Namdeb needs a royalty break, says De Beers

DE BEERS has requested Government to forego one of its biggest contributions to state revenue – royalties from Namdeb.

This was revealed in an interview with De Beers, in which Country Manager, Daniel Kali, said a short-term exemption or waiver from royalty payments would be critical to its long-term survival.Speaking to The Namibian from Oranjemund on Wednesday, Namdeb Managing Director, Inge Zaamwani-Kamwi, confirmed that an appeal to Government had been made for Namdeb to be exempt from paying royalties until it is back in a sound position. She said, however, that Namdeb has yet to receive word on the outcome of this appeal, noting that the issue is being discussed at the shareholder forum level – i.e. between Government and De Beers.No indication of Government’s view on the appeal has been provided, Zaamwani-Kamwi said.Expressing concern that Namdeb’s shareholders need to continue supporting management in keeping Namdeb afloat, Kali said ‘Namdeb needs to be given a grace period in terms of royalties and tax, but particularly with regards to royalties.’ Production is set to begin in mid-July, but diamond demand, while having recovered slightly, is still very low. Kali says that for now, De Beers only remains ‘cautiously optimistic’ about the increased demand, and that measures to secure Namdeb’s long term survival should not be overlooked.He added that ‘Given the extraordinary circumstances (inflicted by the global financial crisis), we need to ensure Namdeb remains on sound financial ground,’ noting that De Beers would display the same ‘sensitivity’ by foregoing profits/dividend.Namdeb currently pays 10 per cent of its revenue to Government in royalties, as well as a 55 per cent corporate tax, and dividends as part of the Government’s 50 per cent stake in Namdeb.For 2007, with Namdeb’s turnover of N$4.6 billion, this translated to about N$460 million in royalties and N$633 million in taxes.The first three quarters of 2008 also saw strong demand but it is 2009’s revenue that will be most negatively affected, however, with Namdeb having borne the brunt of the crisis from the fourth quarter last year. This forced the diamond producer to significantly reduce production amidst fallen diamond demand with a just-concluded production holiday.Contacted for comment, Minister of Mines and Energy, Erkki Nghimtina did not respond directly to questions regarding the exemption on royalties.In a general response to questions from The Namibian, he said: ‘From the onset, I should state that the Government and in particular the Ministry of Mines and Energy is aware about the global economic crisis and its anticipated effect to the Namibian economy. The relationship between the Government and De Beers is intact; the Government has ways and means to deals with the matter to mitigate the effect of the crises in both the diamond industry and the country’s economy.’But this temporary break from paying royalties is only one of several measures that Namdeb has pursued in keeping its head above the stormy waters of the global financial crisis, and word of a possible recent sale of part of Namdeb’s stockpile outside the normal sale process recently caught The Namibian’s attention.Asked about the sale, Kali responded: ‘At the height of the crisis, Government was concerned and had looked at alternative means, especially considering the inventory.’ He added that while there has been no change to the current sales agreement between Namdeb, the Namibia Diamond Trading Company (NDTC) and the Diamond Trading Company International (DTCI), which is to be next reviewed in 2013, ‘Government as a shareholder had looked at alternatives and at initiating something with another Government’. Kali would not divulge more, however, saying the specifics remained a confidential matter between the two governments.Namdeb Group Manager for External Affairs and Corporate Communication, Hilifa Mbako, corroborated Kali’s statement but added that ‘consultations are still going on and we are not in a position to divulge any specific details until such arrangements are concluded’.He noted however that with regards to its inventory, Namdeb has been able to reduce some of its stock brought forward from 2008 ‘down to pre-financial downturn levels through selling more than what was being produced during the first half of 2009’, which saw only two months of land and four months of sea operations amidst various production interruptions.He added that during the production holiday, which saw Namdeb realise ‘substantial cost savings’, the mining giant was also able to reduce its stock by more than 320 000 carats – a fraction of Namdeb’s usual performance, but an achievement nonetheless.nangula@namibian.com.na