Saving DRC's mining law reform
National elections in the Democratic Republic of the Congo are slated for December 19 – at least on paper.
The government's failure to organise them has led to popular outrage, as have the security forces' violent suppression of the resulting protests over the last couple of months. Different political parties have agreed to a new coalition government, headed up by opposition leader Samy Badibanga, to lead the country towards general elections.
But President Joseph Kabila, who has ruled since 2001, will remain in power until then – in effect extending his second and last legal term. This was the goal of the delaying organizing the polls, part of a tactic known as glissement – or slippage – among the Congolese.
In addition to the electoral issue, the new government should address recurring discontent among the Congo's citizens around unsatisfying returns from the country's booming mining sector. Dissatisfaction with the political leadership is closely linked to frustrations with how poorly the central government has managed the mining sector.
The DRC is now the largest global producer of cobalt and the fifth-largest producer of copper. Lower metal prices since 2014 have slowed growth. International and local mining entrepreneurs have made fortunes off of the country's minerals. However allegations of political corruption around mining deals are all over the news.For all this wealth, the general population has little to show for it.
After several years of high mineral prices, in 2012 the government initiated a mining code review in response to citizen pressure. Though participatory in nature, the process was a dead end.
The version submitted to parliament in March 2015 did not represent a compromise between industry and civil society organisation positions. Active lobbying from the country's chamber of mines focused on the draft law's fiscal provisions. These pressures led the government to abandon the reform project.
The drop in copper prices, as well as the growing economic and political crisis in Congo, have chilled attempts by other actors to resume the process. For almost two years, the status of the reform has been unclear.
This is bad for business and frustrates the population, the majority of whom live on less than a dollar a day.
Benchmarking reform
The Natural Resource Governance Institute (NRGI) recently identified potential solutions to the deadlock. We analysed the current mining code (dating from 2002) along with the proposed revisions submitted to parliament.
We benchmarked the results against other mining jurisdictions, from Peru to Australia. We found that the existing fiscal regime for mining companies in the DRC is relatively generous to companies, but not out of line with international practice given the country's strengths and weaknesses.
At current prices, the average effective tax rate of a typical copper mine in DRC would be 58 percent, falling between those in Zambia and Chile. At higher copper prices, the same indicator would be 46 percent, below that of Indonesia, Chile and Western Australia. There is therefore room for DRC to capture a larger share of mining companies' revenue in the event of a new cycle of high prices.
Average effective tax rate for a copper mine, with copper prices set at 5,000 USD/t, in net present value terms with a discount rate of 10%
Average effective tax rate for a copper mine, with copper prices set at 8,000 USD/t, in net present value terms with a discount rate of 10%.
However a balance must be struck. The DRC has rich geology but a difficult political and regulatory environment. Companies' operating costs are relatively high. Some allowances must be made to make operating in this environment palatable to investors.
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