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Illicit copper export forced govt to cancel Kilembe deal

Two reports pin Tibet Hima Mining Company on several breaches such as exporting copper without authorization and procuring goods abroad yet they are locally available, writes EDWARD SSEKIKA.

In May this year, President Yoweri Museveni ordered the cancellation of Tibet Hima Mining Company Limited’s concession agreement over copper production at Kilembe Mines.

The call for the cancellation came nearly four years after government had awarded the Chinese consortium a 25-year contract to revamp copper production at Kilembe mines in Kasese district.

Museveni reportedly questioned the work undertaken by Tibet Hima and asked the Inspectorate of Government to investigate the matter.

Following the presidential directive, Evelyn Anite, the state minister for Investment and Privatization, issued a termination notice dated June 20, 2017, addressed to Li Wei Guo, the Tibet Hima chief executive officer and chairman, informing him about the government decision to cancel the contract for the Kilembe Mines concession.

Alex Kwatampora, Tibet Hima Mining Company project manager, shows visitors some copper ore

Two reports – one an internal mines inspection report by the directorate of Geological Survey and Mines and another by the Office of the Auditor General - sealed Tibet-Hima’s fate. The reports, particularly the Auditor General’s, pin Tibet Hima Mining Company Limited of exporting copper ore without authorization and a barrage of breaches of the concession agreement.

Last year, an internal mines inspection report by the technocrats within the department of Geological Survey and Mines accused the company of flouting all the terms of the concession agreement.

“The team observed that the mining operations at Kilembe site are more of a shadow of the previous Kilembe Mines operation,” the report reads.

According to the terms of the concession agreement, the company was meant to pay an upfront signature fee of $4 million (an estimated Shs 14bn) and in addition pay an annual concession fee of $1 million (an estimated Shs 3.5bn) on each anniversary of the concession agreement to government. However, the company flouted these terms of the agreements.

The Auditor General’s report reveals that the concessionaire – Tibet Hima Mining Company Limited  – was supposed to inject in $175 million (an estimated Shs 600bn) in the first three years of the project, focusing on producing of at least 4.5 million tonnes of ore; construct a copper wire factory and rehabilitate Mobuku 1 hydro power station and expand its capacity from five megawatts then to at least 17.6 megawatts. The report reveals that the company did not comply with any of these terms.

“Audit further noted that whereas the concessionaire committed to invest minimum capital expenditures totaling $175m by December 2016, there is no evidence that this amount has been invested despite the concessionaire’s claims to have invested $51.285m. Since the concessionaire had never submitted any investment plan, financial statements and details of investment made it difficult to verify the claimed investments,” the Auditor General notes in the report.

EXPORT

In addition to flouting the terms of the concession agreement, the Auditor General pins Tibet Hima Mining Company Limited on exporting copper concentrate without authorization.

“I further observed heaps of copper concentrate at the mining site ready for export. However, the concessionaire did not present any export permits to export the copper from the ministry of Energy and Mineral Development. I advised management to pursue the matter with the relevant authorities to avoid loss of government revenue,” the report reads.

The company also failed to provide an unconditional exploration bank guarantee by July 2014 and the audit also found that the concession fees amounting to $1.7 million were outstanding as at June 30, 2016.

The audit further observed that Tibet Hima Mining Company failed to maintain assets handed over by Kilembe Mines Limited to the company, despite the concession agreement proving for maintenance of such assets. For instance, the audit found residential houses which have been occupied by the concessionaire had not had a coat of paint since 2013, and that government had not received any rental from the concessionaire.

“Failure to maintain the residential houses will cause dilapidation and the non-payment of rentals denies government revenue,” the report reads.

The report also pins Tibet Hima on procuring basic goods locally available from abroad, much as such goods were supposed to be procured locally.

“Contrary to the concession agreement, the concessionaire procured most of the goods and services abroad, including locally available items such as writing papers, lamp holders, plastic pipes and electrical sockets. The implication is that THMCL denies Ugandans economic benefits from the project,” the Auditor General notes in the report.

EMPLOYMENT TERMS

Under the concession agreement, Tibet Hima was required to identify and employ former employees of Kilembe Mines Limited (KML) it considered crucial to their operations.

The former employees of KML were to be employed on more favourable terms than the previous ones. However, the audit report reveals that Tibet Hima instead downgraded the terms of employment.

For instance, the audit report reveals that the terms of employment changed from permanent to contract while working hours from 40 hours a week to 48 man- hours a week without improved pay.

In addition, much as medical insurance was maintained, it was restricted to only two biological children instead of four previously provided by KML, and further restricted to Kilembe Mines hospital.

Additionally, clause 9.5 of the concession agreement makes provisions for the concessionaire to make arrangements for a clean and safe pipe-borne water system for all houses, a term that was not complied with.

“The concessionaire has not yet treated water supplied to the estates and this therefore causes a threat of sickness for people residing in the estate,” the report reads.

The Auditor General also faults the concessionaire for failing to prepare and submit periodic reports like quarterly operating reports, annual environmental audit reports, among others.

According to the audit report, the concession agreement confers an obligation on Tibet Hima to install, maintain and use modern health and safety equipment during operation and provide staff with safety gears. However, the audit found that workers worked under ground without safety gears. The lack of safety gears had at least caused the death of two workers.

“In addition, Tibet Hima Mining Company Limited deploys workers serving on casual terms which contravenes the Mining Regulations,” the audit report reads in part.

WINDING UP COMMISSION

Following the cancelation, last month Anite announced a five-member commission to officially wind up Tibet Hima Mining Company in accordance with the concession agreement.

The commission is headed by Noah Mwesigwa, a city advocate. Other members include Agnes Alaba from the Ministry of Energy and mineral Development, Joselynne Ategeka from the ministry of Finance, Planning and Economic Development while the concessionaire has appointed Li Wei Guo and Bi Lei as its representatives on the winding up commission.

It is expected to officially bring Tibet Hima to an end after settling its liabilities. Anite says all government assets are protected during the winding up process.

“I have tasked Kilembe Mines Limited that is on site to be more vigilant in their supervision of Tibet Hima, and to ensure that any suspected asset stripping is prevented within the confines of the law and the concession agreement.

When the concession is terminated lawfully under the provisions of the agreement, all licenses will be automatically revoked and will revert back to government,” she explains.

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