creating an efficient mining royalty system

8/12/2019 Creating an Efficient Mining Royalty System

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CREATING ANEFFICIENT MINING

ROYALTY SYSTEMWhy make sub-national payments?Local royalty to promote local development

RELUFA

Brendan Schwartz

Extractive Industries Program Assistant


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Why make sub-national EI payments?

(i) compensate for the depletion of the natural resourcesof the land belonging to its inhabitants

(ii) replace the existing revenues with sources foreconomic development for the future generations

(iii) redress environmental damages caused by theextraction

(iv) preempt autonomous taxation efforts by localauthorities if not duly compensated

(v) preserve harmonious political relations between thecentral government and the periphery.

Morgandi, Matteo. Morgandi, Matteo. Extractive Industrie Revenue Distribution at the Sub-National Level: The Experience in Seven Resource-Rich Countries. RWI, 2008.


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Local Royalty = Chance at Local Devt

Extractive Industries are economic islands

Create very few jobsmostly low-paying

Depend on imported technologies

Not much local content in Cameroon

Sub-national payments can provide large $$$and lead to

local development if managed properly ***Need citizen participation***


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THE REALITY OF MININGROYALTY MANAGEMENT IN

CAMEROONIncomplete Regulation

Ad Hoc Practices

Lack of Information & Transparency


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Incomplete Regulation ARTICLE 137 :(1) Les recettes recouvres aux titres de la taxe ad valorem et de la

taxe lextraction pour toute activit dexploitation des substances minrales sontreparties et affectes ainsi quil suit:

25% au titre de droit compensation des populations affectes par cette activit et

dont la rpartition est la suivante : 10% au bnfice des populations riveraines ; 15% au bnfice de la commune territorialement comptente ; 25% au titre dappui au suivi et contrles techniques des activits concernes par les

ingnieurs et agents commissionnes de la Direction charge des mines ; 50% au profit du Trsor public.

(2) Les modalits daffectations des quotes-parts des populations riveraines et de la commune seront dfinies pararrt conjoint du Ministre charg des mines et du Ministrecharg de lconomie et des finances.Une dcision du Ministrecharg des mines fixe les modalits daffectation de la quote-part relative aux suivis et contrle technique.


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Absence of Rules Ad Hoc System Industrial Mines Just two Exploitation permits: Geovic and C&K, finalizing feasibility studies. No activity, no Ad Valorem Tax

Quarry Mines 150 quarry mining permits:

PSRM collected 162 million CFA in extraction taxes in 2009 and 84 million in 2010. Lack of information: Could find no information on the sub-national distribution of the extraction tax or its use

in the local councils and communities

Artisanal Mines Artisanal mining is concentrated in Cameroons East Regionparticularly the Betare Oya area. Artisans primarily produce gold and diamonds in very small volumes.

CAPAM, purchases gold and diamonds directly from local artisans. This production is declared at theMinistry of Mines regional office in Bertoua where the Ad Valorem Tax Is levied and re-distributed accordingto article 137 of the Application Decree.

Communities are unaware they have the right to 10% of the Ad Valorem Tax Unclear administrative procedure for creating revenue management committees In practice, local councils manage the 10% of the Ad Valorem Tax destined for local communities PSRM reports the government received 21 million FCFA in Ad Valorem Tax payments in 2009 and 46

million in 2010 Only 10% of artisanal production taxedhuge losses for national treasury and local communities


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Ad Hoc System & Small Mines Small Mines Cameroons Mining Code of 2001 does not provide guidance on permitting or

taxing small mines. In practice, small mines are developed primarily by foreign companies (Chinese,

Korean, South African) which lease a series of adjacent artisanal mining permitsfrom artisan groups.

Companies import machinery to operate the mines and share gold/diamondproduction with the artisans from whom they lease the permit areas. This practice is illegal since articles 9 and 24 of the mining code state that

artisanal mining is exclusively reserved for Cameroonian nationals. Some companies pay the Ad Valorem Tax while the majority pay a monthly flat fee

of 3.5 million FCFA. The Ad Valorem Tax and flat fees are subsequently dividedbetween a series of committees run by local administrative and traditional

authorities: 1. Supervision Committee 2. Management Committee 3. Monitoring Committee.

Local Councils also receive a portion of the revenues generated from the flat fees. The small mine revenue distribution system is very troubling as it operates entirely

outside of spirit and letter of Cameroons Mining Code.


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BUILDING CAMEROONS SUB-NATIONAL ROYALTY SYSTEM

FOR MININGHow Royalties are calculated and sharedRoyalty Value ChainReinforce Regulations and InstitutionsTransparencyParticipation


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Calculating the Royalty in Cameroon

Quarry Mines

Extraction Tax:

150 Francs CFA/ M3(Matriaux meubles)

300 Francs CFA/ M3

(Matriaux durs)

See Article 142 of Mining Code ApplicationDecree

Artisanal, Small & IndustrialMines

Ad Valorem Tax:

Precious Gems (Diamonds,Sapphires, etc.): 8%

Precious Metals (Gold,Platinum, etc.): 3%

Basic Metals and other Metals

(Iron, Bauxite, etc.): 2.5% Geothermal Deposits (Various

Classifications of Water): 2%

See Article 144 of Mining Code ApplicationDecree


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Distribution of Proportional Taxes

Article 137 of Application Decree

25% for impacted populations:

-15% for the Local Council -10% for local communities

25% for the Ministry of Mines for project monitoring

50% for the National Treasury


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Cameroon: Mining Royalty Flow Chart (InPrincipal)

SALE OF MINERAL

Tax collected at local or

national level

DGE/DGI

Ad Valorem Tax

2.5% - 8% of mineral

value

REGIONAL MINING AND

FINANCE DELEGATIONS

Ad Valorem Tax

2.5% - 8% of mineral value

NATIONALTREASURY

50% of Tax

MINISTRY OFMINES

25% of Tax

LOCALROYALTY

25% of Tax

LOCAL

COUNCILS

15% of Tax

LOCAL

COMMUNITIES

10% of Tax


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Mining Royalty Value Chain

Monitor Company Production Determine Mineral Price Collect Tax Payment

1 2 3

Calculate Local Royalty (Sub-national Payment)

Transfer Royalty to Sub-national Level

Local DevelopmentPlanning and Expenditure

4 5 6


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Monitor Company Production

RECOMMENDATIONS

1) Increase Personnel

2) Physically visitmines to ensuredeclarations are

authentic

Direction des Minesjust 17 qualified

employees at national

and local levels. Just 1 employee atYokadouma.

Insufficient formonitoring companyproduction

Monitor Company Production

1


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Determine Mineral Price

Most Important in Value Chain!!!

Mining companies sell

minerals to subsidiaries ofthe same company (60%of all international trade)

Sell at artificially low price to avoidtaxes

IMF/GFI estimate Cameroon lost$11.5 billion from Trade Mispricing1970-2008.

Africa loses $90 Billion/year Glencore: Zambia lost $11 Billion in 2008


2Mother Company

Sub A

African

Sub B

Tax Haven


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RECOMMENDATIONS

1) Use Mineral Prices

on internationalcommodity exchanges

ARTICLE 145 :(1) Avant la sortie dustock et pour chaque expdition de lotsde produits marchands, lexploitant desubstances minrales adresse unedclaration aux services comptentschargs des mines.

Diamonds: 100 Million FCFA sold = 2Million FCFAfor sub-national entities

Same Diamonds: 25 Million FCFA =500,000 FCFA for sub-national entities

Trade Mispricing threatens Cameroons

sub-national payment system and

benefits for local communities.


2


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Collect Tax Payment

RECOMMENDATIONS 1) PSRMEE needs to play a

central role in the miningsector like PSRF in forestrysector

2) More human and financialresources

PSRMEE was created in2002 to maximize revenuecollection from the miningsector, but remains marginal.

PSRMEE does not have thecapacity to collect all miningtaxes or publish dependablestatisticsonly 57% of duescollected in 2006.

Ad Valorem/Extraction Taxmust be collected for miningroyalty to work

Collect Tax Payment

3


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Calculate Local Royalty (Sub-nationalPayment)

RECOMMENDATIONS NONE:

MINIMIDT already has a formto calculate and divide up theroyalty for each stakeholder.

Calculating the local miningroyalty is very simple:

15% of tax for local council

10% for local communityCalculate Local Royalty (Sub-

national Payment)

4


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RECOMMENDATIONS 1) Promulgate Joint Ministerial Order

MINFI-MINIMIDT (consult stakeholders)

2) Transfers need to be made accordingto a calendar agreed upon by allstakeholders

3) Need transparency component atlocal and national levelintegrate sub-national transfers into EITI (Ghana)

Transfers will be made fromdifferent levelsneedcoordination:

Regional level

National level

Create local revenuemanagement committees

Separate bank accounts formining royalty

Learn lessons from PSRFand 520


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Local Development Planning andExpenditure

RECOMMENDATIONS 1) Companies should publish Ad

Valorem Tax estimates (Geovic) 2) Re-think revenue sharing

look at all mining taxes

3) Strict financial control ofMining royalty expenditures

Sub-national entitiesshould develop localdevelopment plans

Need to knowapproximately how much$$$ they will receive overthe life of a project

Need transparentawarding of publiccontracts in sub-nationalexpenditures

Local Development Planningand Expenditure

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Questions & Debate

Merci pour votre attention!

creating an efficient mining royalty system

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