Dear Leaders,
As a responsible citizen who wants to see quick development of his
country and prosperity of its people I feel constrained to air my
views and offer advice on any public issue that concerns the
development of this country and its people.
On 18th July 2011 a very serous event took place in Parliament during
its debate on the budget estimates of the Ministry of Energy and
Minerals. There was a fierce debate on certain activities of the
Ministry, with many members of Parliament threatening to block the
estimates. The Prime Minister who was quick to see the danger moved
the postponement of the debate for three weeks in order to give the
Ministry more time to improve on its estimates. The main point of
contention was the on-going power outage imposed by TANESCO which was
seriously threatening the development of the country.
Parliament resumes the debate on the Ministerial estimates in a week’s time.
The question is: what will the Ministry submit to Parliament that will
satisfy the legislators in a short time of three weeks?
In the meantime the Ministry and TANESCO has announced certain
measures aimed at alleviating the problems. I have my doubts though
whether such measures will be sufficient, fair as they seem to be.
What the Ministry and the Government as a whole can do is to
demonstrate convincingly that there is hope that the severity of the
problems will be alleviated.
In my view some really far-reaching measures need to be taken. I will
attempt to outline some of these.
1. Portfolio of the Ministry.
The Ministry of Energy and Minerals is too big to function as a single
Ministry, bearing in mind that the two sectors : energy and minerals
are each extremely complex and involving. There is need to split the
Ministry into two Ministries : Ministry of Energy and Ministry of
Mines and Mineral Development.
A number of countries e.g. our neighbour Kenya have a separate
Ministry of Energy. A number of countries with a large mining sector
e.g. Zambia, South Africa, Botswana, have a separate Ministry of Mines
and Mineral Development.
Both the energy and mining sectors are expanding very fast and very
comprehensive requisite measures need to be taken in order to cope
with the speed of growth.
We are told, for example, that there are so many different kinds of
minerals that so far only about ten percentage (10%) of these are
actually being mined presently, meaning that ninety percentage (90%)
of the known reserves of such minerals are yet to be mined. In other
words, we need to re-double our efforts in order to development the
mining sector to its fullest extent. When that is done the benefits to
the country will be enormous.
For example, a few years ago the Anglo American Corporation reported
the existence of more than two million (2,000,000) tons of nickel in
Western Tanzania. A Swiss company “Extrada” was interested in mining
the mineral and was prepared to invest US dollars two billion ($
2,000,000,000) making their mining project the largest industry in the
country. However, they needed two things before they can embark on the
project!
Firstly they can only use grid power electricity. The project is too
big to be run on generator power.
Secondly, they needed a railway siding to the site. Road
transportation would not do, for the trucks would be too heavy for our
roads. The roads would be destroyed in a few years!
There are millions of tons of coal in various parts of the country
waiting to be mined. There have recently been discovered deposits of
uranium in many parts of Tanzania e.g. Namtumbo, Dutwa, Kondoa, Selous
National Park etc.
These uranium deposits are worth hundreds of millions of dollars if
mined, although one would hasten to issue a caution on the dangers of
uranium to health, if not handled very carefully. The memories of
disasters at Chernobyl (Russia) Aodhyia in India and, more recently,
Fukushimo in Japan are still too fresh in our minds for any one to
jump into uranium mining.
At independence only about one percentage (1%) of Tanganyikan
homesteads had access to electricity. Today, almost fifty years later,
only about fourteen percentage (14%) of Tanzanian homes have access to
electricity! This is really pathetic. We must reach at least thirty
percentage (30%) homesteads by the year 2015 for meaningful
development to be seen.
Since more than seventy percentage (70%) of the people of Tanzania
live in rural areas a new approach is urgently needed to achieve this
goal.
Now if I may turn to the two sectors themselves. What should we do for
the future?
ENERGY
The question of defiency in the energy supply to meet the country’s
demands has eluded the Ministry for a long time now. There is now need
to seriously look into the matter and come up with an acceptable
solution.
I would propose a three-tier approach : short term, medium term and
long term strategies and solutions.
(i) Short term measures (say within 6 months)
(a) Switch on IPTL turbines immediately, by supplying the requisite
heavy fuel even if this means government borrowing money for the heavy
fuel.
(b) Implement immediately all the plans to hire turbines, whether from
Aggreco, Symbion, Dowans or wherever. The programme announced by
TANESCO must be implemented fully and as promised.
(ii) Medium term measures (say 6-12 months)
Acquire IPTL even if it may mean nationalizing it. The story of IPTL
is sickening. The Government has been paying a capacity charge of U.S.
Dollars 3,000,000 per month for years now and this is payable whether
IPTL generates power or not! By now the Government must have paid tens
of millions of dollars.
Secondly, Convert the IPTL turbines to gas use. This was actually
provided for and as a matter of fact a gas pipeline has been built
from Songo Songo to IPTL, at Tegeta since a few years ago, but the
conversion has not taken place. This means that instead of using
locally available gas, IPTL continues to use expensive heavy fuel
purchased in foreign currency! This does not make sense!
(iii) Long term measures (say 12 – 36 months).
Tanzania is endowed with plenty of sunshine throughout the year. As we
all know sunshine provides solar power which is a very valuable source
of energy. We have done virtually nothing about this potential
saviour!
India having realized this has recently embarked on a massive rural
electrification using solar power. Why don’t we borrow a leaf from
India.
Countries with insufficient sunshine have not been very keen on this
source of energy!
Another source which is awaiting tapping is wind power. Just look at
how the Netherlands makes use of wind power.
These two sources are the ultimate saviors. They are cheap to run and
are environmentally friendly.
There are other sources untapped up to now e.g. Stigler’s Gorge,
capable of generating over 2000 megawatts. There is also thermal power
which has hardly been touched!
MINING SECTOR
The mining sector is potentially extremely important to the economy of
Tanzania although its contribution hitherto has been very low,
fuelling! to widespread dissatisfaction leading to the President
appointing a Committee in November 2007 to look into the sector and
advise.
A few committees had actually been appointed before e.g. the Masha
Committee, the Kipokola Committee, the Mboma Committee etc. Still no
satisfaction had been achieved.
Arising out of the work of all these committees, including the work of
the committee that I chaired, I would make the following suggestions
(i) Short term measures (say 6 months).
(a) The Government urgently consult with gold mining companies on a
review of the exemption granted to gold mining companies through
Special Mining Development Agreements, under which the companies were
exempted from repatriating back to the country the proceeds of sale of
gold. This was a peculiar exemption, considering the treatment other
exporters gate. It was granted apparently because the companies needed
to spend heavily in the initial investment stages. Further, the price
of gold at the time was very low, around $ 260 per troy ounce!
These considerations would definitely be irrelevant today, especially
in the wake of the extremely high prices of gold – at over US$ 1,600
per troy ounce currently!
It was in the light of these changed circumstances that the “Bomani
Committee” recommended that the mining companies be required to
repatriate, say seventy percentage (70%) of their earnings.
If this recommendation had been accepted and acted upon the inflow of
dollars would have been abundant, at least $ 1,120 per troy ounce.
On a total production of 1,100,000 ounces a year this would mean in
inflow of at least $ 1,200,000,000 into the country.
Even at fifty percentage (50%) per ounce repatriation would lead to an
inflow of US$ 800 per ounce! Undoubtedly this would boost the value of
the Shilling tremendously and greatly enhance economic activities in
the country.
The companies would not need to worry since the money would still be
theirs, with the guarantee of the Bank of Tanzania.
Unfortunately, all signs are that this exemption is unlikely to be
forthcoming based on the fact that Regulation 5 of the Mining
Regulations, issued on 5th November 2010, has actually entrenched this
exemption!
(b) The Government reconsider its decision to apply the new royalty of
4% of gross revenue to new investors. If anything, this new royalty
ought to start with existing companies which will have recouped their
initial investment expenses and which have already benefited from the
extremely high gold prices.
(c) As a result of windfall prices of gold in the last couple of years
the Government consider introducing some kind of windfall tax, of say
thirty percentage (30%) of any price in excess of US$ 1,000.
According to their own reports gold mining companies show that the
cost of producing one ounce of gold is between $ 500 and $ 550. This
means that at a price of US$ 1,600 per ounce companies are reaping a
profit in excess of $ 1,000 per ounce.
Is there anything wrong with asking these companies to share part of
this windfall profit with the country?
Australia, another country with a large mining sector, introduced
earlier this year a tax of forty percentage (40%) of the super
profit. The Government of the United Kingdom, some years back,
introduced a windfall tax when the price of petroleum rose
substantially.
So Tanzania would not be the first country to do so. And since the
Government does not hold shares in any of the gold companies, having
strangely sold its fifteen percentage (15%) in the Kahama Gold Mine,
it can’t benefit from dividends!
Windfall taxes can be used to develop other sectors of the economy,
such as infrastructure.
Sough Africa’s infrastructure e.g its rods network which is very good
by any standard, has benefited tremendously from income from the
mining sector.
(d) Another issue that could be tackled in the medium term is the
issue of ownership. The Government presently does not own any share in
the gold mining companies. It only has twenty five percentage (25%) of
shares in a diamond mine, Petra Diamonds. Originally it had fifty
percentage (50%) share in Williamson Diamonds Ltd, partnering with de
Beers of South Africa, who were even thinking of closing down Mwadui
mine, allegedly for loss making! The new owner of Mwadui, after only a
year of operation is doing fine and seems to be turning around the
mine!
(e) Another recommendation made by the “Bomani Committee” was that the
Government be given ten percentage (10%) shares, free of charge, in
all gold mines. The committee also recommended that at least fifteen
percentage (15%) shares in all large gold mines be sold to Tanzanians
through the Dar es Salaam Stock Exchange (DSE).
The reasons for such recommendation were two fold : first, ownership
of 10% of shares would entitle the Government to a seat on the Board
of Directors where policies are made. Secondly, ownership of shares
would entitle it to a share in profits, if any.
Besides, such shareholding would give the country a sense of ownership
of the mining sector. Wouldn’t the mining companies feel safer with
the association of Tanzanians in their activities!
Mali which is fast becoming a major gold producing country already has
this 10% Government ownership in gold mining companies freely given
(free carry interest).
Barrack African Gold last year did something about shareholding. They
sold some shares in all their gold mines in Africa on the London stock
exchange. This is something but it is far from what was meant by the
Committee.
First of all, not many Tanzanians would be in a position to buy shares
sold in London.
Secondly, not many Tanzanians would be interested in buying shares in
a foreign country. We are not there yet.
Shares of Tanzanian gold mines should be sold in Tanzania.
The Botswana Government owns fifty percentage (50%) of shares in all
diamond mines in Botswana and charges a ten percentage (10%) royalty
on gross revenue.
The Government of Norway, rich in oil, owns fifty percentage (50%) of
shares in all oil companies. As a result Norway has become a very
wealthy country, with reserves of four hundred and fifty billion U.S.
Dollars ($ 450,000,000,000) which enables it to offer to its nationals
free education and free health services.
Norway is also able to pay old age pension to all its citizens!
Norway has the second highest per capita income in the World, second
only to Liechestain.
So what the Bomani Committee recommended was not a pipe dream.
It is both modest and doable.
In gas and oil companies – something is already being done with the
Government being given through TPDC 15% of shares
(f) Two other recommendations were made by the “Bomani
Committee”. One was on the whole question of compensation to people
who are required to move away from their homes to give way to mining
activities.
The present system is not only totally inadequate but also patently
unfair and characterized by fraud and exploitation. Presently,
compensation is paid on the basis of unexhausted improvements i.e. on
what is found on the surface of the land, such as buildings, usually
old grass thatched houses, trees and properties found on the land. It
does not take into account of what is below the ground. When you move
someone from his/her land on which they have lived for donkeys years
and pay them a compensation of Sh. 5,000,000, what will they do with
this paltry sum to start new life?
The “Bomani Committee” came across numerous cases of fraud on the part
of some administrators who robbed these poor peasants of their even
inadequate compensation.
The compensation law in such cases ought to be modernized.
(g) The other major issue dealt with by the Committee was the
issue of the environment. Not enough is being done about the
environment.
Those who have visited Geita, Nyamongo, Maganzo etc will have
witnessed for themselves the terrible degradation of the environment
as a result of mining activities.
The Committee therefore recommended the establishment of a “Special
Environment Restoration Fund” into which mining companies would be
required to contribute under a special formula.
We came across some very distressing cases of harm to humans, their
animals and the habitat.
(h) Finally, the committee recommended the establishment of a
High Level Implementation “Task Force”. We did not think it was enough
to leave the implementation of such far reaching recommendations to
the Ministry alone.
Obviously there is a lot of work that needs to be done.
With its vast natural resources this country has all it takes to
develop fast. Malaysia and Singapore which got their independence
three years before Tanganyika are miles ahead, with fewer natural
resources!
Submitted:
For the attention of H.E President Kikwete
The Honourable Prime Minster.
The Honourable Speaker of the National Health.
The Honourable Minister of Energy & Mineral.
The Members of the Energy and Minerals
The Parliamentary Committee.