The Southern African nation is set to use the upcoming Forum on China Summit to request for funding for the country’s infrastructure development. But is Botswana really predictable and secure for foreign investment?
The tale of the monetary dispute between the Russian mining giant Norilsk Nickel (Nornickel) and the government of Botswana has been dragging for almost 4 years now, since government-owned Bamangwato Concessions Ltd. (BCL) signed a deal to buy a 50% share in Nornickel’s Nkomati mine in the neighboring South Africa. In the complicated world of corporate investments, mining operations and stock values, this deal seemed pretty straightforward – papers were signed, but nothing else really happened. In truth, the story is long, and full of uncertainty, as after signing the well-thought-out deal, Botswana government suddenly decided to back off so hard, they chose to close BCL mine for liquidation. The solution to the crisis, severely affecting one of the most prosperous African countries, will depend on the new government taking the lead.
It all started on 17 of October 2014, when the share purchase agreement was signed by Norilsk and BCL entities. According to the agreement, BCL Investments Proprietary Limited, BCL's subsidiary, owned by governmental Minerals Development Company of Botswana (MDCB), was to buy 50% shares of Nkomati nickel mine in South Africa from Norilsk Nickel, a Russian metallurgical giant, based in Norilsk city.
BCL is one of the biggest nickel mining and processing plants in the world and is located in Selebi Phikwe region of Botswana. While Norilsk Nickel, one of world’s top nickel and platinum producer, focusing on its vivid strategy of supporting its domestic assets were intending to sale the Nkomati stake on the market. Being a young and prosperous mine, Nkomati would allow to receive cheaper, higher quality ore for processing and was just the right mine for BCL’s processing plant needs, not to mention all positive margins, for decades ahead.
Original terms of the deal were extremely beneficial for Norilsk nickel as well, estimating the sale at more than $300 million. At the moment of signing it, Russian managers must’ve been celebrating a big win of selling a remote property for a bulky price. Simple. However, the story turned out to be anything but simple.
Since the moment, the papers were signed, until today, no funds were transferred, and ownership of the mine is still a matter of dispute. Firstly, MDCB have Russians agree to delaying a payment twice. Then, the price was negotiated significantly down over several rounds. And after that, BCL refused to process the deal entirely by entering the state of liquidation. Let us analyze the pieces before delving into the unfolding dispute.
In light of all this economical background, the desire of MDCB, representing BCL, to delay payments and lower the price seem as totally rational moves, aimed at reducing financial risks. The ongoing negations, however, were taking a long time, and caused significant stress in both parties.
In May, 2016 representatives of BCL and MDCB met with representatives of Norilsk Nickel in London and asked them again to reduce the price for the stake in Nkomati, citing a drop in world nickel prices, a revision of the mine existence plan and the likelihood that Nkomati shareholders may need to invest in it to support mining activities in the short term.
Lawyers, whom the then BCL management addressed on the eve of the London meeting, warned that such discussions could be perceived as a refusal to comply with the terms of the share purchase agreement, which may entail proceedings in court. However, the management of BCL decided that such risks are rather insignificant, since earlier the parties have already managed to agree on two deferred payments.
Nevertheless, by the time agreement reached unconditional status in September of 2016, no payments were made. As a result, Norilsk Nickel invoked their right to demand payment, threatening legal action against BCL and Botswana government, giving them time until 12 of October, 2016. The payment never happened as on 9thof October, the government through MDCB appealed to the BCL Group with a proposal to conduct a process of voluntary liquidation. The statement said that BCL has more than 2,000 creditors, to whom the group owes more than $100 million. However, the main problem was Norilsk Nickel, which did not manage to sell a stake in Nkomati. The High Court appointed the date of the preliminary hearing on the final liquidation on February 7, 2016.
However, in December 2016, Norilsk Nickel filed an application with the Gaborone High Court for permission to resolve its dispute with BCL in London arbitration. Under the terms of the contract between Norilsk Nickel and BCL, all disputes between the parties must be resolved by the London Court of International Arbitration (LCIA).
The application took an excessively long time to be processed. At first, Justice Walia, the Botswanan judge, who was in charge of Norilsk’s Permission Application, was not willing to set a date for the hearing for a very long time since he was at that time due to retire, and said that, because of this, the case needed to be allocated to a different judge.
Nornickel officials have approached the court registrar a number of times asking to allocate a new judge quickly so that a date for the substantive hearing could be found as soon as possible. In April 2017, the court registrar notified Nornickel that the matter would be assigned to a Justice Radijeng only in July 2017.
Tired of the drag, Russian mining company filed a reckless trading claim in the Botswana court against the Government of Botswana, MDCB and certain other defendants on 9 October 2017.
In its claim, Nornickel states that, as a direct result of the reckless trading by the Botswana government, BCL entities have incurred substantial liabilities to Norilsk Nickel, which they are unable to pay. Accordingly, Nornickel demanded from the court to declare that the Government of Botswana is responsible for all of the liabilities of BCL entities, including the liabilities in respect to the Nkomati deal.
In March 2018 former Minister of Mineral Resources, Green Technology and Energy Security of Botswana Sadique Kebonang claimed that Botswana had paid $45mln to Norilsk Nickel for the settlement of dispute regarding the cancellation of the sale of the Nkomati mine that belongs to BCL. He reported it to the press specifying that the amount of the payment had been established by the presidential directive as of the 24th of January 2018. However, Nornickel claims that despite the official declaration, no payments were received from the Botswana government.
Only in February 2018, the Justice Radijeng finally scheduled the hearing for the initial law suit for 18 April 2018, sixteen months after it was filed. The court decision was then issued two months later, on 21 June 2018. The judge rejected Nornickel's application for permission either to continue the existing LCIA arbitration, or to commence a new arbitration. Thus, the result of what was expected to be a straightforward and purely formal process, it took more than eighteen months for a court to provide a controversial decision that, in its nature, undermines international law: the entire LCIA arbitration for which Norilsk sought permission could well have been concluded in the time it took the court to hand down a judgment.
The notable example of a clash between the big business and a local government, Nkomati dispute, however, is far from being over. Notable, that the latest events, namely, a declaration of settlement payment, and a law suit closure have happened fast after the election of the new president, Mokgweetsi Masisi. However, the main motive of the Botswana government was preserved, and accelerated – we do not want the deal, even if it is signed, and conditions met.
At some point in 2017, the liquidator of BCL, Mr. Nigel Dixon-Warren, initiated a lawsuit to challenge the consent issued by the South African government to purchase a stake in Nkomati in an attempt to cancel the share purchase agreement by declaring its conditions as not met. This could be seen as an attempt to keep BCL afloat in its current state, despite the provisional liquidation, by denying Nornickel the deal entirely.
Now, government may try to sell the BCL to the investors, so that they could reconsider the deal with Norilsk Nickel to acquire a stake in Nkomati at an even lower price.
The purchase of a stake in Nkomati still plays a key role in the future of BCL. In addition to high-grade nickel-rich ore compared to BCL or TNMC mines, acquiring this stake will allow BCL to inherit supply and marketing mechanisms for Nkomati products.
The combination of the need to dig deep mines and reducing ore quality in its own mines makes BCL a company with high production costs, incapable of making a profit in conditions of low nickel prices. This suggests that the resumption of operation of BCL without a stake in Nkomati is very unlikely.
To make the metallurgical enterprise profitable, it needs to ensure the supply of concentrated ore from Nkomati. Besides Nkomati, southern Africa has no other operating nickel mines that could provide BCL with enough raw materials to make it profitable. Perhaps the First Quantum project, named ‘Endeavor’ in Zambia, will provide some of the necessary supplies, but it is only starting its operations.
To Botswana government, BCL is a highly important enterprise for a number of reasons. It is a taxpayer, an image card, and, more importantly, a provider of more than 4500 workplaces in Selebi Phikwe region, essentially feeding tens of thousands of Batswana (that is a plural form of Motswana, citizen of Botswana).
The whole region full of people, whose lives are related to mining, have been waiting for more than 2 years for a resolution of a conflict between the business and the government.