ZIMBABWE might have lost substantial potential revenue from diamonds as it emerged Belgian registered firm, First Element, contracted to clean and sort the gems, allegedly picked buyers for local auctions in a dodgy scheme crafted to facilitate collusion.
A Parliamentary Portfolio Committee on Mines and Energy’s report on consolidation of diamond mining firms also says Zimbabwe might have lost huge potential revenue due to lack of value addition and understanding of the diamond industry.
Part of the reason was that the marketers of diamonds, especially from Marange, did not understand the diamonds’ footprint and only after feedback from the market, it became apparent they sold some unique gems with fancy colors for a song.
Negligible revenue and lack of transparency in the sector caused Government to combine the diamond mining companies into Zimbabwe Consolidated Diamond Company.
Seven firms operated in Chiadzwa namely Mbada Diamonds, Anjin, Marange Resources, Gye Nyame, Kusena, Jinan and Diamond Mining Company and were to merge into one entity, ZCDC, where Government would hold 50 percent. The investors would hold shares in ZCDC as per the investment they had put in thus far.
This process has taken long to complete after three of the companies contested consolidation, but the Mines and Mining Development Ministry said the process would now be consummated after an out of court settlement was reached with the companies.
Cleaning and sorting of diamonds in Zimbabwe is undertaken by a company known as First Element, registered in Belgium, Botswana, South Africa and Dubai, and was contracted by the Minerals Marketing Corporation of Zimbabwe to clean and market the gems. First anomalies noted were losses incurred in the cleaning of the diamonds.
“Secondly, management of MMCZ observed that when auctioning diamonds, First Element would claim to have invited 80 to 100 companies when in reality there were just a few buyers, less than five. Upon scrutiny, it was discovered it was one company with 20 or more people passing off as individual companies,” the report noted.
“This created room for collusion and transfer pricing, prejudicing the country of substantial revenue,” the report says. Already, the country is feared to have lost hundreds of millions of dollar, with treasury receiving a mere $637 million since 2009.
The parliamentary committees reported noted that First Element were handpicked by the Mines secretary without proper diligence to ascertain its capability and credibility.
Over time, operational deficiencies were noted by MMCZ and highlighted “to the executive”, but MMCZ management was threatened to interfere with First Element.
This comes amid a slew of alleged impropriety, financial and administrative, leveled against Mines and Mining Development secretary Professor Godfrey Gudyanga. The committee has recommended that Prof Gudyanga be dismissed from his post.
The report by the portfolio committee says First Element was single handedly selected by Prof Gudyanga after MMCZ management objected to enlisting its services.
Most of the anomalies occurring in the marketing of and revenue from the sale of diamonds were ostensibly not detectable or were swept under the carpet as the firm to scrutinise the books of MMZ was also allegedly handpicked by Professor Gudyanga.
“The audit firm was not appointed by the Auditor General’s office and the AG (Auditor General) was not aware such an operation was taking place, as a result the company’s financial records have been compromised,” the committee further noted.
The MMCZ lost approximately $4 million through illicit financial flows to an unknown recipient outside Zimbabwe, the committee on mines and energy noted, according to evidence from former acting general manager, Richard Chingodza.
“The director of Pedstock, Jackson Dror, admitted before the committee that he was being used as a conduit to transfer the money from MMCZ to the unnamed recipient.
The secretary for mines and mining development Prof Gudyanga allegedly admitted to the committee that the money was sent to an unknown recipient who is a foreigner.