CeSIS calls for immediate review of Stability Clauses
By Kofi Adu Domfeh/Luv Fm/Ghana
The Centre for Social Impact Studies (CeSIS), a non-governmental research and advocacy organization, is calling on government to urgently begin a process towards reviewing all the Stability Agreements with multinational corporations operating in the extractive sector.This, according to the Centre, is to ensure that the nation reaps maximum benefits from her natural resource endowments in periods of commodity boom. The group is also calling on government to be mindful of the national interest when signing future agreements with multinational companies operating in the mining, oil and gas sector.
A press statement signed by Clement K. Asiedu-Menlah, Director of Research and Advocacy, is also asking the government to embrace international best practices of transparency by expunging confidentiality clauses in the Minerals and Mining Act so that citizens can know the nature of agreements entered into on their behalf by their elected government. “By agreeing to review these clauses, Ghana would be joining countries like Australia, Tanzania, Guinea, Liberia and Zambia who have all either reviewed their laws or are in the process of doing so, to ensure that their countries benefitted from the current commodity boom”, said the statement. In an effort to attract foreign direct investments into the country in the 1980s, the Government of Ghana, under the supervision of the International Monetary Fund (IMF) and World Bank, introduced a number of reforms in the mining sector, which was used as a growth pole for reviving an almost comatose economy. The reforms formed part of the general Economic Recovery Programme (ERP) undertaken by the government. As part of the reforms, a number of incentives were introduced to make Ghana a competitive destination for foreign direct investment in the solid minerals sector; including tax holidays of up to ten years, low royalty payments, exemption from the payment of import duties on equipments, and non-payment of VAT on furnished accommodation.
In addition to the general incentives that the Ghana Investment Code offered to investors who come into the country, the Minerals and Mining Act, 2006, Act 703 also consolidates these incentives to multinational companies operating in the mining sector. The CeSIS acknowledged the fact that the 1980s presented serious challenges to the economy and governance systems in the country, but said the over two decade political stability has rendered these incentives irrelevant. According to the statement, “arguments for the continued retention of the Stability Clauses in the country’s investment agreements with multinationals are untenable” in the midst of positive economic indicators. “For instance, it makes no economic sense for the government to forgo its mandatory 10 percent stake in Newmont Ghana Gold Limited, very much in contravention of Section 43 (1) of the Minerals and Mining Act, 2006 (Act 703).
“Furthermore, multinational mining companies in the country are still paying 3 percent royalties, even though Parliament has reviewed the rate to 5 percent. The reason is that these companies have stability agreements with government that will hold the 3 percent royalty for a period of 15 years! “Again, Newmont and other multinational mining companies do not pay any VAT because of the same stability agreement. We find it strange that the country can mortgage the payment of royalties, considered as the most reliable source of mineral revenue to the country. If mining companies were paying the right levels of royalty to the nation, government could make enough to finance national development”, the Centre stated. The statement emphasized that the “presence of these stability agreements robs the nation of much needed revenue to finance her development, particularly in an era when commodity prices are rising steadily on the international market”.Gold, for instance is selling at record levels above 1,500 dollars an ounce.
NUTSHELL:
This is one for debates, clearly. Stability clauses are important because they form part and parcel of considerations for investments in Host Countries. If the Stability Clauses are not honoured then this should send the wrong signals to investors. Yet again, as a host country, will you watch a mining company or international oil company enjoy all the benefits of the upside on exploration in your country? It's a tough one. Little wonder why Ghana is seeking to make the reviews. I'm not that much of a legal expert but let's hear from you; what do you think?
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