Govt squandered diamond revenues

DESPITE complaints from government which make it appear as though Treasury did not receive meaningful remittances from diamond mining companies, it has emerged the fiscus got US$472 million from Mbada Diamonds in royalties, dividends and other taxes between 2010 and 2015. However, the money was largely diverted to fund salaries and recurrent expenditure at the expense of capital projects and the provision of social services. As a result, government has nothing to show for the money it received which could have made a huge difference in resuscitating hospitals, schools and other social amenities.

By Owen Gagare/Obey Manayiti

Mbada Diamonds generated sales totalling US$1,2 billion during the period.

The company’s financials and government payments spreadsheet, seen by the Zimbabwe Independent, reveal Mbada paid US$472 186 206,84, which was 42% of its sales value.

This story is part of our ongoing ground-breaking investigation into the Marange alluvial diamonds discovery and subsequent plunder at various stages by state and non-state actors. The special series is supported by the Investigative Journalism Fund.

The company’s sales amounted to US$1 120 888 595,71, according to the financials and the spreadsheet, which summarises total sales and payments made to government during the period.

The total includes payments made through the Zimbabwe Mining Development Corporation (ZMDC) and dividends paid in advance and through different channels reflected in the company’s financial statements and spreadsheet sometimes with information inconsistencies and statistical gaps.

For example, the company’s financials reveal that in 2011 Mbada made payments amounting to US$88 million via the ZMDC although the spreadsheet recorded US$17,5 million. The balance was an advance dividend payment to government.

A letter written by Finance secretary Williard Manungo dated March 10 2014 addressed to the then Zimbabwe Revenue Authority Commissioner-General Gershem Pasi and copied to Finance minister Patrick Chinamasa and Mines and Mining Development secretary Francis Gudyanga confirmed that Mbada and other diamond mining companies were paying dividends in advance to rescue the broke government.

“Government, through the Ministry of Mines and Mining Development, directed that diamond mining houses where the government has a shareholding should remit advance dividends in order to mitigate cashflow challenges,” Manungo wrote in his letter.

“The arrangement was premised on the understanding that government would offset the advance payments against declared dividends and the companies’ tax obligations.”

In total, diamond mining companies paid US$197 639 974 as advance dividends.

The letter highlights that in 2014 Mbada had paid an advance dividend of US$129 900 000, while the dividend declared was US$84 188 258, giving a balance of US$45 719 750, which was then channelled towards taxes, although the company was reeling from accumulated losses.

Other than royalties and dividends, Mbada also remitted resource depletion fees, corporate tax, Pay As You Earn (PAYE) and Aids Levy, marketing fees, management fees, value-added tax and prepayments and non-resident tax.
A total of US$150 544 91,80 was paid in dividends.

The company paid US$48 856 658,80 as a dividend in 2010, US$17 500 000 in 2011 and US$84 188 258 in 2014. It failed to pay a dividend in 2012, 2013 and 2015. Mbada paid US$131 381 929,37 in royalties, broken down as follows: US$21 356 170,75 in 2010; US$9 359 032,50 in 2011; US$31 811 687,37 in 2012; US$16 374 300 in 2013; US$ 48 990 829,84 in 2014; and US$3 489 908,90 in 2015.

The company has since ceased operations after government ordered all diamond miners to amalgamate in a bid to improve transparency and revenue from the capital-intensive sector. This resulted in government forcibly establishing a new entity, the Zimbabwe Consolidated Diamond Company, whose production output has been plummeting since its formation.

Mbada, a joint venture between Grandwell Holdings and state mining investment arm, Zimbabwe Mining Development Corporation’s subsidiary Marange Resources, paid a total of US$65 949 067 as corporate tax despite not paying the tax in 2014 and 2015. In 2010, Mbada paid corporate tax amounting to US$34 803 358, while in 2011 the figure dropped to US$8 158 243 before rising to US$19 886 466 in 2012.

In 2013 the company paid US$3 101 000 as corporate tax. Among other obligations, Mbada paid US$52 784 562,10 as resource depletion fees, US$22 877 251,48 as PAYE and Aids Levy, non-resident shareholder’s tax (US$$21 484 905,08) and VAT (US$15 375 852,28).

Resource depletion fees paid by Mbada in 2010 amounted to US$12 279 798,18; US$13 333 287,43 (2011); US$12 996 062,19 (2012); and US$11 905 424,63 in 2013. They fell sharply to US$1 671 360,28 in 2014 before falling further to US$598 629,39 in 2015.

This sharp decline was also seen in marketing fees where the remittances fell from an average of US$2 million between 2010 and 2013 to US$393 161,86 in 2014 and US$264 805,72 in 2015.

In terms of sales, the company raked in US$213 561 707 in 2010 before the figure rose to US$291 696 577 in 2011.
The sales peaked in 2012 when the company realised US$310 808 920. The sales figure dropped to US$202 750 013 in 2013 before falling further to US$$74 458 588,85 in 2014 and US$27 612 787,52 in 2015 before its closure last year.

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