A new mining agreement between the Sierra Leone government and a UK-based company, London Mining, undermines legislation designed to ensure the country derives full benefit from its mineral wealth.
Significant income tax and import duty concessions are among 11 provisions in total that Christian Aid partner the National Advocacy Coalition on Extractives (NACE) says are inconsistent with the country's Mines and Minerals Act.
An earlier deal in 2010 was widely criticised by civil society organisations in Sierra Leone when made public. The new agreement, passed in recent days by the Sierra Leone parliament, goes some way to improving matters, says NACE, but is still of concern.
'The agreement makes a mockery of the country's attempt to derive badly-needed revenues from its mining industry and is an abuse of the national mining laws,' said NACE coordinator Cecilia Mattia.
'We are especially concerned that the tax concessions offered will drastically reduce the potential revenues to the government and the country. The agreement contradicts a promise made to the IMF in 2010 that the Mines and Minerals Act would apply to all new mining contracts.
'The agreement sends a wrong signal internationally that Sierra Leone does not abide by its enacted laws. And it undermines the government's supposed commitment to create a level playing field for companies to operate in Sierra Leone and to encourage reputable foreign investments.'
The agreement covers the extraction of iron ore from the Marampa mine, 100 miles north east of the capital Freetown. The first shipment from the mine was made earlier this year, with production expected to rise to 5m tonnes annually and possibly nearly double that figure.
The project has been hailed by some as a sign of hope in one of the poorest countries in the world still bearing the scars of a brutal civil war that ended a decade ago.
The Mines and Minerals Act was recently tightened up to address the low mining revenues that the country earns from its extractive sector, which amounted to US$10.2m in 2007 and US7.2min in 2006.
Some of the major anomalies in the deal which NACE opposes include:
London Mining retains a 6 per cent income tax rate for three years and then pays 25 per cent. This is a significant concession compared to the 30 per cent standard rate provided for in legislation.
The company only pays 1 per cent import duty on the value of imports of mining equipment for the first eight years, compared to 3 per cent set in the legislation.
The company is exempted from paying Roads Users Fuel Levy; the current agreement allows the company to pay 20 per cent of the prevailing rate.
In the new agreement, London Mining increases its commitment to pay money into a fund to benefit communities affected by the mining. It says that for the first five years that it sells at least 1million tonnes of iron ore, it will pay at least 1 per cent of gross sales into a Community Development Fund.
However, it can offset these payments against tax, which NACE says is inconsistent with requirements under the Mines and Minerals Act.
Further information: In Sierra Leone from NACE Coordinator Cecilia Mattia on 076602470 or 82 Soldier Street, Freetown.
In London from Andrew Hogg on 0207 523 2058 or 07872 350534 or call duty press phone 44 (0)7545 501 749.
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