October 6, 2013 3 comments Article
Last week, Uganda hosted a Mineral Wealth Conference, whose main focus was looking at how to invest in this sector. Mining has over the years – since 2006 – been living in the shadows of the oil sector – and rightly so. The mining sector is only 0.3percent of Uganda’s GDP. In 2006 when the first major oil finds were made, the minerals sector was struggling – at least less than 20 exploration licenses were issued then. By end of 2010, a donor funded project led to an airborne survey of the whole country to indicate the “mineral potential” of Uganda – with the exception of Karamoja. As soon as the survey was completed, there was a “gold rush.” License applications shot up from 70 to an incredible 625 by mid-2012. Additionally, the tax revenues from this sector shot up from Ushs25.1bn in 2010/11 to Ushs431bn in 2011/12, a rise of more than 1600%.
Ushs431bn appears to be a large sum of money, but it isn’t. Uganda has been exporting iron ore – at least until a directive by President Museveni last year stopped this. The iron exports, some receipted others not, have made their way to DRC and Kenya. Interestingly though, more than 70percent of exploration licenses offered have not submitted any returns/results – including some big companies like Steel Rolling Mills. Steel Rolling Mills holds about 7 exploration licenses for iron ore – can be used in making of steel – but it has not submitted returns to the Department of Geological Survey and Mines, preferring to rely on scrap metal and other imports. No value addition to minerals; guess who is losing out? Uganda.
The Department of Geological Survey and Mines (DGSM) is understaffed, with at least only one person supervising almost five districts. Supervision of activities on these mines has proven to be difficult. The department admits this. In some instances, the department officials have been denied access to mines, for instance the Kasese Cobalt Company Limited (KCCL) and some gold mines in Masindi – an Indian firm is said to have been mining Gold using an exploration license. Of course, there is the “invisible powerful hand” that usually pulls the strings. With this limited supervision of the sector, one can only tell how much money Uganda is hemorrhaging from “illegal” mining activity. With the Uganda government jubilant about funding 80percent of its Ushs13trillion budget, this money is not enough to meet the financial needs of this country. We could do with some extra cash.
The limited attention the department gets is telling as it receives limited funding, even the commissioner admits it. All the money that the department receives goes to URA. The department only gets allocations from the ministry of finance. The officials from the department are also susceptible to bribery by mine owners, simply because they don’t have “enough” money. At the end of the day, Uganda is the one losing out the most. Some people acquire licenses just to “hawk” them around, even when they have no record or experience of mining. In 2012, there was the clear case of Hima Cement, with experience in limestone mining lost a license to a little known EA Gold Sniffing. EA Gold Sniffing’s interest wasn’t to explore for limestone, but rather to sale it to the highest bidder – Canada’s Brandenburg Corp.
Mining can also further deepen the cleavages that exist in a country. Communities maybe distorted by companies coming to do some mining. Uganda mining potential is getting more hype, but with civil society mostly concerned about the oil, mining communities are fighting their own battles. In Tororo, residents of Sukulu are fighting for their land as NILEFOS, a subsidiary of the Madvhani Group struggles to compensate them. The mining act clearly states that to mine minerals underground, one must acquire surface rights – from land owners. At the end of land valuation in Sukulu, total compensation totaled to Ushs135bn with each household proposed to get an average of Ushs53m. The amount was said to be high and the parties involved don’t want to pay. This could morph into forced evictions if we are not careful.
Additionally, mining distorts communities and can easily take them away from agricultural activities, lead to child labor and massive school drop-outs. Some of these are happening, but as long as the country downplays them, the situation could get out of hand.
Finally, you’ve probably heard that Kilembe Mines were finally taken over by a consortium led by Tibet-Hima of China. In October this year, the company started work on the mines in a Private Public Partnership with government. The Uganda government in 1997/98 entered an arrangement to own 25percent stake in Kasese Cobalt Company Limited. The government, through Kilembe Mines secured an $8m loan from the European Investment Bank to acquire this stake. To-date, the government has never received dividend payment because profits have never been declared. Revenues are depleted by shareholder loans – provided by the 75% shareholder – meaning priority goes to paying this off. Currently, MFC Industrial owns 75% stake in KCCL through complex offshore subsidiaries. In August 2013, the company officially started restoring the land as “copper tailings” – where cobalt is mined – run out. At the end of the whole period what Uganda has gained are just tax revenues – even so, the company has evaded taxes before. Again, who is losing? Uganda.
We ought to wake up and smell the coffee before it is too late.