11 June 2012

Ghana: Nation to Retain Stability Agreements

The National Coalition on Mining (NCOM) has repeated its call for stability agreements (or clauses) to be expunged from mining regulatory framework as well as mineral agreements signed between the Government of Ghana and mining companies.

But government doesn't appear keen on the abolition of the policy, according to excerpts of a document believed to be the terms of reference (TOR) for a government negotiating team that is re-negotiating the terms of agreements between the state and mining companies with stability agreements.

The document, intercepted by this paper, tasks the team to "Prepare Framework of Guidelines for granting Stability Agreement for the mining sector in a manner that maximises the flow of economic and social value to the country in a sustainable manner."

Stability clauses or agreements are provisions in a contract that exempt companies from future legislations and regulations which are of adverse effect. But the companies are entitled to enjoy the benefits of legislations and regulations that set out favourable conditions for businesses.

Lawyer Augustine Niber, who heads the Accra-based Centre for Public Interest Law (CEPIL), says such agreements would usually exempt companies from new enactments that have adverse effect as well as changes (upwards) to the level and payment of custom and other duties.

He adds that stability agreements also freeze the level of and payment of royalties, taxes, fees and other fiscal imports. Finally, laws relating to exchange control, transfer of capital and dividend remittance are also affected.

Experts say current negotiations between government and top mining companies including Newmont Ghana Gold Limited (NGGL) is a classical example of how stability agreements affect moves to increase revenue mobilisation for the state.

The companies, Public Agenda has learnt, insist government cannot compel them to obey the new royalty rate which has been fixed at five percent following the amendment by parliament of provisions on royalty payments, reviewing the rate from a range of 3-6 percent to a fixed five percent.

The Ghana Minerals and Mining Act, 2006 (Act 703) permits the Minister responsible for mining (currently Minister for Lands and Natural Resources) to enter into stability agreements with mining companies for a period not exceeding 15 years if they invest $500 million and over.

Meanwhile, an inter-ministerial task team was put together by government to review the "Newmont Investment Agreement". Upon the team's recommendation, a government negotiating team has also been put together by the Ministries of Finance and Economic Planning and Lands and Natural Resources to re-negotiate the terms of agreements between the state and mining companies with stability agreements.

The negotiating team, headed by Professor Akilagpa Sawyer, a consultant, was put together in January 2012 with an additional task of reviewing all mining agreements. The duration of the exercise is not immediately clear.

Last Monday, Abdulai Daramani, Programme Officer at the Secretariat of NCOM, told selected journalists in Accra that NCOM had been invited by the negotiating team to make input. He was briefing the journalists on an emergency meeting which some members of the Coalition held on the same day to fashion input into the negotiation as well as evaluate performance of the implementation of the Natural Resource and Environmental Governance (NREG) programme, the outcome of which was to inform the group's contribution at the civil society NREG sector review meeting which ended in Accra last Thursday and a natural resource summit expected to come off in July.

On stability agreements, he observed: "Stabilisation [clause] is helping to stabilise mining companies but in terms of revenue mobilisation it is destabilising the state of Ghana."

Therefore, the Coalition which was hoping to meet with the negotiation team would preliminarily suggest the abolition of stability clauses.

In a telephone interview on Wednesday, Mr Daramani confirmed to Public Agenda that the group had met with the Team and requested a copy of its TOR to enable the Coalition study and fashion their input along the lines of the committee's remit.

Nonetheless, the Coalition preliminarily suggested that stability agreements should not be offered to future investors in the mining sector. Besides, "we are asking that we should have timeframe for reviewing stability agreements."

To wit, the Coalition wants stability clauses in existing mining leases to be reviewed, if possible, every two years to ensure that the nation is able to align existing economic conditions with demands on companies.

In specific terms, the Coalition views stability agreement as an incentive package in itself therefore fresh negotiations with existing companies should build certain provisions into the agreement, such as a local content increment percentage, linkages in value addition and companies' contribution to infrastructure development.

Richard Ellimah, a member of NCOM, argues that stability agreements and other incentives for mining companies were justifiable in the 1980s because of political and economic instability in Ghana and other African countries. However, the trend has changed to more stable political environment. "Economically the continent has made strides. Therefore, it is very unjustifiable to continue to have stability agreements."

NCOM's substantive contribution into the review process is expected to include matters relating to capital flight, capitalisation of expenditure and windfall profit.

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