From foes to partners: Tales of Zitto Kabwe and African Barrick Gold

By Guardian on sunday team

4th September 2011

Kigoma North legislator, Honourable Zitto Kabwe, who strongly criticized the African Barrick Gold, following the signing of Mineral Development Agreement (MDA) in 2007, to develop Buzwagi gold mine, benefited from the company’s development projects according to the latest research by a Canadian based researcher.

According to research by a Canadian journalist and academician, Adam Hooper, submitted to University of Carlton in July, this year, contrary to what many knew, ABG opted for a win-win situation in order to have a support from Kabwe, after the latter ‘nailed’ the company in Parliament in mid-2007.

The research suggests that after Kabwe proved to be ‘a thorn in the flesh’ to ABG leading to his controversial suspension from the Parliament, the Canadian mining giant noticed that the MP’s constituency was the lowest in terms of education development.

But defending the ABG’s move to invest in the Kigoma North Constituency, the company’s Public Relation Manager, Teweli Teweli, told the Canadian researcher that the decision was mainly influenced by the abysmal performance of the area in terms of education development.

This move, according to the ABG’s Public Relations Manager Teweli Teweli, was a result of a proposal submitted to the company by Kigoma North MP.

“Kigoma North government submitted a proposal and Barrick funded it because Kigoma North's education system is lagging behind national standards. Kabwe had complained about the same issue in Parliament for years, with no effect.” Reads part of the research seen by The Guardian on Sunday.

The research also claims that Barrick found Kabwe much less confrontational than observers expected when MPs were drafting the new Act.

“During the writing of the new law, we worked together so well because we had to create a win-win situation,” Kabwe is quoted in the research. He further adds, “So the enmity between us had to end.”

Whether it was immoral or not for ABG to finance development projects in Kabwe’s constituency remains debatable by Tanzanians whom some of them see the man as the potential material for the country’s top leadership.

Though their voices are contained in the research, The Guardian on Sunday, tried unsuccessfully to obtain the comments from Honourable Kabwe as well as ABG Public Relations Manager in Tanzania, Teweli Teweli.

While Teweli’s mobile phone kept ringing without being answered in almost the entire day, Kabwe’s mobile numbers were not reachable.

Below is part of the abridge story originating from the research conducted in Tanzania between 2010 and 2011, which was submitted at the University of Carleton, in July, this year.

From foes to partners

Kigoma, a quiet port on Lake Tanganyika, sits ten hours west of Kahama by bumpy bus ride.

A man sits in the passenger seat of his Land Cruiser, lap laden with newspapers. The car window is open.

“Hey, Zitto!” calls a passer-by. He walks up and chats in Swahili about what he hopes will happen in the region. The man, a politician, nods and says he'll do his best.

Supporters near Kigoma rally for Chadema, an opposition party, in the lead-up to the October 2010 elections.

This isn't even Zitto Kabwe's constituency, but everybody knows his name. Crowds of volunteers pile into truck beds and ride through the streets, blaring music and chanting campaign slogans through enormous speaker systems. They hand out flyers showing Kabwe's picture, Kabwe's accomplishments and Kabwe's election promises, urging residents to vote for Ally Mleh.

That was the party's 2010 campaign strategy in Kigoma Town: convince people to vote for the candidate Kabwe endorses.

It worked in 10 other constituencies around Tanzania's north and northwest, and it almost worked for Mleh. The Kigoma Town contender had never run before and his party's previous challenger finished a distant second in 2005. Mleh lost his bid by a mere three percentage points by riding in Kabwe's shadow.

Kabwe is a household name across Tanzania since he spoke against the Buzwagi contract and Barrick Gold. Barrick later supplied materials for a school in Kigoma North, the remote area Kabwe describes as his “mine-less constituency.”

The story began in 2006, before Buzwagi, when president Jakaya Kikwete asked the Minister of Energy and Mineral Resources, Ibrahim Msabaha, to renegotiate all contracts with foreign mining companies. Tanzanians were complaining that mining multinationals, which had yet to recoup their expenses and turn profitable, weren't providing enough tax revenues.

Msabaha began talks with foreign miners and suggested in his 2006-2007 budget that the government would not sign new contracts or renew existing ones until further notice.

During negotiations, Barrick made concessions covering its existing mines. It agreed to advance $7 million a year in taxes even before its mines became profitable. It agreed to pay $200,000 per year to the councils of the districts it operates in and it gave up its tax breaks on equipment and fuel costs.

In February 2007, Barrick had mentioned these concessions but hadn't legally signed on to them. Nazir Karamagi had replaced Msabaha as head of the mining ministry in a cabinet shuffle, and the media were still criticizing mining contracts.

The mining minister and Barrick officials signed the Buzwagi contract in a hotel in London to meet a Barrick deadline. The mining minister initially didn't announce he'd signed it, sparking a public outcry.

Then came a new one. On Feb. 17, Karamagi signed the brand-new contract that let Barrick develop Buzwagi. His signature seemed poised to propel controversy to new levels, but Karamagi had a plan to defuse the situation.

He didn't tell anybody.

Barrick mentioned the contract in its 2006 annual report, which it released to shareholders and the public on Feb. 22, 2007, but it seems nobody in Tanzania read it. There wasn't any activity on the ground in Kahama to make residents suspicious because Barrick needed to wait for an environmental assessment of its proposed mine site. Karamagi remained mum.

“It was signed secretly. It was signed in London, in a hotel room, at midnight,” says Kabwe, emphasizing each fact with a pause. “No single member of parliament knew about this. The parliamentary committee on mining didn't know about it.”

Kabwe found out about the Buzwagi contract that July, tipped off by a “concerned Tanzanian.”

“I brought up the issue in Parliament. I asked the minister, 'did you sign this contract?' and the minister initially said 'no, I did not.' Later, he said yes. So he flip-flopped.” Kabwe announced that the minister had lied, and he criticized the minister for refusing to let Parliament examine the contract when asked. He moved to censure Karamagi and requested a committee be created to examine the deal.

But that doesn't happen in Tanzania. Kabwe, the country's youngest MP, was an opposition member whereas the ruling party held 206 of the 232 elected seats. Ruling-party politicians ganged up and suspended Kabwe from Parliament within hours for humiliating the mining minister, effective from August 2007 until January 2008.

Then something unexpected happened. Kabwe became a hero for speaking his mind. Crowds greeted him in the rain in Dar es Salaam to cheer him on after he was suspended. Leaders of four opposition parties supported Kabwe in a rally in September. Kabwe's party hired a helicopter so he could tour the country and his party could capitalize on his charisma. A ruling-party leader, Jaka Mwambi, warned fellow party members that Kabwe was popular despite his “red card” in parliament and even some ruling-party members were cheering for him.

“The press contributed a lot,” says Kabwe, recalling the drive to reinstate him. “Two hundred thousand people demonstrated in the streets of Dar.”

Under public pressure, President Kikwete formed a new presidential committee in November to investigate mining law. To the nation's shock, Kikwete appointed Kabwe to the 11-member team. “The mandate was given to look into the contracts, to look into the policy, to look into the legal regime, to look into the fiscal regime of the sector,” says Kabwe. “I came to know the sector very well.”

He also came to know Barrick

The commission ended in 2008 and published a widely-cited document called the Bomani Report. It highlighted numerous flaws in the country's mining agreements, suggesting that villages around Tanzania's gold mines haven't benefited from foreign investment as they should have and that the government was misguided when it sold Barrick its final five per cent share of Bulyanhulu soon after the giant entered the country. The report recommended the government increase royalties and grant fewer tax exemptions.

Parliament began to discuss a new Mining Act

In 2009, Barrick provided $10,000 in materials to repair a school in Kabwe's Kigoma North constituency.

Kigoma North is far from gold. Its only notable asset is an opposition MP who declares himself socialist, has enough power to threaten the terms of Barrick's contracts and wields so much public support even the president tries to get on his good side.

Barrick needed to get on Kabwe's good side, too. He was a respected economist and he was instrumental in drafting a new Mining Act parliament finalized in April 2010. Investing in Kabwe's school was a low-cost way for Barrick to show it had no ill will.

Teweli says the investment was part of Barrick's Heart of Gold fund, which pays for miscellaneous projects like art workshops with street children in Dar es Salaam. He says the Kigoma North government submitted a proposal and Barrick funded it because Kigoma North's education system is lagging behind national standards. Kabwe had complained about the same issue in parliament for years, with no effect.

Barrick found Kabwe much less confrontational than observers expected when MPs were drafting the new act. “During the writing of the new law, we worked together so well because we had to create a win-win situation,” says Kabwe. “So the enmity between us had to end.”

Under the 2010 mining law, companies have to pay royalties of four per cent on gold exports, up from three per cent. Also, the government is to hold shares of all new foreign-owned mines. Barrick's mines are exempt from both rules, because the new law doesn't apply to Tanzania's existing mines.

Kabwe, last year was re-elected and now Tanzania's go-to mining expert, doesn't criticise the result. When the 2010 Mining Act was passed, hKabwe told Reuters “it might send a negative signal to investors and might impact foreign direct investment. I'm worried on that.” Barrick doesn't criticise it either. When the legislative dust settled, both were victors. Barrick averted extra expenses at its mines. Kabwe became popular nationally and in his own district. They found their “win-win situation.”

Meanwhile, the Tanzanian government doesn't raise enough tax revenue to do its job. There's still no paved road crossing the country, one in ten children dies before turning five and according to a speech by president Kikwete in November 2010, only 14 per cent of Tanzanians have electricity. Debt stands at $11 billion as of December 2010, up $800 million from the previous year.

Barrick has some big numbers of its own, but they barely affect the country's budget. Tanzania exported $1.5 billion worth of gold in 2009, 40 per cent of the value of all Tanzania's exports, and most of that gold was Barrick's. But Barrick only paid $37 million in royalties and levies that year about one per cent of Tanzania's total tax revenue of $3.27 billion. Employees paid another $37 million in taxes on their salaries.

The most glaring zero in Barrick's budget is corporate tax. Tanzania charges 30 per cent corporate income tax, but Barrick pays none because it hasn't recouped expenses as three of its mines aren't considered profitable yet. The fourth mine, Tulawaka, is profitable but Barrick cancels out the earnings with Buzwagi's expenses to delay paying corporate tax. Tanzania amended its income tax law in 2010 to prevent this sort of offsetting and it would now tax every gold mine individually, but Barrick keeps its existing arrangement. Only North Mara is expected to become profitable this year.

Aside from not receiving corporate income tax, Tanzania actually owes Barrick millions. In Tanzania, companies pay a “value-added tax” similar to Canada's GST when they buy goods and services and import fuel. As in Canada, the government owes a refund when companies pay more VAT than they collect from their customers. Barrick has no Tanzanian clients so it's entitled as of December 2010 to a total refund of $121 million that Tanzania over-collected over the years and can't afford to repay. It's more than one per cent of the country's official debt.

Barrick deflects Tanzanians' demands for more taxes by touting the trickle-down effect. It says it spent $69 million on goods and services from Tanzanian companies in 2009: proof that it's injecting money into Tanzania's economy and benefiting the entire nation. “Our biggest argument when dealing with government is convincing them that this is an issue about getting a bigger cake rather than trying to get more slices from the same cake,” says Teweli Teweli, the company’s Public Relations Manager.

Barrick survives criticism even though the two Tanzanian ministers responsible for the Buzwagi deal, Msabaha and his successor Karamagi, are politically kaput. Both ministers resigned in February 2008 in the midst of a corruption scandal involving an energy contract with Richmond Development Company.

Msabaha contracted Richmond Development, a briefcase company owned by Tanzanian businessmen and registered in the United States, to provide generators to alleviate Tanzania's frequent electricity outages. After the contract wasn't met Msabaha signed an even larger one, which Karamagi upheld.

Parliament and Tanzanians abhor Karamagi's signature, but the ink on the Buzwagi contract, including Karamagi's last-minute scribbles in the margins, has proved permanent.

This story is a part of Adam Hooper’s research, which he wrote and produced in July, this year, to complete the requirements for his master of journalism degree at Carleton University.

SOURCE: Guardian on Sunday