MAC: Mines and Communities

African mining codes: "willfully doing the wrong thing"?

Published by MAC on 2015-03-30
Source: Statement, Bloomberg, Reuters,

MAC recently reported on the Chatham House meeting "Extractive Industries in Africa" (see: Chatham House accused of cowing to extractive industry companies). While we covered civil society protests, some NGO workers attended the conference, and the articles below include coverage from Ian Gary of Oxfam USA.

In his coverage he notes that "we’ve reached the limits of technocratic interventions. We need to ask ourselves how much of a market there really is for sensible advice… At this point, if governments, companies and donors are doing the wrong thing, they are more often than not willfully doing the wrong thing.”

Certainly recent coverage of African mining leglisation seems to confirm that idea, either in the action of governments or in the pressure being applied on them by companies.

In the Democratic Republic of Congo, the government is coming under pressure to keep "an investor friendly regime". Likewise, Zambia's President Edgar Lungu seems to be succumbing to some serious industry arm-twisting, and is directing the finance and mining ministers to change mining royalties back from the recently increased higher rates.

Meanwhile Burkina Faso looks to be bucking the trend, supporting an extra levy on miners to finance a community development fund'; that is until you realise that the industry has pushed the tax down from 1% to 0.5% (& that the measure is part of a package that must be unlocked to gain budget support from the World Bank). As ever it is the communities who pay the higher costs of living next to mining, but still struggle to receive the benefits...

The Politics of Poverty - African Mining Ministers Endorse, Push for Reforms

Ian Gary

Oxfam USA blog

27 March 2015

At Chatham House, But on the Record

Chatham House, aka the Royal Institute of International Affairs in London, is famously known for the “Chatham House Rule” wherein what was said at an event can be shared but not attributed to any speaker.

Last week’s Chatham House conference, “Extractive Industries in Africa: New Approaches to Overcome Enduring Challenges”, though, was on the record, and there were some notable statements from officials from South Africa, Ghana and Kenya about ways to reform the management of the mining and oil sectors in their countries.

More transparency for South Africa?

Ngoako Ramatlhodi, South Africa’s Minister of Mineral Resources, was asked by me, and then again by Tom Burgis (Financial Times correspondent and author of the compelling new book on Africa’s extractives sector, “The Looting Machine”) whether he would support a requirement that oil, gas and mining companies listed on the Johannesburg Stock Exchange disclose the payments they make to governments in the countries where the operate. I suggested that such a move would show leadership on the issue in the G20, of which South Africa is the only African member-country.

“The answer is yes, even if we are accused of punching above our weight,” Minister Ramatlhodi said. “The system we are trying to build must be built on transparency… Part of how we managed to end strikes was we said to companies ‘Open your books so we can see how deep the pocket runs’. The message I’m sending to industry is ‘Let’s be transparent’. You lose nothing by being transparent and disclosure is a key. So the answer is yes.”

He said any confidentiality concerns from business could be managed. “You don’t sacrifice business interests but you have to get information needed to make informed decisions.” Striking a theme that would be heard from others, he urged companies to align their social responsibility programs with local development plans. Companies shouldn’t “come with parallel social development programs but should integrate into government development plans.”

While a few in the audience speculated that companies might be less than enthusiastic about a Johannesburg Stock Exchange (JSE) listing requirement, a top official at Anglo-American, Dorian Emmett, Global Head of Safety and Sustainable Development, said the company is “in principle, absolutely supportive” at last year’s Mining Indaba in Cape Town.

And some companies listed on the JSE have already backed a mandatory payment disclosure law in Canada. If South Africa were to make such a move – as recommended by Oxfam South Africa, the Economic Justice Network and other groups in South Africa – it would join the European Union, US, Norway and Canada which have already adopted payment disclosure laws for extractives companies listed on their stock exchanges.

Moving toward Free, Prior and Informed Consent in Ghana?

Nii Osah Mills, Ghana’s Minister of Lands and Natural Resources, also endorsed increased transparency in Ghana. The country already has a strong Petroleum Revenue Management Act which requires quarterly disclosures of oil company payments by the government. When I asked if he supported such a law for the mineral sectors he said, “Why not?”

Ghana’s main mining law is currently under review and this provides a perfect opportunity to increase transparency and to adopt a Free, Prior and Informed Consent requirement for communities affected by mining. “Consent is quite critical,” said the minister. “We receive letters alleging that communities have not consented despite” a process giving communities 21 days to object to new mining licenses. While the notices are only posted on District Assembly notice boards, Minister Mills agreed that more could be done to make sure communities were aware and consulted around new mining projects. “There is an assumption that community members are aware…. Improved or enhanced transparency could be looked at… We recognize that we could do more to ensure that communities accept mining and that there is no doubt that they do.”

Warning signs in Kenya

Finally, the conference heard a valuable perspective from a sub-national government official, Josephat Nanok, the governor of Turkana County where a major new oil find is being developed by Tullow Oil and partners. Governor Nanok, with Tullow’s Vice President for Safety, Sustainability and External Affairs in the audience, listed a litany of complaints regarding the situation on the ground. He reaffirmed concerns about parallel development efforts saying that companies are “continuously breaking local content agreements” and that companies are “propagating a parallel development program away from regional governments. There is a lack of coordination with county government development plans… Big money is meant to coerce unhappy communities into submission.” Tullow’s Sandy Stash said that the “upside of low oil prices is that it gives us space to take a deep breath and engage with communities around our social investments.”

While declining to endorse FPIC, Governor Nanok said communities have the “right to be consulted… public participation in consultations is at the heart of development. Meaningful engagement with communities will help avoid suspicions.” Local protests have halted work on the project in Turkana on several occasions. Last October, the Kenya Civil Society Platform on Oil and Gas launched an “agenda setting report” at Chatham House, calling on the government, among other things, to disclose petroleum agreements.

Governor Nanok echoed this call and said that “non-disclosure of petroleum agreements creates an imbalance between national and local governments.” Both President Kenyatta and Tullow’s Chairman Simon Thompson have stated their support for the disclosure of the petroleum agreements but they still have not been disclosed.

As for my remarks, I noted that it had been 12 years since I had been in Chatham House at the start of the last big African oil boom, launching the report “Bottom of the Barrel: Africa’s Oil Boom and the Poor”. I noted “paradigm shifting progress” on payment disclosure but said that the pace of reform has been far too slow over the past decade.

“How can we bend the billions of dollars flowing in to government coffers toward poverty reduction? There are precious few places where we can say we’ve really ‘walked the last mile’. Precious few places where we’ve connected the reality on the ground to the world of political and corporate elites, places where citizens have real power to influence how extractive industry projects are designed – and whether they go forward – and how the revenues generated are managed and used.

As should be obvious, I think we’ve reached the limits of technocratic interventions. We need to ask ourselves how much of a market there really is for sensible advice… At this point, if governments, companies and donors are doing the wrong thing, they are more often than not willfully doing the wrong thing.”

Congo’s planned mining code changes 'too risky': miners

Cecilia Jamasmie

26 March 2015

The Democratic Republic of Congo’s new mining code is likely to cost the country billions in lost investment and put the sector at risk, the country’s Chamber of Mines vice-chairman and former Mines Minister Simon Tuma-Waku said on Thursday.

According to Tuma-Waku, the current legislation, passed in 2002, has supported the Congo’s development to the point where central African nation has overtaken Zambia as Africa’s largest copper producer.

He echoed the views of investors, saying the government must honour the terms on which mining groups made their original investments, given the risks they took at a time of conflict and turmoil in the country.

“The 2002 code attracts investment but not at the expense of taxes. It is, in fact, a model of its kind, which has exceeded expectations in all the dimensions in which success can be measured,” he said at the Chamber of Mines annual general meeting, according to an e-mailed statement.

President Joseph Kabila is trying to increase revenues from the industry by doubling taxes and royalties for miners. Companies, in turn, complain of government harassment and poor power and transport infrastructure.

Industry consultations

Despite the ongoing slump in commodity prices, mining companies contributed more than $1 billion to the DRC treasury last year, according to the chamber.

“The Kibali gold project, made possible by the [current] code’s provisions, increased the country’s gold production by 250% in its first full year of operation in 2014(…) and the future contribution of the mining sector to the public treasury is expected to rise substantially,” Tuma-Waku said.

He urged the Ministry of Mines to resume industry consultations to maintain a fiscal and regulatory regime that would continue to encourage investment.

“It is difficult to understand why, just at the point when it is beginning to reap the full benefits of creating an investor friendly regime, the government now proposes to break down the very good work that has been done, instead of building on it. Its new-look code will set back the mining industry, and with it the development of the DRC economy, by at least 10 years,” Tuma-Waku added.

The DRC’s significant but under-developed reserves of gold, copper, cassiterite and uranium require large amounts of capital, but the flow has been drying up as a result of electricity shortages, falling prices and uncertainty in the investment climate. According to the Chamber of Mines the new code could make the situation even worse.

Zambia signals aim to change mining royalties


26 March 2015

Zambian President Edgar Lungu on Wednesday directed the finance and mining ministers to change royalties on mining firms by April 8, saying the copper-producer could consider temporarily reverting to the tax regime in 2014.

The decision to increase royalties in January for open pit mines to 20 percent from 6 percent and those for underground mines to 8 percent from 6 percent has rattled unions and miners in Africa’s second-largest copper producer.

In letters to the two ministers, Lungu said that after receiving submissions from individual mining companies and the Chamber of Mines, he had noted that the new tax regime posed a challenge to some mining houses.

“Obviously the mining industry has been affected by copper prices on the international market. It is clear that this unfavourable economic trend globally has been mainly on account of weak global demand for copper,” he said in a statement issued by his spokesman, Amos Chanda.

Lungu asked the ministers to consider negotiating interim fiscal arrangements for operations that were most affected on a case-by-case basis or identifying potential legal or regulatory modifications to the existing 2015 fiscal regime that could be readily passed and implemented.

He said the two minister may also consider deferring implementation of the 2015 fiscal regime and temporarily reinstate the 2014 fiscal regime as a more amicable regime is negotiated.

“Dialogue between my government and the mines shall continue,” he said.

The Zambian government has been at loggerheads with mining companies, including Glencore and Vedanta Resources, over the higher royalties and Value Added Tax (VAT) refunds, putting investment in peril at a time when copper is around 4-1/2 year lows and economic growth is faltering.

Zambia’s kwacha currency has fallen about 20 percent since the start of the year, partly hit by the royalties and tax rows as well as lower copper prices and weak demand from China. (Reporting by Chris Mfula; Editing by James Macharia)

Burkina Faso Chamber of Mines Backs Levy in Revised Mining Code

by Pauline Bax & Simon Gongo


5 March 2015

Burkina Faso’s Chamber of Mines said it will support a proposed mining code that includes an extra levy on revenue to finance a community development fund.

The government set the tax at 0.5 percent in the latest draft of the bill after the chamber rejected a levy of 1 percent, Christian Ouedrago, a member of the body, said in an interview Thursday. Amadou Dicko, communications director at the mining ministry, declined to comment.

The government “needs to take in to account that mining companies already invest in local communities,” Ouedrago said in the capital, Ouagadougou. “It’s the least bad option.”

Burkina Faso needs to adopt the changes and pass an anti-corruption bill to unlock about $100 million in budget support from the World Bank. Mining companies are seeking clarity from the transitional government ahead of October elections. There are few changes to existing taxes in the new code, Ouedrago said.

The interim cabinet of President Michel Kafando began reviewing mining permits this year that were issued during former President Blaise Compaore’s 27-year rule. Burkina Faso is Africa’s fourth-largest gold producer, after South Africa, Ghana and Mali.

Parliament will probably vote on the new code before the end of the month, Laurent Michel Dabire, director of corporate affairs at Semafo Inc., said in a separate interview. Semafo is the second-largest gold miner in Burkina Faso. Iamgold Corp. is the largest mining company in the country.

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