24 Mar 2013

On the eve of China’s new President’s visit to Tanzania, which starts tomorrow, March 24th, I thought I would need to share my views on those topics and issues I would like to advise our government to put on the table in our negotiations with Mr. Xi Jinping and his government delegation as the trip offers a unique chance for our leadership to raise those subjects which could significantly improve our countries’ relations and make our cooperation a really win-win one instead of the current situation in which Tanzania stands at the receiving end of the so-called Chinese investments into our country while what we have, have offered or could offer in exchange was supposed to give us a bigger say in demanding a larger cut from what we are contributing in the current Sino-Tanzanian economic relations. Even though we have a wide range of areas of cooperation with China, but I thought I would need to limit myself to two very important and huge, by the financial resources involved, projects which I believe our government must raise and renegotiate with Mr. Xi during his current visit to Tanzania. The two projects are the following:

1.     The Songo Songo – Dar Gas Pipeline, which is being financed by a loan of 1 billion US$ from China;

2.      The Liganga Iron Ore and Mchuchuma Coal deposits, which are to be exploited by the Chinese in joint venture with our NDC.     

The Songo Songo-Dar-Es-Salaam Gas Pipeline & the Liganga Iron Ore and Mchuchuma Coal Projects – A Critique

A lot has been written about the pipeline project in which it is reported that the Chinese have extended a loan of US$ 1 billion (read) at a supposedly fair interest rate and terms to our government (at least this is what we hear from our govt.) in which our government has guaranteed repaying back the loan as well as supplying China with gas on top of this. While not intending to go into details of the modalities of the loan agreement since I do not know them other than reading about the purported irregularities, kickbacks and other corrupt dealings supposedly committed by Tanzanian govt. officials who took part in negotiating and signing the loan agreement (these accusations against the govt. appeared at the time of the mass Mtwara and Lindi residents’ demonstrations early this year - read), however, what disturbed me most is the way the Chinese seem to have structured the deal in which it appears as if the loan for the pipeline was extended to our country only under the condition that we also give the Chinese in addition a second set of projects on mining of our iron ore and coal at Liganga and Mchuchuma, respectively. This issue is disturbing due to the fact that the estimated reserves of our iron ore and coal at the two mentioned sites are equated to amount to 200-1200 million metric tons of iron ore and 480 million metric tons of coal reserves - read. Taking the lower, conservative end of the iron ore reserves as the basis of our calculation (at the current market price of approx. 130 US$/Metric Ton), this gives us the conservative value of our iron ore deposits at Liganga at 26 billion US$ (it could be upto 6 times more, i.e. 156 billion US$ if we take the maximum figure of 1200 million metric tons given), while the coal reserves of 480 million metric tons would be valued at approx. 28,8 billion US$ {at the current conservative price of approx. 60 US$/Metric Ton (also readhere & here)}. So we have a total of about 54,8 billion US$ of mineral assets, at conservatives estimates, at both Liganga and and Mchuchuma. Now when the Chinese demand that we give them these assets in exchange for a loan of 1 billion US$, i.e. lodge our assets worth 54,8 billion as collateral to get a loan of 1 billion US$ for construction of the Songo Songo-Dar gas pipeline, a loan amount equivalent to 1,8% of the value of our assets, I wonder how can we call this a win-win situation, moreover that our government had to also issue a State guarantee for the loan, the pipeline has also to be mortgaged in favour of the Chinese till we fully repay the loan and  on top of this we are also supposed to guarantee future gas supplies to China, not to mention the fact that the Chinese are also to majority own our iron ore and coal reserves as specified by their agreement with NDC in which they will be owning 80% shares, with NDC owning the rest 20%. We also know that the Chinese have committed, in return for owning the 80% shares, to also pump in 3 billion US$ to fund exploitation of the mentioned mineral reserves – read! The US$ 3 billion equals approx. 5,5% of the value of the mineral reserves concerned and be informed, and this I’m talking from my own practical professional expertise and experience, that this money, i.e. 3 billion US$, the Chinese won’t be spending from their own funds or sources but will raise by collateralizing those OUR iron ore and coal deposits! Such types of relationships cannot be called win-win at all, a practice the Chinese and many foreign companies are good at and of which they are being regularly accused of applying in their dealings with African countries hence shortchanging these countries and condemning them to endless poverty – read of such an accusation against the Chinese on Democratic of Congo minerals – pay particular attention to the yellow-shaded part. I, too, just recently strongly criticized similar contracts vis-à-vis our hydrocarbon (oil and gas) reserves in the Ruhuhu Basin in southern-western Tanzania (read), natural gas deposits in southern Tanzania (Mtwara & Lindi), Tanzanite deposits in Mererani, Arusha – read here & here, to name just a few. By the way, the Chinese tactic of demanding several contracts as a package like the one of Gas Pipeline Loan Extension together with Iron Ore and Coal deposits have been well documented and it’s not the first time they have tried to use it in Tanzania and elsewhere in Africa. If you well remember, I once wrote you about the Chinese demanding that they be given our Mwadui Diamond Mine in a package so as to agree to also finance our problematic national airline, ATCL, in which after being refused to be offered the Mwadui project, the Chinese (using Angola’s SONANGOL) pulled out altogether from the project to finance the national airline - read here. The Chinese also tried to use a similar scheme in 2007 when China International Fund promised to construct a building terminal at the Mwalimu Nyerere International Airport in Dar-Es-Salaam as part of a project to extend the country's main airport - read here – after which they not only did not build the terminal building, but used their entrance into Tanzania through this particular project to secure licenses to explore two oilfields in the Lake Rukwa basin in south-west Tanzania.

I have mentioned the above tactics the Chinese usually use to get hold of our mineral resources and also as a way to raise funding for their projects (gas pipeline, ATCL, building terminal at Mwalimu Nyerere Airport) since I’m made to believe that it seems as if our govt. and the country’s leadership does not know that, we, as a country, could carry out ourselves the same operations the Chinese are doing to raise funding while retaining for ourselves majority ownership of our minerals and only CONTRACT the Chinese or any other foreign companies to do the job for us for a pay whilst the ownership of the mineral assets, which acts as the major and fundamental source of tapping and raising capital, remaining in the hands of our govt. and country. The way we have allowed the Chinese (read), the British (read) or Australians (read) to fully (100%) or majority own our mineral assets has lead us, as a country, to fail to own and decide on the strategic exploitation and development of these deposits and this has, among others, denied our country its single most important source of tapping and raising huge capital and creating wealth from our own assets thus making it impossible to fund and build the huge infrastructures the country needs in order to develop (including the Songo Songo-Dar Gas Pipeline) from our own funding sources as well as failing our people including those who recently demonstrated in Mtwara, Lindi and elsewhere in the country to make them feel that they will indeed economically and financially benefit from their mineral resources. In order to give you a measure of how minerals resources could be used to really enrich the country whilst also allowing the mineral-rich country to retain majority or full ownership of its mineral assets, I would like to give you an example herein below of Russia’s relations with China since Mr. Xi Jinping’s first visit abroad, after being elected the new Chinese President, has been to Russia (he is currently in Moscow before leaving today to Tanzania – read – and watch these videos:video1video2video3video4) and these relations could offer a useful and teaching lesson to Tanzanian leaders in their negotiations with not only the Chinese, but other foreign countries, governments and companies as well which want to invest in Tanzania.

SINO-RUSSIAN ECONOMIC RELATIONS – Cheap loans and credits in exchange for future minerals, oil and gas supplies

Tanzania is not the only country the Chinese invest their money. Russia, too, is a huge recipient of Chinese money, but the way the Russians have established and structured their relations with the Chinese is that at the end of the day it is the Russian’s who end up benefitting most from their economic cooperation with the Chinese while the latter secure guaranteed energy and mineral supplies from Russia, albeit at a later date. As you well know, China does not have enough of its own oil and gas deposits and is forced to import significant quantities of these products from abroad including Russia. So as to deliver reliable long term oil and gas supplies to China, Russia is supposed to build pipelines to China. But as a farsighted and rational supplier, who also wants to economize and optimize its financial resources, Russia, instead of building those pipelines from its own financial resources, it has demanded that the Chinese, who very much need huge and guaranteed Russian oil and gas supplies, extend low-interest loans and credits to Russia to fund construction of the needed pipelines, with the repayment of such loans and credits being guaranteed by future Russian supplies whilst the Russians offering NO EQUITY OR SHARE OWNERSHIP at all to the Chinese in exchange – Russia just guarantees repayment of the loans and credits by committing future oil and gas supplies to China. These are among the set of contracts and agreements signed yesterday on Mr. Xi’s first day of his visit to Russia – read cra1cra2cra3; watch video. And such agreements were even signed earlier before between the Russians and Chinese when the Russian State Companies, ROSNEFT & TRANSNEFT, secured a 25 billion US$ loan from China (15 Bln US$ for Rosneft and 10 Bln US$ for Transneft) to be paid in lieu of future energy supplies – read here & here. This same ROSNEFT recently managed to secure an analogous agreement with a number of global commodities’ trading houses and companies – GLENCORE & VITOL - agreements which netted ROSNEFT loans equal to 10 Billion US$ - read (in total, together with banks, Rosneft raised a whopping 67 billion US$!) – without Russia ceding any equity or share interests from its mineral resources to these foreign companies! Venezuela, too, succeeded in its own way to secure huge loans from China (vz8vz9) and Russia (read here, here & here) in exchange for guaranteed oil, gas, gold and other mineral supplies to both the two mentioned countries as well as offering them minority shares in its mineral resources – read Russia (read here, here, here & here), China (read - pay particular attention to the blue-shaded parts). 

I have brought the above examples of Russia’s relations with China, Venezuela with Russia and China in order to challenge the current Tanzanian government policy and approach to securing credits, loans and investments from both China and other countries in exchange for either fully (100%) or majority ceding the country’s minerals to these countries and/or their companies – THIS SHOULD NOT BE THE CASE and it should not be allowed to happen anymore! We can do better by restructuring the deals and turning the tables in a way as to succeed in this venture just like how Russia and Venezuela have succeeded in these avenues as explained above. As I’ve always been saying and writing, mineral resources including oil and gas deposits could do real wonders for the country (read), but only if our leadership and experts, especially those at the Ministry of Energy and Minerals will correctly and properly understand how these assets could be used and leveraged to economically and financially massively enrich the country, a situation I do not see, yet, in present-day Tanzania as the recent case of the Production Sharing Agreement (PSA) with Jacka Resources of Australia on our Ruhuhu Basin hydrocarbon reserves has proven (read), or on how our government has ceded majority, if not full ownership rights to foreigners on our southern Tanzania gas reserves estimated to value over 600 billion US$ -read  pay particular attention to the yellow-shaded part! By the way, as a side note to this information, may you be informed that the Cyprus gas reserves are estimated to be worth between 400-600 billion US$ (almost equal to our southern gas reserves in Tanzania) and it is these gas reserves Cyprus has been using as a trump card to negotiate for a bailout financial package especially from the Russians, turning the gas reserves into an arena of geopolitical wrangling and tug of war between the EU (and US), on one side, and Russia, on the other, as you may read in these articles here. So, the leadership in Tanzania should know that mineral resources including oil and gas reserves (and our iron ore and coal at Liganga and Mchuchuma, respectively) should not be offloaded blindly to foreigners, moreover, at the cheap, in fact, almost for nothing at all like what is now happening in Tanzania with our oil and gas reserves, uranium deposits, Tanzanite, iron ore and coal deposits etc as elucidated above.

So as to give you an even bigger picture of what our iron ore and coal deposits at Liganga and Mchuchuma, respectively, could do to our country vis-à-vis what Tanzania got from the Chinese in terms of loans, economic assistance and planned investments, mineral deposits which have been foolishly given, just handed over to the Chinese, let me bring you the following examples:

i.              The Songo Songo-Dar Gas Pipeline loan of 1 billion US$ (amounting to just a mere 1,8% of the value of the mineral assets) as well as the 3 billion US$ investment committed by China to investing in exploiting the deposits (equal to about 5,5% of the value of the mineral assets) – all adding upto about 7,3% of the value of the assets - or if we take a conservative estimate of the proven and recoverable reserves to be at least 50% only of the figure of 54,8 billion US$, i.e. 27,4 billion US$, then the percentage ratio of the Chinese investment of 1+3 billion US$ equals to a mere 14,6% of this sum, and remember, the Chinese won’t pay this sum from their own money, but they will collateralize our mineral assets to raise such funding, leaving them with a net wealth of 23,4 billion US$ {27,4 billion US$ minus 4 (i.e. 1+3) billion US$} at extreme conservative estimates as we have assumed that the recoverable reserves of our iron ore and coal deposits equal to just 50% of the declared figures in this article!

ii.             Now, with the 23,4 billion US$ in hand Tanzania has just given to China as a “present”, just pure charity, the Chinese come and tell us that now they will be also investing in building the Bagamoyo Port (read bgp1bgp2bgp3) and Special Economic Zone (estimated to cost 300 million US$ - read) and we also learn that Tanzania has asked for an additional loan from China of about 400 million US$ to build a coal-fired power plant in Mbeya (read) – all these expenses (so-called “investments” – in fact, to be funded from our own money, i.e. from our own iron ore and coal deposits) equal to a mere fraction of our 23,4 billion US$ we have foolishly given to the Chinese in the first place. You see, this is what I want our leaders to see and know when we talk with the Chinese, when President Kikwete meets President Xi tomorrow! It is NOT China which is giving money to Tanzania but  instead, it is Tanzania which is foolishly giving the Chinese it’s most precious and valuable mineral assets to enable that country raise the necessary funding or hedge its so-called funding and risks  (by several, even tens of factors) to Tanzania and NOT THE OTHER WAY ROUND. Russians and Venezuelans very well understood this and that is why they are able to reap huge benefits from Chinese financial largesse at NO EXPENSE AT ALL to their respective countries since all the money and associated risks the Chinese are giving these countries have been covered by the value of the mineral assets, oil and gas deposits which these countries will export to China! Why doesn’t Tanzania apply this approach vis-à-vis its mineral resources with foreign companies and countries in the same way the Russians, Venezuelan and other countries do? Why no such imagination, innovation and ingenuity from our economists and mineral experts? This is what I want President Kikwete to ask himself and have in mind when he talks to President Xi tomorrow or else we will continue having relations with the Chinese where they take all our valuable mineral and other natural resources assets for a song and in exchange give us magitaa, some small peanuts investments of 1+3billion US$, “funding” construction of Bagamoyo Port, “financing” construction of the Power Plant in Mbeya, building Primary Schools including the one at Msoga, Bagamoyo (read), conduct silly seminars for our party officials in China in which they are also taken to visit shoe factories, watch computer games and cartoon drawings etc – read and see ccmc1ccmc2 - while countries like Venezuela have managed to secure huge cheap loans and credits from both China and Russia, for example, in which the latter even built in Venezuela arms’ factories (read vz1, vz2, vz3), committed to build nuclear plant/s (while we have given our Mkuju River uranium just for free – read csc1csc2. Also read some of my  critical letters on this subject here & here), China has launched  space satellites for Venezuela (read) and both China and Russia (even Iran!) have built and are building tens of thousands of houses for the Venezuelan poor, the real and true owners of the oil and gas deposits, just like our own people in Mtwara and Lindi who recently demonstrated – read - and all this is paid up for from future oil and gas supplies and rights (minority ownership) to Venezuelan minerals!

Also please find herein below what I wrote yesterday, March 22nd, to Mr. Kester Klomegah on what Africa and Tanzania could gain in the military sphere with both the Chinese and Russians, if we will be able to leverage our mineral deposits cleverly, the same way, say, Venezuela, India, Vietnam, other countries, China itself vis-à-vis its military and defense relations with, including purchase of arms from Russia. I think it would be advisable for our government to learn from what I have written there and may be use such a strategy and tactic to negotiate with Mr. Xi for similar military, defense and arms’ purchase cooperation between our country and China. 


To conclude my letter, I would like to state that I DO STRONGLY SUPPORT the Chinese presence in our country and cooperation with that great nation, however, I would like the format and paradigm of our cooperation to change as explained above in order to be a truly WIN-WIN type of cooperation and not that one leading to a NET WEALTH TRANSFER from Tanzania to China as it now appears. This should stop and it is very important that our President understands this and raises this issue with President Xi when he meets him tomorrow.

Best regards,

Moscow, Russia

1 comment:

  1. I doubt any of our bureaucrats have the incentive or ability to digest an article choking with facts and figures. Maybe if you could supply illustrations in the way of pictures and cartoons, I may be able to persuade someone in the Ministry of Energy and Minerals to take a closer look.



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