23 Sep 2011

Mchuchuma-Liganga: huge Chinese investment in Ludewa on the horizon

Parliamentarians at the Liganga site. Picture from Zitto Kabwe
Wednesday this week saw the signing of a major agreement for Tanzania between the National Development Corporation (NDC) and the Chinese company Sichuan Hongda. The agreement sets up a new company, Tanzania China International Mineral Resources Limited (TCIMR), to build a coal mine, iron ore mine, coal-fired power plant and steel works at the Liganga (iron ore) and nearby Mchuhuma (coal) in Ludewa district, just to the south of Njombe. The MPs Zitto Kabwe (the Parastatal Organisation Accounts Committee chair) and Deo Filikunjombe (the PAOC vice-chair and Ludewa MP) were present at the signing.

The CitizenThe GuardianDaily News and Mwananchi, all made this their front page lead on Thursday. Twitter also had some information, (mostly from @ZittoKabwe), though not all of it matches the newspaper articles, and Jamii Forums predictably also injected a note of scepticism.

Based on these sources, the numbers are huge. The total investment is said to be $3bn, starting with $600m and with the rest spread over several phases and many years. The power plant will produce 600MW, almost matching the 623MW that Tanzania's energy sector currently produces, though half of that production will be used by the mines and steel works at the site. Eventually, three million tonnes of coal, three million tonnes of iron ore and one million tonnes of steel will be produced per year. There is 483 million tonnes of coal at the site, enough to last for 300 or 500 years, depending on which newspaper you read. (Though if 3m tonnes are to be produced each year, that amount would "only" last 161 years). And it's set to employ 8,000 people. Overall, it is (slightly implausibly) reported to be the second largest Chinese investment in Africa ever, behind only the Tanzania-Zambia Railway (TAZARA).

The potential of all this is obvious from these numbers. But fulfilling this potential will not be straightforward. And doing so while avoiding all the social and environmental problems than often follow the mining industry will be even harder. Some notes of caution are therefore justified.

First, this is still all at an early stage. TCIMR has been given 36 months for "exploration" before project implementation begins, according to The Citizen, though TV news reports yesterday included government leaders suggesting things would move more quickly. Either way, there's a good chance that we're still a long way away from any significant employment, coal, steel or power being produced.

Second, when this much money is involved, the project is bound to attract interest from people who are not interested in helping Tanzania, or even in making a legitimate profit. Corruption is a serious risk here. When the numbers given are so inconsistent (see above), this only serves to create doubt.

Third, the news reports make no mention at all of tax. Since tax has been such a major concern (pdf) with gold mines in Tanzania, it is surprising (and worrying) that nobody mentioned this. [UPDATE: Zitto Kabwe has informed me that the reason for this ommission is that this stage - the Mineral Development Agreement (MDA) - has not yet been reached.] Similarly, the NDC holds a 20% stake in TCIMR and according to news articles "NDC could increase its shares to 49 percent after the Chinese company has recovered costs of investment". But that's phrased in a way that doesn't give much clarity or confidence.

Fourth, Chinese companies have a poor record when it comes to delivering on commitments in Africa. Is it possible, for example, that the 300MW needed for the mines and steel works will be given priority over the 300MW to be supplied to the national grid? Or that environmental protections will be sidelined? Or that the promised 8,000 jobs will turn out to be not quite so many in reality? Or that the promised funds for investment won't materialise? These kind of problems have all occurred with Chinese investments elsewhere in Africa, and with other investments in Tanzania.

Fifth, let's not forget that initial investment is only half the battle. Keeping things running can be just as big a challenge. To illustrate this point, let me quote from The Guardian's article:

Retracing relations between Tanzania and the People’s Republic of China, Dr Bilal talked of “a long history with major accomplishments”. He said the main vivid symbol was the Tanzania Zambia Railway Authority (Tazara), with the others including Urafiki (Friendship) Textile Mill, Ubungo Farm Implements, Kiwira Coal Mine and the recently completed ultramodern National Stadium in Dar es Salaam.
Tazara and Kiwira Coal Mine are perhaps surprising examples for the Vice President to use, since neither is a model of good governance and profitability. They are large-scale investments that have been allowed to run into serious disrepair and fallen far short of their potential. Urafiki Textile Mill and Ubungo Farm Implements have had serious problems as well. Let's hope Mchuchuma-Liganga can do better.

Kiwira Coal Mine in its current state. Picture from Zitto Kabwe
With these concerns in mind, this project clearly needs to be watched closely. I confess I know little of the Extractive Industries Transparency Initiative (EITI) - time to start learning - but their name suggests they have something useful to contribute here. I believe Policy Forum have a breakfast debate relating to the EITI next Friday, so what better place to start. And the media needs to get on top of this as well, remembering the very useful maxim that "News is what somebody, somewhere wants to suppress; all the rest is advertising." Against that benchmark, the newspaper articles linked above read like advertising. Chinese investments have a reputation for being quite secretive, so none of this will be easy.

Daraja, with our base in Njombe and our Kwanza Jamii local newspaper that covers the Mchuchuma-Liganga area, is ideally placed for this. We'll do our best to do our part.