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Government duped on minerals

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Due to government inefficiencies, minerals which some local companies have been getting for a song were re-sold at high prices in foreign markets

By Rebecca Chimjeka

As Malawi continues to procrastinate on plans to reform the country’s mining sector to boost the economy, a 2019 performance audit report has revealed that government is losing billions in revenue from the sector.

The audit, conducted by the National Audit Office and titled ‘Performance Audit Report On Social Economic Contribution From Mining Service’, covers the period 2013 to 2016.

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It shows that some mining companies in the country priced their extracted minerals to themselves at relatively lower prices before processing them into value added products such as cement and agriculture lime, which as of January 2017 fetched as high as $35 per tonne.

The report says limestone minerals were priced at K5 per tonne while on an international market its lowest quoted price was K26,250.

Similarly, iron ore was priced at K2,600 while on an international market its lowest quoted price was found to be K 51,750 as at June 30 2017.

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According to the report, if the companies had sold their production volumes at the recommended international prices the total sales would have been K8.6 billion and K522 million for limestone and iron ore respectively.

It further shows that there was conflicting revenue information between the Department of Mining, Ministry of Finance and Malawi Revenue Authority (MRA) due to poor record keeping the finance ministry and MRA.

Ministry of Mining Principal Secretary Joseph Mkandawire confirmed of the report.

“Yes, we are aware of this performance audit. Our mining inspectors conduct impromptu visits, institute surveys to determine the reserves for calculation purposes and data reconciliation exercises,” Mkandawire said

He said the companies are now complying with the formula that was issued.

But through a memo that Malawi News has seen, addressed to mining companies, government had expressed concern over the low prices.

“During the past three years leading to the month of August 2019, it was sad to note that the low gross sales value in Malawi Kwacha for limestone was multiplied by K150 per tonne to obtain the mineral royalties payable to Malawi Government, which was regarded as average price for limestone,” the memo reads.

The Department of Mining was then forced to revise the prices, in line with the laws that were gazetted in 2019 as well as the Taxation Amendment Act of 2016.

Kosamu Munthali, one of the activists on mining governance in Malawi, said the development just underscores the point that Malawi has grave loopholes in the extractive sector.

“Without fear or favour, these companies must be tracked and should pay pack back with huge penalties to Malawians, it’s sad that Malawi Government has never been serious when it comes to mining industry,” he said.

Non-enforcement of submission of minerals export sales return by some mining companies resulted into under-declaration in volumes of minerals exported to international markets.

The development means the Department of Mines (DOM) could not establish the true value of the minerals that are exported.

“During the period under review, GSD [Geological Survey Department] conducted inspections on 63,568 tonnes of minerals for exports upon which DOM issued Exports Permits. These exported minerals were estimated at a total value of K32,637,434,127.26 and royalties totaling to K 3,245,593,978.33. However, no export sales return was presented for audit inspection in relation to these exports,” reads part of the audit report, endorsed by acting Auditor General Thomas Makiwa.

The general performance of the mining sector’s contribution to the GDP from 2012 to 2016 was an average of 1 percent, which was contrary to the projected 20 percent.

The report recommends that the department should come up with strategies of monitoring mining companies on their minerals pricing structures to curb the malpractice of transfer pricing so as to increase its annual revenue collection.

Speaking in one of his national addresses last year, President Lazarus Chakwera admitted that despite a lot of mineral resources in country, the mining sector is facing exploitation.

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