Newmont denies wrongdoing

...says 80% of earnings spent locally

Newmont Ghana says almost 80% of its earnings from gold sales were retained in the country in 2012, contrary to recent claims that it repatriated 100 percent overseas.

The earnings retained were spent on corporate taxes, local contractors and vendors, wages and benefits and land access, the company said in a statement. The remaining 20% was spent on offshore debt payments, heavy equipment and other offshore purchases.

“Since we started operations in 2006, the company has complied with all financial, legal and regulatory frameworks of the country, resulting in it being adjudged Ghana’s most compliant corporate tax payer in 2011,” Adiki Ayitevie, Director, External Affairs and Communications, said.

“Newmont Ghana remains committed to partnering with the Government and people of Ghana in its bid to bring sustainable development for all.”

Newmont was reacting to a revelation during sittings of Parliament’s Public Accounts Committee (PAC) last week in Accra -- that some foreign mining companies retained a considerable share of their annual earnings overseas under binding agreements passed by Parliament in 2003, with Newmont said to have retained 100 percent offshore.

The committee subsequently called for an investigation to establish the circumstances under which the contracts received parliamentary approval in a country desperate for foreign exchange to fund its development projects.

“Most of the mining companies retain about 50 percent, with most of them bringing in excess of 70 percent into the country’s economy,” Dr. Toni Aubynn, Chief Executive of the Ghana Chamber of Mines, told the B&FT in an interview.

“Parliament is right to investigate the mining companies; it is within their domain, but the fact is that they can check from the BoG, other commercial banks in the country and the Minerals Commission to see the retention rate by the companies,” he added.

Section 30 of the Minerals and Mining Act 2006 (Act 703) makes provision for mining companies to retain a minimum share of the proceeds from their minerals in offshore accounts for recapitalisation.

But Hannah Owusu Koranteng, the Associate Executive Director for WACAM, a mining community advocate, speaking with the B&FT said the country’s minerals and mining laws need to be reviewed to favour the interests of the state rather than multinational companies.

She said there are a number of provisions in the current law that protect the interests of the companies as against interests of the state.

The Ghana Mine Workers Union (GMWU) has also said the disclosure that mining companies retain close to 100 percent of their earnings abroad should be a wake-up call to restore sanity in the industry.

“If today Parliamentarians are hearing that mining firms repatriate 80 percent of mining receipts, then it should be a wake-up call to all of us and a clear signal for cabinet ministers to sit up to determine the real impact of mining on Ghana’s socio-economic development,” Prince William Ankrah, General Secretary of the Union, said.

“If the intention of the policy was to attract foreign direct investments (FDIs), we have come of age now and the time to do the right thing is now.

“Botswana experienced a similar situation but took a bold step and instituted the right measures, and today they are reaping from it. We need a progressive debate on the matter because we all know what impact the current situation is having on our economy, especially on our exchange rate.”

Meanwhile, the sector Minister Inusah Fuseini said Parliament did not do due diligence before passage of the minerals and mining law that regulates operations of the sector.

“Our Parliament failed to live up to its responsibility because it had a duty through its work and committees to look clearly at the terms of the agreement -- and probably disagree with some of the provisions if they had cause to do so.”

He said Parliament has a responsibility to make good deals and sign agreements that will benefit the country. “It is not for nothing that Article 257 talks about ratification, because the mineral resources of this country are the property of the people.”

US$560m paid to Gov’t

According to Newmont, since mining commenced at Ahafo in 2006, the company has invested more than US$2.3billion into the country’s economy and paid more than US$560million to government in royalties, taxes and other obligations.

It said it has directly and indirectly created over 48,000 jobs and provided about 400 local businesses with nearly US$39million in contracts.

The company paid over US$180million to the government in royalties, taxes and other revenues in 2012, and generated nearly 10% of the nation's total exports, 4.5% of its total foreign direct investment and 1.3% of GDP in 2009.

To date, the company has made voluntary contributions of up to US$17million to the Newmont Ahafo Development Foundation (NADeF) for sustainable development programmes in the mine’s host communities.

In addition to its significant financial and economic development contributions, Newmont Ghana has been ISO14001-certified since 2010. ISO 14001 is a benchmark for which top international companies are assessed to ensure adherence to the highest standards in environmental practice.

Abolish ring-fence -- mining companies

Mining companies want government to take a second look at the new policy of ring-fencing their operations, arguing it will be inimical to the interests of both the state and the industry. 

 

The industry, which is witnessing a dip in prices this year, says the policy has a tendency to discourage investment -- and that it is uncommon in the major mining jurisdictions of the world.

 

In 2012, government took a decision to ring-fence mining concessions and projects, which will prevent companies from offsetting costs in one concession area or project against revenues from another.

Already, mining companies are mulling a downsizing of their operations as renewed pressure to cut down on cost heightens with falling gold prices. 

There are indications that more than 3,500 permanent jobs could be lost in an industry that has enjoyed a decade-long boom, but which is now scarred by rising costs and a falling gold price. 

Approximately 430 miners at AngloGold Ashanti’s Obuasi mine are expected to lose their jobs over the coming months, while Gold Fields Ghana Limited has cut about 20 percent of its expenditure and expansion programmes. 

Last year, government enacted the Internal Revenue (Amendment) Act 2012 (Act 839), which introduced a provision requiring mining companies to match expenses from one mining area to revenue from the same mining area. The purpose was to safeguard taxes on profitable mines and optimise state revenues.

“It will aggravate the difficulty of attracting equity capital, both locally and overseas, and implementing it will be inconsistent with our business model,” said Saban Parimah, Tax Manager of AngloGold Ashanti Ghana Limited, who was making a presentation on behalf of the companies at a forum in Accra on the policy of ring-fencing. 

The forum, which was organised by the Ghana Chamber of Mines, saw attendance by senior managers of mining multinationals, officials of the Minerals Commission and the Ghana Revenue Authority (GRA), as well as tax experts from audit firm PricewaterhouseCoopers (PwC).

The forum was to consider options that would ensure that ring-fencing, whose implementation has met with some challenges so far, benefits both government and companies.

Expatiating on the conflict between companies’ mode of operations and ring-fencing, Mr. Parimah said a mining area may overlap more than one lease area, with different pits or leases operated together as single business units or mines. 

In addition, mineral ore from different pits or mining areas are processed in centralised processing or treatment plants together with other ancillary activities. 

He added also that “mined material from different pits or different mining areas are mixed and treated in order to achieve a certain level of efficiency in the output, whereas many times investors are inclined to use existing operations as a basis to expand -- so they devote revenue from one mine to the development of another.” 

The nature of mining operations therefore requires caution in pushing forward with ring-fencing as it could have a harmful impact on the industry’s viability, he said.

The mining industry, he observed, had a relatively stable tax regime until recently when a number of sweeping changes were made. 

Among them were the increase in the corporate tax rate from 25% to 35%, the increase in the minerals royalty rate to 5%, and a change in the capital allowance regime for assets. 

Apart from these changes, there was also a proposal to introduce a windfall profit tax on mining companies. 

“These changes have had the effect of raising the cost of production, thereby raising the pay limit of ore bodies. It is in the light of these long lead times that mining companies have always sought to have a fixed and stable fiscal environment over a long time,” Mr. Parimah said. 

“Any sudden change in the fiscal environment impacts the mining industry severely, and some investment decisions may be adversely impacted,” he added.

Ghana Gov’t, experts ready to partner for appropriate tax policies

Government says it will engage the best tax experts in the country to help develop appropriate policies and structures to raise enough money locally for its expenditure.

 

“Ghana’s middle-income status has resulted in a reduction of concessionary loans and grants, so there’s need to re-strategise with a team of competent tax experts in coming up with the best tax policies for the country,” Deputy Minister of Finance and Economic Planning, Mr. Kweku Ricketts-Hagan said.

Opening the Chartered Institute of Taxation’s 2013 Annual Tax Conference in Accra under the theme “Tax Revenue Mobilisation in an Oil and Gas Economy”, Mr. Ricketts-Hagan said: “Government is committed to ensuring effective revenue mobilisation – and, much more, its utilisation -- to ensure an accelerated development of the country’s economy.

“For a country that has recently joined the oil-producing countries, the expectation of many is to see the trickle-down effect of the oil-tax revenue in the economy; however, there is need for conscious efforts at strategising if the government is to reap the full benefit of the oil find.”

Mr. Abdallah Ali-Nakyea, Director of WTS Ghana, a firm of tax attorneys and solicitors, said answers to challenges in oil revenue management will depend on the timing of spending and allocation of the spending subject to the constraints of oil-price volatility.

“Timing of spending has to do with determining current spending versus future spending -- that is, how much revenue should be spent now, and how much should be saved for the benefit of future generations.

“This poses a challenge because oil is a non-renewable natural resource, hence revenue inflows will dwindle as the resource depletes. There’s therefore a need to make provisions for the future.

“Ensuring that oil revenues are properly managed to lead to economic growth and development depends on the quality of how the oil revenue is spent, sustainability of fiscal policies across political regimes, and the existence of a realistic long-term development plan with identified priority areas of development and financing needs.”

He called on the state to uphold good governance to support accountability institutions, strengthen the processes and institutions of economic management, and ensure a transparent budgeting process as well as strengthen institutions of public financial management.

“There is need for properly designed fiscal rules as these can have large benefits in terms of reduced volatility, inter-generational equity, building buffers for bad times, policy credibility, and sustainability of priority expenditures.”

The rules, he said, should be transparent, make economic sense in view of the country’s circumstances, and be simple to understand and monitor. 

He proposed that oil revenues should be invested in areas such as housing infrastructure, road infrastructure and improved transportation, water and sanitation, human capital development through enhanced education and improved health delivery, sustainable and reliable energy supply, and the development of petrochemicals, agriculture and agro-business.

Many oil producing countries have found it difficult to smooth government expenditure over time and decouple it from the short-term volatility of oil revenues, leading to occasional boom-bust cycles.

Mr. Mike Kofi Afflu, President of the Institute, noted that since the country’s oil find in 2007, there has been several signs of apprehension as to whether the oil find will be a blessing or a curse.

“These concerns, unfortunately, are not unfounded but based on the experiences of a number of developing and developed countries which concentrated their revenue mobilisation efforts on non-renewable natural resources to the detriment of their traditional tax-handlers,” he said.

Salt, limestone seen as gold alternatives ...as the metal’s price plunges

Ghana’s overdependence on gold should be curbed through a diversification strategy that props up minerals such as salt and limestone, and allied sectors such as mining support services, the Minerals Commission has said.

 

Gold, which accounts for more than 90 percent of minerals-production in Ghana and more than 40 percent of export income, has seen its worst downturn in a decade with the commodity’s price sliding by one-fifth in 2013.

The drop has sent worrying signals that this will not only reduce the viability of mining operations, but also negatively affect government revenue and the economy. 

“We need to develop other ways of raising inflows and utilising other minerals so that the dependence on gold will be lessened,” said Ben Aryee, Chief Executive of the Commission. “Diversification is critical when it comes to planning.” 

Mr. Aryee was echoing calls for Ghana to cut its reliance on traditional minerals and expand salt production which promises a huge market in West Africa, and limestone -- a critical ingredient for Ghana’s rapidly-growing construction market.

“Ghana has the potential to produce salt in commercial quantities, but unfortunately the potential has not been exploited to its maximum extent. There is also a dimension of adding value to the salt produced. It should even feature in production in the oil industry,” said Mr. Aryee.

The country’s capacity for salt production is estimated at about 2.5 million tonnes per annum, but Ghana is only able to produce about 250,000 metric tonnes at present. 

Mr. Aryee said clinker, which is derived from limestone, is currently imported from Europe by cement manufacturers; but he said a plan is being developed to produce the ingredient locally.

As part of the diversification strategy, there should be a shift to mining supplies and allied services, Mr. Aryee said. The problem however is that allied industries, which rely on mainstream mining companies for their business, also have their fortunes tied to the vagaries of the gold price.

“Mining is going to end at some point in time,” said Mr. Aryee. “That is why we need to develop capacity for other industrial sectors.”

Inflation jumps to 11.8 % ….expected to ease in coming months

A local currency weakened by 1.7 percent depreciation in July pushed inflationary pressures upward to 11.8 percent for the first time in three years.

 

Ghanaians’ appetite for foreign consumer goods such as foods can be blamed for the surge in inflation for July.

Consumer price inflation rose to 11.8 percent in July compared with 11.6 percent in June, Dr. Philomena Nyarko, Government Statistician, said on Wednesday.

Food inflation was unchanged at 7.3 percent in July, the same as in June, while non-food inflation ticked slightly higher at 15.4 percent from 15.1 percent.  Clothing and footwear contributed 18.1 percent to the rate of inflation while miscellaneous goods and services added 17.7 percent.

“The exchange rate affected costs, especially imported foods,” Dr. Nyarko said. 

The rise, which represents 0.2 percentage points, was mainly driven by clothing and footwear, miscellaneous goods and services, furnishing, household equipment and housing -- largely influenced by the cedi exchange rate.

The rise is just outside the central bank’s target band of 2 percentage points either side of 9 percent, but it is expected to start easing in the next few weeks.

Dr. Nyarko, speaking to journalists in Accra at a news conference to announce the rate, explained that inflation is expected to fall when the harvesting season begins.

The pieces haven't fallen into their right places when it comes to macro-economic stability since the year began. 

But there have been concerns about macro-economic instability, due partly to the country’s increased deficit -- which is this year targetted to fall to about nine percent from 11.8 percent of gross domestic product in 2012.  The economy is forecast to grow at eight percent for 2013.

The wage bill jumped from about GH¢2billion prior to implementation of the new pay policy to about GH¢7billion in 2012, according to data from that year’s budget.

The deficit between January-April, this year stood at GH¢3.4billion -- equivalent to 3.8 percent of GDP but higher than the target of GH¢2.7billion, or 3 percent of GDP.

Government plans to streamline its expenditure and has requested Parliament to enact new tax measures to keep its 9 percent of GDP fiscal deficit target on track. Approximately 73 percent of domestic revenue from taxes is used to pay public service workers.

The cedi has been weak, partly due to fiscal irresponsibility on the part of government; and a balance of payment deficit, revenue shortfalls, heavy domestic borrowing by government, and other factors have also put the economy in very bad shape. 

The Bank of Ghana held its key lending rate at a 3 1/2 year high of 16 percent on July 31 to help halt the cedi’s slide. Proceeds from loans for cocoa purchases and a Eurobond sale last month are set to boost foreign-currency reserves and support the local currency.

Dr. Nyarko said: “Under normal circumstances, you would expect a decline and then an increase. Inflation should fall when harvest starts. The decline will be because of the harvest period, and an increase because of the celebrations in December. That is the trend that we expect, all things being equal; but we cannot be certain.”

She said imported food items for local supply influenced greatly the current inflation ahead of the start of the harvest season.