Zitto na Demokrasia

Zitto na Demokrasia

MCHUCHUMA-LIGANGA PROJECT, A MILESTONE

with 15 comments

A new generation of mining regime has been set in Tanzania following the signing of Subscription and Shareholders Agreement between State owned National Development Corporation (NDC) and Sichuan Hongda Group from Sichuan Province in China for the development of the much talked about Mchuchuma and Liganga projects. The agreement that forms a joint venture company in the name of Tanzania China International Mineral Resources Limited aims at developing massive coal reserves at Mchuchuma colliery and iron reserves at Liganga Hills, both in Ludewa district in the newly created region of Njombe, southwestern Tanzania.

In my capacity as Chairman of the Parliamentary Public Investments Accounts Committee (POAC) of the Parliament of Tanzania both my committee and I have been keenly and actively involved in this project. In March of this year I led my committee to fact finding visits to these projects to see for ourselves on what progress had been done and in search of a lasting solution to our perennial electricity power shortages facing our country. Having participated in an oversight capacity in the process towards this deal, I feel I should share my views about the deal and its implications to Tanzania and the Tanzanian economy, in brief.

Why is this NDC-SHC (Sichuan Hongda Corporation Limited) a new generation of mining regime in Tanzania? It is simple; the current Tanzania’s mining regime is that of offering mineral rights to private companies and let them prospect/explore for minerals, develop mines, produce, process and sell the minerals abroad. Once a private company is offered a mineral right, then it belongs to it, it can be traded and even being used as security to financial institutions for raising capital. The government only waits for the company to pay royalty, taxes and other related fees. Government participation, as itself or through a state enterprise, is nil. This is the regime existing now.

All six major gold mines in Tanzania now are operating in this regime and that is the reason why Tanzania as a state does not have a stake in these mines. There are few exceptions though – Mwadui Diamond Deposits and now Buckreef Gold Resource whereby the state has a stake. But this is not due to a clear policy orientation but stalled privatization process.

For the Mchuchuma-Liganga projects the mineral right is owned by the state through NDC. The Corporation invites investors and agree on the shareholding for developing the resource hence ensuring from the beginning the shareholding by Tanzanians. NDC started this approach in the Ngaka Coal project with an Australian Company to form TanCoal Energy in which NDC owns 30% of shares. When my parliamentary committee visited Ngaka after Mchuchuma and Liganga, it directed NDC to renegotiate such that the minority shareholding is at the beginning and apply a principle of payback period to determine shareholding such that the stake increases to 50-50 once an investor has returned his investment based on the business plan submitted.

This is what has been done on the Mchuchuma-Liganga Project. That NDC will have a stake of 20% to increase to 49% after Sichuan Hongda Corporation has recouped its investments in between the period of five to ten years. This is the regime recommended for future mining deals in Tanzania. But this will also mean that the current system of offering mineral rights must change for carefully selected mineral resources whereby the rights should be conferred to state corporations only.

Through a method of open tender, the state corporations invite investors and negotiate terms and enter into a joint venture to develop respective mineral resource. The joint venture company will apply for mining licence and may sign a Mineral Development Agreement (MDA) before mining starts. In MDAs issues of royalties, taxes and fees are laid down and binding. This means, for example apart from NDC benefitting from dividend but the state will receive taxes as par fiscal regime governing the mining sector according to Mining Act, Income tax Act and other laws including local government taxes.

Gold, Copper, Nickel, Cobalt, Uranium, Iron ore, Coal, Silver, Bauxite and all these kinds of mineral resources should be developed in this new model. It will give the country maximum benefits, ensure state participation from the initial stages, strengthen state owned enterprises (which shall then go on to be listed in the stock market i.e. DSE for with at least 25% of its shares to ensure wider ownership to the people and transparency), reduce or completely end speculative behavior of some people who holds mineral rights for purposes of selling them and end corruption related to mineral rights applications etc.

This “second generation” of mining regime should be transitional from my point of view. In the case of Mchuchuma and Liganga the structure is as follows; Sichuan Hongda Corporation (SHC) Limited is the majority shareholder in Tanzania China International Mineral Resources Limited (TCIMR) and they will use the Coal and Iron ore reserves as security to borrow money from Banks in China. Of the USD $3 billion investment that will be coming in, Sichuan Hongda Corporation will be contributing equity of USD $600m. NDC contribution on the other hand would be the mineral resources. The remaining USD $2.4bn will be loans from financial institutions secured against the mineral reserves belonging to Tanzanians and guaranteed by SHC Limited. This securitisation tells us that in future our Corporations should be able to access financing by building credibility in the financial markets. The “third generation” of mining regime should see Tanzanian companies (owned and managed) be able to develop resources themselves or with majority stake.

In concluding this blog post, which was solely to reply to a number of inquiries that I received with regard to the shareholding structure, I would like to bring to attention how huge the Mchuchuma-Liganga project is to our economy. It will have a great multiplier effect for our economy if well managed, utilized and executed guided by a focused strategy. The Mchuchuma-Liganga project will have a turnover of USD $1.2bn per year which is equal to 7.5% of the current GDP, it will create 8,000 direct jobs (NB: at present the total jobs created in the whole mining sector is 13,000), 600MW of electricity, supporting industries, new infrastructures i.e. roads, railway, airports and the backward and forward linkages make this project a key pillar for economic development of Tanzania.

To ensure maximum benefits, we must as a matter of urgency, prepare Tanzanians with the required skills. Construction of VETA in Ludewa District should start now, the development of Coal Road Map to guide the country for the whole Coal sub-sector in Tanzania is very crucial and the construction of the Ludewa-Mtwara Railway line with Mtwara Port development should start as soon as possible.

Tanzania requires to draw-up a Coal Road Map to guide its investments in Coal industry, a Natural Gas Master Plan as a strategy to maximize benefits of this resource to the country through various uses like for power generation, domestic use, industrial use and for exports, and ensure backward and forward linkages to the economy must be contemplated.

Written by zittokabwe

September 24, 2011 at 12:34 AM

Posted in Uncategorized

15 Responses

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  1. Thanks very much Hon. Zitto for interesting and educative post. With regard to multiplier effects to our economy, I would like to comment on the electricity power to be produced. We are told that it will start with 600MW and then increased gradually to 1800MW. This power will go a long way in alleviating ever increasing demand for power as our country starts industrialization. I also believe that this power will be cheap and reliable.

    As our Father of Nation once said, let everyone play his/her part, it can be done.

    Elias

    September 24, 2011 at 1:00 PM

  2. Good point Hon.Zitto
    We just need to act as Nation…most of these things/ideas have been said long ago and reported widely in the famous Bomani report…I wonder why the govt is not ready to draw a line on these hard decisions!

    Emmanuel Sulle

    September 24, 2011 at 8:32 PM

  3. Very interesting. Just one question – what are the conditions for NDC to increase its stake from 20% to 49%? Will this happen automatically when SHC has recouped its investment, or will NDC need to buy the extra shares off SHC? The news reports are unclear on this point.

    Ben Taylor

    September 24, 2011 at 8:35 PM

  4. @Elias & @Emmanuel thank you for your comments

    @Ben It will not be automatic. NDC will have to pay for it. I’ve suggested that NDC pay for 4% more by reinvesting its dividend ( or the govt reinvest its royalty to be paid) and 25% be IPO to DSE so that the public owns 25%, NDC 24% and the Chinese 51%. It is just a matter of strategy. Tanzania can even go for more by asking SHC to bring 5% of its stake at IPO.

    zittokabwe

    September 25, 2011 at 11:24 AM

    • I agree with you Mr. Chairman….public ownership through DSE is very important in nincreasing public ownership…but it must be limited to local tz….i recommend you for presidency provided the spirit you have now doesn’t change to worse….

      Hamza Ismail

      September 25, 2011 at 9:25 PM

  5. We lack of high commitments as long as our counry is laissez-faire. Nothing good we are expecting from that.

    william Jotham

    September 29, 2011 at 12:16 AM

  6. Zitto,

    Can we the public see copies of Mineral Development Agreements signed by our government? I suggest you as MP’s request the same on our behalf.

    For instance where are the MDA’s signed with Barrick and Ashanti? These are important so that the public can monitor the actions of the miners with respect to environment preservation, social responsibilities and local procurement quotas.

    To quote Nyerere it can be done if everyone plays their part. The Acts are in the open, we can use them to monitor miners, but the MDA’s are secret they may be hindering us to play our part.

    Fred

    October 3, 2011 at 8:36 PM

  7. Now we are talking and acting in a real mining business. My one question to Hon. Zitto, the newly signed contract will it involve the development of iron oxide or just coal, do we have a time line here which start first and when?

    James

    October 4, 2011 at 12:16 AM

  8. I’m Vicent Jonathan(male) for sure its very big project by to me i like to be the first one to get opportunity of the job .So how can got the contact detail.

    VICENT JONATHAN

    November 22, 2011 at 7:12 AM

  9. Mr Zitto, by photo appearance seems you’re quite an easy guy to approach and discuss with. i do hope all
    the best for Tanzania and not let it go down like Cameroon,some call Scam and ruin,scam and run,..
    I believe China has vested interest to secure resources and wish all well in their returns. That only
    greed always rocks the boat.
    Brgds

    Axel

    Axel F . Cheang

    May 21, 2012 at 3:59 PM

  10. Congrats Zitto. I hope your good ideas will be taken seriously for the development of our nation Tanzania. God bless you and continue with your spirit of giving good advise.

    Alphonce

    November 21, 2013 at 3:04 PM

  11. Hello hon zitto am interested to have seen your old post inspire the truth that to me still is burning issue since am holding research on industry it has something to do with me and my national .plz may may I have more details about this .my phone 0712275701 .thanks in advance

    imani

    May 14, 2015 at 6:09 AM

  12. when will the project at mchuchuma and liganga start?

    PETER KAYOMBO

    June 3, 2015 at 3:27 PM


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