Relentless effort to develop the mining sector

Ethiopia is endowed with mineral resources. It also has significant untapped petroleum resources. However, the country has not been able to utilize its natural resources. The contribution of the mining sector to the country’s GDP is minimal. Now the government of Ethiopia is committed to unleash the potential of the mining sector. In the Second Growth and Transformation Plan (GTP-II) the mining sector is expected to significantly contribute to the speedy economic development the country is registering. Kaleyesus Bekele of The Reporter sat down with Tolossa Shagi, the Minister of Mines, Petroleum and Natural Gas, at his office and discussed the challenges and opportunities in the mining sector. Excerpts:

The Reporter: Can you tell us about the plans outlined in the first Growth and Transformation Plan (GTP-I) and the achievements made in the mining sector? It is clear that you did not attain all your targets. What were the impediments you faced in fulfilling your plan?

Tolossa  Shagi: The planning of GTP-I was based on our performance registered until the end of 2010. At that time the artisanal mining sector especially gold production was registering a remarkable performance. We were working with the National Bank of Ethiopia (NBE) and the Ethiopia Geological Survey to control illicit gold trade and we were tying to bring in more gold to the NBE. We succeeded in drawing more gold produced by artisanal miners to the central bank.

The government secured better amount of foreign currency from gold export. Based on this remarkable performance we set out our plan for GTP-I. In the first two years of the GTP-1 we did pretty well (2010-2012). The price of gold in the international market was sky rocketing. The price of an ounce of gold was more than 1,700 dollars. We benefited from the price hike. In the wake of the gold market crash in 2013, our revenue began declining.

How much did you plan to garner from mineral export and how much did you actually fetch?

Our initial projection was attainable; however, after we evaluated the remarkable performance of the first two years, we reviewed our plan and decided to boost the figures. Our revised plan was to collect 800 million dollars yearly from mineral export. Until 2013 we used to collect more than 600 million dollars. But then the price of gold in the global market soared and the amount of foreign currency we generated declined sharply. The amount of gold export also plumbed. Due to this reason we were unable to attain our ambitious plan set up in the GTP-I.

Is the price decline the only reason for missing the targets of GTP-I?

Yes and the main reason is the gold market crash. Due to the price decline, companies reduced their produce. Artisanal miners ,too, slashed their production. It is not only the price of gold that went down; the price of other commodities such as tantalum also soared. Companies and artisanal miners were discouraged to produce more. Consequently, the amount of gold and tantalum, which were channeled to the international market, declined. This is not a peculiar problem to Ethiopia. Major mineral exporting countries suffered a lot. We are beginners but the impact on major mineral exporting countries is severe.

What is expected from the mining sector in GTP-II?

The mining sector is expected to augment the country’s economic growth. Securing an adequate amount of foreign currency is a big challenge for us. So the mining sector is expected to generate a substantial amount of foreign currency.

We are striving to attract foreign mining firms. We are providing the required assistance for companies engaged in mineral exploration projects. We are also approaching and assisting traditional miners to boost their production by applying modern techniques. Though the price of commodities declined, we should be able to compensate the lost income by exporting more products. We should increase the amount of gold and tantalum that we export, though the prices of these commodities went down.

Moreover, we should identify the red tapes in the artisanal miners and work to resolve the problems. The Ethiopian Geological Survey should be result-oriented and identify prospective areas for gold discovery. It should drill in areas where gold bearing rocks are found and assist artisanal miners.

With the view of boosting gold export, we allowed investors and companies to engage in placer (alluvial) gold production. Previously, we reserved placer gold production only for artisanal miners. Placer gold production requires minimal capital and knowledge; so, ordinary citizens can venture into this sector. But we revised our directive and started licensing companies to engage in placer gold production.

We are encouraging foreign companies to venture into the exploration and production of primary gold. The mining sector should fetch more foreign currency, create jobs by organizing artisanal miners into cooperatives and Small and Medium Enterprises (SMEs).

In the GTP-I the mining sector should provide inputs to the manufacturing industry and the agricultural sector. Our economy will transform into industrialization so the mining sector should contribute to this transition. We are closely working with the Ministry of Industry and the Ministry of Agriculture and Natural Resources on this regard. We are planning in conformity with the needs of the industry and agriculture sectors.

How much foreign currency do you expect to generate from mineral export in GTP-II?

Our plan is ambitious. We hope to raise two billion dollars yearly from mineral export at the end of GTP-II. We plan to generate a total of five billion dollars in the GTP-II term. We have three or four companies engaged in primary gold exploration. They have presented feasibility study to us. We expect at least two of them to start production in the GTP-II term.

Similarly, there are three companies working on potash exploration projects. They have finalized exploration works and have undertaken feasibility studies. Currently, we are negotiating with them to grant them mining license. We hope that at least two of them would commence production. But we fear that the declining price of commodities may be dragging the projects. Otherwise, we are committed to assist the mining development projects.

Tell us about the contribution of the artisanal miners. Some say that artisanal miners produce more than companies engaged in large-scale mining projects. How far is it true?

The sole company engaged in large scale mining is MIDROC Gold that produces primary gold in the Legedembi Gold Mine. We have no other company engaged in large scale mining. MIDROC yearly produces 3.5 to four tons of gold. It is helping us fetch foreign currency.

But artisanal miners produce more. When the price of gold was higher artisanal miners used to produce up to nine tons of gold on a yearly basis. Artisanal miners have an immense contribution though their share dwindled with the nosediving commodity price.

Ethiopia has various mineral resources but so far it has not been able to unleash its potential in the mining sector. What is the reason?

We still believe that we have the resources. We have a convenient geological formation. We have the potential. But to unleash the potential there are a lot of works that need to be done. For various reasons, we have not been able to carry out the works that enable us to utilize the resources.

In the first place, big foreign companies – capable of extracting minerals – did not come to our country. There are various reasons for this. Big foreign companies avoid risks. They do not abruptly enter a country. If they come once, they do detailed exploration work. But before they decide to come, they need detailed geological data. Unfortunately, we do not have adequate geological data.

We have been collecting geological data with the limited knowledge and technology we have. Other African countries have better geological data collected during the colonial period. The European colonizers conducted detailed exploration work in many African countries and left the data. Even in the post-colonial period, these countries rely on European countries when it comes to collecting geological data. With the help of international financial institutions such as the World Bank, European experts collected geological data in many African countries and gave them (the countries) an organized data. They also trained geologists in these countries. So when it comes to attracting big companies, these countries have better comparative advantages than us. So big companies, before they come, know what minerals these countries have.

These countries have simple mining laws that allow foreign mining companies to own vast lands and easily extract mineral and petroleum resources. In our country after the regime change (the downfall of the Derg) big companies approached us and asked us for vast exploration areas. A single company asked to be given the whole of Western Ethiopia (known for rich mineral resources), including Wellega and Benishangul.

We told them that we believe in competition and we want to confer plots of lands for different companies and see which ones perform better. We do not want to give the whole exploration area for two or three companies. Then the giant companies left and did not come back. They went to other African countries where they can secure vast exploration areas as big as a whole country.

Mining giants put preconditions like the World Bank and the International Monetary Fund (IMF). They demand the lifting of some regulations.

We were giving exploration licenses for small companies, which had neither the capital nor the knowhow required the execute exploration and development projects. They used to present fake reports. So we used to give and revoke exploration licenses. That cost us a lot and we learned the hard way.

Now we believe that the mining sector should significantly contribute to the fast economic development Ethiopia is registering. So we drafted a new strategy that enables us to lobby and attract giant international mining companies. We recently started working on that. As part of this new initiative, we managed to attract a mining giant called Newmont Mining Corporation that have shown a keen interest in gold exploration and extraction projects in the Tigrai Regional State. This company is getting ready to engage in gold exploration and development projects in two concessions in Tigrai. We are also in the process to bring more companies.

If a company is committed and has the required capital and technology required for mineral exploration and development project we have to be flexible on some regulation issues to convince them to invest here.

Yes we have not fully utilized our mineral resources but now we have drafted a new strategy that enables us to unleash our mining potential. We did not utilize our resources but we have not been looted as it is the case in some African countries.

In a recent interview with The Reporter, Prime Minister Hailemariam Dessalegn said that the mining sector did not grow. In fact, he said the sector grew below zero percent. Was he referring to the foreign currency earning or was he saying that the whole sector recessed?

He may have been referring to the mining sector contribution to the GDP. Maybe he was saying that in connection with the commodity price decline and the dwindling of mining sector's contribution to the economy. But I do not have adequate information on the matter.

Companies complain that the exploration licensing procedure is bureaucratic with unnecessarily prolonged time to secure exploration license. What is your reaction to this complaint?

There are problems in handling exploration license applications promptly. We are consulting the government to relax licensing procedures. We are encouraging and supporting companies engaged in mineral exploration projects.

But, at the end of the day, there are working procedures we should adhere to. If a company demands to be given an exploration area within two days that is impossible. We are granting a concession up to 1500sq.km. We can not do it within two days.

We need to check our cadaster system to avoid overlapping. We need to check the company’s profile, its reputation, financial position and knowhow. We cannot simply give licenses to companies that come up with only the money. We learned from our past mistakes.

We also have limitations when it comes to skilled human resource. Professionals leave our ministry in search of better pay  and at times it is challenging to promptly evaluate applications. But it is not only our fault. The companies, too, are responsible for the delays in processing licenses. There are information, documents and data we require from them. It takes them a month or two to produce the required documentation.

How many companies are currently engaged in mineral exploration? Do you supervise and monitor their activities?

There are about 170 licensed companies. They were more than 200 hundred. But we revoked many licenses as the holders were unable to realize the projects. So now we have about 170 companies engaged in exploration projects in different parts of the country.

We do evaluation and monitoring work but we have capacity limitations due to the dearth of experts. As I said earlier, senior experts leave the ministry in search of better paying jobs. We are also trying to recruit fresh university graduates and train them.

MIDROC Gold is engaged in large scale gold production. Do you monitor its mining activity? Do you check how much they produce?

We evaluate and monitor their mining activity. As per our agreement, we record how much they produce, how much they export or the samples they send abroad. But that is not the problem. MIDROC cuts down its gold export when the price of gold falls down. We are in constant deliberations with them not to decrease production and diminish export in spite of the falling commodity price. That is because we need to compensate the lost foreign currency due to the price fall.

Apart from that, MIDROC Gold has allocated a hefty amount of money and carried out exploration work and made a new gold discovery in the Metekel Zone. It is by far better than most companies that are yet to undertake tangible exploration activities.

A number of companies are engaged in oil and gas exploration projects in Ethiopia. Is there any oil and gas discovery?

Oil and gas exploration has been going on for the past many years. A considerable number of companies have entered Ethiopia at different times and have pulled out. This happens in other countries as well. After undertaking few exploration works, companies leave. They may face budget constraint and want to avoid risk.

We have a proven natural gas reserves in the Somali Regional State in Calub and Hilala localities. The reserve was confirmed by a Russian company. Several companies took over the concessions but they abandoned the project because of their own reasons. Some of them did not have the required financing and technology to realize the project. 

Now, a Chinese company (Poly-GCL) took over the gas fields and is performing well. They are drilling exploration and appraisal wells. They are also collecting seismic data. They are doing pretty well. Other companies are also undertaking exploration works in the Rift System in the south.

The price of crude oil in the global market has nosedived and this has negatively impacted the oil and gas exploration industry. Fortunately, in Ethiopia the oil companies are working diligently. The price fall did not deter them.

There are rumors that claim that Tullow Oil and New Age have suspended exploration works due to the discouraging exploration results they got. How far is that true?

The information is erroneous. As far as we know both Tullow and New Age are still working on their exploration projects. It is true that Tullow drilled four exploration wells but it did not find oil and gas reserve. Our expectation was high but they did not find anything. They spent a hefty amount of money on the drilling. Even then they did not decide to pullout; in fact, they said that they want to revise their seismic data and try to identify other potential areas. They asked for an extension so we extended their license.

New Age found some gas. But they need to drill more appraisal wells. They also want to study the commercialization. Recently, they asked us to extend their license for one year and we have already renewed their license.

Poly-GCL, the Chinese company, has announced its plan to launch gas production from the Calub and Hilala gas fields by 2018. It said it will build a pipeline all the way from the gas field to the Port of Djibouti and a gas treatment plant near the port. The clock is ticking and they are left with only two years without having started the construction of the gas treatment plant. Neither have they commenced work on the pipeline construction. Do you think the project will come to fruition in 2018?

We did not setup the plan. We do not have the experience in gas development so we did not want to set a date for production. We are careful not to be over ambitious. What we know is that the company is doing a good job. We are providing every assistance they need.  

The negotiation with the government of Djibouti on the pipeline construction by itself will take time. The pipeline construction would take a prolonged time. It is a complicated project that is why we did not want to set a date. But we hope that it will commence production in the second GTP-II.