Ethiopia Accuses Allana Potash for Tax Evasion

 Allana Potash accused of tax evasion in Ethiopia
Ethiopia’s Prime Minister accused the Canadian junior miner Allana Potash Corp. (TSX:AAA) of tax evasion. Allana Potash and the Israeli company that acquired its Ethiopia potash projects, denied the claim. 

By Kaleyesus Bekele | for Ethiopian Reporter,

Prime Minister Hailemariam Dessalegn on Monday accused Allana Potash, the Canadian company which was engaged in potash mineral exploration and development project in the Afar Regional State, of tax evasion.

In a press conference held in his office on Monday morning Prime Minister Hailemariam was asked about the state of the Ethiopian mining sector and the exit of prominent mining companies such as Allana Potash and Israel Chemicals Ltd (ICL).

Hailemariam said that the case of Allana was related to tax evasion. “Allana owes the Ethiopian government some two billion birr in tax. Allana should pay this and the Ethiopian government will use legal means to recover its money,” the prime minister said.

Allana Potash, which was listed in the Toronto Stock Exchange through its subsidiary company Allana Potash Afar, was prospecting for potash deposit in the Danakil Depression in North East Ethiopia for more than six years and spent tens of millions of dollars on the exploration project. The company discovered 3.2 billion tons of potash which could be mined for 50 years. The company had a plan to invest 750 million dollars on developing the potash mine and export one million tons of potash yearly generating 430 million dollars.

In 2013, the then Ministry of Mines granted Allana large scale mining license that enables the company to mine the potash deposit. However, due to the commodity market crash particularly the nose-diving price of potash in the global market, Allana was unable to raise the required investment capital to finance the project. To avoid massive shareholders dilution the management and board of Allana Potash decided to sell the company. Accordingly, in March 2015 the board accepted the buyout offer from ICL, the 6th largest fertilizer producer in the world.

>> ALSO READ : Allana Potash Sold to Israel Chemicals

At the moment, officials of the Ministry of Mines, Petroleum and Natural Gas were reluctant to recognize the deal citing that they were not pre-informed about the transaction, a claim which executives of Allana refute.

Following the acquisition of Allana Potash, ICL applied to the Ministry of Mines, Petroleum and Natural Gas to transfer the mining license of Allana to ICL. While the ministry was evaluating the request made by Allana Potash Afar, a unit of ICL was allowed to continue the mine development work. Before the mining license transfer was made, the Ethiopian Revenues and Customs Authority (ERCA) claimed Allana Potash Afar to pay some US $55 million in tax. The tax claim includes the withholding and VAT tax arrears, which was supposed to be paid by Allana, and capital gain tax for the acquisition of Allana.

>> ALSO RAED : Israel Chemicals (ICL) Abandons Ethiopia Potash Project

ICL rejected the tax claim and subsequently the board of ICL decided to terminate the potash project altogether. In a statement issued in October 2016 the board stated that Allana Potash Afar was unable to carry out its work due to the obstacles posed by the Ethiopian government.

“The board has taken this decision in view of the Ethiopian government’s failure to provide the necessary infrastructure and regulatory framework for the project and follows the Ethiopian tax authority’s rejection off Allana Afar’s appeal regarding the unjustified and illegal tax assessment which Allana Afar has declined to pay. In particular , as already notified to the government, Ethiopia’s acts and missions have been in breach of , inter alia, the protections to which the investment is entitled under an international investment treaty,” the company’s statement read.

Defying ICL’s statement, Prime Minister Hailemariam blamed Allana Potash for the tax fiasco. The PM said that the Ethiopian government knows only Allana Potash. “It is Allana that is legally registered and has been operating in Ethiopia. If Allana does not want to continue working on the project we will award the concession to one of the many companies that are vying to take over the mine.”

Hailemariam said that ICL made a back door deal with Allana without the knowledge and consent of the Ethiopian government.

“ICL did not negotiate with the Ethiopian government so there is no reason that the Ethiopian government is blamed for its exit. When ICL realized that it was defrauded by Allana it decided to quit. When ICL discovered how much tax Allana owes the government, it decided to pull out. It is because the agreement that they made with Allana does not include all this tax arrears. If executives of ICL come to us and ask us to transfer the mining license after the tax is paid, the Ethiopian government is ready to deal with them,” he said.

The former management and board of Allana Potash were stunned by the PM’s statement. Co-founder of Allana Potash Afar, Nejib Abbabiya, claims that Prime Minister Hailemariam was misinformed.

“I respect the Prime Minister. He is leading a big country which is one of the “fastest growing economies” in Africa. But when it comes to Allana’s case, I am afraid that he has wrong information. He relies on information provided by his aides and experts. And I think he is provided with erroneous information. It is easy to verify the case because all the documents are there,” Nejib said.

Ethiopia potash projects
Ethiopia’s struggling potash projects. It’s the location stupid!

Nejib said that there was no back door deal made between Allana Potash and ICL.

“The deal was made between two publicly traded companies and the companies cannot hide the information because they have to report everything to thousands of shareholders of the companies. They have to put everything on the book because they are listed on a stock market. The negotiations and acquisition of Allana Potash by ICL was a public knowledge. It was reported by the international media as well as Ethiopian media. A press statement was issued in due course.”

Nejib said that senior executives of Allana Potash and ICL visited senior Ethiopian government officials including President Dr. Mulatu Teshome, former Foreign Minister Dr. Tedros Adhanom and Minister of Mines, Petroleum and Natural Gas, Tolossa Shagi and explained about ICL’s plan for the potash mine development project.

ICL initially bought 16 percent of the shares of Allana and later acquired the remaining shares for about 140 million dollars. ICL has been closely working with the Ministry of Agriculture and the Agricultural Transformation Agency (ATA) on fertilizer use advocacy. ICL had revealed its mine development plan and construction of three fertilizer blending plants with an out lay of 1.5 billion dollars. ICL had granted 600,000 dollars for farmers’ education on the use of fertilizer.

Speaking of the tax arrears Nejib said that ICL conducted due diligence on Allana Potash for a year before it agreed to buy the company. He said ICL knew what assets and liabilities Allana had.

“ICL assumed all the assets and liabilities of Allana Potash. Let alone such a big transaction, when you buy a house in Addis Ababa you do some investigation before you sign an agreement. You check and crosscheck if there is a bank loan, tax arrears and if there is any claimant.”

Nejib said that the former management of Allana Potash will write a letter to Prime Minister Hailemariam Dessalegn and they were willing to appear before him and explain the matter. “I believe that we will be able to clear the misunderstandings amicably.” According to Nejib, Allana Potash had invested 90 million dollars on the potash exploration project and offered jobs to 450 Ethiopians.

In a telephone conversation with The Reporter former president and CEO of Allana Potash, Farhad Abasov, said that he would respond after he consults with his legal counselors.

Sources close to the matter told The Reporter that ICL agreed to pay 15 million dollars to ERCA but the authority demanded some 55 million dollars. In a letter dated November 4, 2016 and addressed to ERCA and the Ministry of Mines, Petroleum and Natural Gas, ICL said it wants to close the books and officially handover the project to the Ethiopian government. The company sought a guarantee that its officials would not be detained when they come to handover the project. Sources said so far there is no response from the government.

According to ICL, the net value of the investment in the project as of June 30, 2016 was approximately 170 million dollars.

“Following the board’s decision the company will recognize in its financial reports an impairment of the investment amount as well as a provision for the expected closing costs,” the company said in statement issued on October 6, 2016.

Executives of ICL did not respond to email messages. Effort to get comments from ERCA was not successful.

Prime Minister Hailemariam said the mining sector could contribute to the country’s economic development. However, he said, his government does not want the economy to be dependent on the mining sector. “Our future relies on the manufacturing sector.”

23 thoughts on “Ethiopia Accuses Allana Potash for Tax Evasion

      1. What election you say? The one that hands out state of emergencies, imprison and jails thousands, kills innocent citizens in daylight, invades a countries where it can’t win the wars. An election that starves millions of it’s citizens, and pays next door neighbor using khat currency to keep him happy so that aid can flow in smoothly b/c they have no other route/port to sustain it’s population that’s projected to be 168 Million by 2040.

        Yes, let’s have that election.

    1. I don’t care what words and phrases he uses. The big picture is he is making speech to a parliament, something the junta leader in Asmara is totally incapable of.

    2. Am I dreaming ?Is that real.?It is unbelievable !!!!The Ethiopian FM ,how did understood the English word ?Did he said Repeat the Question ?????What the Jock .

  1. I’m glad the PM was asked this question and he didn’t disappoint when answering. Allana potash thought Ethiopia is like Eritrea where fiscal policies are out of order, budget is no where to be found and paying taxes can be avoided by accounting gimmicks or so long as they created jobs. Ethiopia has a budget where accountability more then ever is needed while conducting any kind of business and it’s a clear message for any investor that’s willing to come. Most importantly, this company has been warned since 2014 to pay its fair share and register any transaction to the government regardless of its stupid P.O Box being-in Canada or Germany but thought they were exempt. For the record, mining industry is only 1% of GDP in Ethiopia and Nova mining will be glad to step in their place while we get the manufacturing sector going. Why is it even a discussion amongst shabo is beyond me.

    1. Your corrupt officials im sure have a hand in there. Maybe if your baboon prime minister didn’t have them crossed eyes, he would be able to see what’s going on. Even if he knew, he is a puppet to the TPLF stooges.

    2. Sir, can you once try to address the issue without linking it to Eritrea?

      That said, as I am understand it, the larger issue here is that these mining companies realized the rising cost of transportation eating into their profit so they want out. Therefore, in my opinion, everything else discussed by your PM is just a smokescreen.

  2. Someone is not telling the truth. Although, we know who the guilty suspect is, it’s better to wait and find out from hard facts. Why is the map showing the Ethiopian potash in Eritrean land?

    1. The map was trying to show you why the project failed! The failure of the project or the fall out between Cross-eyed government and the miners had nothing to do with Tax evasion.,, in a nutshell, it’s the viability of the mine if you were to export it Djibouti’s port as opposed to Eritrean ports. Got my drift??

      1. After your comment, I realized they are comparing the Eritrean & Ethiopian potash mines with their respective port destinations. I find it difficult to believe the Ethiopian mine is not viable, if it has a fifty year life span and can generate 430 million dollars a year. It sounds like the company that won the mine rights, bit of more than it could chew. They would have to dilute assets to make it work for them. Anyway, I’m glad it didn’t work out for Ethiopia and the mine company. All the years of not wanting to use our ports and sanctions. Karma has worked great

        1. Realizing the size of the deposite, the miners were hoping the baboons in Tigray would see some sense and get down from their high horses and make amendments with Sha’awiya for financial gain..Boy, they could not have got it so wrong!!! If they were to export it via Djibouti, it would be a lose making Project. The only way the baboons of TPLF could make it work is, to have the technological expert of their own to process it and sell it as a final product. Lol…

  3. Aye Wejane, they never seize to amaze me! Just think about it. Why would any company rushes to pack and beat a hasty retreat from a tempting and potentially very lucrative business? Well, not being privy to the deal between Allana and the crooked Weyanes, the biggest reason could only be the logistics of shipping the ore. You see, since the Weyanes have not been gifted with logical thinking, but burning with envy with anything Eritrea have and Eritrea does, they foolishly refused to use our ports, yes, you read me right, OUR PORTS even when they were using them for practically NOTHING! If that is not stupidity of the highest order, I am not sure what else?
    So Allana was placed at the in-enviable clear DISADVANTAGE to compete with our Colluli mega potash bonanza just a stone throw away from our Eritrean Sea. There is no way that Allana, or any other company, could compete headon with the world class potash mine in Eritrea if nothing else on economic balance sheet alone. Danakalia can afford to easily and comfortably outbid Allana solely based on the proximity of our site to the Eritrean ports, while the monkey head Weyanes would have to truck Allana’s product a considerable distance to port of Djibouti.

  4. “The company sought a guarantee that its officials would not be detained when they come to handover the project. ”
    It seems to me the business community is aware of the woyane gov. treatment. Lol

    ICL don’t even think about landing you executives.

  5. Woyane is a master of cosmetic accounting gimmicks to make its finances appear less shaky than they really are for investors.

  6. Ethiopia potash project is heading to a dead end. Besides TPLF, the main loser is Ja Booty. Hoping to get a 50 year lucrative business deal out of it, this little state borrowed hard cash to build a new potash terminal and port in Tanjura and also paid a new railway and road system up to its border to Tigray. Now all is gone to smoke.
    It was Allana potash first and then Israeli company. Now all of the abandoned the cursed land, leaving the billions of TPLF investment and loans to dust.
    Sabotage is the nature of these Hasad regime. This is where the Egyptian and UAE drone help is needed. Good enough, the region is the hottest in the world and no rebel with a soul will dare to trek the desert to attack and return back. They will all die in thirst and sun burn.

  7. I think it’s evident that Ethiopia is too dependent on aid. They’ve lost the ability to stand on their own feet. Eritreas strategy is to use the mining income to kick start the economy so that we develop our own capacity to stand on our own forever. We view every income as vital. Ethiopia makes money through aid. They don’t give a Damn about “real income”

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