* ActionAid reported that Malawi lost out on US$43 million in revenue in six years up to 2015 from a single company – Australian mining company Paladin
* The money has been lost through a combination of harmful tax incentives from the Malawian government, and tax planning using treaty shopping by Paladin
* The US$43 million lost could have been used to pay for 8,500 annual salaries for medical doctors; 17,000 annual salaries for nurses; 39,000 annual teachers salaries; or 431,000 annual HIV/Aids treatments
By Duncan Mlanjira
Malawi Government has once more granted Australian mining company, Lotus Resources strong tax break on its investment on Kayelekera uranium mine despite well founded recommendations made by ActionAid Malawi in its report of June 2015 against such incentives on former investor, Paladin (Africa) Limited — also from Australia.
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According to a report by Australasia’s Mining Weekly publication; https://m.miningweekly.com/article/lotus-malawi-government-sign-mine-development-agreement-for-kayelekera-2024-07-31, the Mining Development Agreement (MDA) which the government signed with Lotus Resources in July 2024, guarantees a stability period of 10 years during which the project will not be subject to any detrimental changes to the fiscal regime.
“Key tax terms are aligned with the restart definitive feasibility study assumptions, including a royalty rate of 5% and a corporate tax rate of 30%,” says the report. “Relief is provided on resource rental tax and withholding tax, specifically as it applies to dividends to non-residents.
“There are exemptions for import and duties, excise and value-added tax on capital goods and specified consumables directly related to mine production. The MDA includes internationally recognised principles relating to legal protection on security of tenure, dispute resolution and expropriation.”
Having noticed this tax break incentives, South Africa’s Don Consultancy Group Chief Economist, Chifipa Mhango observed that the historical nature of the July 2024 Kayerekera Mine deal is a clear demonstration that Malawi’s economic authorities need to solidify and beef up their negotiation efforts in mining deals.
“We continue to make the same mistakes with no sense of correction,” he said. “The recent negotiations and process leading to the signing of the new Mine Development Agreement of July 31, 2024, presented an opportunity to rectify the past mistakes.”
Chifipa Mhango
He added that in its report of June 2015, ActionAid described as harmful the tax breaks granted to foreign multinational mining companies in Malawi — such that given to Paladin (Africa) Limited.
“We are repeating the same case with Lotus Resources,” says Mhango. “One question that should be asked is what advice did law firm Omnia Strategy give to Malawi’s Attorney General [Thabo Chakaka Nyirenda] when it offered for ‘free’ in the process towards the 2024 signing of the MDA?
“Did Omnia Strategy apply the advice or recommendations from ActionAid’s June 2015 report to Malawi Government?” asked Mhango, while also revealing that Omnia Strategy was established by Cherie Blair, wife to former British Prime Minister, Tony Blair, “who is a regular visitor to Malawi”.
“Omnia Strategy LLP company number in UK is OC368522, established by Cherie Blair, KC, which is a unique law firm that specialises on dispute resolution and prevention around the globe,” Mhango said.
Cherie Blair and her husband Tony
According to https://omniastrategy.com/omnia-strategy-and-dwf-advise-the-government-of-malawi-in-landmark-mine-development-agreement-with-lotus-resources-for-the-kayelekera-uranium-mine/ Omnia Strategy and DWF advised the Malawi Government in the deal towards the July 2024 MDA with Lotus Resources for the Kayelekera uranium mine.
In its report on August 5, 2024, Omnia Strategy described the MDA as “a significant milestone that promises to deliver welcome benefits to Malawi and its people while securing the future of a globally important mining asset in a peaceful democratic country”.
The report further said Omnia Strategy and DWF were “privileged” to have worked closely with Malawi’s Attorney General Chakaka Nyirenda “to support the Government and advise on the MDA with a view to upholding the country’s interests and respecting Malawi’s sovereignty and commitment to environmental, social and governance best international practice”.
“Working closely with DWF and consistent with a shared commitment to delivering elegant legal solutions in complex environments, Omnia and DWF’s expert advice was delivered at zero cost to Malawi.
“At a time when State budgets are stretched, Omnia and DWF recognise the importance of finding innovative mechanisms to allow governments to prioritise health, education, security and others while not compromising the quality of the legal advice they need and deserve.”
The Omnia team was led by partner, James Palmer and supported by senior associate Ricardo Gerhard and associate Kevin Gerenni “to navigate the complexities of the landmark MDA” while working “closely with an expert team from the London and Paris offices of DWF, led by partners Ali Boroumand and Solomon Ebere.
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Highlights of the MDA with Malawi — include:
* Economic Development; as the agreement is expected to bolster Malawi’s economy by enhancing the mining sector’s contribution to GDP and creating job opportunities;
* Fair Distribution of Economic Benefits; The agreement ensures a fair and equitable split of economic benefits for the investors and the State;
* Sustainable Practices; The deal emphasises sustainable mining practices, aligning with Malawi’s commitment to environmental stewardship; and
* International Investment; This agreement signals Malawi’s openness to international investment, fostering a favourable business climate.
However, Mhango wondered if Omnia Strategy and DWF considered the recommendations made by ActionAid Malawi in its report of June 2015 made based on former investor, Paladin (Africa) Limited, which described as harmful effects of tax breaks to foreign multinational mining companies in Malawi.
In the report, ActionAid Malawi, described Malawi as the poorest country in the world, that lost out on US$43 million in revenue in six years up to 2015, “from a single company – the Australian mining company Paladin”.
“The money has been lost through a combination of harmful tax incentives from the Malawian government, and tax planning using treaty shopping by Paladin,” said the report, adding that the US$43 million lost, could have been used to pay for 8,500 annual salaries for medical doctors; 17,000 annual salaries for nurses; 39,000 annual teachers salaries; or 431,000 annual HIV/Aids treatments.
“What has happened is not illegal – on the contrary, the combination of tax breaks and tax planning that has resulted in this loss of crucial funds is a result of Malawian and international laws, treaties and agreements.
“People around the world are outraged that companies get away with paying less tax while the rest of us contribute our fair share. This report shows how governments and international tax rules allow this to happen.
Why is this a problem?
“Tax matters; tax pays for public services such as education, health care and social services, crucial for women, who often end up as the unpaid providers in the absence of decent public services. It also pays for infrastructure to provide clean water, functioning roads and communication systems, all of which are essential for a country to develop and for business to operate.
“For most countries, tax revenue is also the most important, sustainable and predictable source of public finance. For the poorest countries especially, tax revenue is key to ensure they have the funds needed to fund their development without being reliant on foreign aid.
“Ensuring that enough tax revenue is raised to fund essential services and infrastructure projects should therefore be a key priority for all countries. Yet, tax break which saw them lower some tax rates in Malawi and exempt them from paying some taxes altogether.
“This included a lowering of the so-called ‘royalty rate’ that Paladin pays for the right to extract uranium. Royalties can be thought of as a one off payment for the natural resources being removed from the country rather than as a tax on economic activity. “This rate was lowered from the normal 5% of sales to 1.5% of sales for the first three years and then 3% in all subsequent years. So far, this tax break — which was negotiated in secret without public scrutiny — has cost Malawi US$15.635 million.
Kayelekera Mine
“This tax break was, however, not enough for Paladin, who found other ways to lower their tax contributions in Malawi. Normally, companies have to pay a so-called withholding tax when they pay e.g. interest payments or management fees from Malawi to another country.
“Until 2014, however, Malawi did have a tax treaty with the Netherlands which meant that companies did not have to pay the 15% withholding tax normally applicable to interest payments and management fees transferred abroad.
“So Paladin set up another subsidiary in the Netherlands, which had no employees. The Dutch company received a total of US$183.5 million between 2009 and 2014 in interest payments and management fees, money which was then sent on to Australia without being taxed in the Netherlands.
“One of the reasons the payments were so large was that the Malawian subsidiary was financed with a very large loan (80% of its total capital) from an intra-company loans which in turn required it to make very large interest payments.
“By routing its loan from Malawi to Australia via the Netherlands, Paladin lowered its withholding taxes in Malawi by more than US$27.5 million over six years. Between the lowered royalty rates and the avoided withholding taxes, Paladin lowered its tax contributions to Malawi by more than US$43 million.”
To end harmful discretionary tax incentives, ActionAid then made recommendations to the Malawi government — which include ensuring that any tax incentives should be subject to Parliamentary and public scrutiny before being signed, and that they are made publicly available immediately upon signature.
Also not to reduce royalty rates as a tax incentive to multinational companies; not to allow for capitalisation to be thinner than the government’s guideline; and to ensure that future incentives negotiated with international companies — particularly in the extractives sector — should be subject to rigorous studies regarding their potential costs and benefits.
It added that such studies are made public; and that the cost/benefit analysis is periodically updated and that such updates inform tax incentives policies; and that the government should measure and publicly disclose revenue foregone through all tax incentives to multinational companies annually.
The government was also advised to consider following Zambia’s example and removing stability clauses that are not in Malawi’s interests.
However, last year’s MDA was also signed secretly involving Minister of Finance, Minister of Mining and the AG Chakaka Nyirenda — completely breaching the advice by ActionAid that tax incentives should be subject to Parliamentary and public scrutiny before being signed, and that they are made publicly available immediately upon signature.
The only stakeholders involved after signing the agreement were traditional leaders in Karonga, led by Paramount Chief Kyungu, who signed a Communinty Development Agreement — and glaringly absent were Parliament, trade unions or civil society organisations (CSOs) as representing national interest.
In the MDA signed at Capital Hill in Lilongwe, maintained the 15% shareholding interest that Malawi Government had with the previous investor, Paladin (Africa) Limited that was signed in 2007.
However, in 2020, Paladin sold off its 65% interest to Lotus Resources Limited and 20% to Lily Resources while in 2021, Lotus Resources acquired Lily Resources’ 20% stake, leaving the Malawi Government still holding 15% of the Kayelekera project.
According to an investment experts, at 85% shareholding, the Australian company is set to reap astronomical profits as indicated on various mining internet sites that spot price of Uranium has almost doubled from US$28/lbs in April 2016 to the currently US$64/lbs and demand is expected to rise.
Lotus Resources has also just signed a binding uranium offtake agreement with a North American utility company — according to the report; https://www.mining-technology.com/news/lotus-resources-uranium-offtake-agreement-north-american-power-utility/, which involves the sale of 600,000lb of triuranium octoxide (U3O8) from the Kayelekera project, scheduled for delivery between 2026 and 2029.
The report further says the contract includes a fixed-price escalation percentage per annum, aligned with the Reserve Bank of Australia’s long-term inflation target, applicable from the first delivery year — adding that the pricing was achieved through competitive discussions, ensuring favourable terms for Lotus Resources.
The report quotes Lotus managing director Greg Bittar as saying: “Formalising this offtake arrangement with a key customer is an important milestone for Lotus as we continue to progress production restart plans at Kayelekera towards our 3rd quarter of 2025 goal; https://www.mining-technology.com/news/lotus-resources-uranium-offtake-agreement-north-american-power-utility/.
The Chief Economist Chifipa Mhango faulted the whole process of the new Kayerekera Mine deal with Lotus Resources, saying deal negotiations in any other industries “requires certain skills sets, and strong attributes in understanding the process and global industry at large”.
“Hence, there is a strong preference for CEOs in the sector that have strong business acumen and industry trends knowledge such as CAs, industrial economist, among others. Malawi has a vast mineral reserve, and if this trend of deal making continues in the sector, then we will continue to lose out.
“Uranium is in high demand in countries such as USA, France, and China — with a projected global demand indicating almost double by 2030, with a strong spot price. We need to wake up as the country and limit political involvement in mining deal making.
“The 85% and 15% arrangement does not reflect true asset value analysis, especially on what Malawi is getting from this lucrative mining operation, which is of lowest production cost globally.
“I am also concerned around the outcomes of the deal in relation to fiscal regime, in which there is zero export duties, as well as limited development obligations to Malawi in relation to the benefits accrued to Lotus Resources.”
On Lotus Resources’ offtake agreement deal with North American utility company, signed on March 18, 2025, to sale 600,000lb of uranium from Kayerekera mine, Mhango indicated that if Malawi had signed a better deal, it was bound to benefit massively as the deal is worth millions of US dollars.
“According to World Nuclear Association report of May 2024, in Africa, we have Namibia, South Africa, Niger and Malawi with huge uranium reserves, featuring among the top 20 in the world.
“At times, our own actions and decisions impoverish us, as a country. It’s high time we show our true patriotism towards our Malawi,” said Mhango.
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