Wednesday, September 27, 2023

Masisi / De Beers tension escalates to new high

The tension between President Mokgweetsi Masisi and De Beers group has reached a near boiling point with the recent firing of the government diamond valuator.
The Botswana government diamond valuer who is a British national and was believed to be a De Beers Trojan horse showed up for work at Diamond Trading Company Botswana (DTCB) two weeks ago only to find his access card had been de-activated.
The dramatic firing of the government valuer marked the highest water mark so far in the shareholder tension that has been simmering between the Botswana government and De Beers in the wake of the super exceptional 41 carat blue diamond discovered at the Debswana Orapa Diamond Mine towards the end of 2018.
The cold war has been playing out behind the scenes since President Mokgweetsi Masisi scuppered manoeuvres by the Botswana government diamond valuer to have the gemstone sold through De Beers.
Masisi’s move to stop the super exceptional gem stone from going to De Beers was a first in the history of the partnerships and marked a shift towards closing the revenue rort pathway which  has enabled the mining giant to rob Botswana out of billions of Pula annually.
The blue diamond with an estimated value of US $200 million (about P2 billion) is the first of its kind to be discovered in Botswana since independence in 1966.
Over the years such kind of diamonds have fetched between $70 million and $200 million across the world, pricing them higher than the much publicized Lesedi La Rona which was sold for $53m to a London Jeweller.
The government valuer who is a British national lobbied to have the gemstone sold through De Beers. 
The move to have the blue diamond sold through De Beers was however thwarted by President Masisi who during his tour of the Diamond Park last year indicated that he wanted the stone sold through the government owned Okavango Diamond Company (ODC). The crusade by the government valuer to have the blue diamond sold through De Beers stoked speculations that the government diamond sentinel was doing the bidding for De Beers.
The task of the government diamond valuer is to certify that the parcels are sorted accurately in terms of the price list giving comfort to the Botswana government that the mine production is accurately valued – that the carats produced are exported at the values set by the Price Book”.
Fears that the diamond valuer was a De Beers guy have not been helped by an investigation which revealed how he failed to protect Botswana from losing billions of Pula in  under priced special stones and taxes loses due to alleged profit shifting by De Beers.
Documents passed to the Sunday Standard suggests that Botswana may have been robbed out of billions of Pula in the 2018 financial year when its “special stones”, “exceptional stones” and “very exceptional stones” were devalued on export only to assume a higher value abroad.
The money that accrued from the adjustment of the Debswana diamond exports’ price was all diverted to swell the De Beers bottom line.
This is over and above billions of Pula sapped from Botswana’s treasury through De Beers’ base erosion and profit shifting.
Sunday Standard investigations have turned up a revenue bolthole in the sales agreement between De Beers and Botswana which has allowed De Beers to make billions of pula by undervaluing Debswana’s “special stones”, “exceptional stones” and “very exceptional stones” on export and adjusting their value once they have left Botswana.

And the Botswana diamond valuer was the key player in ensuring that either De Beers got away with the scheme or the Botswana government’s interests were protected. De Beers however got away with the robbery under his watch.

An analysis of confidential data on rough Botswana gemstones shows an average 77, 6 percent increase in value for the stones once they leave Botswana and arrive in a foreign country ÔÇö before any cutting or polishing takes place.

To address this huge price differential, the Sales Agreement entered into between Botswana and De Beers on 16th September 2011 has what is called the “40 Day Adjustment” clause under which De Beers pays Diamond Trading Company

Botswana (DTCB) within 40 days 95% of the balance between the undervalued price and the price realised outside the country.

DTCB on the other hand pays Debswana 90% of the adjusted price.The clause however excludes big stones classified under the agreement  as “special stones”, “exceptional stones” and “very exceptional stones” and only covers  small stones referred to as “Serie diamonds.”

An industry source told the Sunday Standard that the “special stones”, “exceptional stones” and “very exceptional stones” are the holy grail of the diamond mining industry and profits from one is often enough to change the fortunes of a mine from loss making to profitable.

For example, the blue diamond discovered by Debswana recently had an estimated value of US $200 million (about P2 billion) which would account for more than 15% of the Debswana 2018 revenue of US$ 1, 25 billion.

Sources inside the diamond industry have revealed that Debswana discovers “special stones”, “exceptional stones” and “very exceptional stones” almost every week, however, unlike most miners, the lucky strike is never publicized.

This revenue leakage from undervaluing special stones is over and above the billions of Pula haemorrhaging from Botswana’s treasury through De Beers’ base erosion and profit shifting.

Sunday Standard investigations have turned up documented information showing that the Debswana diamonds’ value miraculously increases when they are traded between different countries after escaping Botswana’s national borders ÔÇö and tax brackets. The data appears to indicate use of an old trick known as profit- shifting, whereby a commodity is undervalued to reduce tax liability. But when the diamonds arrive in a tax-free jurisdiction such as the “free ports” of Switzerland, their value increases by up to 200 percent. (A Freeport is a free-trade zone where products can be stored duty-free while awaiting re-export.)

Although De Beers through the 40 day adjustment clause refunds government the money it lost as a result of undervaluing the Serie diamonds, this does not include the tax on the additional amount because it accrues outside Botswana’s tax regime.

This suggests that the Botswana government is losing significant tax revenues when the diamonds are being undervalued on export only to assume a higher value abroad.


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