Battle for gold

Why Africa Gold Refinery is unhappy with URA’s licensing of new refineries

Kampala, Uganda | JULIUS BUSINGE | Executives at the East Africa’s largest refinery, Africa Gold Refinery are nervous about the future of the country’s precious industry.

The firm’s Chief Executive Officer, Alain Goetz, said during the 2018 Mineral Wealth Conference in Kampala that the fears emanates from smuggling and exports of raw gold, a situation that could threaten formalized businesses such as theirs.

He said the government’s initiative of mineral certification that comes out of the Great Lakes region such as gold is not only impractical but also cumbersome.

“We want to have a system which is more practical, cheaper and is easy for African miners to operate,” he told The Independent.

A source that understands the inner workings of the Entebbe based refinery told The Independent that AGR business might not be sustainable if smuggling and related irregular gold activities are not stopped.

The source said for many decades, gold has been trafficked directly out of the region via several gold market hubs, particularly to the Middle East due to poorly considered fiscal regimes for small-scale producers and traders and lack of well-regulated system in Central and East Africa.

However, AGR has also been accused previously for being opaque when it comes to disclosing the source of its gold and general business operations.

But in an email to The Independent, a one Cheery, the administrator at AGR said: “AGR handles and processes gold from the approved licensed dealers.”

She said that since AGR started operations in Uganda in 2015, it has been declaring every single gold export and that Uganda Revenue Authority captures all the statistics that are also accessible at the Bank of Uganda.

She said AGR has paid over Shs1.8billion as tax to URA – which includes 18% VAT, PAYE, import duties, withholding tax, infrastructure levy, excise duty, domestic VAT, environmental levy, motor vehicle registration and local taxes.  And that the company also employs 85 local workers who have been trained in gold trade by experts from Dubai and Europe.

This development comes barely three years since AGR opened its US$23million refinery facility in Entebbe to process gold for exports.

The company had in 2017 alone exported 7.3tonnes of pure gold out of the refined 7.6tonnes as at the end of October 16.

This also coincides with the Uganda Revenue Authority’s recent move to license two new gold refinery companies – Bullion Gold and Simba Gold.

This development coupled with the gold smuggling seems to have triggered panic among the AGR executives, and are now calling for new measures to curb the vice.

Sources say smuggling of minerals in the country including gold is aided by weaknesses in security checks at the Airport.

“Banning the transport of precious metals as hand luggage at Entebbe Airport is a significant factor to reduce the smuggling,” a source said, adding “apart from this, there are some purported refineries that do not have legitimate refining facilities, but are exporting raw gold without paying the 5% royalties.”

The source said that there should be refinery accreditation initiatives which certify gold and silver refinery regulated by Bank of Uganda or other government entities.

The source adds that the refinery company must also comply with international standards and strict criteria prior to getting any related licenses as well as ensuring that the companies add value to the precious commodity.

Back in 2014, President Yoweri Museveni said during the 3rd Mineral Wealth Conference in Kampala that value-addition was the only pathway to job creation.

“You should always bear this in mind, add value to minerals so that we get more jobs as well as build technical capacity and a strong base for the economy,” he said then.

However, the absence of a law or policy banning exports of this precious commodity has seen traders export unprocessed gold, leaving the country to only reap peanuts.

Whereas AGR claims to refine gold to 99.99% for export and meets the other stringent requirements, sources in the industry claim Simba Gold Refinery and Bullion Gold Refinery are refining only at 94%.

Although The Independent could not get hold of the two companies, scanty information on Bullion Refinery website states that ‘it is Ugandan company and employs Ugandan personnel in all technical processes to ensure a beneficial transfer of skills and technology.”

It is not clear where Simba refinery operates from though sources said it exports its gold through Bullion Refinery for reasons that are known to them.

Tough law, audit in offing

Robert Kasande, the permanent secretary for the Ministry of Energy and Mineral Development told The Independent that they are reviewing the 2003 Mining Act to include value addition on all raw materials including gold as measure to stop raw gold exports.

Asked to explain reports about companies exporting raw gold and not paying the legal 5% royalties, Kasande said it was the responsibility of URA.

However, Dicksons Kateshumbwa, the Uganda Revenue Authority Assistant Commissioner for Customs said the Mining Act 2003 mandates the ministry of energy to collect royalties.

The 2016/2017 Auditor General’s report revealed that gold exports recorded by the directorate of geological surveys and mines in the ministry of energy were not tallying with ones declared by the Uganda Revenue Authority – that means officials have to wakeup.

The report indicates that gold export permits issued were for only 16.281 kilograms compared to records from URA which indicated that 8,691 kilograms of gold, valued at US$339.09 million were exported.

“There was equally no evidence of payment of royalties on the exported gold. The above implies that, during the financial year, the country lost revenue ranging from US$3.39m to US$16.95m in royalties from the undeclared gold exports and imports depending on the applicable rates of 1% and 5% for the imported or locally mined gold respectively,” the report revealed.

 Meanwhile, Kateshumbwa said they had instituted an audit to investigate reports that the two new refineries (Simba and Bullion) were not meeting the standards stipulated in the manufacture under bond license.

“When you look at what they are exporting its characteristics are like those of AGR,” Kateshumbwa said.

He said that if the two companies are found guilty, revoking their license and other penalties as provided for in the laws will be applied.

Kateshumbwa, however, said the two new refineries are ideally sparking a business rivalry with AGR given that gold is a scarce raw material.

He said having many refineries in the sector would help in fighting informality which has seen government lose billions of taxes and Ugandans losing out on jobs.

Don Binyina, the executive director at Africa Centre for Energy and Mineral Policy (ACEMP) told The Independent that these fights are happening partly because of the absence of the comprehensive law to guide on mining, refining and exporting of gold.

He said that the new mining policy that was cleared by Cabinet in July this year would help to minimize the current rivalry.

He also supports the idea of licensing more gold refineries in the country as one way of fueling competition in the sector, creating new jobs and taxes to government, and dealing with the issue of gold smuggling.

Data from Bank of Uganda shows that gold exports recorded an increase in earnings by US$36million to US$340million in 2016 compared with the previous year even as the country was not known as a big gold exporter. This was good news because gold became Uganda’s second largest export good after coffee.

Therefore, any move by government to fight smuggling and other irregular trade of the mineral would yield more tangible economic benefits.