Moving towards international best practice: a review of Africa

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Moving towards international best practice
a review of Africas top mineral regulatory
regimes Peter Leon Partner, Webber
WentzelJohannesburg South AfricaChairman,
Mining Law CommitteeInternational Bar
AssociationMine Africa Promoting investment in
Africa Toronto9 March 2010

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Structure

• Introduction to regulatory best practice
• An overview of commendable components of three of
  Africas best practice jurisdictions
• Botswana
• Administrative discretion
• Fiscal and taxation conditions
• Dispute resolution
• Ghana
• Administrative institutions
• Investment protection and dispute resolution
• Namibia
• Administrative institutions
• Mining Cadastre

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Introduction to regulatory best practice

• International competition for private investment
  has compelled countries to adopt legislative
  reforms which are investor friendly
• A mining regulatory regime should balance the
  interests of private investors, government,
  community as well as address environmental
  concerns
• A comprehensive economic, social and
  environmental management system should be
  developed. Such a system must include
• efficient macro-economic management
• an effective legal and regulatory framework
• security of tenure
• objective criteria for the grant of exploration
  and mining licences
• limited administrative discretion
• a defined role for Government 
• efficient mining sector institutions and
  administrative capacity
• physical and infrastructure services
• competitive fiscal and taxation conditions and
• effective investment protection

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BotswanaBackground

• Background
• Mining (and diamond mining in particular) is
  undoubtedly the mainstay of the Botswana economy.
  In 2008, mining accounted for no less than 36
  of GDP, with diamond production contributing
  about 77 of the overall value of the mining
  sector
• Botswana is ranked 36 out of 180 countries by
  Transparency International in its Global
  Corruption Report 2009
• It is the highest ranked country in Africa
• Two major investment services rank Botswana as
  the best credit risk in Africa

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Botswana The Fraser Institute Survey

• In 2008/2009, the authoritative Fraser
  Institute's Annual Survey of mining companies
  (the Fraser Institute Survey) ranked Botswana
  18 out of 71 jurisdictions on its policy
  potential index, and for the second year running,
  Botswana is the highest ranked jurisdiction in
  Africa
• In the 2007/2008 Fraser Institute Survey,
  Botswana was ranked 11 (out of 68)
• Botswana was ranked higher than several states in
  the United States, some Australian provinces,
  most Latin American countries (only Chile is
  ranked higher) and most mineral producing
  European countries

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BotswanaAdministrative discretion

• The Botswana Mines and Minerals Act, 1999 (the
  Mines Act) is the principal legislation
  governing mining in Botswana
• a key feature of the Mines Act is that the
  process of licensing the grant, renewal and
  transfer of licences - is predictable and
  automatic
• the Minister of Minerals, Energy and Water
  Resources (the Minister) grants mining licences
  in accordance with the Act. The Minister has
  little or no administrative discretion and
  licensing conditions that may be imposed are
  explicitly stated
• the process is clear and transparent
• the conditions that may be imposed on the holder
  of mining licence are set out clearly in the Act

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BotswanaFiscal and taxation conditions

• Botswana has a simple and competitive taxation
  and royalties regime
• the Mines Act altered the previous taxation
  regime for mining companies. All mining
  companies, other than those which extract
  diamonds, are liable to income tax at a rate of
  25
• there is a 100 capital write-off in the year the
  investment is made and losses are carried forward
  for an unlimited period
• a variable income tax formula has been introduced
  on highly profitable mines and rises to a
  theoretical maximum of 50 (only applicable if
  taxable profit equals gross income)
• royalties payable are easily determined

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Ghana Background

• Mining accounted for 4.9 of Ghanas GDP and
  minerals made up 34 of total exports in 2008
• In 2007, the Ghanaian mining sector grew by 30,
  growth stabilised at 8 in 2008 and 2009
• Ghana hosts the second largest gold deposits in
  Africa after South Africa. Apart from gold, Ghana
  also produces significant quantities of bauxite,
  manganese and diamonds

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Ghana The Fraser Institute Survey

• Ghana has recently taken effective steps to
  encourage foreign investment. These steps,
  particularly a new mining code in 2006, have
  increased security of tenure and limited
  administrative discretion in the mineral
  regulatory process
• The 2008/2009 Fraser Institute Survey ranked
  Ghana 35 (out of 71 jurisdictions surveyed), and
  fourth in Africa
• Ghana is ranked higher than several states in the
  United States, including Colorado, Idaho,
  Minnesota, Montana and New Mexico and only
  Chile, Mexico and Peru are ranked higher in Latin
  America
• In the 2007/2008 survey Ghana was ranked 23 (out
  of 68), and second in Africa

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GhanaOverview of the regulatory framework

• The Ghanaian Minerals and Mining Act, 2006 (the
  Minerals and Mining Act) aims to
• develop a national policy on mining and
  consolidate the disparate laws on mining which
  existed at the time
• increase investment by foreign mining companies
  in Ghana by removing the uncertainty concerning
  the availability and conditionality of mining
  rights as well as the bureaucratic gridlock which
  provided opportunities for corruption
• Mining legislation is applied equally to
  Ghanaians and foreign investors, except for
  provisions relating to small-scale mining of
  minerals, which is generally reserved for
  Ghanaians

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GhanaAdministrative discretion and
administrative institutions

• Under the Ghana Minerals and Mining Act
• all minerals in Ghana are owned by the State,
  with the Minister of Lands, Forestry and Mines
  (the Minister) formally granting exclusive
  exploration and mining rights
• the licensing process was reformed to reduce the
  unbound discretion that the Secretary of Lands
  and Natural Resources previously held to grant
  mining licences and impose regulatory conditions
• under the new law
• rights are formally granted by the Minister to
  applicants who demonstrate adequate technical,
  financial and managerial capability to engage in
  mining activities. The Minister must act on the
  recommendation of the Minerals Commission, in
  negotiating, granting, renewing, suspending or
  revoking mining rights
• all applications for mining rights must be
  submitted to the Minerals Commission for
  processing

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GhanaMinerals Commission

• The Minerals Commissions role was expanded under
  the Ghana Mines and Minerals Act to create an
  efficient mining sector institution and ensure
  administrative capacity to process licence
  applications
• The Minerals Commission is the main promotional
  and regulatory body for the minerals sector in
  Ghana, and is responsible for the regulation and
  management of the utilization of the mineral
  resources of Ghana and the coordination of the
  policies in relation to them
• The Commissions members are appointed by the
  President in consultation with the Council of
  State
• The Commission is required by law to formulate
  recommendations on minerals policy monitor the
  implementation of these policies assess
  stability agreements and report to Parliament
  collect data on national mineral resources

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GhanaInvestment protection and dispute resolution

• Mining companies may conclude a "stability
  agreement with the government. A stability
  agreement protects the holder from the adverse
  effects of changes in the law for a period of up
  to 15 years, but must be ratified by Parliament
• The Minerals and Mining Act provides for dispute
  resolution under international arbitration.
  Where one of the parties is not a citizen of
  Ghana, three alternatives are provided
• arbitration in accordance with international
  standards for investment disputes, if agreed by
  the parties
• if the parties do not agree, arbitration takes
  place under the mechanism established by any
  applicable bilateral or multilateral investment
  treaty and
• if no such treaty is applicable the dispute shall
  be resolved under the United Nations Commission
  on International Trade Rules (UNCITRAL Rules)

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NamibiaBackground

• The Namibian mining sector accounted for around
  16 of GDP in 2008 and provides for more than 50
  of its foreign exchange earnings
• Namibia's main mining products include diamonds,
  uranium, gold, zinc, copper and lead
• Namibia was ranked 34 out of 71 jurisdictions in
  the 2008/2009 Fraser Institute Survey, and was
  third in Africa

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NamibiaRegulatory framework

• The Minerals (Prospecting and Mining ) Act of
  1992 (the Namibian Minerals Act) is the primary
  piece of legislation regulating the minerals
  industry in Namibia.
• The Namibian government published the Minerals
  Policy of Namibia in order to make public its
  goals and policies in this sector and these
  promote confidence and certainty among investors.
  The Minerals Policy guides the implementation of
  the Namibian Minerals Act

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NamibiaAdministrative institutions

• The Namibian Minerals Act divides the day to day
  administration of the Act and the broader policy
  formulation and implementation to ensure greater
  efficiency in the performance of these functions
• The Minister must appoint a Minerals Commissioner
  who is responsible receiving licence applications
  and monitoring compliance with the Namibian
  Minerals Act, generally, as well as specific
  licence conditions
• Minerals Board of Namibia
• The board advises the Minister generally, or in
  respect of a particular matter, and makes
  recommendations to him or her, in relation to
• The minerals policy of Nambia and its
  implementation
• the amendment or application of the provisions of
  this Nambian Minerals Act and
• any matter referred to the board by the Minister

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NamibiaMining Cadastre

• The Namibian Department of Minerals and Energy
  operates a Computerised Title Management System
  (CTMS)
• This system covers all transactions throughout
  the lifetime of a mineral title - including all
  relevant spatial information in a geological
  information survey
• Title information can be archived and updated,
  and all required documents are generated by the
  system
• Geographic information on the titles, as well as
  related topics like geology and administrative
  boundaries, are fully integrated and can be
  visualized, queried and printed in the form of a
  map
• Under the Namibian Minerals Act mineral titles
  are public documents which can be accessed free
  of charge
• The system, which was established in 1996 and
  last updated in 2006, has greatly improved the
  efficiency with which the Minerals Commissioner
  can process and monitor licence applications

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Conclusions

• These three important African mining
  jurisdictions have, to varying degrees, become
  best practice jurisdictions
• A key feature of these regimes is a clear
  regulatory regime which is efficiently
  administered
• The countries benefit from an increase in foreign
  investment through the payment of tax and
  royalties, as well as the indirect benefits such
  as increased employment and the growth of
  industries related to the minerals sector
• The essential components of these regimes
  include
• limiting administrative discretion
• the creation of specialised agencies to
  administer the minerals legislation
• clear taxation and royalties regimes
• efficient systems for the management of mining
  related information
• effective investment protection mechanisms
  including international arbitration of disputes

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Thanks