Norilsk Nickel Mauritius and Norilsk Nickel Africa Pty Ltd (together “Norilsk”) have announced that they have filed legal claims against BCL Limited and BCL Investments Proprietary Limited (together “BCL”) in the Botswana High Court and in the London Court of International Arbitration to recover the USD 271.3 million (plus damages and other costs) that they are owed in relation to the sale of a 50% interest in the Nkomati JV in South Africa (“the Assets”).
Norilsk agreed in October 2014 to sell their operations in Africa to BCL for total consideration of USD 337 million. The acquisition, announced by BCL as a strategic priority as part of its high-profile "Polaris II" diversification and investment strategy, was designed to guarantee the long-term future of BCL’s operations by securing the supply of concentrate to its smelter in Selebi Phikwe.
Late 2015, in view of the situation on global metals markets and following BCL’s request for renegotiation, Norilsk agreed to make a number of price concessions. Since that date, Norilsk have consistently signalled their intent to constructively discuss any further proposals reasonably required to complete the transaction.
The transaction obtained final regulatory approvals, and therefore became unconditional, on 6 September 2016 and the parties were obliged to complete the deal on 13 September 2016. In breach of BCL’s agreement with Norilsk, however, BCL has made no attempts to close the transaction. In early October 2016, Norilsk learned through the media that BCL had been placed into provisional liquidation.
Norilsk Nickel Africa CEO, Michael Marriott, said: “BCL has failed to honour its obligations under the sale agreement concluded in October 2014. The failure of BCL to abide by its obligations under the sale agreement is unacceptable in any business transaction. This deplorable conduct has resulted in the BCL smelting and mining operations being placed into provisional liquidation.
“The closure of BCL will have a devastating effect on the livelihoods of thousands of people, and a negative impact on the regional economies which rely on the BCL smelter to beneficiate nickel, copper and PGM concentrates. It is disappointing to note that the Government of Botswana recently invested in refurbishing the BCL smelter, at an estimated cost of 700 Million Pula, giving hope to the people of Botswana that BCL had a good future with Nkomati able to supply the bulk of concentrates for beneficiation.
Botswana has an excellent reputation internationally as a country with a sound investment climate. These actions by BCL could jeopardise that reputation. “Throughout the process Norilsk has acted in good faith, and given BCL repeated opportunities and offers of assistance to complete the transaction, including concessions to significantly reduce the sale price.
“Norilsk has done everything possible to support BCL in its endeavours to secure its long-term future, and therefore sees no other option but to defend its interests in courts with jurisdiction over the matter.” Norilsk's assets comprise a 50% share in the Nkomati Nickel and Chrome Mine (“Nkomati”). Nkomati is a large mine in the Mpumalanga Province in the east of South Africa and Africa’s largest primary nickel producer.
Nkomati has since the transaction been the primary supplier of concentrate to BCL’s smelter in Selebi Phikwe, an important mining town in central Botswana and the largest local employer. Without concentrate supplies from Nkomati – which had continued since the transaction was announced – the Selebi Phikwe smelter may become unviable, with the potential loss of more than 5,000 jobs and a negative impact on families and businesses in Selebi Phikwe.
Michael Marriott added, “The fall-out could also be even wider. The Southern Africa Development Community (SADC) has repeatedly announced their desire to beneficiate minerals within the region and the South African Department of Mineral Resources (DMR) was also highly supportive of the transaction as it meant that Nkomati’s concentrate containing, nickel, copper, platinum and palladium would be beneficiated by BCL in the region thereby benefiting the Southern African regional economy.
Instead, if BCL were to be closed, this means that Tati Nickel, and the Selkirk Project will most likely not proceed, severely impacting people and businesses in Francistown as well.”
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”