Tuesday, September 25, 2007

Revealed: Details of the Buzwagi contract

SIGNATORIES: The minister, Nazir Karamagi (left), and Pangea Minerals Ltd representative Gareth Taylor, who is also executive general manager of Barrick Gold Tanzania Limited in-charge of operations.

-Final draft prepared by experts was further amended before signing in London

Dar es Salaam

A KEY provision in the Buzwagi gold contract was deleted by hand at the controversial signing of the deal in London early this year, effectively exempting the Barrick Gold subsidiary handling the project from paying all taxes falling under the East African Customs Management Act of 2004.

According to the leaked contract seen by THISDAY, a sentence in Article 4.2 of the agreement obliging the investor to pay the government any tax, duty, fee or other fiscal obligation under the EA customs union - was struck out of the final contract draft before signing.

The agreement for the development of a gold mine at the Buzwagi area in Kahama District, Shinyanga Region was signed by the Minister for Energy and Minerals, Nazir Karamagi, representing the Tanzanian Government on one hand, and Gareth Taylor of Pangea Minerals Limited - a subsidiary of Barrick Gold Corporation on the other. Taylor is also the executive general manager of Barrick Gold Tanzania Limited in-charge of operations.

No witnesses on either side of the pact, signed in the UK capital on February 17 this year, were listed.

Under the terms of the agreement, the government is to grant a special 25-year mining licence to Pangea Minerals Ltd ’’as soon as possible and in any event not later than 60 days’’ after the Barrick Gold subsidiary lodges an application for such a licence.

The Buzwagi contract was signed at a time when the government was in the process of reviewing the various gold mining policies, laws and contracts in the country, with a view towards creating what has been officially termed a ’win-win’ situation.

However, at least two independent sources familiar with the deal have told THISDAY that the signatories to the agreement - Karamagi and Taylor - amended the final draft by hand during the signing function in London.

It is now understood that the original contract, drafted by a team of experts from the Ministry of Energy and Minerals in Dar es Salaam, took into account the fact that the East African Customs Management Act of 2004 was in force and should be duly incorporated in the agreement.

But in what now appears to have been a surprise move, the key sentence was penned out with Karamagi’s approval just before the signing.

’’All other major mining contracts in Tanzania were signed before 2004 - that’s why they don’t fall under the East African customs union. But the Buzwagi contract is different because it was signed after the customs union came into force, and should therefore have fallen under the East African Customs Management Act,’’ said one well-placed insider on the deal.

Under other fiscal terms of the agreement on the same Article 4 provision, Pangea Minerals Ltd would be required to pay the (Tanzanian) government ’’a royalty at the rate of 3% on the Net Back Value of all minerals produced from the Contract Area, other than diamonds, in respect of which the royalty shall equal 5% of the Net Back Value.’’

The company is also legally bound to pay the government ’’stamp duty under the Stamp Duty Act No.20 of 1972, as in effect on the Fiscal Stabilization Date,’’ and $125,000 by December 31 of every year of production as a contribution to the state’s Empowerment Fund.

On payments to local government, the agreement stipulates that the rates and taxes should not exceed those generally applicable in Tanzania; should not be based on profit, turnover, sales or output from mining operations; and should not be based on the value of land used for the mine, mining infrastructure or installations.

This, however, is provided that the aggregate of such rates does not exceed $200,000 in any one calendar year.

The signing of the Buzwagi contract in London has raised a lot of controversy with opposition Member of Parliament Zitto Kabwe (Kigoma North-CHADEMA) demanding a parliamentary probe into the deal.

For all his insistence, the MP ended up being suspended from parliamentary duties. But this somewhat bizarre turn of events only served to gift the political opposition camp with a popular platform to further advance their convictions on the subject of mismanagement of the country’s natural resources.

Minister Karamagi has endeavoured to defend himself on the Buzwagi affair, claiming that there were no irregularities involved and maintaining that the agreement signing was fast-tracked to meet strict funding and production schedules.

Barrick Gold Tanzania Limited has also sought to clear the air over the deal, asserting that there was no wrongdoing involved as suggested by opposition politicians.

The company’s executive general manager (corporate and legal affairs), Deo Mwanyika, told a news conference in Dar es Salaam recently that the agreement was pre-approved by relevant government authorities in the country after ’thorough negotiations’ spanning a period of about eight months.

’’(During the negotiations) we were asked to give very detailed presentations to the government’s advisory committee on minerals, which has the legal obligation of advising the minister of energy and minerals on matters related to minerals development and mines,’’ said Mwanyika.

It is further noted that although Barrick Gold officials have claimed the agreement was signed in the presence of Tanzania’s High Commissioner to the United Kingdom, Ms Mwanaidi Maajar, her signature does not appear anywhere in the document, as a witness or otherwise.

This is despite the fact that Ms Maajar herself is also a well-known lawyer.

The Buzwagi area has proven and probable gold reserves of around 2.64 million ounces, where Barrick Gold has announced plans to invest up to $400m (approx. 520bn/-) for mine development purposes.

From: ThisDay (Tanzania)


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