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Monday, 17 January 2011

The Return of Mining Development Agreements?

We continue the post-leave updates with this startling development towards over the leave period that the government has offered mining companies a new fiscal stability period - as part of the deal for them to pay legally mandated tax revenues owed to the Zambian government from previous windfall taxes (not even all the revenue ). Here is the quote from Hon Musokowane's speech to parliament (embedded below) :
A good tax system is one which is predictable and which provides stability to investors. It has therefore been agreed that a fiscal stability for a period of ten (10 years) be given to companies that will accede to the new tax regime. The stability will apply to corporate income tax, capital tax allowance, mineral royal and profit variable tax.
Readers will recall that a key part of the Mwanawasa reforms was to abolish all development agreements under Mines and Minerals Development Act 2008. The idea was that all mining investment should now face the same fiscal rules. We know that Lumwana has always been keen to mantain its own DA (see previous discussions on this here and here). We also know that all  other new mining companies have been busy signing new DAs with government in dark corners. It is bad enough that  new DAs are being signed, what is shocking is that they remain secretive. I have also been disappointed that the so called "media"  have not  picked up on these issues while we have been on leave.

It is absolutely vital that transparency is restored to mining policy and government clarifies  where we stand on these new DAs. When was the last time you read the Lumwana DA or the latest agreement by Hon Musokotwane?  Why is government entering new development agreements which are illegal under Zambian law? The Minerals and Mine Development Act is quite clear on this. 

I have written to Hon Musokotwane seeking clarification on this issue and we hope other individuals and organisations will not sit round but do the same. The opposition parties also have a duty to explain to people where they stand in respect to these seemingly illegal arrangements. Some time next week we will make available a paper that will set out a credible framework to underpin the mining debate and help move the debate in a positive direction. Ignorance is killing our people. 
Ministerial Statement : Status of Mining Taxation


  1. "Mr. Speaker, due to the huge investment cost in the mining sector, investors often want to see a credible signal from the Government that the prevailing terms on which they base their
    financial models to borrow funds are not changed anyhow.
    One area where Government often changes terms is in the area of taxation. In this regard, the mining companies have been asking the Government for stability in the tax regime."

    Is that fact that government is negotiating with mining companies for a new tax regime illegal? Government unilaterally repealed the DAs and is now trying to coax mining firms to be part of the new arrangements without going for international arbitration. Isn't this commendable? Government is simply trying to ensure that it does not arbitrarily shift goal posts once the investor has committed himself through huge borrowing.
    Government has pointed out a number of weaknesses with the previous tax arrangements such as unfairly high taxation for high cost mines and tried to level the playing field. Isn't this where we must build from rather than keep thinking that we must go back to the windfall tax despite its outlined shortfalls?
    I am not an economist and I sometimes fail to understand your arguments. Maybe you are talking above people's heads.

  2. General,

    Thanks for this.
    We are putting out a paper next week that will make clear my perspectives on this as part of the "Leading Voices" agenda.

    Rather than deal with your very valid specific questions now it may be best to wait, if that's okay.

  3. I know its a BIG ask but when did he actually make this speech. I can't seem to find the dates.

  4. I know its a BIG ask but when did he actually make this speech. I can't seem to find the dates.


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