ADDRESS BY HON. DR KWABENA DUFFUOR, MINISTER OF FINANCE AND ECONOMIC PLANNING, AT THE INAUGURATION OF THE GOVERNMENT TEAM FOR REVIEW AND RE-NEGOTIATION OF STABILITY AND MINING AGREEMENTS ON TUESDAY 31 JANUARY 2012 AT 10:00AM
Mr Chairman,
Hon. Minister for Lands, Natural Resources,
Hon. Deputy Ministers of Finance and Economic Planning,
Members of the Government Re-Negotiation Committee,
Chief Directors and Directors of Ministry of Finance and Economic Planning and of the Ministry of Lands and Natural Resources,
Representatives of Government Institutions,
Distinguished Invited Guests,
Friends from the Media,
Ladies and Gentlemen
I wish to welcome all of you to this very important function. Today, we are inaugurating the Government Re-Negotiation Team that will review and re-negotiate Stability and Mining Agreements in the country. The inauguration of this team is very critical in view of the concerns that have been expressed of as well as the interest shown in the mining operations and their benefits to the country in recent times.
Ladies and Gentlemen, as you are aware, the mining sector has been an important part of our economy, with gold accounting for over 90% of the sector’s output. Ghana is a significant gold producer in Africa and indeed in the world. Ghana is ranked second after South Africa as the leading gold producer in Africa, and 9th largest producer in the world.
Over the past decade, the price of gold has increased significantly, reaching an all- time high of USD1,895 an ounce in September last year. Given that the country’s mining sector consists mostly of gold mines, one would have expected a higher fiscal take by the Government. Unfortunately, the phenomenal increase in gold price has not sufficiently benefitted the people of Ghana. Indeed, many ordinary Ghanaians, mining workers, mining experts, politicians, media commentators, researchers, local and foreign institutions, etc., are all expressing concerns and reservations about the social and economic benefits that the formal mining sector provides to the country and people of Ghana.
Although the Government has a 10% free carried interest equity in the mining operations, the return depends on dividend distribution which until now has brought in very little revenue as many of the mining companies have not declared much by way of dividends. It is also alleged that there are significant tax leakages in the mining sector due to such factors as transfer pricing related to operating costs and the financing structure used by some mining companies.
Ladies and Gentlemen, in responding to the benefit challenge, Government made some changes to the mining taxes and capital allowance granted to mining companies in the 2012 Budget Statement. Government increased the corporate tax rate for mining companies from 25% to 35%; introduced a windfall profit tax of 10%; and established a uniform regime for capital allowance of 20% for five years for mining, as is the case in the oil and gas sector.
In addition, Government took a decision to ring fence mining concessions and projects which will prevent cost in one concession area to be offset against revenues from another concession area belonging to the same company in determining the chargeable income for tax purposes. This decision, we believe, will prevent mining companies undertaking a series of projects from deducting costs for new projects against profitable ventures yielding taxable income.
Government has also taken a bold step to critically review the mining sector’s fiscal regime and existing mining agreements, with the view to ensuring that the country obtains its fair share of the gains from the mining sector. The ultimate objective of this exercise is to ensure that the benefits from mining operations to the country are maximized, sustained, and distributed equitably to the people of Ghana.
The key tasks of the Re-Negotiation Team are three-fold. The first task is to review and re-negotiate any part of a Stability Agreement that has been signed between the Republic of Ghana and any mining company that is not in the best interest of the country.
This will include, among others, the fiscal regime and the Government’s carried and participating interests. In doing so, the Committee should take cognisance of the recent developments in both the local and international environment within which mining companies operate, international best practices, mineral laws of the country, and our national Constitution.
The second task is to prepare a framework or procedures and conditions that will govern the granting of Stability Agreement in the mining sector in a manner that maximizes the flow of economic and social value to the country on a sustainable basis.
The third task is to redesign any existing mining agreement and/or draft new agreement, where necessary, to ensure that it significantly supports Ghana’s economic growth and development, in terms of providing better financial returns, more social investment, critical infrastructure and greater transparency in the mining operations.
I am informed that details of your terms of reference have already been forwarded to you. Government has set up a Resource team to provide you with technical and other support that you may need. We are also in the process of engaging some international mining experts to provide advisory services to the Committee.
Ladies and Gentlemen, I want to emphasize that the issue with the mining operations is about fair and transparent sharing of the benefits and windfall gains from the exploitation of the country’s precious and irreplaceable natural resources. Government is also committed to ensuring that mining operations in the country expand and become more profitable so that investors can receive handsome returns for their investment. It is the desire of the Government to see that a level-playing field is established for the industry players. What Government is looking for therefore is a win-win situation in which both the mining companies and the people of Ghana will equally benefit. The importance of the Government strategy is to develop an economy that works for everyone.
Mr. Chairman and Members of the Committee, your selection is a reflection of your knowledge, experience and understanding of the sector and there is no doubt that you will bring all these to bear on the discharge of this crucial task.
Distinguished Ladies and Gentlemen, it is now my singular honour and privilege to declare the Committee duly inaugurated. On behalf of my colleague, the Hon. Minister of Lands, Natural Resources and Forestry and on my own behalf, I congratulate you for accepting to serve on the Committee. I wish to assure you that our doors are open to you and your team for a discussion on any issue you may have as you undertake this crucial national assignment.
I wish you well in the execution of the mandate entrusted to you, and may the Almighty God continue to bless us all.
Thank you.