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Tuesday, 4 October 2011

Guinea's Mining Reforms

Important mining developments in the west African state of Guinea. The relatively new government of Alpha Conde has passed a new mining code that among other things stipulates that foreign companies would need to invest a minimum of $1 billion and gives the government a free 15% share in mining companies with the option of buying a further 20%, thereby more than doubling the share the state can take in mining projects. Conde's government has raised other taxes. This is fresh and bold thinking - what is more striking is that the mining companies have broadly accepted it!  

Guinea’s new mining code, passed on September 9, promises to maximise the public revenues generated by foreign deposits and impose stricter regulations upon mining companies operating in the country.

The management of the country’s mining practices has been in dire need of reform for some time. Although Guinea possesses half of the world’s supply of bauxite - the main source of aluminium - it remains one of the world’s poorest countries, with 47% of its population living on less than $1 per day.

The 106-page document, which was approved by 125 government advisors, is designed to increase transparency through the commitment to publish all mining contracts, prevent corruption and make the mining sector fully accountable to the Guinean people. A draft copy produced in February has since been developed through extensive consultation with the public, local and international civil society, international donors and the private sector.

The code states that foreign companies would need to invest a minimum of $1 billion and gives the government a free 15% share in mining companies with the option of buying a further 20%, thereby more than doubling the share the state can take in mining projects. In addition to this, customs duties will rise from 5.6% to 8%.

The code’s emphasis on transparency will help the government to better assess the benefits of agreements made, as well as reinforcing the incentive to make itself accountable to the population. The new transparency measures comply with Guinea’s formal commitment to the principles of the Extractive Industries Transparency Initiative (EITI).

The mining code also places greater ethical obligations upon companies. Every company will be required to sign a code of good conduct, committing to not engaging in corrupt practices or those which damage accountability. This creates a strong mechanism for public pressure. Additionally, companies will be required to develop a corruption monitoring plan, thereby publicly confirming the government’s acknowledgement of past corruption within the sector and the necessity to rectify it.


Past deals made between mining companies and the military government headed by Captain Moussa Dadis Camara, which governed Guinea between 2008 and 2010, have been overturned by president Alpha Conde’s government. This reportedly includes an agreement with investment group China International Fund, which gave them the rights to all of Guinea’s unexploited oil and mineral resources.

But relations between China and Guinea do not appear to have been damaged by the retraction. During a state visit to China on September 16, Alpha Conde continued talks regarding the biggest ever mining contract with a state-owned Chinese company. Following a previous visit to China in June, Conde seems confident of China Power Investment Corporation’s ability to build a large alumina refinery at Boffa, about 120km from Conakry. The refinery will have a capacity of 4 million tonnes per year. An unidentified source has put the project’s cost at $5.8 billion.

The Moscow-based aluminium company Rusal has voiced the most negative reaction to the new legislation, calling the code “senseless”. It said: “Any investor of good sense will look for investment opportunities somewhere outside Guinea.”

Fofana says he anticipated a negative reaction from the mining companies. “When we say we want to be involved in the shipment of our resources by chartering boats ourselves so we can be aware of the real costs, it will not please people [...] it intrudes on a closed world reserved for major companies.”

Rusal claims the increased tax pressures mean it will not be making further investments in Guinea. First deputy CEO for Rusal, Vladislav Soloviev, has expressed concern about “some issues” raised by the code and has proposed a meeting in Paris between all aluminium producers active in Guinea. However, Rusal’s concession to develop the Dian Dian bauxtite deposit and Friguia complex, and its production at the Compagnie des Bauxites de Kindia mine, appear to be guaranteed under agreements the government has signed.

Rio Tinto had already agreed that the state could take control of as much as 35% of its Simandou project, including 15% at no cost. This agreement was made on Easter Saturday of this year when Rio made a $700 million payment to Guinea’s Treasury.

The code has been hailed as a major turning by experts. Patrick Heller, Legal Adviser for the policy institute Revenue Watch describes Guinea’s new rules as “a very significant step forward”. He said: “From the perspective [of] good governance, this is one of the strongest codes in Africa, and it holds up elsewhere in the world.”

Revenue Watch warns, however, that the code’s success relies significantly on its effective enforcement. “The government must be vigilant in applying the code and in maintaining an environment of openness with citizens and fair treatment of investors,” it states.

Guinea’s 1995 code was never followed, resulting in major obstacles to good governance in the country. A new monitoring body called the Commission National des Mines has been established to provide protection against arbitrary or corrupt decision-making in the award, renewal, transfer, and cancellation of mining contracts. Composed of representatives of key government ministries, unions and civil society, the Commission will review decisions made by the Ministry of Mines and advise on whether they meet legal requirements and promote the interests of the country. Guinea has also formed a state minerals management company, SOGUIPAMI, which will oversee all aspects of the sector and help to manage a mining fund open to investors.

7 comments:

  1. Where could we get the full guinea policy?

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  2. Our French readers should be able to locate a copy.

    But it's unnecessary because it has been heavily trailed on the Internet.

    One hopes the Government will take a serious look (and grab a translated copy of the 106 pager).

    Guinea's reform aren't that different from the Angolan diamond framework - which we have discussed here many times!

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  3. Bravo! Constructive contribution. Government should immediately take a look.Bravo! Constructive contribution. Government should immediately take a look.

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  4. i hope zambia does not become a copy cat of this country. why should we. the gov is just taking over mining that is all.these is no success story hear. they are going where we are coming from. if they succeed then maybe we can look at them. lets be innovative and not look for short cuts
    is this not the time we are asking for smaller gov?

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  5. This is progress in its simplest form. Bravo to the mines minister, we need such for Africa to develop

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  6. These are welcome developments indeed. Still, the mining reforms must be continuous to make them even more sustainable.

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  7. Mining reforms must include safety precautions among the miners and the owners. It is imperative for every worker to take extra caution when doing their activity. The stricter the regulations, the better the outcome of the mining construction and activities.

    ReplyDelete

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