages to the broader economy and the absence of a strong and consistently enforced legislative and regulative framework. Taxation is a problematic area highlighted by the report because the company can “avoid and evade tax and export capital through transfer mispricing using the large number of associated holding companies” (see image below); this explains how Paladin Africa is able to report that it is making a loss while Paladin Energy makes a profit…… http://mininginmalawi.com/2013/05/24/the-case-of-paladins-kayelekera-uranium-mine-report-released-on-the-revenue-costs-and-benefits-to-malawi/