World Bank calls for audit of large mining deals
Brian Benza | Tuesday May 9, 2017 18:00
Through various large-scale mining, sales and marketing contracts with De Beers, Botswana earns over 80% of its foreign exchange income and 30% of national revenues from mining, which is primarily diamonds.
Launching a report titled Botswana Mining Investment and Governance Review (MinGov) recently, a consultant with the World Bank Group, Nils Handler said keeping the negotiation process around contracts for diamond mining and large integrated projects confidential and secretive does not aid Botswana’s case for accountability and inclusiveness.
“Government negotiates the terms and conditions of these agreements, including the percentage of ownership stake it will purchase. These contracts are not published and even the Auditor General is not allowed to audit these agreements.
A more open process, including published contracts, would assist Botswana in becoming a more transparent and accountable jurisdiction. Further, a ‘Freedom of Information’ Act would provide a ‘de jure’ instrument that the public could use to access this type of information,” says the report.
One of the biggest contracts signed with De Beers was the 2011 sales agreement that facilitated the transfer of the sorting and marketing of Botswana’s diamonds to Gaborone.
The move secured a new 10-year contract for the sorting, valuing and sales of diamonds from Debswana’s mines by DTC Botswana, and transferred the sorting, aggregation and sale of more than $6 billion of annual rough diamond sales to the office in Gaborone. The deal also allowed Botswana to sell 15% of its production directly to the local market.
But the details of these deals have not been made public.
De Beers and the Botswana government currently maintain a portfolio of four companies in Botswana – De Beers Holdings, Debswana, Diamond Trading Company Botswana and De Beers Global Sightholder Sales that are involved in the exploration, mining, manufacturing, and trading of diamonds. Although Botswana pays 50% of capital for equity ownership in Debswana, it receives 80.8% of profits.
“This has been one of the most successful examples of a country successfully beneficiating raw mineral resources and retaining optimal value and profits,” Handler said.
Despite Botswana’s positive success story of development through diamond mining, according to Handler the only theme out of the MInGov review of the country’s minerals value chain that scored “low” instead of “high” was accountability and inclusiveness.
The low ranking reflects concerns that have been raised by civil society, some industry members and ministries involved with land and other socio-economic issues. According to the report, concerns raised by stakeholders focused on the lack of meaningful public forums where various land use options, including mining, can be debated and considered at national and local levels.
The report also highlighted that some Batswana in the rural areas might feel somewhat marginalised in the face of the government’s determination to maintain the level of mining revenues from diamonds that have supported the country’s prosperity to date.
Botswana is highly urbanised, with almost 60% of the 2.2 million population living in urban areas. The rest of the population is spread out over a large landmass with cities, such as Gaborone and Francistown where there are the highest numbers of educated people, the best standard of living and the most high-paying, professional level government and private sector occupations.
“However, mining takes place in rural areas and the people living in these areas feel disenfranchised and cut off from the powerful government and political base resident in the country’s capital.
Therefore, it is not surprising that the disconnect between these two realities in Botswana accounts for the low indicators on government accountability and transparency in terms of how decisions on mining activity and particularly the secrecy around diamond mine development are made,” reads the report.
In a Report to Society released Thursday, De Beers said it returned $5 billion– a 26% rise on 2015 – through taxes, payments and dividends, to stakeholders, including governments, communities, suppliers and joint venture partners in 2016.
De Beers has joint ventures exploration, mining and sales operations with governments in Botswana, Namibia, South Africa and Canada.