Namdeb’s request for royalty waiver ‘absurd’

DE BEERS’ request for a Namdeb royalty waiver amidst announcements that it expects profits this year isn’t going down well in various quarters.
David Prager, De Beers’ director of communications last week told reporters in London that ‘the company will be profitable this year’, with various cost-cutting efforts leaving the group ‘in a strong position for the future as recovery takes hold’.

In fact, a recovery appears set on the horizon, with De Beers’ Diamond Trading Company (DTC) sight in June having sparked a vast improvement in diamond sales at US$425 million, from the year low of below US$100 million in January. The just-concluded July sight is estimated to have fetched an estimated US$350 million. The decrease from June is believed to have been on account of insufficient supply rather than demand, given the decreased amount of rough on sale due to cuts in production in the first two quarters of this year.De Beers however remains ‘cautiously optimistic’ of a recovery, with this year’s estimated rough diamond sales of US$1.5 billion for the first six sights of 2009, standing far below the US$1.9 billion in sales achieved for the first two sights of 2008.But the company is still trying to cut costs, which is why the world’s leading diamond miner recently made a request to the Namibian Government to spare Namdeb of having to fork out royalty payments until the national diamond production company is in a better financial position.In an interview with The Namibian recently, De Beers’ Country Manager, Daniel Kali said that ‘given the severe marginal nature of Namdeb – compounded by the dramatic drop in demand for rough diamonds – serious consideration should be given to a royalty easing.’ He confirmed that an appeal had been made by De Beers to Government, to provide a short term exemption from the payment of royalties, noting that this would be critical to Namdeb’s long term survival.For 2007, the 10 per cent royalty fee brought around N$450 million into the state’s coffers, along with N$633 million in corporate taxes.But with announcements of impending profits, De Beers’ request does not augur well for some.In a strongly worded statement issued last week, Congress of Democrats (CoD) National Executive Member (NEC), Uno Hengari said that De Beers’ request for a waiver ‘while its spokesperson in London has announced that De Beers will achieve a positive bottom line result’, had drawn reactions of ‘shock’ and ‘disbelief’ for the opposition party.Appealing to Government ‘not to entertain the ‘mad idea’ of exempting Namdeb from paying royalties and taxes,’ Hengari said that the company’s profitability would only benefit its shareholders through dividends, ‘with (the) concomitant result of taking food away from the poorest of the poor and giving it to the richer.’He added that instead of waiving fees, the Ministry should ‘in fact’ request that Namdeb subsidise the increasing cost of electricity for the Namibian masses ‘by simply paying for the differences in the tariffs adjustment from the huge profits they have just announced…’’Namdeb should actually be ashamed even to contemplate asking for relief while they are making huge profits, while most people in Namibia are going to bed without knowing where their next meal is going to come from the next day,’ said the CoD NEC member.’They should actually donate money from their profit to BIG (Basic Income Grant) Projects to help feed the hungry if they are good corporate citizens … and stop asking to be exempt from paying taxes,’ Hengari charged.But even while De Beers anticipates profits, the company, hit hard by the financial crisis, is still on crutches.The Telegraph last week reported that the company has been granted ‘a temporary covenant waiver on its £1.8 billion debt and is bringing in advisers to facilitate major restructuring of the diamond company.’ The waiver, granted by five different banks, lasts until September, with De Beers in return having to pay upfront fees and a higher interest rate on the debt. The Telegraph says that the extra time ‘will enable the diamond mining company to complete major restructuring.’According to Nampa-Reuters, Prager said the company would ‘push forward a plan to slash this year’s operating and capital costs by US$1.5 billion.’ In the past, the strain of the crisis also saw De Beers cutting jobs at its operations globally, and imposing production holidays (recently ended) at its mines in Namibia and Botswana.The Government itself seems hesitant of granting the request to waive royalties.Asked last week about Government’s view on this request, for which Namdeb is still awaiting a response, Nghimtina stated that consideration needs to be made for the role and duty that Government has to the Namibian people.’We have to consider seriously the work of Government. We can’t favour one company at the expense of the Government, which is the main provider of public infrastructure,’ he said. He said that the contributions made through royalties and taxes were imperative to the country’s economy: ‘Government is committed to helping its people…and needs the financial capacity to maintain its public infrastructure, including schools, hospitals, roads, and so on. A company can collapse, but Government cannot collapse because this would be detrimental to the future of the Namibian people.’