Ghana’s Mining Stability Agreement: The Blame Game is on

By: Fred Yaw Sarpong- Daily Express

The mining stability agreement signed between the government of Ghana and companies to protect the investment of the companies due to the risk of mining and it being an expensive venture does not guarantee that investors will necessarily put in their money.

Government also by its action can disturb the stability agreement by passing new laws, by changing fiscal regime, or by even nationalizing private companies into stable firms.

In order to ensure that these investments are protected and companies or investors are not disadvantaged, with a new law, policy or change in a new fiscal regime, companies must ensure that they have stability agreement between them and the government. So any new law the government make which is likely to disturb the economic equilibrium clause in the original investment contract will not be accepted by the companies.

It is in view of this that the Government of Ghana announced its intention to review stability agreements between the state and all mining companies operating in the country. Government announced this about four years ago and by 2015 the government has still not been able to finalize the agreement with the companies.

The government has set up a seven-member team headed by Prof. Akilakpa Sawyerr to review, re-negotiate and redesign the entire mining regime agreements so that the state derives maximum benefit from the sector.

                                                             Prof. Akilakpa Sawyerr
 

As part of their duties, the team was asked to review and re-negotiate any part of the stability agreement between Ghana and any of the mining companies in the country in the best interests of the country.

Also, the negotiation team is to revise the manner of granting stability agreements, and redesign any existing or draft agreement to ensure that it yields better social and economic returns for the country.

But while answering some questions from journalists in Accra recently, Prof. Sawyerr said the negotiation is still on-going, adding that it involves a lot and they need to be careful so as not to repeat past mistakes.

“There have been difficulties since we started this negotiation. This is simple because our existing mining laws are not in favour of this country at all,” he stated, adding that they are trying to give a better deal for Ghana.

According to him they have realised that Government at times raise resources from some mining companies for developmental projects and this has affected their negotiation, even though they are trying to make the companies to understand why the need for renegotiation of the stability agreement.

However, the mining companies have said that the changes to the mining sector stability agreement would put their investments at risk. They are of the belief that the government is trying to make things difficult for them.

A stability agreement normally freezes mineral royalty and other tax-rates paid by a company over a 10- to 15-year period creating a situation where very little of the windfall earnings of a beneficiary company accrue to the state.

The stability agreement seeks to protect all mining companies in the country. However, it will also go to affect some mining companies in one way or the other, especially those that do not have such agreements, since they started operations in Ghana.

This new stability agreement allows the government to introduce a new process of bidding system for mining licences and mining certificates in the country. Before the adoption of the review and renegotiation of stability agreement, mining licences are awarded on a first-come-first-served basis. It also takes into consideration the company’s ability to deliver on its proposed activities.

The new system will see concessions put out for international tender and interested companies would submit details proving that they have the technical and financial capabilities to develop awarded concessions.

It will also bring much-needed clarity and sophistication to Ghana’s mining sector, as well as contribute to greater transparency through open, competitive processes.

Among the over 20 large-scale mining companies operating in Ghana currently, it is only AngloGold and Newmont that have mining Stability Agreements with the Government of Ghana.

                                                                 Mining Field

There have been several arguments that government is in bed with these companies, which perhaps is the reason why the review has been delayed. The big question many industry experts are asking is why should government seek funds from these companies for developmental purposes and ask them to review their stability agreement with the state?

Government is negotiating this agreement because the mining industry has grown, figures involved have almost tripled yet the original terms of the agreement between them and the government are not revised to enable the government capture more of the windfalls. 

So, if government succeeds in reviewing the stability agreement it will be of benefit to the country. For instance, since 2012 government has announced fiscal terms by increasing corporate tax in the mining sector from 25% to 35%, windfall tax of 10%, introduced capital allowance by which cost can be recovered within a five year period, government also introduced refencing for the mining sector.

Unfortunately these two big companies (Newmont and AngloGold) are not allowing it to work because the government have stability agreement with them and if they are introduced there is no doubt that it will affect their economic equilibrium.

And so these companies have protested the introduction of this new stability agreement and government seems to have chicken-in because the windfall bill that went to parliament has been withdrawn and some of the other provisions that were mentioned have not been implemented yet.

But some industry experts have said that government must be bold in negotiating these agreements.

Dr. Mohammed Amin Adam, the ‎Executive Director at Africa Center for Energy Policy (ACEP) said Government must be very bold because these companies have really nowhere to go. ‘‘Because wherever you go in Africa governments are introducing new fiscal terms. You can mention Tanzania, Zambia, Gambia and even South Africa. So if Ghana government is chinking in with them with the excuse that these companies will remove their investment from Ghana, where will they take it to?”

He said these companies will be met with stiffer fiscal terms wherever they will go. “Maybe Ghana’s fiscal terms will be better as compared to these countries. So government need to stand by its own action and ensure that they are implemented for the benefit of the people of this country.”

Dr. Amin Adam said because other smaller companies do not have stability agreement there is no level playing field for them in the mining sector. “If the argument is that negotiating stability agreement with Newmont and AngloGold they will leave this country, what about these (about 16 firms) many small companies which are operating in Ghana without stability clauses?”

“Investment climate is not fair for these (about 16 firms) companies because there is no level playing field for mining companies operating in the country. Why will two have stability agreement when others do not have? Those big companies with stability agreement are making more profit than those smaller companies who do not have stability agreement and that need to be looked at,” Dr. Amin Adam pointed out.

He said it is the smaller companies that provide a large number of jobs to Ghanaians compared with the two companies. He said the smaller companies also provide local content but the big companies have everything.

According to him, “the industry lobbying is very strong and government is jittery because it has fiscal challenge and it is also afraid that revenue from the mining sector may decrease because investment made by these companies may slow down,” adding that government should not be jittery because these companies are not the only source of Ghana’s revenue. “We never had oil. But now we are generating some revenues from the oil sector.”

“So if government takes a stand now that will be of benefit to this country in future it is far better than allowing these big companies to enjoy. As a country we must gain from the operation of these entities,” he cautioned.

Since the government’s intention to review and renegotiate the stability agreement, some personalities and civil society groups have called on the government to expedite action on introducing the agreements. One of such institutions is the Ghana Chamber of Mines- the umbrella body of the mining companies has asked government to quick the review and renegotiate stability agreement to guarantee investor confidence in the country's mining regime.

Ahmed Nantogmah, Director of Public Affairs and Environment at Ghana Chamber of Mines welcomed the government’s decision to review the stability agreement. He said what is very important is that the introduction of this new agreement will not cripple mining operation in the country.

The Chief Executive Officer (CEO) of Ghana’s Minerals Commission, Dr. Toni Aubynn, recently said that he is expecting the committee reviewing the stability agreement to work faster, because investors are very sensitive to instability. He said what government is looking for is win-win situation where both the mining operators and Ghanaians will benefit from the sector.

                                                  CEO, Ghana's Minerals Commission

‘‘Investors should be rest assured that the fiscal regime will not let them down. Government will take into consideration the review being done. “I know what investors are looking for is stability in the regime over a period of time. "Investors apply a lot of speculation and this requires planning, so they want assurance that the regime will not change every year," Dr. Aubynn said in a recent interview with the B&FT newspaper.

A coalition of civil society groups have also called on the government to speed up the review of any stability agreement signed between the state and any mining company in the country, in a manner that will balance profitability with fiscal investment in the country's economy. The coalition said the agreements must be framed to avoid a situation where the country's stake in the mining industry is locked up in its efforts to mobilise revenue.

"The stability agreements are not good for the economy of Ghana. About 10 to 15 years ago they were necessary for Ghana because we were not sure of our political stability. Today  Ghana is a beacon of hope in Africa in terms of political stability, so there's no reason why we should make special provisions for mining companies," Mr. Abdulai Darimani, Head of Environment Unit at the National Coalition on Mining (NCOM) stated.

According to the Ghana Statistical Service (GSS), mining and quarrying sector dropped from GHc711.4 million in the fourth quarter of 2013 to GHc667.6 million in the fourth quarter of 2014, representing a negative 2.4%.

May 2015 report from the Monetary Policy Committee (MPC) of the Bank of Ghana (BoG) stated that gold prices could come under some pressure in the first half of 2015 as financial markets continue to anticipate the Federal Reserve rate hikes. Prices are projected to remain within the range of US$1,180 and US$1,250 per ounce.  

Meanwhile, the current statistics from the Ghana Chamber of Mines revealed that Ghana’s output, in terms of gold, increased by 2.1 percent to 97.8 tonnes in 2013 but its share in total gold output remained constant at three percent. In the event, the country slips to the position of ninth leading gold producer in 2013 relative to eighth in 2012.

The chamber said the sector contributed 37.6 percent of total merchandize exports in 2013 as compared to 43 percent in 2012, the minerals sector continued to be a leading source of foreign exchange for the country. The role of this inflow in propping up the value of the currency cannot be underestimated.

The chamber’s 2013 report presented in 2014 said the mining and quarrying sub-sector maintained its position as the foremost contributor to domestic revenue in 2013.

According to the Ghana Revenue Authority (GRA), a total outflow from the sector to the nation’s purse was approximately GHc1.1 billion in 2013. This amount represented 18.7 percent of direct tax and 14.3 percent of total domestic revenue mobilized by the GRA in 2013. Declines in revenue and profit levels were the main drivers of the subdued tax revenue performance in 2013 as compared to GHc1.5 billion in 2012.

Pay-As-You-Earn (PAYE), company tax and royalty receipts were quoted at GHc220 million, GHc518 million and GHc364 million respectively by the GRA. It is instructive to note, however, that Newmont Ghana Gold and Gold Fields Ghana were the largest payers of company tax respectively in 2013, according to the chamber’s 2013 report.

The Ghana Living Standards survey conducted by the Ghana Statistical Service from 18th October 2012 to 17th October 2013 indicated that the total workforce in the large scale mineral mining industry stood at 17,103 at the end of 2013, representing 16,819 Ghanaians and 289 expatriates while the total number of people employed in the mining and quarrying sector (both formal and informal) estimated at 260,662.