Context of Mining Legislation No “perfect model” But, “best practice” principles Clarity, transparency
Promoting Clarity and Transparency - Improve management efficiency, including of government agencies - Reassure investors - Reduce risk of favoritism, special dealing, diversion of resources for personal or group gain
Principles for a Fiscal Regime in Mining Returns to Ownership Generally Applicable Taxes and Fees, and Returns to Equity Participation
Royalties Royalties are per-unit payments made to the property owner by the mineral developer for the right to extract reserves Royalty rates vary by mineral and country, and The base varies, BUT All countries seek to reclaim some payment for mineral rights
Royalties, Cont. Royalties ensure government a revenue stream from the moment extraction begins Royalties are the most certain form of revenues from extractive Observations on Vietnam’s draft royalty law
Driving Questions for Mineral Legislation Award of Mineral Rights: How and under what conditions can companies obtain rights to explore and extract? Establish Rights and Responsibilities: What are the financial, social, economic, environmental, and reporting responsibilities of extraction companies? Oversight: What are the government institutions and procedures for implementing policy and monitoring the sector?
Mining Legislation Gives Rules of the Game for Each Step of the process Exploration Sales and Distribution Decommis- sioning Production Develop- ment Awarding Rights Where can you explore and under what conditions? How are companies selected? What are the guidelines for opening the mine? What are the terms for sharing production benefits and mitigating risk? What are the guidelines for closing the mine? What are the conditions for moving and selling the extracted resources?
Balancing the interest of multiple actors National Government Companies Local Government Maximize Revenues Revenue sharing Maximize Profits Stable Investment Complement to national goals Infrastructure Employment Environmental Impact Administrative Burden Minimize Compliance Costs Synergy with global strategy Managing Local Social Impact
Revenue Cycle of a Typical Oil Project Reduce finding cost Reduce capital expenditures Reduce tariffs Reduce operating costs Efficient decisions Rapid development Fast production step-up Regularity and capacity utilization Extended plateau Increased oil recovery Tail end production
Benefits of competition in awarding rights Improve government’s bargaining position Lessen the burden on oversight bodies for administration and monitoring Increase transparency Attract established extraction companies Potentially improve environmental and social impacts
Common practice for maximizing competition Clear consistent rules for awarding contracts (preferably through auctions) Information available prior to awarding contracts when it is available Terms set in laws (not individual contracts)
Important Topics What are the major issues addressed by mining policy?
Process to Award Licenses Current Practice – Mineral Prospecting Permit – Exploration License – Mineral Mining License – (Auctions are possible but have not been used) Key Questions – Do all companies have equal opportunity? – Is the process transparent? – Do the companies have sufficient reassurance of potential to extract after their initial investment? – How efficient is the process?
Fiscal Terms Current Practice – Royalties based on tax law with wide margin – Corporate tax – Land rent – License fees – Reclamation Key Questions – What is the percentage and base for the royalties and taxes? – What is acceptable cost recovery? – Do the terms balance the risk of extraction? – Do they foster competition? – What are the mechanisms to ensure collection? – When are these revenues reported? To whom?
Local Content Current Practice: – Incentives to process minerals on-site – Priority should be given to recruit local labor – Reference to general labor laws Key Questions – Are there ways to incentivize local employment in the mine? – How could other local industries potentially benefit from mining? – How experienced investors build domestic capacity in the sector?
Environmental Impact Current Practice: – All activities must comply with current Environmental regulations – Companies responsible for ‘protection and rehabilitation’ of local environment as set out in the feasibility study – Water rights determined by feasibility study Key Questions: – Who is responsible for monitoring the environmental impact? – When (if ever) is an impact assessment done and who has access to it? – Who has rights to water? – Who is responsible for paying for and executing clean up?
Case studies of engagement How have citizens in other countries contributed to mining contracts and legislation?
Mongolia Mining Sector accounts for 25% of GDP, 70% of Export Earnings and 16% of Tax Revenue Rich in Gold, Copper, and Coal Oyu Tolgoi Carl de Keyzer
Revenue Watch and Citizen Response Inform government and citizen of key negotiating points for major mining projects thru multiple media Independent analysis of potential revenues and impacts of different royalty rates Provide government negotiating team with top international advisors Advise parliament on alternations to legislation to allow for windfall profits tax
Sierra Leone Mining Accounts for 87% of GDP New government in 2007 runs on anti- corruption platform Mineral Law revisions debated by parliament
Revenue Watch and Citizen Response Invited a panel of regional experts to discuss the topic in open forum and create report Used report to inform appropriate ministry before proposal went to Parliament Hosted consultative meetings with Parliamentary Committee on Mineral Resources Brought on respected advocates Provided written input to Cabinet Officials