Congo Said to Plan Boosting Mine Royalties, Increase Stakes
The Democratic Republic of Congo plans to increase mine royalties and raise its stake in future projects as it tries to carve out a bigger slice of the country’s decade-long metal-extraction boom, according to a revised mining code.
The central African country’s mining industry has seen record growth since the 2002 code came into effect at the end of almost a decade of civil war. Now the government is demanding terms more favorable to the economy from companies. Copies of the code, which has been submitted to parliament, were obtained separately from five people involved in talks about the revisions. They asked not to be identified because it hasn’t been made public.
“The growth of the mining sector, both industrial and artisanal, which should bring the state substantial revenue for economic and social development, has not fulfilled numerous expectations,” the government said in a note explaining the revisions given to parliament last month.
Mines run by companies including Baar, Switzerland-based Glencore Plc and Phoenix-based Freeport-McMoRan Inc. have helped Congo become Africa’s largest copper producer and the world’s leading source of cobalt in the past decade. Annual copper production increased more than 30-fold from 2002 to 2013 to more than 900,000 metric tons, according to the government, while cobalt output jumped almost sevenfold to 76,000 tons. Industrial gold production, which stopped during the war years, may have surpassed 15 tons in 2014 from projects run by London-based Randgold Resources Ltd. and Toronto’s Banro Corp., the government says.
Poorest Country
Still, the nation’s annual per-capita income of $444 is the world’s lowest, according to the United Nations Development Programme, which ranked Congo the second-least developed country last year.
The proposed code raises royalties on copper and cobalt revenue to 3.5 percent from 2 percent and on gold and other precious metals to 3.5 percent from 2.5 percent. The royalty on diamonds and other gems will increase to 6 percent from 4 percent.
The government’s free share of new mining projects will increase to 10 percent from 5 percent, according to the code, while profit tax jumps to 35 percent from the current 30 percent.
Miners say the changes will hamper investment and have worked to delay the code revisions for almost three years.
‘Disaster’ Looms
“It would spell disaster for both the copper and gold-mining sectors in the DRC,” Congo’s main business group, the Federation des Entreprises du Congo, said in a March 30 position paper on the revisions e-mailed to Bloomberg by one of the people.
The government shouldn’t change fiscal terms while the industry is already struggling with falling metal prices and insufficient electricity in the country, the FEC said.
Copper for delivery in three months fell 0.8 percent to $5,945 a ton on the London Metal Exchange on Tuesday and was unchanged at 1:16 p.m. in Singapore. The price has dropped 5.6 percent this year. Gold eased 0.1 percent to $1,191.56, paring its advance since Jan. 1 to 0.6 percent.
Mines Minister Martin Kabwelulu didn’t respond to mobile-phone messages and e-mails sent to the Mines Ministry requesting comment.
A plan to reduce the current 10-year guarantee before the code can be amended to five years for new projects and a proposed 50 percent windfall-profit tax “will just increase the view of investors that the DRC is a very unstable jurisdiction,” FEC said.
Code Terms
Current holders of exploration permits can keep the 10-year guarantee of the code’s terms if they transform their titles into exploitation permits within two years, the proposed code says.
Miners already face constant harassment from tax officials and the country would be better off if it strictly applied the code instead of revising it, FEC said.
Transparency International ranked Congo 154th out of 175 countries surveyed for its annual corruption perceptions index last year.
The Atlanta-based Carter Center, which has participated with Congolese civil society groups in discussions with the government and companies about the revisions, warned against passing the proposed law too quickly.
“A detailed analysis that accurately reflects the realities on the ground is worth the investment of time and resources,” Daniel Mule, revenue coordinator for the Carter Center’s DRC Mining Governance Program, said in an e-mailed response to questions.
Insufficiently Comprehensive
“Past analyses have not been sufficiently comprehensive, and have revealed significant under-collection of key revenue flows, such as profit taxes and dividends to the state,” Mule said. The revision should focus on closing tax loopholes in the current code, “rather than simply negotiating the rate of state royalties in the abstract,” he said.
Miners warned that if the code passes, Congo could face a situation similar to neighboring Zambia, where a January increase in royalties forced some companies to shutter their mines. Zambia is now amending the revisions.
Congo’s mines ministry has said companies will still be able to discuss the revisions during the parliamentary session, which lasts until mid-June.
(An earlier version of this story removed the reference to contracts in the 13th and 14th paragraphs.)
www.bloomberg.com/news/articles/2015-04-14/...-increase-stakes
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