CREATING AN EFFICIENT MINING ROYALTY SYSTEM

Why make sub-national payments? Local royalty to promote local development

RELUFA Brendan Schwartz Extractive Industries Program Assistant

Why make sub-national EI payments?

(i) compensate for the depletion of the natural resources

of the land belonging to its inhabitants (ii) replace the existing revenues with sources for economic development for the future generations (iii) redress environmental damages caused by the extraction (iv) preempt autonomous taxation efforts by local authorities if not duly compensated (v) preserve harmonious political relations between the central government and the periphery.
National Level: The Experience in Seven Resource-Rich Countries. RWI, 2008.

Morgandi, Matteo. Morgandi, Matteo. Extractive Industrie Revenue Distribution at the Sub-

Local Royalty = Chance at Local Devt

Extractive Industries are economic islands Create very few jobsmostly low-paying Depend on imported technologies Not much local content in Cameroon

Sub-national payments can provide large $$$ and lead to

local development if managed properly ***Need citizen participation***

THE REALITY OF MINING ROYALTY MANAGEMENT IN CAMEROON

Incomplete Regulation Ad Hoc Practices Lack of Information & Transparency

Incomplete Regulation
ARTICLE 137 : (1) Les recettes recouvres aux titres de la taxe ad valorem et de la taxe lextraction pour toute activit dexploitation des substances minrales sont reparties et affectes ainsi quil suit :
25% au titre de droit compensation des populations affectes par cette activit et

dont la rpartition est la suivante :

10% au bnfice des populations riveraines ; 15% au bnfice de la commune territorialement comptente ; 25% au titre dappui au suivi et contrles techniques des activits concernes par les

ingnieurs et agents commissionnes de la Direction charge des mines ; 50% au profit du Trsor public.

(2) Les modalits daffectations des quotes-parts des populations riveraines et de la commune seront dfinies par

arrt conjoint du Ministre charg des mines et du Ministre charg de lconomie et des finances. Une dcision du Ministre charg des mines fixe les modalits daffectation de la quotepart relative aux suivis et contrle technique.

Absence of Rules

Ad Hoc System

Industrial Mines Just two Exploitation permits: Geovic and C&K, finalizing feasibility studies. No activity, no Ad Valorem Tax

Quarry Mines 150 quarry mining permits: PSRM collected 162 million CFA in extraction taxes in 2009 and 84 million in 2010. Lack of information: Could find no information on the sub-national distribution of the extraction tax or its use in the local councils and communities

Artisanal Mines Artisanal mining is concentrated in Cameroons East Regionparticularly the Betare Oya area. Artisans primarily produce gold and diamonds in very small volumes. CAPAM, purchases gold and diamonds directly from local artisans. This production is declared at the Ministry of Mines regional office in Bertoua where the Ad Valorem Tax Is levied and re-distributed according to article 137 of the Application Decree. Communities are unaware they have the right to 10% of the Ad Valorem Tax Unclear administrative procedure for creating revenue management committees In practice, local councils manage the 10% of the Ad Valorem Tax destined for local communities PSRM reports the government received 21 million FCFA in Ad Valorem Tax payments in 2009 and 46 million in 2010 Only 10% of artisanal production taxedhuge losses for national treasury and local communities

Ad Hoc System & Small Mines

Small Mines Cameroons Mining Code of 2001 does not provide guidance on permitting or taxing small mines. In practice, small mines are developed primarily by foreign companies (Chinese, Korean, South African) which lease a series of adjacent artisanal mining permits from artisan groups. Companies import machinery to operate the mines and share gold/diamond production with the artisans from whom they lease the permit areas. This practice is illegal since articles 9 and 24 of the mining code state that artisanal mining is exclusively reserved for Cameroonian nationals. Some companies pay the Ad Valorem Tax while the majority pay a monthly flat fee of 3.5 million FCFA. The Ad Valorem Tax and flat fees are subsequently divided between a series of committees run by local administrative and traditional authorities: 1. Supervision Committee 2. Management Committee 3. Monitoring Committee. Local Councils also receive a portion of the revenues generated from the flat fees. The small mine revenue distribution system is very troubling as it operates entirely outside of spirit and letter of Cameroons Mining Code.

BUILDING CAMEROONS SUBNATIONAL ROYALTY SYSTEM FOR MINING

How Royalties are calculated and shared Royalty Value Chain Reinforce Regulations and Institutions Transparency Participation

Calculating the Royalty in Cameroon

Quarry Mines
Extraction Tax: 150 Francs CFA/ M3

Artisanal, Small & Industrial Mines

Ad Valorem Tax: Precious Gems (Diamonds,

(Matriaux meubles) 300 Francs CFA/ M3 (Matriaux durs)

Sapphires, etc.): 8% Precious Metals (Gold, Platinum, etc.): 3% Basic Metals and other Metals (Iron, Bauxite, etc.): 2.5% Geothermal Deposits (Various Classifications of Water): 2%
See Article 144 of Mining Code Application Decree

See Article 142 of Mining Code Application Decree

Distribution of Proportional Taxes

Article 137 of Application Decree 25% for impacted populations: -15% for the Local Council -10% for local communities

25% for the Ministry of Mines for project monitoring

50% for the National Treasury

Cameroon: Mining Royalty Flow Chart (In Principal)

SALE OF MINERAL Tax collected at local or national level
DGE/DGI Ad Valorem Tax 2.5% - 8% of mineral value NATIONAL TREASURY 50% of Tax
REGIONAL MINING AND FINANCE DELEGATIONS

Ad Valorem Tax 2.5% - 8% of mineral value LOCAL ROYALTY 25% of Tax LOCAL COUNCILS LOCAL COMMUNITIES

MINISTRY OF MINES 25% of Tax

15% of Tax

10% of Tax

Mining Royalty Value Chain

1
Monitor Company Production

2
Determine Mineral Price

3
Collect Tax Payment

4
Calculate Local Royalty (Subnational Payment)

5
Transfer Royalty to Subnational Level

6
Local Development Planning and Expenditure

Monitor Company Production

Direction des Mines

just 17 qualified employees at national Monitor Company Production and local levels. Just 1 employee at RECOMMENDATIONS Yokadouma. 1) Increase Personnel Insufficient for 2) Physically visit monitoring company mines to ensure production declarations are authentic

Determine Mineral Price

Mother Company

2
Determine Mineral Price
Most Important in Value Chain!!!

Sub A
African

Sub B
Tax Haven

Mining companies sell

Sell at artificially low price to avoid

minerals to subsidiaries of the same company (60% of all international trade)

taxes
IMF/GFI estimate Cameroon lost

$11.5 billion from Trade Mispricing 1970-2008. Africa loses $90 Billion/year
Glencore: Zambia lost $11 Billion in 2008

Determine Mineral Price

ARTICLE 145 : (1) Avant la sortie du

2
Determine Mineral Price

RECOMMENDATIONS

1) Use Mineral Prices

on international commodity exchanges

stock et pour chaque expdition de lots de produits marchands, lexploitant de substances minrales adresse une dclaration aux services comptents chargs des mines. Diamonds: 100 Million FCFA sold = 2 Million FCFA for sub-national entities Same Diamonds: 25 Million FCFA = 500,000 FCFA for sub-national entities Trade Mispricing threatens Cameroons sub-national payment system and benefits for local communities.

Collect Tax Payment

PSRMEE was created in

3
Collect Tax Payment

RECOMMENDATIONS
1) PSRMEE needs to play a

central role in the mining sector like PSRF in forestry sector 2) More human and financial resources

2002 to maximize revenue collection from the mining sector, but remains marginal. PSRMEE does not have the capacity to collect all mining taxes or publish dependable statisticsonly 57% of dues collected in 2006. Ad Valorem/Extraction Tax must be collected for mining royalty to work

Calculate Local Royalty (Sub-national Payment)

Calculating the local mining

4
Calculate Local Royalty (Subnational Payment)

royalty is very simple: 15% of tax for local council 10% for local community

RECOMMENDATIONS
NONE: MINIMIDT already has a form

to calculate and divide up the royalty for each stakeholder.

Transfer Royalty to Sub-national Level

Transfers will be made from

5
Transfer Royalty to Subnational Level

different levelsneed coordination: Regional level National level

Create local revenue

RECOMMENDATIONS
1) Promulgate Joint Ministerial Order

MINFI-MINIMIDT (consult stakeholders) 2) Transfers need to be made according to a calendar agreed upon by all stakeholders 3) Need transparency component at local and national levelintegrate subnational transfers into EITI (Ghana)

management committees Separate bank accounts for mining royalty Learn lessons from PSRF and 520

Local Development Planning and Expenditure

Sub-national entities

6
Local Development Planning and Expenditure

RECOMMENDATIONS
1) Companies should publish Ad

Valorem Tax estimates (Geovic) 2) Re-think revenue sharing look at all mining taxes 3) Strict financial control of Mining royalty expenditures

should develop local development plans Need to know approximately how much $$$ they will receive over the life of a project Need transparent awarding of public contracts in sub-national expenditures

Questions & Debate

Merci pour votre attention!