Eye on Malawi extractives

July 26, 2017

Baldwin Chiyamwaka,

At the end of April, Moore Stephens submitted the final version of Malawi’s first Extractive Industries Transparency Initiative report to the Multi-Stakeholder Group. Over the last two months I have shared the top ten insights I gleaned from the report and 10 questions I have after reading the report. In the final column in this series, I explore ten recommendations made to improve our natural resource management.

These recommendations are based on the report and all government entities as well as representatives from private sector and civil society had a chance to comment on the report.

Department of Mines should monitor minerals produced at each mine

‘Data on mining production is unreliable’ because the government depends on company declarations and the Department of Mines database had ‘significant gaps’. The Department of Mines needs its own procedures and system for collecting and monitoring production data especially because it affects the payments companies owe government, such as royalties.

Improve licence register and publicly-accessible data on extractive industries

The Department of Mines is introducing a cadastre, which is a great development if managed well. However, at the time of data collection (three months ago), there was no integrated system or system to share information between the Malawi Revenue Authority (MRA) and the Department of Mines on companies that hold a licence. As a result, several licence holders have not registered with MRA. Some of the licence holder names were written incorrectly in the Department of Mine’s records and for several licence holders contact details were not available or up-to-date.

Some information from the cadastre is already online, but the Department of Mines website has not been updated since 2014. According to the Malawi Extractives Industry Transparency Initiative (MWEITI) report, the tax payer identification number was not included alongside the companies in the register, the status of a licence did not always reflect reality, and some licences were not included. For example, Mota-Engil Engenharia is reported to hold an active licence ML0205/13 in Bunda, but the licence was not included in the cadastre.

Publish statistics and information on the extractive industries

Again, another recommendation on data and information. The MWEITI Independent Administrator had to primarily rely on the government’s Annual Economic Report, but some of the information – such as on employment – was from an outdated report. It was even more challenging for forestry because it is grouped with agriculture and fisheries in terms of its contribution to GDP. To improve this, the responsible departments in coordination with the MWEITI Secretariat should update annually information on ‘the industry potential, the contribution to the economy, the strategy for the sector, relevant events and facts, current regulations and upcoming changes, amongst others’.

Decentralise cadastral system for the Department of Forestry

The Forestry Cadastre Administration System was introduced in 2013-15 to ensure all forestry rights applications and their subsequent approval, associated payments and monitoring are managed electronically. At present, this is only being used for export licences and permits at the Department of Forestry’s headquarters. Regional and plantation offices need to be linked to the system to ensure licences, certificates, agreements, permits, rights, and payments all go through the system. If this is done, data would be available from across offices and Malawi’s plantations.

Update the 1983 Petroleum (Exploration and Production) Act

There are many reasons this legislation should be updated and to its credit the Government has restarted the process of developing a Petroleum Policy ahead of a review of legislation. In the meantime, challenges remain, including Section 78 that stipulates royalties may be paid in kind at the discretion of the Minister.

Make the awarding process for licences more transparent and robust

Significant discretion lies with the Minister to award and allocate rights to solid mineral, petroleum, and forestry resources. The legal framework does not include technical or financial criteria to assess applications against and there are no requirements to award contracts through a tendering process or to advertise requests for proposals (the much awaited Mines and Minerals Bill addresses this). The Petroleum Act in particular does not provide conditions or minimum requirements and does not regulate contents of agreements. The legal framework should include model agreements for all resources as guidance. The government currently has a draft, incomplete model Production Sharing Agreement for petroleum although three agreements have already been signed for half of the petroleum exploration blocks in Malawi.

Improve Department of Mines and Forestry’s collection of revenue

Government may be losing revenue because of shortcomings in control and monitoring that may lead to tax evasion. As an example, the report says that Mota Engil Ltd has over eight mining licences and pays royalties on only one because it is exempt on non-commercial licences used for government infrastructure projects, such as road building. However, the Department of Mines ‘has no means of ensuring which quarried products are being sold for commercial purposes from those being sold for Government projects’ use’. To improve this, the Department of Mines should carry out a desk review of all ground rent payments that are outstanding, enquire about non-payment of royalties on active licences, perform spot checks to review level of activity and assess genuineness of declarations made by companies, and annually audit amounts declared. In the forestry sector, the Director of Forestry can waive fees or royalties, which may lead ‘to a lack of traceability, transparency and accountability’. Instead, a committee, made up of representatives that have no direct connection to the forestry sector, should oversee a decision to give a waiver.

Apply good accounting practices and carry out bank reconciliations

5,900 and 11,300 receipts were reported by the Department of Mines and Forestry, respectively. All of these are stored manually and there were some weaknesses as a result. In some instances, the receipts did not include the identity of the person/entity making the payment. The Department of Forestry reported total revenue of MWK 1,286,783,000 but was unable to provide details of taxpayer names for payments amounting to MWK 342,419,653 (about one quarter). The departments need to make sure accounting records are updated on a daily basis and reconciled with bank accounts – any discrepancies found must be investigated and resolved.

Improve our implementation of the Extractive Industries Transparency Initiative

To ensure accuracy of the data companies and government submit, the revenue information should be certified by an external auditor or the Auditor General. This certification was not done for most companies and all government entities. All government entities submitted information after the MWEITI deadline and the MRA and Department of Mines were not able to respond to queries raised in the reconciliation in part due to capacity and system shortfalls. The report points out that MRA’s lack of reported payments was because the relevant receipt could not be traced, the receipt had been issued manually but the system had not been updated, or the receipt was ‘simply unavailable’. Almost one-quarter of the 23 companies did not comply and another quarter submitted their information late. This can also be attributed to the short timeframe given to entities to report and points to the need for improved and consistent engagement by the MWEITI Secretariat with all stakeholders.

Introduce EITI reporting regulations

EITI reporting is voluntary, but many countries have made it mandatory. MWEITI is exploring how to do this at present. It should include placing obligations on extractive companies and government entities including the level of disaggregation of data, realistic time frames to submit information, and sanctions for non-compliance or false declarations, such of taxes or production volumes.

Take a look at Malawi’s first EITI report here.

The writer: Rachel Etter Phoya is a mentor of the Open Contracting Programme in Malawi and owner, Mining in Malawi. The article was originally published on the EITI website