The devil in the mining deal

The development agreement deal which Malawi government signed with Paladin in 2007 has been singled as a fundamental reason behind Malawi’s failure to benefit from its uranium. Today, new thoughts keep emerging on how Malawi can improve on its mining negotiation processes. In this second part of the mining series, I look at the viability of these thoughts.

The deal, after being signed in 2007, was locked in government’s shelves and kept silent. Even Parliament, the very institution put in place to provide checks and balances to the Executive, was kept in the dark. It was only the Executive in the know.

What, really, was in this development agreement that Malawi government—led by the then Finance minister Goodall Gondwe and Energy and Mines minister Henry Chimunthu Banda—signed with Paladin Limited (PAL)? That was the question that begun to generate public suspicion, eventually, leading to uproar from civil society organisations (CSOs).

Led by renowned voice on mining, Rafiq Hajat, CSOs, as a result, took litigation against government for entering an ‘agreement with Paladin without due regard for the interests and aspirations of local communities in particular and of Malawians in general’.

Though the differences between CSOs and government led to an ‘out of court settlement’ deed signed on 1st November 2002—something which outlined specific corporate social responsibilities that Paladin was bound to do for people in Karonga, the development agreement was still kept silent.

Review Paladin agreement

Three years after Paladin commissioned mining of uranium in Karonga, the voice that Malawians are not benefiting from their uranium began to get louder. The voice became too loud that it resurrected the development agreement debate which, by then, was still kept silent.

The wisdom was that Malawi’s failure to benefit from its uranium could be a result of a bad development agreement it signed with Paladin. Interestingly, it was not CSOs, this time, raising these questions——it was Parliament.

For instance, in August 2012, Malawi Congress Party (MCP) legislator for Lilongwe Msozi South Vitus Dzoole Mwale asked government to review its mining agreement with Paladin.

“Looking at the way the mining agreement was made, it was clear that government was losing a lot of revenue through the project,” he said.

In what was quite a surprising move, the then governor of the Reserve Bank, Dr. Perks Ligoya also joined the fray.

He was quoted in the media saying: “government went into agreement [with Paladin] ignorantly and made concessions which Paladin does not have in other countries where they are operating.”

Convinced that their government signed a bad development deal with Paladin, Malawians started to demand renegotiation of the deal. But the then minister of Energy and Mines, Cassim Chilumpha and Paladin general manager, Greg Walker, laughed off the demand and argued ‘the deal is non-negotiable’.

Lessons and opportunities

Again, the Kayelekera experience has given Malawi another opportunity to reflect on the fundamental importance of negotiating a reasonable development deal with mining companies before they commission extraction.

But why, in the first place, did Malawi fail to negotiate a better deal with Paladin?

There could be a number of reasons ranging from inexperience to excitement at the hands of those who led the Malawi team.

But fundamentally, as argued by Dr Mwiza Nkhata, dean of law at Chancellor College, a country that wishes to benefit optimally from an extractive activity such as mining must have a legislative and policy framework that is deliberately structured to respond to all possible challenges in the process. He adds that this ensures that benefits from the industry are equitably realised.

“The danger in Malawi’s case is that an obsolete legislation and weak policy framework weakens the country’s bargaining position in its dealings with potential investors,” he says.

The 2007 Kayelekera development deal was negotiated under the legislative direction of the 1981 Mines and Minerals Act. There was not even a mining policy then.

Although the 1981 Act still has some useful provisions, there appears to be a general agreement that it does not have the needed muscle.

“You must look closely at the Act but you must also strive to read the statutes bearing in mind the imperatives that the Constitution, the supreme law of the land, has established for governance in the country,” says Nkhata.

Control over all minerals

He adds that the first thing to note is that the entire property and control over all minerals in Malawi is vested in the President on behalf of the people of Malawi.

“In the same vein, it must be recalled that the power to govern in Malawi is derived from the people and must be exercised to serve, protect and promote their interests. “Additionally, the Constitution enjoins the establishment of a governance system that will guarantee accountability, transparency, personal integrity and financial probity in the hope that this would enhance public confidence in public institutions.

“There is thus little justification for keeping the dealings between prospective corporations working in the extractive industry and the Malawi Government secret. These dealings are supposed to be negotiated to promote the interests of the people of Malawi,” he said.

Hajat argues that the Act does not provide for prior consultations with stakeholders in observance of local ownership and the corresponding need for inclusivity before unilaterally granting mining concessions and signing development agreements with potential investors.

“The system used in assessing and granting approvals for applications for prospecting and mining licences and also in signing development agreements still vests too much power in ministerial discretion.

“It does not provide for broad-based consultations with stakeholders such as civil society, traditional authorities and professional bodies, augmented by inclusion of parliamentary scrutiny and oversight roles in the appraisal of mineral extraction applications of national significance,” he says.

New Bills

Against these concerns, government is in the process of reviewing the 1981 Minerals and Minerals Act so that it fills the gaps regarding negotiating development as seen from the Kayelekera experience. However, experts fear that they could be a missed opportunity in the process.

For instance, a 2013 study by the Norwegian Church Aid titled Malawi’s Mining Opportunity: Increasing Revenue, Improving Legislation reveals that the 2013 draft Mines and Minerals Act still does not provide the need for government to make public individual mining agreements.

Despite this, in his State of the Nation Address, President Peter Mutharika—though the new draft bills gives power to the Office of Commissions of Mines to negotiate development agreements—said his government will establish an independent contract negotiating unit in the extractive industry to ensure that mining contracts are properly negotiated to maximise benefits for the country.

Mutharika’s pronouncements come after major donor countries at the Group of Seven (G7) Summit in Brussels announced that they would unveil a new initiative dubbed Strengthening Assistance for Complex Contract Negotiations (Connex) aimed at strengthening the ability of developing countries’ governments to negotiate complex contracts, particularly around the extractives sector.

In an interview with The Nation weeks ago, Hajat welcomed the President’s idea but underlined that before the unit is established, there is need to ensure that the legal framework is harmonised and capacity beefed up to ensure that Malawi bargains for the best deal.

“There is need for capacity on the part of government to monitor the operation of mining companies, civil society organisations to ensure that the promises and pledges [made by mining companies] are being met,” said Hajat.

The Natural Resource Justice Network (NRJN), a group of CSOs that speaks on mining, however, proposes the need for Malawi to have a Mineral Development Corporation to consist of representatives of key government departments such as mines development, environmental affairs, finance, economic planning, lands, geological survey, civil society representative, law society and accountancy body.

“The corporation should have a board of directors, chief executive officers and management and again, it should be provided with functions which are mainly facilitating development, including investment decision making; negotiating mining agreements and setting the requisite investment targets and monitoring,” says Renfold Mwangonde, spokesperson for NRJN.