Ataf has action plan to address tax base erosion

Multinational companies shifting their profits from Africa to low-tax jurisdictions are only partly responsible for the erosion of the continent’s tax revenue bases. Business Day reports that the African Tax Administration Forum (Ataf) believes some countries have signed away their tax revenue because of weak domestic policies, and ill-conceived tax incentives and mining contracts. 

For two years the Organisation for Economic Co-operation and Development (OECD) has been on a drive to address profit shifting and base erosion and the report says, Ataf agrees with the need for an action plan and has embarked on a drive to address problems that cause base erosion in Africa but are not on the OECD’s agenda. Ataf executive secretary Logan Wort says domestic policies and ofte, badly written mining contracts, erode tax bases in Africa. Ataf will address the tax challenges of e-commerce, hybrid mismatch arrangements, abuse of double tax treaties, the establishment of dummy headquarters and the requirement to disclose aggressive tax-planning arrangements.

Kenya is to impose capital gains and windfall taxes on oil, gas and mining companies within months to ensure it maximised benefits from its mineral resources. Business Report quotes President Uhuru Kenyatta as saying: ‘This is something that we are very clear about. We want to ensure that we as a country also are able to benefit from both the windfall and capital gains tax.’ Tullow Oil and partner Africa Oil have found oil reserves in northern Kenya and the government wants to avoid a similar situation to that in Uganda, where Tullow is contesting in court the state revenue authority’s demand that it pay capital gains tax following its sale of assets.

PWC: Only 54% of oil and gas staff think fraud programmes work

A total 91% of respondents to PricewaterhouseCooper’s (PWC) latest Africa oil and gas review indicated that their companies have anti-fraud and anti-corruption programmes in place. However, of these, On the brink of a boom notes that only 54% believe the programme is effective at preventing or detecting fraud and corruption.

Meanwhile, 6% of respondents said their anti-fraud and anti-corruption programmes were futile – the same levels as PWC’s 2012 research. More worrying is that 9% of the companies indicated that they had no programmes in place at all.

African refining costs to soar in 2014

Africa will suffer significantly higher production costs for its own new grass-root refinery projects, planned in Nigeria, Angola and Gabon, according to GlobalData. These countries have a lack of highly skilled workforces and minimal infrastructure, meaning that most if not all equipment, materials and labour needs to be imported.

Carmine Rositano, GlobalData’s managing analyst covering downstream oil and gas, says, “Further costs for this region will also result from the financial and geopolitical risks associated with the construction of onshore refining facilities in African countries, such as Algeria and Uganda. These factors will push Africa’s refining capital expenditure to almost US$28-billion dollars  by the end of 2020.”

The global refining capital expenditure is forecast to reach about US333-billion dollars between 2014 and 2020, representing an annual average of almost USD48 billion dollars and 1,6-million barrels a  day.

George Soros urges China to disclose resource payments

China should publicly disclose what it pays African governments for oil, gas and minerals extracted as a way to level the playing field for companies worldwide, billionaire investor George Soros said on Monday.

The move will also help countries on the continent get a fair deal for their natural resource wealth.

“China has to line up to join the regulations,” Soros said at a forum on natural resources held on the sidelines of the US-Africa Leaders’ Summit that runs through Wednesday. “Otherwise they are spoilers.”

Sub-Saharan Africa has immense riches in gold, gems and rare minerals and new discoveries of oil and gas off east Africa promise to make it a leading exporter of hydrocarbons by 2030. Yet its citizens see only a fraction of that wealth on a continent that has among the world’s highest poverty levels.

The value of natural resources extracted each year in Africa is estimated at US$500 billion  but revenues collected by their governments are scarcely one-tenth of that, according to Daniel Kaufmann, president of the Natural Resource Governance Institute. In addition, US$50 billion  a year leaves Africa in illicit finance through mispriced trade and corruption, said Mojanki Gumbi, a trustee of the Thabo Mbeki Foundation, which focuses on the political and economic development of Africa.

To increase accountability for natural resources, the United States and the European Union have passed laws requiring extractive industries listed on public exchanges to disclose their payments to governments.

In addition, 35 countries including many in Africa are party to the Extractive Industry Transparency Initiative (EITI), a coalition of governments, companies and civil society that works to improve accountability for management of revenues from natural resources by setting global standards for payment disclosure.

Soros called on Africans to urge China to participate in the initiative, and to expand payment disclosure from oil, gas and mining to include forestry and agriculture.

“It is a very important thing to get them to join, in fact so important that we have to be ready to reconsider the structure of EITI, or China won’t consider it,” he said.

Multi-national companies frequently complain that their competitive position in bidding for contracts is undermined if they have to adhere to US and European disclosure rules that would not apply to state-owned companies in China, which are big players in Africa.

Mo Ibrahim, a philanthropist from Sudan who made his fortune in mobile telecommunications, was cautious about whether the proposal would succeed. China does not like to engage with civil society, which is a central part of EITI, he said. However, Chinese companies are learning that failure to engage poses significant risks to their investments in Africa.

“It is the new kid on the block in Africa, and they are finding their feet. They are getting their workers kidnapped and they are learning that it is not just some nice forest you can come in and cut down, or you can go in and pick up some good iron ore,” Ibrahim said.

Moreover, Chinese companies already must disclose their payments to governments that are party to the EITI, and those that list securities in the EU and the United States will have to comply with new transparency rules that start taking effect next year.

Source: Reuters

Liberia’s first gold mine on schedule

About 70% of development at Liberia’s first gold mine is complete and the mine is on track to start producing in March next year. This is according to David Reading, CEO of Aureus Mining, the London-listed company that owns the New Liberty Gold project in the north-west of Liberia, about 80km from the capital of Monrovia.

South African-based company DRA has been appointed engineering, procurement, construction and management contractor and will be responsible for building the processing plant, mining infrastructure including the mining village, river diversion and tailings storage facility (TSF). Aureus Mining is to do the pre-strip and pit development.

Earthworks at the mine started in December 2012 and are almost complete. The river diversion is 90% done while the TSF is on track to be finished by late December. DRA has started constructing the steel frame for the plant. When asked about risks in Liberia, Reading tells African Mining that, despite the country’s long mining history, infrastructure and getting work done on time remain the primary concerns.

Minerals in Africa must benefit all parties says expert

Key among the difficulties and risks of mining in Africa is managing the expectations of communities around mines, as well as the relationship with government  – especially the custodian agency custodian of mineral rights.

So says Roger Dixon, chairman and corporate consultant at SRK Consulting (SA), which has four decades of African experience.

“There is growing acknowledgement the world over that minerals must benefit all affected parties, and this has sadly not been the case in many African countries.

“The rise of resource nationalism is partly a response to this fact, and mining companies need to become proactive partners in ensuring and demonstrating more positive impacts from mining,” Dixon says.

Largest energy merger and acquisition announced

Theme International Holdings’ US 1-billion dollar (about R10,6-billion) offer for oilfield exploration and production company Everest Hill Energy is the largest merger and acquisition deal to be announced in sub-Saharan Africa so far this year, according to Keith Nichols, managing director for Africa of Thomson Reuters.

Boosted by this deal, energy and power was the most active sector, accounting for 33% of first half deals. Nichols also discloses that energy and power was the most active sector for equity issuance in the region. The largest initial public offering, and the second largest equity offering during the first six months of the year, was from Nigerian-based Seplat. The oil company raised US540,5-million dollars  in a dual listing on the London and Nigerian Stock Exchanges in April.

Speaking about debt capital markets in sub-Saharan Africa, Nichols points out that debt issuance during the first half of 2014 marked the highest first half total since 2011. “The African Development Bank, headquartered in the Ivory Coast, raised a total of US$2.7-billion dollars, accounting for 53% of activity in the region. Deutsche Bank took the top spot in African debt ranking for the first half of 2014 with US$1.2-billion dollars, or a 22% share. Barclays and Citi followed in second and third positions.”

Africa Focused Diamond Company, Paragon Diamonds to start operations soon

Paragon Diamonds, the London-listed diamond company with a number of assets in Africa, aims to transform itself into a cash-generating diamond exploration and production company in Africa.

This is according to Simon Retter, Paragon’s chief financial officer, who spoke at the company’s AGM held in Guernsey recently.“We have a solid portfolio of multi-stage projects in world-class diamondiferous regions of Africa where we believe we can deliver significant value for shareholders,” Retter said.

The company’s flagship Lemphane kimberlite project in Lesotho is to start production soon, while Paragon is looking to advance its projects in Botswana and Zambia.“We continue to evaluate strategic and corporate opportunities to diversify our offering and will expose our shareholders to as much of the value chain as possible,” he said.

Lemphane is believed to be the last world-class kimberlite to be developed in Lesotho and is close to Gem Diamonds’ Letseng pipe, which is renowned for the recovery of exceptionally large and valuable diamonds.