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sharing in governance of extractive industries

PRELIMINARY ANALYSIS OF THE 7TH TANZANIA EITI REPORT

PRELIMINARY ANALYSIS OF THE 7TH TANZANIA EITI REPORT

 

1.    Introduction

Tanzania has just published the 7th EITI report covering the 2014/15 fiscal year. The fifth and sixth reports were published concurrently in November 2015.

 

A consortium of two little known consulting firms in Tanzania EITI; Boas & Associates and MM Attorneys was contracted as Independent Administrator (IA) to carry out assignments and compile the 7th TEITI report. The IA had in June 2017 delivered on the 7th TEITI report to TEITI Committee, and the latter acted to publish it recently.

 

A coalition of Tanzania civil society members to EITI Association (TEICS) deems it vital to undertake preliminary analysis of the report. TEICS goal in the current endeavours is consistent with the coalition primary mandate of following up and monitoring of EITI implementation in Tanzania. Analysis of 7th TEITI report spans through assessment of contextual information covered in the report, consistency and accuracy of data compiled in the report, clarity and correctness of facts used in the report, and compliance of the report with EITI directive on data disaggregation.    

 

2.    Analysis tools and methodology

Analysing the report has adopted the qualitative assessment methodology while applying existing policy, regulatory and legislative documents, previous reports, EITI standard 2016 and previous best practices (practical experience) as analysis tools.

 

3.    Preliminary analysis-based findings 

TEICS experts have gone through the 7th TEITI report with keen interest to assess if the document complies with key reporting competence standards on understanding that TEITI has vast experience in EITI implementation reporting (since 2011). The entry point to the analysis is observation and assessment to ensure that the report is free from serious gaps.

 

3.1         General issues

 Contextual information

It is incumbent that EITI country reports provide real time contextual information so as to update readers with obtaining fiscal governance information at the time of compiling reports. Revenues from extractive industries operations constitute part of, and are affected by fiscal policy of the day. However, the TEITI report that is under scrutiny does not reflect latest key policy reform interventions rolled out by Government when the report was being compiled. The report largely contains historical information, which is as antiquated as three years old. To that end the 7th TEITI report does not adequately inform readers about the latest policy, decisions and actions taken by Government regarding extractive industries governance in the country.

 

The report’s failure to mention findings of, and policy directives drawn from two Expert Committees formed by President of the United Republic of Tanzania, March and April 2017, to investigate types and proportions of content in the metallic mineral concentrates exported by the Acacia Mining from Tanzania goldmines [Committee I]; and [Committee II] conducting thorough analyses to determine economic and legal implications of mining investments that has lasted for 19 years (spanning from 1998 to date) in Tanzania, is serious omission – a gap that denies readers real time vital and significant fiscal policy information.

 

Actually, in our view, readers would rather welcome the analysis that reflects the extent to which EITI implementation is supportive to the current Government endeavours to unravel natural resources fiscal policy reforms just embarked on. We recommend the report to capture this key information

 

3.2         Specific issues       

3.2.1   Data inconsistencies and inaccuracies

In the course of reading the report we have come to identify quite a number of inconsistencies and inaccuracies against which we raise a flag.

 

a)    The Capital Gain Tax (CGT) amount of Tzs. 186,033,560.00 that the companies paid to the Government appears inconsistently recorded; it is documented in one table but it is not captured in the corresponding table [Table C vs. Table B: prelim page viii].  

b)    The Pay As You Earn (PAYE) total amount of Tzs 169,311,466,352.00 paid by extractive industries workers to Government is not recorded in table C [7th TEITI report: prelim page viii] with no plausible justification. A note [7.2 Revenue Streams: page 47] states that ‘MSG agreed pay‐as‐you‐earn together with value added taxes, withholding taxes, NSSF and PPF contributions would be reconciled separately, and included in the Seventh EITI Report as contextual information’. Omitting PAYE from table C is a serious distortion of revenue streams from extractive industries operations to the Government, which disguises the report and kills the whole purpose/concept of EITI. The omission sends incorrect signal to readers essentially regarding the gargantuan value of PAYE; Tzs 169,311,466,352.00, which is over and above any other extractive industries revenue stream and 1.7% of all taxes collected by Tanzania Revenue Authority (TRA) during the fiscal year [Table 9.4: page 67]. A statement that during 2014/15 fiscal year Tanzania Government received the total of Tzs. 311,250,624,831.00 [7th TEITI report: prelim page vii] is therefore incorrect.

 

Concealing or wrongly documenting PAYE account apparently denies the public an opportunity to make comparison of Government revenue generated from mining workers against the taxes, royalties, and levies paid by mining companies. Moreover, PAYE is conceptually different from VAT or statutory contributions.

  

c)    The PAYE value referred to above is inconsistent with the figure indicated in the final reconciliation [ Appendix 7, Reconciliation Table for Indirect Taxes: page 102]: in which the Government reaffirms to have received Tzs. 104,224,818,762.00; companies showing to have paid Tzs. 688,771,783,404.00; while Tzs. 584,546,964,642.00 remains unresolved.

d)    Inconsistency with respect to materiality threshold. It is stated in the 7th TEITI report as well as the Scoping Study report that the Committee decided materiality of Tzs. 358,000,000.00 threshold [7th TEITI report: 45], which represents 0.1% of total Government revenue collected from extractive industries operations.

 

However, El Hillal Minerals Ltd, a medium scale diamond mining company, which made significant yields by producing 16,154 carats, valued at $ 4,212,239, representing 7% of the total production volume of diamond in the country during the reported fiscal year [7th TEITI report: 6] is not included in the list of 31 reporting entities [Table 7.3A, List of Oil, Gas and Mining Companies: page 48]. This is the inconsistency creates enigma of El Hillal Minerals Ltd and calls for plausible explanation.

 

Moreover, El Hillal Minerals Ltd’s production capacity stated in the 7th TEITI report is inconsistent with evidence documented in the Scoping study report, which places the company under the 459 extractive companies not meeting the proposed materiality threshold [Scoping Study report Annex 7: 44]. El-Hillal Minerals Ltd is the 298th company in the list; it paid Tzs. 5,250,000.00 only to the Government during the fiscal year under scrutiny.

 

This inconsistency requires plausible explanation to tackle the enigma, which should have been resolved by the IA and documented in the 7th TEITI report. 

 

3.2.2   Facts not clearly presented, missing or erroneously presented

We have noted quite a number of facts, which are either not clearly presented, missing or erroneously captured as we elucidate hereunder.

  

a)    The fact that CGT is mentioned [7th TEITI report Table C, Reconciliation by revenue streams: prelim page viii]; indicating Government reaffirmation to have received Tzs. 186,033,560 paid by extractive industries companies, implies mergers, acquisitions or any other form of business takeovers involving transfers of titles, took place during the reported fiscal year. However, neither the contextual nor specific information is provided in the 7th TEITI report indicating any form of business amalgamations to have taken place during the reported period. This is a serious omission of facts, which must be captured in the report contextual information.

   

b)    Facts about TEITI Committee composition [7th TEITI report: 2] are not clearly presented. The ‘conventional NGOs’ sub-constituency is not mentioned as representative but instead, a single NGO representing the sub-constituency in the Committee is mentioned. This is wrong and misleading. Again, a sub-constituency referred to as ‘PWYP-Haki Rasilimali’ is neither an endorsed sub-constituency nor a nominated NGO requested to send a representative to TEITI Committee. This is intuitively an ‘extra-legal mechanical fix scheme’ designed to fill a gap created by Government rejection of PWYP Ltd sub-constituency because PWYP Ltd is a foreign entity incorporated in London (Company incorporation No. 09533183, 9th April 2015).

 

c)    Again, information that the Epanko graphite project is located in the Mahenge Graphite Province is factually wrong. Mahenge is in Morogoro region not province. Standing as it is the narrative is misleading readers; sending wrong facts about Tanzania’s geo-political structures.

 

d)    Helium gas find of June 2016 in Tanzania is missing from, therefore should be captured in the context information. The natural store of helium that was found in the Rift valley, south-western Tanzania, is estimated at 54 billion cubic feet, and is enough to fill 1,200,000 hospital MRIs.

 

e)    The 7th TEITI report does not document yet, metallic mineral concentrates production data; quantity/units and value of commodity export. Information released by Acacia Mining Ltd in March 2017 vindicated Bulyanhulu and Buzwagi gold mines raising 50% of their combined revenue from sale (export) of raw concentrates. This commodity value should be mainstreamed in the entire report narratives and tables.

 

f)     Observations and Recommendations [7th TEITI Report: page 73] presented in the report assume a standalone model of data presentation, without making reference to, or establishing linkage with or undertaking comparative analysis of the extent to which TEITI had implemented previous recommendations.

 

Again, some recommendations are very narrow, sounding rather as consultant complaints than broader policy issues that need to be addressed. For example, the recommendations based on observations 11.5 and 11.6 [page 74] derive origins from, and therefore imply weak institutional capacity of TEITI and the Committee to execute TEITA Act No 23/2015. The appropriate recommendation therefore should have focused on mainstreaming and building institutional humanware capacity of TEITI that enables the institution/agency to discharge duties effectively and efficiently. Similarly, the conclusion [page 75] should be packed with substantive stuff covered in the report rather than complaints of how inadequate time hindered the Independent Administrator to finish the assignments.

 

g)    The narratives intended to analyse outcome and impact of EITI in Tanzania [7th TEITI report: 69] are largely presented as explanatory aspects of output rather than impact or even outcome of EITI implementation in the country. Understanding of outcome and impact of EITI implementation in Tanzania would call for analysing TEITI work-plan execution in which relevant indicators are spelt out. No measurable media intervention is discernible regarding TEITI contribution to public debate because there is no indicator restated in the report thus far .                              

 

3.2.3   Inadequate disaggregated data  

EITI standard directs that the data presented in the reports be disaggregated. Compilation of the 7th TEITI report fairly complies with this directive but not entirely. We note below, a number of data, which require further disaggregation if facts and material information presented therein are to be worthwhile in the EITI concept.

                              

a)   Taxes and other payments data presented in the report [Table C, Reconciliation by revenue streams: prelim page viii; Table D, Reconciliation by companies: prelim page ix; Table 7.4, Reconciliation by companies: page 55; Table 7.5, Reconciliation by revenue streams: page 56; and Table 7.6, Details of Unresolved Discrepancies (TEITI 2015 REPORT): page 57] are not disaggregated. These aggregated data make it difficult to further analyse outcome of and/or possibly impact from extractive industries operations.

 

b)   Payment of Corporate Income Tax (CIT) by mining companies is so politically sensitive that companies paying or not paying CIT should be clearly shown in the report because of its sheer public interest. Going by evidence cited in the tables mentioned in 3.2.3 (a) above, presentation of CIT data in the report does not comply with EITI standard directive. It is known from the previous TEITI reports that the biggest portion of CIT is paid by cement manufacturing companies while gold mining companies pay either little or no CIT. Whether by design or default, the 7th TEITI report is technically concealing information regarding the mining companies’ CIT payment history.

 

c)    Again, presentation of payment of service levy [Table C, Reconciliation by revenue streams: prelim page viii] indicating the Government reaffirms to have received Tzs. 1,575,401,599.00 from companies, while the companies insisting to have paid Tzs. 5,880,863,107.00 (Tzs. 4,305,461,508.00 is thus far unresolved discrepancy) to the Government (Local Government Authorities/LGAs) requires disaggregation. It is incumbent that service levy payment data are presented in a format that shows respective companies’ payments to each recipient LGA [Biharamulo, Chunya, Geita, Ilala, Kahama, Kilwa, Kinondoni, Kishapu, Mbeya, Mtwara, Nzega, Simanjiro, Tanga or Tarime].

 

It is so indispensable because LGAs hosting large scale gold mine investment operations do not have access to credible turnover data due to companies’ concealment of their production data. The production (turnover) data for Buzwagi Goldmine, Bulyanhulu Goldmine and North Mara Goldmine are not readily available, therefore inaccessible in Tanzania except from their mining operations coordination centre located in South Africa. Data disaggregation is required to support LGAs quest for credible production turnover data upon which service levy calculations (0.3% not of excise duty and net of VAT) are based.

 

4.    Recommendations and conclusion

4.1         Recommendations

 

a)    We recommend to TEITI Committee, the Secretariat and the Independent Administrator to consider reviewing the report to address the gaps punched in the report.

 

b)    We recommend to TEITI Committee and the Secretariat to promulgate and execute TEITA Act No.23/2015 to ensure TEITI achieves full institutional and operational capacity; employs and manages competent experts, procures (PPA No. 7/2011) and manages (PP Regulations 2013) Independent Administrator contracts, and publishes quality TEITI reports.

 

c)    We recommend to TEITI Committee to conduct due diligence of Independent Administrator contracted to compile the 8th and subsequent TEITI reports prior to awarding contracts.        

 

4.2         Conclusion

Tanzania is currently undergoing radical and rapid natural resource governance policy reforms to ensure Tanzanians own, control, use and benefit from natural resources wealth equitably along with foreign large scale investment beneficiaries. EITI is seen as competent policy instrument to help both Tanzania and foreign investment attain optimal satiation of benefits. To achieve this overarching goal, it is imperative that TEITI reports avoid being seen, in terms of compilation and promulgation, as “business as usual foreign donors’ ploy” of ticking boxes. All stakeholders, essentially Tanzanians, should always work towards reinforcing the quality and integrity of TEITI reports. Only this way, EITI implementation in Tanzania shall remain relevant.

 

TEICS coalition volunteering work to engage in this assignment is rationalised by the preceding paragraph.

 

 

 

 

©TEICS, July 2017

 

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