Creating an efficient mining royalty system

CREATING AN
EFFICIENT MINING
ROYALTY SYSTEM
Why make sub-national payments?
Local royalty to promote local development
RELUFA
Brendan Schwartz
Extractive Industries Program Assistant
Why make sub-national EI payments?
• (i) compensate for the depletion of the natural resources
•
•
•
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of the land belonging to its inhabitants
(ii) replace the existing revenues with sources for
economic development for the future generations
(iii) redress environmental damages caused by the
extraction
(iv) preempt autonomous taxation efforts by local
authorities if not duly compensated
(v) preserve harmonious political relations between the
central 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.
Local Royalty = Chance at Local Dev’t
• Extractive Industries are “economic islands”
• Create very few jobs—mostly 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***
THE REALITY OF MINING
ROYALTY MANAGEMENT IN
CAMEROON
Incomplete Regulation
Ad Hoc Practices
Lack of Information & Transparency
Incomplete Regulation
• ARTICLE 137 : (1) Les recettes recouvrées aux titres de la taxe ad valorem et de la
taxe à l’extraction pour toute activité d’exploitation des substances minérales sont
reparties et affectées ainsi qu’il suit :
•
• 25% au titre de droit à compensation des populations affectées par cette activité et
dont la répartition est la suivante :
•
• 10% au bénéfice des populations riveraines ;
• 15% au bénéfice de la commune territorialement compétente ;
• 25% au titre d’appui au suivi et contrôles techniques des activités concernées par les
ingénieurs et agents commissionnées de la Direction chargée des mines ;
• 50% au profit du Trésor public.
•
• (2) Les modalités d’affectations des quotes-parts des
• populations riveraines et de la commune seront définies par
arrêté conjoint du Ministre chargé des mines et du Ministre
chargé de l’économie et des finances. Une décision du Ministre
chargé des mines fixe les modalités d’affectation de la quotepart relative aux suivis et contrôle technique.
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 Cameroon’s East Region—particularly 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 the
Ministry of Mines regional office in Bertoua where the Ad Valorem Tax Is levied and re-distributed according
to 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 taxed—huge losses for national treasury and local communities
Ad Hoc System & Small Mines
• Small Mines
• Cameroon’s 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 permits
from artisan groups.
• Companies import machinery to operate the mines and share gold/diamond
production 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 divided
between 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 Cameroon’s Mining Code.
BUILDING CAMEROON’S SUBNATIONAL ROYALTY SYSTEM
FOR MINING
How Royalties are calculated and shared
Royalty Value Chain
Reinforce Regulations and Institutions
Transparency
Participation
Calculating the Royalty in Cameroon
Quarry Mines
• Extraction Tax:
• 150 Francs CFA/ M3
(Matériaux meubles)
• 300 Francs CFA/ M3
(Matériaux durs)
See Article 142 of Mining Code Application
Decree
Artisanal, Small & Industrial
Mines
• 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 Application
Decree
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
Cameroon: Mining Royalty Flow Chart (In
Principal)
SALE OF MINERAL
Tax collected at local or
national level
DGE/DGI
REGIONAL MINING AND
FINANCE DELEGATIONS
Ad Valorem Tax
2.5% - 8% of mineral
value
Ad Valorem Tax
2.5% - 8% of mineral value
NATIONAL
TREASURY
MINISTRY OF
MINES
LOCAL
ROYALTY
50% of Tax
25% of Tax
25% of Tax
LOCAL
COUNCILS
LOCAL
COMMUNITIES
15% of Tax
10% of Tax
Mining Royalty Value Chain
1
Monitor Company Production
4
Calculate Local Royalty (Subnational Payment)
2
Determine Mineral Price
5
Transfer Royalty to Subnational Level
3
Collect Tax Payment
6
Local Development
Planning and Expenditure
Monitor Company Production
• Direction des Mines—
just 17 “qualified”
employees at national
Monitor Company Production
and local levels.
• Just 1 employee at
• RECOMMENDATIONS
Yokadouma.
• 1) Increase Personnel
• Insufficient for
• 2) Physically visit
monitoring company
mines to ensure
production
declarations are
authentic
1
Determine Mineral Price
Mother Company
2
Determine Mineral Price
• Most Important in Value Chain!!!
• Mining companies sell
minerals to subsidiaries of
the same company (60%
of all international trade)
Sub A
African
Sub B
Tax Haven
• Sell at artificially low price to avoid
taxes
• IMF/GFI estimate Cameroon lost
$11.5 billion from Trade Mispricing
1970-2008.
• Africa loses $90 Billion/year
• Glencore: Zambia lost $11 Billion in 2008
Determine Mineral Price
• ARTICLE 145 : (1) Avant la sortie du
2
Determine Mineral Price
• RECOMMENDATIONS
• 1) Use Mineral Prices
on international
commodity exchanges
stock et pour chaque expédition de lots
de produits marchands, l’exploitant de
substances minérales adresse une
déclaration aux services compétents
chargés des mines.
• Diamonds: 100 Million FCFA sold = 2
Million FCFA for sub-national entities
• Same Diamonds: 25 Million FCFA =
500,000 FCFA for sub-national entities
• Trade Mispricing threatens Cameroon’s
sub-national payment system and
benefits for local communities.
Collect Tax Payment
• PSRMEE was created in
3
Collect Tax Payment
• RECOMMENDATIONS
• 1) PSRMEE needs to play a
central role in the mining
sector like PSRF in forestry
sector
• 2) More human and financial
resources
2002 to maximize revenue
collection from the mining
sector, but remains marginal.
• PSRMEE does not have the
capacity to collect all mining
taxes or publish dependable
statistics—only 57% of dues
collected in 2006.
• Ad Valorem/Extraction Tax
must be collected for mining
royalty to work
Calculate Local Royalty (Sub-national
Payment)
• Calculating the local mining
4
Calculate Local Royalty (Subnational Payment)
• RECOMMENDATIONS
• NONE:
• MINIMIDT already has a form
to calculate and divide up the
royalty for each stakeholder.
royalty is very simple:
• 15% of tax for local council
• 10% for local community
Transfer Royalty to Sub-national Level
• Transfers will be made from
5
Transfer Royalty to Subnational Level
• RECOMMENDATIONS
• 1) Promulgate Joint Ministerial Order
MINFI-MINIMIDT (consult stakeholders)
• 2) Transfers need to be made according
to a calendar agreed upon by all
stakeholders
• 3) Need transparency component at
local and national level—integrate subnational transfers into EITI (Ghana)
different levels—need
coordination:
• Regional level
• National level
• Create local revenue
management committees
• Separate bank accounts for
mining royalty
• Learn lessons from PSRF
and 520
Local Development Planning and
Expenditure
• Sub-national entities
6
Local Development Planning
and Expenditure
• RECOMMENDATIONS
• 1) Companies should publish Ad
Valorem Tax estimates (Geovic)
• 2) Re-think revenue sharing—
look at all mining taxes
• 3) Strict financial control of
Mining royalty expenditures
should develop local
development plans
• Need to know
approximately how much
$$$ they will receive over
the life of a project
• Need transparent
awarding of public
contracts in sub-national
expenditures
Questions & Debate
• Merci pour votre attention!