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

News Digest: Africa Mining Comment & Analysis – Zambia

In a letter to President Rupiah Banda, published in The Post on Tuesday 31st August, opposition leader Michael Sata reiterated his opposition to any introduction of windfall taxes on mining companies and committed himself to implementing a competitive low-tax regime if he wins the presidential election in 2011.

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

“This completes a remarkable turnaround in Sata's approach to the mining sector. In 2006, he ran a populist campaign calling for the re-nationalisation of Zambia's mines and a much tougher line towards foreign investors".

“Today, his public statements are arguably more liberal than the self-avowedly investor-friendly ruling party. However, his 'Damascene conversion' is pure pragmatism – job losses during the economic crisis and the current government's likely reintroduction of windfall taxes have enabled him to couple populist demands for greater employment with support for foreign mining investment”.

“Sata's volte-face may be opportunistic and somewhat cynical, but his political antennae are working perfectly. The ruling MMD is showing its age and is struggling to keep up with the PF's continuous efforts to move the goalposts.”

“Having first raised the possibility of windfall taxes in an effort to win back PF voters in the Copperbelt, the government is now under-fire for threatening an industry just getting back on its feet. What this means for the election is as yet unclear, except that the campaign will be as polarising as ever”.
Background

Sata – a former fixer and campaign organiser for ex-president Frederick Chiluba – came a close second to Banda in the presidential election held in 2008 following the death-in-office of President Levy Mwanawasa, while the 2006 parliamentary election saw the Patriotic Front (PF) win nearly a third of all seats, and every single seat in the major Copperbelt towns. The ruling Movement for Multiparty Democracy (MMD) has been in power since 1991 and has been concerned by the gradual defection of its traditional Copperbelt/labour heartland to Sata and the PF.

© 2010 Menas Associates

Ghana's government revives move to revise mining agreements

AngloGold Ashanti says that Ghana’s plan to renegotiate a 2004 agreement capping mining royalties is inappropriate. AngloGold spokesperson Alan Fine told Reuters that the agreement was “pretty much cast in concrete” and that the company did not wish to renegotiate.

The Ghana government has formed a committee to study the possibility of reviewing sections of the stability agreement. Paul Atiglah, Director of Mines at the Ministry of Lands, Forestry and Mines has said that Ghana is “taking advantage of the provision in the law which allows for possible review of the stability agreement where deemed necessary”.

The 2004 agreement stipulates that royalties due to government will not exceed three per cent of mining revenue. Further, the company’s corporate income tax rate is limited to 30 per cent for 15 years. The agreement also extends the lease on AngloGold’s Obuasi mine until 2054.

In return for the agreement, Fine said, AngloGold gave the government some US$120 million (GH¢169.51 million) worth of shares and a cash payment of US$10 million (GH¢14.126 million).

The government introduced a new five per cent royalty rate on mining revenue last year, but AngloGold was exempt from the increase because it already had a stability agreement in place.

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2010 Menas Associates

News Digest: Africa Mining Comment & Analysis – Ghana

Alhaji Collins Dauda, Ghana's Minister for Lands and Natural Resources yesterday told Joy FM of the government's continued intention to review some aspects of the stability agreements held by companies with large-scale mining projects in Ghana. Dauda said that the government "was not imposing anything" and that it would "walk gradually through the agreements". Where changes were required, "we will take the provisions out of the agreement so that it becomes a win-win something".
(Source: Joy FM)

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

"Ghana has a deserved reputation for its investor friendly mining regime, which has facilitated the entry of a number of substantial foreign partners in recent years".

"However, like it or not, stability agreements exist to protect private companies from the kind of regulatory changes currently envisaged by the Ghanaian government".

"Even if the government's approach is consensual and even if the proposed changes are minor, the principle of legal protection is put at risk and this has the potential to sour relations with miners investing in Ghana".

"If the government is concerned about social and environmental impacts, systematic enforcement of existing legislation would produce better effects".

"Likewise, qualitative reform of the tax regime - as opposed to tinkering around the edges - might prove more beneficial for the government, as well as having a greater chance of achieving consensus with foreign investors, since security of tenure would not be put at risk".

Background

The Ghanaian government is currently undertaking a wide-ranging review of regulations governing the mining sector and in 2009 it announced that it intended to double royalty rates from 3-6 per cent. While a figure of 5 per cent was eventually adopted, companies with stability agreements have been exempted.

© 2010 Menas Associates