Thursday, 2 December 2010

News Digest: Africa Mining Comment & Analysis – Ghana

Ghana's Deputy Finance Minister Seth Terkper on 24th November insisted that dialogue 'will continue' over the government's plan to increase mining royalties to a standard rate of 6 per cent. The new rate has yet to be applied systematically to enable the government to discuss the changes with those companies in possession of stability agreements. Terkper's comments follow the release of the government's 2011 budget plan, which also provided for monthly - as opposed to quarterly - royalty payments.

Chris Melville, Africa mining consultant with Menas Associates today commented:

“The revival of the debate on royalty rates is hardly a surprise. The government has done fairly well in reducing the fiscal deficit, but its spending plans are ambitious and royalties represent the most significant contribution the mining sector makes to government revenues.”

“Mining royalties are an important source of funding for local communities, so it's also no surprise to see civil society support for upward revision of rates, especially in the context of high gold prices and recent EITI reports on inadequate reporting of production and prices by mining companies.”

“Aware that its reputation for investment openness is on the line in some quarters in the aftermath of the Kosmos showdown, the government seems keen to adopt a softer approach to the mining companies, but pressure for a more robust line is likely to rise ahead of elections in 2012.”

“However, the issue of mining royalty rates is unlikely to go away. Royalty-based systems are often unresponsive to increased prices and agreements with mining companies – especially those with stability clauses – can quickly come to be seen as unfair, increasing the likelihood of disputes with companies anxious to protect the sanctity of their contracts.”

© 2010 Menas Associates

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