Category Archives: Corruption

Another ‘world class’ mining company in a corruption scandal

Glencore shares drop nearly 7% on report of SFO probe

Henry Sanderson | Financial Times | May 18, 2018

Shares in Glencore fell by their most in almost two years on Friday after a report said the miner may face a bribery probe by the UK’s Serious Fraud Office over its ties to Israeli billionaire Dan Gertler in the Democratic Republic of Congo. 

The SFO is planning to seek formal approval for a probe into Glencore’s dealings in the country with its former business partner Mr Gertler, Bloomberg News reported. Mr Gertler was sanctioned by the US in December for his “opaque and corrupt mining and oil deals,” in DRC. 

Mr Gertler previously owned stakes in Glencore’s two key projects in the resource-rich country, before Glencore bought him out for $960m in 2017. 

Glencore shares fell 6.8% per cent to 370.75p after the news. 

The reported possible probe is the latest setback for FTSE 100 member Glencore over its activities in the DRC. Last month the country’s state-owned miner Gecamines launched legal action against the company seeking to dissolve its joint venture Katanga copper mine, saying Glencore had drained it of money. 

Mr Gertler has also taken Glencore to court saying he is owed almost $3bn in royalties from its mining projects under previously agreed contracts. 

The SFO said it could neither confirm or deny the Bloomberg report. Glencore declined to comment. 

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Transparency Initiative report calls for improved systems in extractive sector in Papua New Guinea

Sources of revenue from extractive sector to government. Source: EITI

Business Advantage | EMTV | 4 April 2018

The 2016 Papua New Guinea Extractive Industries Transparency Initiative report has found that improvements are being made to registry and payment systems in Papua New Guinea, but more needs to be done. It notes that budgeting for government revenues remains difficult because of the resources industry’s volatility, and the relatively small number of companies paying full tax.

The EITI report, which is produced by Ernst & Young, says that ‘in some cases, the absence of a robust system for managing government revenue payments in PNG leaves the system vulnerable to fraud, corruption, and human error.’

It found that the problem of transparency is amplified when payments to sub-national [provincial and district] governments are taken into consideration, noting that the Asian Development Bank has called for greater transparency in sub-national government resource revenue flows.

Budgeting

Budgeting for government revenues, the report says, from the extractive sector is ‘complex due to the revenue being subject to fluctuations in quantities produced and global commodity prices’.

A further issue is the high number of extractive companies that have some form of tax exemption.

‘Medium-term projections anticipate that corporate income tax (mining and petroleum tax) will come mainly from Ok Tedi, Porgera and the oil fields.

‘The Ramu Nico mine has a 10-year exemption from corporate income tax. The Lihir mine continues to undertake high capital expenditures which reduce its taxable income.

‘Low LNG prices, together with an accelerated depreciation allowance, means there may not be corporate income tax from the PNG LNG project.

‘In addition, key mines are claiming Infrastructure Tax Credits (ITCs).’

PNG oil and gas production. Source: EITI

Recommendations

The EITI report makes a number of recommendations. One was the implementation of a reliable electronic registry system to supersede the current paper ledger system.

The report noted that scanning of all documents has begun, but it will require additional resources to adhere to the EITI Standard.

‘The Department of Petroleum and Energy will need to provide information regarding licences awarded and transferred in previous reporting periods.’

Another recommendation has been that the Mineral Resources Development Company (MRDC) reports on the equity distribution and all other funds it holds in trust and invests for the landowners and for future generations.

It notes that there has been better information on payments and receipts, especially from the MRDC.

Making electronic payments, rather than using cash or cheques, is identified as a priority. The lack of a ‘robust system for managing resource payments leaves the system vulnerable to fraud, corruption and human error,’ the report says.

‘There were specific financial instructions from the Finance Minister for government agencies to heed this change and transition into electronic payments system where possible.’

Two other areas of focus are improving reporting on sub-national payments and ensuring that Memorandums of Understanding (MOAs) are made public.

Positive prospects

The EITI report says the medium-term economic outlook for PNG ‘remains positive, with foreign investments in the pipeline’.

It anticipates 2.8 per cent GDP growth in 2018, pointing to:

  • A gradual pick-up in the global economy, which is expected to boost commodity prices and stimulate activity in sectors outside resource extraction.
  • Increased output in mining.
  • Forecast growth in agriculture, forestry and fishery output of 3 per cent, with increases in both price and production.
  • PNG’s hosting of the Asia-Pacific Economic Cooperation Leaders’ Meeting in 2018.
  • Legislative changes introduced on 1 January 2017 on taxation of the extractive sector.

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Metal Mining Would Be Disastrous for Haiti

Salvadorans protested against mining outside the Legislative Assembly in San Salvador in 2017. El Salvador’s Congress recently approved a law that prohibits mining for metals, on the grounds that it is an industry that creates negative impacts on the environment and on people’s health. Credit: Marvin Recinos/Agence France-Presse — Getty Images

Ellie Happel* | New York Times |  March 29, 2018

After the 2010 earthquake killed more than 200,000 people and displaced more than a million, the government of Haiti identified mining for gold and other metals as necessary to strengthen the economy.

To that end, the government and the World Bank worked to revise the country’s mining law to attract foreign investment. Their draft law, which was presented to Parliament last July and is awaiting consideration, did not include input from Haitian environmental and human rights organizations.

The lack of transparency surrounding the proposed new mining law raises significant concerns about whose interests would be represented under the revamped legal framework. Canadian and American companies have already been granted permits to explore for gold, copper and other metals in the northern hills of Haiti. Although the full extent of Haiti’s mineral resources is unknown, some estimate that there is $20 billion worth of precious metals in the soil. If passed, the law would pave the way for country’s first commercial metal mine.

The experiences of poor but resource-rich countries around the world provide a stark reminder that translating natural resources into public wealth is a very risky business — one that often fails. Even in developed countries, industrial-scale mining has contaminated water, increased security threats, forced thousands of people from their homes, and damaged ecosystems for generations. In poor countries like Haiti, the record is even worse. Given the unique vulnerabilities it faces, mining could deal the country’s environment and economy a blow from which it would never recover.

Haiti is arguably the most environmentally damaged country in the Western Hemisphere. This damage is a consequence of environmental mismanagement, counterproductive foreign investment and anemic public institutions. The government has shown that it is unable to either prepare for or repair the destruction wrought by hurricanes, droughts and earthquakes. In fact, it has been unable to provide basic services to its citizens even in the absence of natural disasters: More than half of rural residents do not have access to safe drinking water.

In this densely populated country where both housing and land for farming are scarce, a majority of Haitians live in crowded cities, or in rural areas far from schools, hospitals and other services. Opening a mine would displace hundreds, if not thousands of families from their homes in the areas where the mines are expected to be built.

The government lacks the resources and the will to defend the interests of ordinary citizens. Officials from the Office of Mines and Energy told me that they visit communities where companies have explored for gold only when provided a ride in a company vehicle. Without regulation, international companies have shown that they have little incentive to think beyond their profits.

This country has long been plagued by corruption. Last year, a Haitian Senate report accused former government officials of embezzling more than $2 billion from PetroCaribe, a Venezuelan oil fund. Transparency International ranks Haiti as the second most highly corrupt country in the Americas. The divide between the rich and the poor in Haiti is extreme, and the poor majority struggles to hold the government accountable. More than 90 percent of schools are privately run.

El Salvador may provide a path forward. A year ago, the legislature there voted overwhelmingly to prohibit metal mining. The residents of areas rich in metals argued that their country was too densely populated and already too environmentally degraded to absorb the damage that would result from mining. El Salvador is the first country in the world to impose a ban on metal mining.

This precedent set by El Salvador should encourage other nations to hold inclusive debates about the costs and benefits of metal mining before allowing their nonrenewable resources to be dug up to the detriment of the many for the benefit of the few. In Haiti, a coalition of social movement organizations, the Kolektif Jistis Min (Justice in Mining Collective), is calling for just that: a national debate about the effects of mining before any mines are built. The collective, with which I have collaborated for more than five years, has taken a vocal position against metal mining, and is calling for the legislature to reject the draft mining law that it appears poised to pass.

Metal mining in Haiti will bring profits to the few and more misery for the masses. Haitian legislators should heed the example of El Salvador and listen to the voices of their own people who are cautioning against mining and demanding less destructive and more inclusive development.

*Ellie Happel is the Haiti Project director for the Global Justice Clinic of New York University School of Law.

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PNG’s LNG Province risks falling into the hands of criminals – police

Papua New Guinea police say they are losing control in Hela Province which is at the epicentre of the Exxon-Mobil LNG project. Photo: RNZ / Johnny Blades

Radio New Zealand | 22 March 2018

Papua New Guinea’s Hela Province is at risk of falling into the hands of armed criminals, local police say.

The Post Courier reported Western Highlands police commander Martin Lakari as saying the provincial capital Tari was a “battle field” where there was no respect for law and order.

Tribal enemies in the province have reportedly been searching and murdering each other in the capital, and police officers have become targets when they try to enforce the law.

On Friday, a ward councillor was brutally shot at close range and killed in front of a large crowd outside an illegal gambling house beside the airport.

During the same day, a young woman was gang raped by armed men who had set-up a roadblock in Tigibi along the Highlands Highway outside Tari.

Mr Lakari called for immediate intervention by the police hierarchy and Government or he says criminals will take total control of the province.

Hela was one of the worst hit provinces when a 7.5-magnitude earthquake struck in February.

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Independent mining consultant questions Papua New Guinea government role as both shareholder and regulator

Mining consultant Jerry Garry (centre) on site in Sierra Leone. Source: Jerry Garry

Kevin McQuillan | Business Advantage PNG | 20 March 2018

To remain impartial, the Papua New Guinea Government should not be a shareholder, but only maintain regulatory oversight of mining projects, according to geologist and mining consultant, Jerry Nombri Garry. He tells Business Advantage PNG there are other ways for the country to derive healthy revenues from mining projects.

Simbu-born Jerry Garry has worked in some of the toughest mining environments in the world: Indonesia, Sierra Leone, Tanzania, Afghanistan—and PNG.

After returning home in 2013 to work as Country Manager for Crater Gold, he describes the PNG mining industry as ‘mature and operates upon a very stable regulatory framework and friendlier tax regime compared to other jurisdictions.’

But he believes some regulatory processes and legal requirements require fine-tuning to ensure that projects are established quickly and provide fair and equitable revenues.

He argues that in the interests of impartiality, the government should only play a regulatory role.

‘Government participation underpins confidence in the developer and financiers.’

‘Whenever the state exercises its option to acquire a portion of the allowable 30 per cent equity in any mining project, it automatically becomes a player.

‘Government participation underpins confidence in the developer and financiers; [adopting a] dual role as operator/regulator can compromise enforcement of the laws and regulations.’

Revenues

The aim, he says, is to maintain healthy revenues for the country.

Solutions could include negotiating increased royalties on a sliding scale at different benchmarks; introducing the compulsory participation of state-owned enterprises (SOE) in mining projects (e.g. PNG Power); or reserving a reduced equity percentage for PNG-based entities (such as super funds and investment companies).

‘The benefits of extinguishing equity participation, will not only promote impartiality, but safeguard the state from unnecessary debts and debt financing, and commit itself fully to the service delivery obligations.’

He points out there have been many missed opportunities associated with the extractive industries.

‘For example, PNG Power/Elcom [the former PNG Electricity Commission] missed out completely on power generation and the distribution business in mining projects.’

PNG Power could now have double its installed capacity of 300MW, if it had been involved at mines like Bougainville (135MW), Ok Tedi (110MW), Porgera (75MW) and Lihir, (56MW), he observes.

Opportunities

Some new opportunities are emerging, he says, listing Frieda River (estimated at about 150MW) and Wafi-Golpu (estimated at more than 100MW).

‘SOEs must re-think their business model, by expanding their capacities through direct participation in the extractive industries, rather than increasing tariffs as a business profitability norm.

‘The onus is on the government to draw a national master plan for infrastructure (e.g. roads, power) that meaningfully connects all major natural resource areas.’

In doing so, shared-use infrastructures can be jointly funded by mining project and Government under Public-Private-Partnership (PPP) arrangements and foster sustainable economic growth.

Simbu born

Born in 1967 in the Gumine District of Simbu Province, Garry was raised in a rural setting. He completed high school at Kabiufa SDA in Eastern Highlands Province.

What attracted Garry to geology were stories from an older student about his helicopter adventures and the job potential associated with the course.

After graduating in 1990, the Ok Tedi mine employed him under their Graduate Development Scheme and sponsored him to complete his Honours degree at the University of Ballarat, near Melbourne, Australia.

‘Field geology is fun, because you always get to see new places, people, rocks and minerals.’

Negotiation skills

One of those places was Sierra Leone. When he arrived, in 2001, the country was going through a disarmament phase after a 10-year civil war.  It is there he nurtured his negotiation skills.

‘Crafting the right balance in our negotiations for access, and to re-gain trust from each chiefdom, were crucially vital survival skills.

‘The country was devoid of its experienced and skilled mining workforce.

‘Mentoring young national graduates, from basic survival skills, to exploration and mining techniques, gave me a sense of usefulness.’

He was excited by the challenge to understand West African mineral potentials including diamonds, banded iron ore formations, rare earth elements and Archean gold deposits.

From Sierra Leone, Garry moved onto Tanzania, where, as General Manager for Savannah Diamonds, he commissioned a dense media separation plant and ‘x-rays flowsort’ to recover macro-diamonds.

In 2009, he went to Afghanistan, where he was involved in nation-building and restoration programs, including rewriting the country’s mining laws.

‘We trained the entire geological survey staff and guided more than 20 intelligent, young Afghans for post-graduate studies in Japan, India, the UK and US.’

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Resource owners welcome industry removal from MRA Board

Resource Owners Have Thanked The Government For The Many Laws That Give Rights To Them In The Country.

Post Courier | February 23, 2018

The Resource Owners Federation of Papua New Guinea, which has been campaigning for the removal of the industry representatives from the board of the Mineral Resources Authority (MRA), is pleased with the government for finally amending the Mineral Resources Authority Act 2005, to remove the mining industry representatives from the board of the authority. The presence of the mining industry representatives on the board of the MRA had caused the public to distrust the Authority and its decisions, even if those decisions were proper.

MRA is the State’s regulatory institution, whose function is to administer the mining laws of PNG.

Federation President Jonathan Paraia said it was utterly improper and unlawful for representatives of the industry, who are the subjects of the mining laws to have had a hand in the enforcement of the laws against themselves for the last seventeen years or so. He said their presence has been an impediment to the rule of law being applied impartially in the mining industry.

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East Sepik governor dispatches police to arrest rogue miners

Radio New Zealand | 21 February 2018

The Governor of Papua New Guinea’s East Sepik province has dispatched police to detain a company looking to mine without landowner approval.

Allan Bird, who was elected six months ago, said he was trying to improve the governance around resource extractive projects in his province.

He said his administration was ready to support landowners in any action they would like to take in protecting their traditional tribal land.

“Two days ago we had a ship go up the Sepik river with all kinds of equipment to go and mine a gold mine somewhere up in Angoram, in a place called Keram LLG (Local Level Government area). The landowners came and complained.

“Today I dispatched 15 police officers to actually go there and arrest these people and bring them to Wewak and we can figure out what’s what.”

Mr Bird said he checked with PNG’s Mining Minister about the Keram mining concern who didn’t know anything about it.

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