Re: Ghana: Review and Re-Negotiation of Stability and Mining Agreements

[Stephen Msechu]

Dear Colleagues,

 

As Moses puts it, Ghana which seems to be far ahead in governing their mineral resources are still complaining of inadequate benefits from the sector.

 

On our side, our Ministers are at the forefront wanting us to believe that all is well and that we are getting what we deserved.

 

One thing i have noted from this is that these multinational companies are all the same all over in Africa. What we are supposed to do is to persistently advocate for a change in the mind set of our leaders.

 

Jakaya started very well with the renegotiation of the two MDAs, that led to those mines paying more revenue to the government, including one, paying income tax, for the first time. My query, is where did the spirit go?

 

We have seen that, regardless of the stability clause in the Mining Development Agreements in Ghana, their parliament decided to increase income tax from 25% to 35% and introduced the windfall tax of 10%-in their budgetary parliament (imagine). Such changes, according to global business trends are unthinkable and one taking such a step is internationally described as discouraging FDIs. But our friends in Ghana have done it and the world is quiet.

 

On our side in Tanzania, we have heard Ngeleja and even January Makamba the recent Chairman of the Standing Committee on Energy and MInerals- whom we would have expected to speak differently as he comes from an oversight body, saying that, the 2010 Mining Act can not apply to the old Mining Development Agreements as that would amount to applying the law retrospectively. We all know that, this principle apply to Criminal law. Moreover, Ghana's bold decision, taken during a budget session, is a strong manifest that stability clauses are not cast in stones.

 

My appeal to you all is that, we should all do our homework as the new Mining Act 2010 is not the end but just the begining.      

On 20 February 2012 12:02, Moses <mkula...@yahoo.com> wrote:

Steven Msechu Please read this. I find it quite interesting that even Ghana which has been presented as a model case is also struggling with the same problems. What is interesting is that this article is written by a Cabinet Minister Moses

15 - 22 February 2012

Ghana: Review and Re-Negotiation of Stability and Mining Agreements - ADVERTISEMENT - An oil ridge in Ghana                            Photo courtesy The mining sector has been an important part of our economy, with gold accounting for over 90% of the sector’s output. Ghana is a significant gold producer in Africa and indeed in the world. Ghana is ranked second after South Africa as the leading gold producer in Africa, and 9th largest producer in the world. Over the past decade, the price of gold has increased significantly, reaching an all- time high of USD1,895 an ounce in September last year. Given that the country’s mining sector consists mostly of gold mines, one would have expected a higher fiscal take by the Government. Unfortunately, the phenomenal increase in gold price has not sufficiently benefitted the people of Ghana. Indeed, many ordinary Ghanaians, mining workers, mining experts, politicians, media commentators, researchers, local and foreign institutions, etc., are all expressing concerns and reservations about the social and economic benefits that the formal mining sector provides to the country and people of Ghana. Although the Government has a 10% free carried interest equity in the mining operations, the return depends on dividend distribution which until now has brought in very little revenue as many of the mining companies have not declared much by way of dividends. It is also alleged that there are significant tax leakages in the mining sector due to such factors as transfer pricing related to operating costs and the financing structure used by some mining companies. In responding to the benefit challenge, Government made some changes to the mining taxes and capital allowance granted to mining companies in the 2012 Budget Statement. Government increased the corporate tax rate for mining companies from 25% to 35%; introduced a windfall profit tax of 10%; and established a uniform regime for capital allowance of 20% for five years for mining, as is the case in the oil and gas sector. In addition, Government took a decision to ring fence mining concessions and projects which will prevent cost in one concession area to be offset against revenues from another concession area belonging to the same company in determining the chargeable income for tax purposes. This decision, we believe, will prevent mining companies undertaking a series of projects from deducting costs for new projects against profitable ventures yielding taxable income. Government has also taken a bold step to critically review the mining sector’s fiscal regime and existing mining agreements, with the view to ensuring that the country obtains its fair share of the gains from the mining sector. The ultimate objective of this exercise is to ensure that the benefits from mining operations to the country are maximized, sustained, and distributed equitably to the people of Ghana. The key tasks of the Re-Negotiation Team are three-fold. The first task is to review and re-negotiate any part of a Stability Agreement that has been signed between the Republic of Ghana and any mining company that is not in the best interest of the country. This will include, among others, the fiscal regime and the Government’s carried and participating interests. In doing so, the Committee should take cognisance of the recent developments in both the local and international environment within which mining companies operate, international best practices, mineral laws of the country, and our national Constitution. The second task is to prepare a framework or procedures and conditions that will govern the granting of Stability Agreement in the mining sector in a manner that maximizes the flow of economic and social value to the country on a sustainable basis. The third task is to redesign any existing mining agreement and/or draft new agreement, where necessary, to ensure that it significantly supports Ghana’s economic growth and development, in terms of providing better financial returns, more social investment, critical infrastructure and greater transparency in the mining operations. The issue with the mining operations is about fair and transparent sharing of the benefits and windfall gains from the exploitation of the country’s precious and irreplaceable natural resources. Government is also committed to ensuring that mining operations in the country expand and become more profitable so that investors can receive handsome returns for their investment. It is the desire of the Government to see that a level-playing field is established for the industry players. What Government is looking for therefore is a win-win situation in which both the mining companies and the people of Ghana will equally benefit. The importance of the Government strategy is to develop an economy that works for everyone. By Hon. Dr Kwabena Duffuor, Minister of Finance and Economic Planning, Ghana. WRITE TO THE EDITOR We are always glad to hear from you and our team takes the contents of the letters we receive seriously in order to ensure that the magazine is beneficial to you. Do not hesitate to write to us and make our services better. You can do this through edi...@africanexecutive.com. SUBSCRIBE NOW! Subscribe to The African Executive magazine now to start your business relationship with us. Send a subscription request mail to subs...@africanexecutive.com to subscribe now! Advertise With US Advertse with us to support what we do and to increase your reach. 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Stephen W. Msechu,
Program Officer,

Agenda Participation 2000

P. O. Box 55756,
Dar es Salaam, Tanzania.
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