Plans to install working pipes in Giyani have not yet come to come to fruition and many residents have no choice but to bath and wash their clothes in canals.
At 5:37pm on April 22, 2011, from a seaside launch pad in Latin America, a hulking satellite rose into the sky and took up its position over northern Tanzania.
The New Dawn Satellite was proudly African — partly funded by local investors and promoted as a way for African schoolchildren, nurses, civil servants and businesses to access world-class Internet and mobile phone networks.
But if New Dawn’s purpose was to promote African development, its tax strategy did exactly the opposite. This is evident from the Paradise Papers — 13.4-million documents leaked from 19 tax havens and in the possession of amaBhungane and the Financial Mail.
This reveals that the companies behind the New Dawn Satellite channelled millions of dollars from African companies and governments through offshore companies in Mauritius, one of the continent’s premier tax havens.
Those companies achieved a Mauritian double-whammy: using one kind of offshore company to avoid local taxes and another to pay as little as possible on bills paid from overseas, using treaties signed between Mauritius and its African neighbours.
(SA’s Convergence Partners were early investors, but pulled out of the project after a year.)
The primary moneymaking company estimated that it would pay US$22,500 in taxes on $75-million in revenue – just 0.03%. In fact, over the 17-year life of the project, the company predicted it would earn $936-million, yet never pay taxes above $300,000.
That’s according to a PowerPoint presentation from the Paradise Papers, which included documents from the satellite’s co-owner, Intelsat.
“The purpose of the tax structure is to drastically minimise the tax exposure of the company and pay as little as possible, which the company has successfully achieved,” says Alexander Ezenagu, an international tax researcher with the International Centre for Tax & Development, who analysed Intelsat’s documents.
Intelsat, which is based in Luxembourg, isn’t a household name.
But its technologies are behind some of the 20th century’s most enduring memories. For example, Intelsat’s satellites allowed millions to watch the 1969 moon landing and the 2000 Sydney Olympics.
Its satellites cover 99% of the world’s population, allowing cellphone and Internet providers to offer phone calls, Internet and television.
In 2013, however, Intelsat closed down the African project after unexpectedly low financial returns. Even then, the company’s tax return that year reflects that it paid 0.09% tax on revenue of $31.6-million.
Intelsat told the International Consortium of Investigative Journalists (ICIJ) that the New Dawn project was terminated in 2013 “following a major satellite anomaly that irreparably reduced the commercial viability and financial returns expected from the project”.
But Intelsat says it “has a proud history of serving the African continent, providing vital connectivity and access to world-class technology since the late 1960s.”
It says Mauritius was chosen as a base “in concert” with its SA investment partners.
“We pay taxes where we have established a taxable presence, such as our regional office in SA ,” Intelsat says.
“Where we do not have a taxable presence, in nations where applicable, our services are taxed through withholding taxes, which are paid on our behalf by our customers under our contractual agreements.”
According to other tax experts, though, those payments are unlikely to be made. Back in 2008, when the New Dawn project was launched, Intelsat had big plans for its first African satellite. The satellite, built in Virginia, used channels or “transponders” that helped send information via antennas to Earth.
It was a big deal since governments and the private sector had salivated for years at the prospects for Africa’s development — if only there could be improvements to the continent’s communication black holes.
Intelsat used the offshore Appleby law firm and accounting firm KPMG to establish the Mauritius companies behind the New Dawn satellite.
Intelsat ’s Bermuda-based subsidiary and SA’s Convergence, a consortium of largely African investors, were initial investors.
Convergence’s founder, majority shareholder and chairman is Andile Ngcaba — once, the director-general of government’s communications department, who then strung together a controversial empowerment deal at Telkom in 2004. Ngcaba is now a prominent businessman, and former executive chairman of Dimension Data Middle East and Africa.
Ngcaba did not respond to questions, but his company did.
Asked about Mauritius as the destination of choice, Convergence said that “the fact that the key asset would physically sit 36,000 km above the continent meant that there was no de facto country of physical presence for the business.
“The customers of New Dawn were widely spread across the continent, with very little South African usage, and the technical satellite operations were outsourced to Intelsat in Washington DC. Mauritius made logical sense to the investment partners.”
Convergence says Mauritius’s reputation for governance and ease of doing business, “coupled with an efficient investment environment,” make it attractive for registering an African operation with international investors.
“Mauritius is a recognised investment destination and all requisite advice and approvals for this transaction were obtained,” it says.
Following the satellite’s 2011 launch and the first customer orders, the African tax haven strategy proved lucrative, according to dozens of invoices, tax returns and financial statements from the Paradise Papers.
Nearly all New Dawn’s income came from cellphone and satellite companies, including Airtel, one of Africa’s major providers. Namibia’s government-owned telecommunications company, Telecom Namibia, and SA’s state-owned signal distributor, Sentech, were also customers.
Airtel’s subsidiaries paid Intelsat’s Mauritius-based company, New Dawn Distribution Company, for services in countries including Sierra Leone, the Republic of Congo, Chad, Gabon, Madagascar, Niger and the Democratic Republic of Congo (then the poorest country in the world). Some contracts brought in $100,000/month.
In 2012, for example, Intelsat ’s Mauritius company sent a bill to Airtel in the Republic of Congo for $201,000. Under a 2011 treaty, the Republic of Congo agreed to waive taxes on its domestic companies worth up to 20% on the value of services provided by companies in Mauritius, such as Intelsat’s.
In this one invoice alone, the Republic of Congo could have forgone up to $40,000 in taxes on the $201,000 bill paid from the client to Intelsat’s Mauritian shell company .
Intelsat did not respond to ICIJ’s specific questions about whether or not its customers paid reduced or no taxes under treaties.
It told ICIJ that, in general, “we pay withholding taxes, where required, through contractual terms with our customers in the countries where the services are being consumed.”
“That’s exactly the problem,” says Alvin Mosioma, executive director of the Tax Justice Network Africa, who describes telecommunications companies as “one of the major culprits on the continent when it comes to aggressive tax avoidance.”
The end result, Mosioma says, is that some taxes might not be paid at all. Treaties such as the one signed between the Republic of Congo and Mauritius could have allowed Intelsat to avoid or reduce tax in Mauritius and could have scrapped some taxes entirely in the Republic of Congo that would, without a treaty, be paid by Intelsat’s customer.
Convergence also offered a vague response when asked about its taxes: “Convergence Partners has always complied with all regulatory requirements regarding the payment of tax. In this instance, it was no different .”
Financial and company laws in Mauritius, researcher Ezenagu says, “are structured to provide tax advantage to companies to the detriment of countries where the real economic activities occur and value is created.”
Intelsat ’s structure “takes advantage” of these laws, Ezenagu says. “I would honestly think, by now, that tax treaties with Mauritius should have become discredited,” he says.
“They simply do not grant the benefits to the countries that they were told they would.”
Additional reporting by Micah Reddy