Botswana and De Beers seem headed for a clash following De Beers’ violation of its beneficiation agreement with the Botswana government.
De Beers and Botswana government officials were this week tight lipped over an article by Israeli journalist and diamond industry expert, Chaim Even-Zohar, suggesting that De Beers has not been honest about why it was delaying in moving the “aggregation function” (i.e. the making all the various De Beers mining output into selling assortments) from London to Gaborone.
Dr Akolang Tombale, who is responsible for beneficiation, declined to comment, referring all comments to the minister.
Minerals, Energy and Water Resources Minister, Ponatshego Kedikilwe, said he was still awaiting a full briefing on the issue before he could comment.
De Beers Botswana, on the other hand, stated that: “Chaim Even-Zohar mentioned in his article that he is reporting on hearsay. Please note that De Beers Botswana does not indulge on any hearsay.”
Responding to a questionnaire from Sunday Standard last week, De Beers stated that it is committed to moving aggregation to Botswana. “We have completed a detailed feasibility study which has identified a small number of important issues that need to be resolved to ensure a smooth and successful transition of this extraordinary function.”
Chaim Even-Zohar, however, stated in his report that, “It had been assumed that the decision to postpone moving the aggregation function to Botswana was because De Beers wasn’t convinced that those being trained to do the aggregation were ready to take on the challenge. However, while in Botswana, it was confirmed to me that the real cause for the delay was a disagreement with the tax and VAT authorities.
Initially, I naively construed this fact as being a matter between De Beers and DTC Botswana, which could be easily fixed. However, I soon discovered that the dispute holding up aggregation in Botswana is actually between De Beers and the tax authorities in London.”
For years, the DTC’s tax payments in London were based on an assumed profit of 2% of DTC turnover. If the DTC’s main activities move away from London, this is bound to impact the taxation arrangements between DTC International and Her Majesty’s tax men. Apparently, the latter are now learning of the new arrangements and are studying their ramifications. De Beers spokeswoman Lynette Gould says that De Beers has “identified a small number of issues that we believe are ‘right for success’ and that need to be resolved before aggregation can move to Botswana.”
Chaim Even-Zohar says, “It is clear that the delay in moving aggregation to Botswana is, technically, an infringement of the agreements between the parties. My sources didn’t want to speculate as to how much patience President Ian Khama will have in this matter.”
Another sticky point is in the 3,3000 contractually agreed beneficiation employment threshold. “This must be, otherwise De Beers will have to pay a penalty. The agreement between De Beers and the government regarding beneficiation contains a force majeure clause in respect to unforeseen changes in the world economic conditions and indications are that the two parties will renegotiate it.
Even-Zohar further stated that the Oppenheimer family company was going through financial difficulties and that Botswana, with its foreign reserves, may be called in to provide rescue money for Debswana in exchange for a bigger stake in the joint venture.