Regulatory uncertainty to persist In Burkina Faso despite proposed new mining code

17 Mar 2015

Regulatory uncertainty to persist In Burkina Faso ...

The transitional government of President Michel Kafando has submitted a revised version of the mining code to parliament. The measure follows the introduction of a new anti-corruption law and appears to be part of a broader effort to address both international and domestic concerns over illicit practices in the mining sector. The precedent for lengthy delays in passing mining regulations and political uncertainty ahead of the October 2015 election in which neither Kafando nor his prime minister can stand, suggest the code may not be ratified this year, thus prolonging years of regulatory uncertainty for miners.

Details of the proposed new mining code have not yet been released and while the code has been approved by the interim government, it is not clear when the National Transitional Council (CNT) will vote on it, or when it is intended to come into effect. The announcement of the revisions comes amid a wave of other reforms enacted by the new transitional government since November targeting the mining sector. The proposed revisions were introduced five months after Ouagadougou had announced plans to review existing exploration mining contracts, alarming current operators. They also followed the approval of a new anti-corruption law on 3 March, which stipulated that government officials and lawmakers charged with managing state funds, including mining contracts, had to declare their assets as well as any gifts or donations received while in office.

The proposed measures are likely intended to satisfy both domestic and international calls for reforms in the mining sector. A more equitable distribution of mining revenues, better consultation with local communities in mining areas and an end to corruption in the sector were demands voiced by many of the protesters who participated in the October 2014 unrest that forced President Blaise Compaoré from power. Demonstrations against the management of the sector have persisted since his ouster, putting further pressure on the transitional government to initiate reforms. Canada-based True Gold was forced to temporarily suspend construction at its Karma mine in the Namissiguima municipality in February 2015 after repeated attacks on its facilities by locals who claimed they had not been adequately consulted about the company’s operations. A review of the mining code and an anti-corruption law are also key conditions of the World Bank releasing USD 100 mn in budget support to the country. The government has received USD 300 mn in World Bank support in each of the past four years and is now desperately in need of the funds in the wake of declining commodity prices and political instability following the October revolution. International prices for gold, which accounts for around three quarters of national export earnings, fell for nine consecutive trading sessions in March 2015, the metal’s longest period of consecutive decline since 1973.

The revision are expected to be largely based on previous changes to the mining code proposed by former President Compaoré in 2012. These included a reduction in tax exemptions during the exploitation phase of mining operations, as well as the introduction of a 20 percent capital gains tax on the transfer of mining titles. These revisions were delayed amid concerns that higher taxes would deter investment at a time when the gold price was already in decline. Continued pressure from civil society groups over the lack of transparency in the mining sector increase the possibility that the new regulations will go further than previous revisions considered by the Compaoré regime. The new code could include requirements for mining companies to give additional revenues to local communities, managed by a local development mining fund. Domestic political pressures could also see the acceleration of reviews of mining contracts and changing terms for future licenses.

Burkina Faso’s political horizon, the fall in the gold price, and the mining companies’ resistance to the prospect of increased royalties suggest the mining code will likely experience delays, prolonging regulatory uncertainty affecting operators and potential investors. Neither President Michel Kafando nor Prime Minister Isaac Zida are eligible to stand in the October 2015 election, meaning that politicians could postpone decisions on critical reforms and any legislation passed prior to the vote will be vulnerable to further amendments following the election. The mining ministry is currently run by a military official, Colonel Boubacar Ba, and the military will seek to retain this position in the aftermath of the vote. However, if reforms are perceived to be too slow under the military, large-scale demonstrations, similar to those witnessed in 2014 and 2015, could target the mining ministry and lead to further changes. Riots over ministerial appointments in late 2014 and early 2015 prompted the resignation of the minister of infrastructure and the culture minister.The government will continue to face large-scale pressure from civil society to adopt more radical reforms of the sector and it could yet amend the revised code to push for further concessions from mining companies over the coming months. The government’s sensitivity to the demands of the population were illustrated in mid-March when Ouagadougou suspended the export licence of Pan African Minerals, citing its failure to comply with contractual obligations to rehabilitate roads and railways in the area. The move followed widespread protests at the mine over the same issue in February. Repeated demonstrations and attacks on mining companies, as well as the volatility of the political environment, will leave force operators to contend with security challenges and regulatory uncertainty for at least the remainder of 2015.

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