A daunting legal process waits while dust is settling in the explosive fracas between government led by Minister of Mineral Resources, Green Technology and Energy Security, Eric Molale and the outgoing BCL liquidator Nijel Dixon-Warren-the two parties are in a process of solving their differences amicably but the burden of liquidation remains a monkey on the state’s back, now even more heavily.
This week Molale revealed that already the process to get rid of Dixon-Warren, who he believes he has been incompetent with handling BCL liquidation, is ongoing and a “task team” has been installed specifically to handle the liquidation. When presenting his ministry’s Committee of Supply Speech on Tuesday before Parliament, Molale sounded like a man who would not wait to get rid of Dixon-Warren as he suggested his task team is working around the clock in addressing all the aspects of liquidation process, “including shortening of time.”
“Further, my ministry is engaging the Attorney General and Master of High Court to explore options of removing the liquidator. In parallel there are ongoing discussions between the liquidator and the task team towards removing the core mining assets out of liquidation to allow for government to take control of the disposal of the assets or closure if no investor is identified. Cabinet will be briefed in the shortest possible time,” said Molale this week.
The relationship between Molale and Dixon-Warren hit the rocks last year after the two men disagreed on whether there should be more money injected in the liquidation. Government led by Molale also complained that the BCL liquidator was incompetent and asked when Dixon-Warren would wind up BCL assets. Responding to government’s lack of funding on the liquidation, Dixon-Warren trimmed the staff which was hired to do care and maintenance at the mine from 520 to 390 much to the annoyance of Molale who went to Parliament and revealed that he is going to fire the liquidator.
Since last year, Molale has been working on a process to get rid of the liquidator and sources close to the process have revealed that the two men had to reach an amicable solution. According to information received by this publication, the liquidator was already frustrated by government’s lack of funding after finding that Dixon-Warren had P80 million in the liquidation account. According to information Care and Maintenance at the mine is P15 million and totally the liquidation is P20 million per month.
In an interview with this publication Dixon-Warren said he does not understand where the relationship between him and government went sour. The departing liquidator said he just found out that he is being removed and is not fighting it and prefers the amicable exit. Dixon-Warren revealed that the last time government funded the liquidation was last year August and he was left with raising money from debtors. Around P200 million was collected and has been able to sustain the liquidation since the last quarter of 2018, according to Dixon-Warren.
According to Molale BCL should be placed under judicial management after Dixon-Warren leaves. The liquidator said government will have to negotiate with him for an amicable pay out as it will be inheriting his assets, all the mine owned by the mining company, BCL mining plants and the infrastructure.. He said he will also have to deal with other creditors and negotiate compensation or any amicable deal.Dixon-Warren said there is going to be a “smooth” transition and an “amicable handover” as operations will continue to make sure nothing is disrupted in winding off of the BCL mine.
BCL stands to gobble a lot from the government budget
Dixon Warren has revealed that P600 million has already been spent on liquidation since the process bega in 2016. According to Molale Government will spend more on BCL rehabilitation this year. The total recurrent budget estimates for the financial year 2019/2020 is P733 061 670 and this represent an increase of P327 127 210 or 81 percent from this year’s allocation of P405 934 460, according to Molale. This significant increase is mainly due to BCL funding for rehabilitation meaning the mine will gobble a lot from government fiscal budget in this coming financial year.
According to Dixon-Warren there is a need for Government to fund drilling and exploration projects which will show what or how the mine is worth. For Phase 1 of the project, Dixon Warren said, around P50 million and P100 million is needed, meaning more money from the Government until winding off.
So far two “serious” investors have shown interest in buying the BCL mine. When speaking to this publication it was not clear to Dixon-Warren whether BCL will find a white night investor or will close down. A new investor is expected to come with at least an injection of between P1.5 billion to P3 billion.
However, according to Dixon-Warren, interest investors are scared of the lack of information on resources and viability of the mine. According to the outgoing BCL liquidator, BCL is an old mine and there should be ongoing exploration operations which should inform potential investors on the viability of the mine. Some would want to know the cost of closing the mine and resources which can be mined underground.
Despite the recent survey or study mining and exploration companies by the respected Fraser Institute showing that Botswana is top when it comes to be an ideal mining jurisdiction for mining and exploration companies, some observers believes otherwise. According to the study, Botswana has encouraging investment in exploration and its jurisdiction is seen to provide attractive mining policies. However observers believe some investors apparently would not touch BCL because Botswana is currently being seen as a risky destination for investment due to the ongoing tension between the incumbent president and his predecessor.
Also, investors who met with Dixon-Warren have qualms with the P2.8 billion which should be set aside for Environmental Rehabilitation Liability even in the event of a closing plan when the mine goes for closure. The sum of P2.8 billion was seen as an environmental rehabilitation and reclamation obligation by a report carried out by Dixon-Warren in 2015 and this amount remains an obligation few buyers would be willing to accept given the present value on site at BCL.
When his exist was being planned, Dixon-Warren was still investigating the recent tremors which sent the town of Selibe Phikwe into panic. Dixon-Warren revealed that he sought for expertise of a South African consultant who would cost them P120 000. Before seeking the help of the SA consultant, the liquidator revealed that locally the tremors would not be investigated because of lack of resources and capacity, hence the roping in of foreign consultants. The SA consultant however found out that the tremor was minor.
“I had procured a consultant from South Africa. Last week a South African consultant came and investigated the tremors and he said the earth shaking was not serious and very small to cause a disastrous impact on the Phikwe community,” said Dixon-Warren. Dixon-Warren said the noise heard in Phikwe will further need an acoustic specialist to investigate. He said the specialist who is coming in few weeks time will detect the reason for the noise that came out during the tremor.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”