Mining code reform feasible, encouraged

9th February 2018 By: Tasneem Bulbulia - Senior Contributing Editor Online

Mining code reform feasible,  encouraged

MINING REFORM The Democratic Republic of Congo’s revised mining code will aim to address gaps in transparency and community development

It is possible, and even necessary, for the Democratic Republic of Congo (DRC) to pursue a reform of its 2002 mining code tax regime and find a compromise acceptable to all parties, according to findings of international nonprofit policy and research institute the Natural Resource Governance Institute (NRGI).

NRGI DRC country manager Jean Pierre Okenda explains that the DRC government’s review – spanning from 2012 to 2015 – of the 2002 mining code followed a series of extensive tripartite consultations among government, the private sector and civil society representatives. This led to an amendment proposal; followed by a draft mining code – which Okenda told Mining Weekly last month was likely to be adopted by the two chambers of Parliament and then enacted by the President by the end of January.

The NRGI’s findings follow an independent and objective study, “How to save mining code reform in the DRC”, on the country’s 2002 mining code, the amendment proposal and a comparison of the tax regimes of other countries producing copper, cobalt and gold – the main mineral resources of the DRC affected by the tax changes.

Okenda does note that the 2002 mining code’s fiscal regime is within international standards, given markets and other factors specific to the DRC’s position, compared with other countries – attractive geology but a difficult business environment and high operating costs. Further, following its implementation, the country’s mining sector experienced a boom.

However, despite this, he notes that the existing fiscal regime is not perfect, as it is not sufficiently progressive – it protects mining operators far too much, favouring them amid cases of a new commodities price boom.

Moreover, while the country’s mining sector experienced growth and overtook Zambia as the largest copper-producing country in 2017, its contribution to State revenue and the country’s economy remains marginal, compared with the potential of the sector and the expectations of government.

Therefore, the DRC government has undertaken the reform to align the mining code with the country’s constitution and, with the main aims of fiscal regime reform to increase transparency and accountability and promote community development.

Improved transparency could have prevented certain revenues of the DRC’s State mining company Gécamines not being directed to the public treasury. “Though the DRC is rich in natural resources, its people are among the poorest in the world. Despite billions of dollars in private investment in the extractive sector, the proceeds have thus far generated limited public benefits,” according to a report released by nonprofit, nongovernmental organisation the Carter Centre late last year.

The report documents how Gécamines has used its privileged position to generate $1.1-billion from copper and cobalt deals from 2011 to 2014, but nearly two-thirds of it – or $750-million – cannot be reliably tracked to its accounts.

The report is based on 200 interviews and a review of 100 mining contracts, 1 000 corporate documents and data from the Extractive Industries Transparency Initiative covering 2007 to 2014.

“Changes must be made today, although they will not be visible for several years, beyond the current cycle of the commodities market. When prices rise again, it will be in the DRC’s interest to reap the benefits so that the resources finally benefit our people,” states Okenda.

The draft mining code has been debated and adopted by the National Assembly (NA) and sent to the Senate for debate and adoption. Upon President Joseph Kabila’s call, both the NA and Senate were called for an extraordinary parliamentary session of 30 days, with the mining code as the top priority on the agenda. On January 24, the new mining code passed through Senate unopposed.

With regard to the amendment proposal, Okenda explains that an agreement was reached on several important provisions, including the establishment of a community development fund, the renunciation of the accelerated depreciation regime, better consideration of the interests of local populations and the strengthening of transparency provisions.

He avers that, while the revised mining code has shortcomings, including in addressing conflicts of interests, it should help address gaps in transparency, community development and create more balance in revenue-sharing between mining companies and the State.

However, Okenda notes that the proposed reform has not been without its share of challenges. He indicates that, following government’s review of the mining code, important disagreements remained, but despite these, the Council of Ministers approved the Bill and submitted it to the NA in February 2015. Following this, the Chamber of Mines mobilised against this review, stating that “it would create a catastrophe”.

Okenda further explains that simultaneously, gold and copper prices declined sharply, which prompted government to adopt a more conciliatory stance towards mining investors. He also points to government’s ambiguous communication on the continuation of the reform process, thereby creating uncertainty that is not favourable for mining companies, State agencies and the Congolese population.

Therefore, while the mining code reform is encouraged, it must be effected properly and in the best interest of all stakeholders.