Mining companies to cough up more royalties

Government has announced it plans to consider increasing the royalties paid by companies exploiting minerals in the country, as part of a broader effort to boost revenue from the extractive sector, Ekow Essabra-Mensah, our Chief Correspondent writes.

The regime for the mining companies seem to be in shock with the announcement from government it is to increase the minimum mineral royalties to 6 percent, and in addition engage all mining companies in addressing the issue of dividend payment, exemptions, and the whole mining sector fiscal regime.

Mining companies operating in the country will soon be mandated to pay more than the current 3% minimum royalty to the government.

Ghana’s Minerals Commission, the official regulatory agency, has come up with the necessary regulatory framework in a bill that will ensure companies contribute more to the government treasury.

The bill seeks to ensure there is an exact percentage that all mining companies will be mandated to pay to government as royalties. Newmont, AngloGold Gold Fields, and Golden Star Resources are among the major mining companies operating in the country’s extractive sector.

If approved, the new legislation will ensure that the companies do have the option to pay what is convenient for them, so far as the amount does not fall outside the minimum royalty rate, the Chief Executive of the Minerals Commission, Benjamin Aryee has said.

Section 25 of the Minerals Act stipulates a mining royalty of not more than 6% or less than 3% of the total revenue obtained from mining operations. But mining companies operating in the country, whether big or small, have only been paying 3% - the lowest rate - to the government.

“It is unfortunate that most of the companies pay the minimum 3% or a little more as royalties, despite the fact that gold is selling at an all time high of around US$1,000 an ounce.

“Given the strong performance of gold on the international market, it is prudent for the government to put in place measures that would ensure that the country benefits from the sales of the product.”

The bill looks into how communities hosting mining companies can benefit from the royalties paid to the central government, Mr. Aryee said, adding that the mining companies will have to cough up more in mining royalties.

Available data from the United Nations Conference on Trade and Development has disclosed that Ghana earns not more than 5% of the value of its gold exports, a lower figure than in many non-African gold producing countries.

The Ghana Chamber of Mines recently commenced an advocacy programme in which 10 % royalties payment was proposed for miners, whom it accused of not doing enough for the communities they operate in - voicing concern that the current royalties paid are worthless and will not translate to meaningful development in the communities.

But in 2006, mining companies contributed US$780 million to government coffers, with AngloGold Ashanti spending US$5 million more on the health sector, while Gold Fields spent US$3 million on a soccer team.

Newmont and Golden Star are reportedly spending US$4 million and US$3.6 million respectively on social corporate investments.The Mining firms last year paid GH¢179,978,383 to the government as revenue representing more than 14 percent of the country's total internal revenue collection.

The mining companies also paid about GH¢73 million, representing three percent of mineral revenue as taxes, levies and duties on the product to government as well as margins to the oil marketing companies.

Ghana is not isolated in pushing for increases in taxes paid by miners. Many African countries are currently saying they do not see the benefits from their huge resource base filtering down to the indigenous communities, and are looking at how they can derive a greater proportion of income from their natural resources.Current laws on payment of royalties

The laws governing mining activities in the country mandate mining companies operating in the country to pay between 3 to 6% percent of their earnings to the government as royalties; but, as if by design, all the mining companies have settled for the minimum 3% royalty payment despite gains gold has been making on the international market.

Section 25 of the Minerals and Mining Act, 2006, (Act 703) says: "A holder of a mining lease, restricted mining lease or small-scale mining licence, shall pay royalty that may be prescribed in respect of minerals obtained from its mining operations to the Republic, except that the rate of royalty shall not be more than 6 percent or less than 3 percent of the total revenue of minerals obtained by the holder."

The government's resolve, therefore, to change that order and maximise revenue from the sector as part of its revenue mobilisation programme indicated in the 2010 budget statement, has set the tone for yet another head-on collision with operators in the mining industry as there are fears of a possible breach of the investment agreements the country has reached with these mining companies.

The price of gold has been soaring on the world market, and there have been concerns that Ghana might be losing out on this gain if it does not step up or review the royalties mining companies pay government, as the commodity has hit a new all-time high of US$1,173.50, boosted by a weakening dollar.
Reactions from miners

Newmont Ghana Gold Limited has however argued that an increase in royalties to government is not the best solution to the underdevelopment of the mining communities.

In his view, the government should increase the amount of funds given to the communities from the royalties paid to them by the companies and also ensure a proper decentralisation system, which is lacking in the case of the disbursement of royalty funds to the communities.

It said government’s ten percent allocation to district assemblies for the development of social amenities and other infrastructure for communities affected by the activities of mining companies is inadequate, taking into accounts the low level of development in these communities.

A spokesman for Newmont meanwhile said a substantial increase of royalties in Ghana would ‘severely reduce returns on investment if it does not also take into account rising production costs.’

Moreover, AngloGold is also of the view that the company had not been informed of a royalty hike and did not expect to have to pay up due to a ‘stability’ agreement made with a previous regime. "We expect our prior agreement to be honored."
Recommendations

The country is, however, not as dependent on its mining sector as some mineral-rich economies, since the contribution of other commodities to national export earnings and GDP is also considerable.

The country’s mining sector could be sustainable if the policy initiatives, including diversification of the sector, strengthening of linkages other than fiscal, curbing the dependence on imports, curbing public expenditure, and improving productivity through training and appropriate technology transfer, which the government is now focusing on, are implemented.