Monday, May 20, 2024

World Bank unhappy with Botswana government’s cloudy diamond deals

The Auditor General is unhappy that he is being barred from auditing government diamond contracts, and the World Bank has expressed concern at the secrecy surrounding Botswana’s dealings with diamond mining companies.

The World Bank this week disclosed that the “Auditor General’s office say it is not allowed to audit these contracts as part of their mandated auditing functions.” The report suggests that a good part of the government enclave is unhappy with the secrecy surrounding Botswana’s diamond contracts. “one of the major issues of contention expressed by different stakeholders in Botswana ( including government institutions) concern the government’s decision to keep the negotiation process around contracts for diamond mining confidential and secretive”, states the report.

Deals between the Botswana government and De Beers have always been highly secretive. A lawyer from WWB, a leading South African law firm who handled the transaction between Botswana and De Beers during the delisting of De Beers a number of years ago states how the transaction had code names and how the negotiating parties also had code names. “You do as much as you can to maintain the confidentiality. I was amazed that the leak took so long considering that there were a number of legal firms, investment banks, the whole of the Anglo board, their executive committee, let alone the De Beers board involved. I reckon the inner circle must have numbered nearly forty people. Leaks normally happen very quickly in transactions, so given the size of this one and the companies involved, that it took three months for the story to make headlines was remarkable.”

The then president of Botswana, Festus Mogae, his Minister of Mineral resources and water Affairs Boometswe Mokgothu and the then Managing Director of Debswana Louis Nchindo allegedly sidelined the whole government enclave during discussions for the $17.6 billion deal to privatize and delist De Beers Corporation from both the Johannesburg and New York Stock Exchanges. The Oppenheimer family, which had controlled much of the world diamond trade for more than 70 years, wanted to tighten its already powerful grip with the multi-billion dollar agreement to turn De Beers into a private company in partnership with its sister corporation, Anglo America, and the Botswana government.

Under the agreement, De Beer’s stockholders were bought out by a consortium to be called DB Investments, in which Anglo American and the Oppenheimer family through their Central Holdings would jointly have an 85 percent stake. The remaining 15 percent went to Debswana which was jointly owned by the De Beers and the Botswana government. It was a noisy, opaque and somewhat untidy corporate affair.

In a secretly engineered operation, Mogae allegedly gave Nchindo the authority to negotiate on behalf of Botswana, this despite the fact that Nchindo was a well known De Beers’ point man and a senior member of the De Beers Executive boa rd in his own capacity. Efforts were allegedly put in place to bypass Cabinet, Parliament and the civil service bureaucracy and to keep the whole thing secret, away from officials who were likely to object until it was too late.

Mogae however insists that he never gave Nchindo the authority to negotiate on behalf of the Botswana government and details are hazy on what happened between the government enclave and the De Beers.

The World Bank this week called on Botswana to be open and transparent in its dealings with mining companies.

World Bank Group consultant Nils Handler said in the report the government’s decision to keep the negotiation process around contracts for diamond mining and large integrated projects confidential was a cause for concern. “The contract negotiation process for diamond mining and integrated projects is closed and confidential. Contracts are not published, nor are they made available to the Auditor General for auditing. This process lessens the ability of public watchdogs and the public generally to hold government to account. In an open and transparent kind of mining administration regime, the public would be able to have access to information on the development of the country’s most important natural resource.”

The report states that “a more open process, including published contracts, would assist Botswana in becoming a more transparent and accountable jurisdiction.”

The World Bank recommended that government should “publish mining contracts (large scale diamond and integrated projects) and subject them to audit by the Auditor General.

The World Bank also called on Botswana to put in place a Freedom of Information Act to ensure public access to all relevant information and to “consider an initiative to improve transparency in the mining sector and create a forum to allow for on-going dialogue between government, civil society and industry stakeholders.”

De Beers and Botswana currently jointly own Debswana and DTC Botswana which are involved in the exploration, mining, manufacturing, and trading of diamonds. Two years ago details in leaked Panama Papers suggested a murky relationship between De Beers and the Botswana government.

In early 2015, a pilot agreement was struck between De Beers’ global sight holder sales division and Diacore International ÔÇö a private company which is arguably De Beers’ largest supplier ÔÇö for the purchase of an exceptional diamond worth US$19m.

Diacore paid $9.5m for half the diamond, while De Beers retained the other half until a buyer was found.

Details of that agreement which emerged in the leaked data from the law firm Mossack Fonseca revealed that the contract was negotiated from Diacore’s British Virgin Islands base. The agreement shows that the diamond’s physical location is listed as Botswana, even thought it isn’t clear where it was mined as its origin was never stated. This revelation underscored the claim that diamond sales are often negotiated in secret, and in tax havens.

And without true transparency over these sales, it’s difficult to say for certain whether Botswana’s citizens are benefiting as much as they should from this immense wealth. Leaked information that De Beers in the past helped fund the ruling Botswana Democratic Party (BDP) has created a public perception that political interests may be trumping public interests in the relationship between De Beers and the BDP led Botswana government.


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