STRATEGY FOR EXPORT OF ICE AND WATER

Transcription

1 STRATEGY FOR EXPORT OF ICE AND WATER ICE & WATER

2 Strategy for export of ice and water ( ) The Self-Government of Greenland The Ministry of Industry, Labour and Trade Tel P.O. Box Nuuk Kalaallit Nunaat Greenland Layout and production: ProGrafisk ApS Cover photo: Stian Klo VisitGreenland The corporate tax rate in USA (Alaska) changed with effect from The text has thus been updated accordingly.

3 Table of contents 1. Foreword Executive Summary Objective and overview The international ice and water market Greenland s ice and water potential Mapping and commercialisation of Greenland s ice and water potential Sale of surplus water from Nukissiorfiit Benchmark analysis for selected countries Government take model for bottled water production Regulatory framework Promotion subsidies Marketing activities Status within the ice and water area Regulatory framework Current legislation Royalty Promotion subsidies Activities within the area Transport by sea The international ice and water market trends Global and regional overview bottled water Is carbonated water facing a sparkling future? Asia develops a taste for premium products Healthy hydration boosts volume growth Sales channels Outlook bottled water Bulk water Bottled water producers Greenland s ice and water potential Potential major meltwater deposits new studies and analyses initiated Project plan for field work and practical mapping of meltwater resources Mapping of potential water resources in the past Sale of surplus water from Nukissiorfiit Regulatory framework Benchmark analysis for selected countries Government take model for bottled water production Calculations of potential tax revenues Summary and recommendation Updating the legislative framework Promotions subsidies Marketing activities

4 Photo: Mads Pihl VisitGreenland 4

5 1. Foreword It is the ambition of the Government of Greenland for Greenland to become financially more self-sustaining, and the plan is to develop the area of ice and water export into becoming one of the business sectors that contribute to fulfilling this overall objective. Many valuable experiences have been drawn since the first strategy for export of ice and water from Greenland was published in 2004, notably the partial mapping of the ice and water resources of Greenland. Also, additional knowledge has been gained about factors of importance to international markets and competition as well as more specific knowledge about where Greenland s potentials lie or do not lie. The global market for bottled water has been and is expected to continue its steady increase. By way of example, the market for bottled water has now overtaken the market for carbonated beverages as the leading soft drink. The reason for this is not least the increasing number of new financially strong consumers in the new markets including the important Chinese market. It is thus not only in the mature markets of North America and Europe that focus is on the importance of healthy hydration. When we look at the international market for bottled water, it is also important to point out though that it is a market characterised by intense competition. It is therefore of crucial importance for Greenland to be able to attract producers with the necessary strength in terms of capital, marketing and distribution. Based on experiences drawn to date it has become even clearer which market segments could be relevant for Greenland. It has thus become clear, among other things, that efforts should be concentrated on the export of high-quality ice cap water from Greenland in bulk. This market segment is just below the more niche-oriented market segment of true luxury products. As will be seen from this strategy, it seems realistic to start up an economically viable production even with only minimum volume production. Such production will also have a real value for the Greenland society and contribute to fulfilling the overall objective within the area. That does not mean that it is not also realistic and relevant to get the export of niche products like, for example, ice cubes and high-profile ice cap water up and running. The strategy is built around three main tracks. First, suitable and relevant meltwater deposits need to be mapped. These locations are identified on the basis of various selection criteria that take into account the special challenges prevailing in Greenland in terms of geography and infrastructure while the drinking water must at the same time obviously be of a uniform high quality. The second track concerns possible adjustments of the tax and royalty level so that the total government take does not end up getting in the way of developing the water export. This work is based on a benchmark analysis of the tax and royalty models applied in various peer countries as well as scenario calculations of possible models. The focus of the third main track is on the optimisation potential of the legislative framework within the ice and water area. One of the recommendations in this connection is to introduce tender procedure (licensing rounds) as a supplement to the existing application procedures which are based on the first-come first-served principle. Another area that should be looked into is the advantages of protected designations of origin. As the mapping and legislative framework of the area are being updated, a corresponding strengthening of the marketing efforts will also be needed, which includes establishing contact with international producers. Yours faithfully The Government of Greenland 5

6 2. Executive summary 2.1 Objective and overview The Government of Greenland has set a firm objective of developing the production and export of ice and water into one of several industry sectors contributing to income generation and employment in Greenland. In the past, this objective has been sought achieved through the adoption of a transparent legislative framework, reduction of the taxes etc. imposed on this sector of industry and through various marketing initiatives. To date, six prospecting licences and five exploitation licences have been granted within the area. The companies have produced to a varying extent but without achieving much export success. This strategy analyses international ice and water market trends and recommends various initiatives that should be taken to attract the know-how and investments needed to penetrate an intensely competitive international market. In this connection, the Ministry of Industry, Labour, Trade and Energy has obtained analyses of the international market situation for the sale of water products. The reports show that world market sales of bottled water are generally on the rise. However, the market analyses also point to the fact that the global market for bulk water, and especially bottled water, is characterised by intense competition for market shares among the major players. New players in particular have a hard time penetrating the export markets because the major players can supply large volumes at low prices. The reason for this is that a few of the world s dominant players already control substantial market shares. The big players have considerable capital strength, which in combination with effective and well-established production, distribution and marketing channels makes it difficult for new players to penetrate the market. There is an increasing global shortage of pure drinking water and many countries are facing huge challenges when it comes to ensuring clean public water supply. On top of that, there is an increasing concern and focus among consumers as to the quality and potential health hazards in tap water. There have been numerous big scandals with polluted tap water from public water sources, which may stem from industrial pollution or from naturally occurring underground asbestos where the ground water is being pumped up. Finally, tap water may be of an undesired quality or taste which makes it unsuitable for drinking. As a consequence of the above, the possibilities of exporting drinking water over long distances in bulk (i.e. untapped) in containers are now being explored. There is also an increasing demand for bottled water as a substitute for tap water in the developed markets of North America and Europe as well as in the new markets, including not least the important Chinese market. Similarly, we have also seen an increasing demand for bottled water in the more expensive price range. However, the demand for pure tap water can also be met by desalination plants that convert sea water into drinking water at an increasingly lower unit cost. Even if the experts see a great potential for further growth in bulk as well as bottled water, it is difficult nevertheless to establish a presence in the water market. Huge water resources in a potential export country combined with increasing demand for water products is not the same as easy penetration of the world market. As will be seen later in the strategy, it is important to be able to offer big and stable water supply sources that are well-documented. These sources must be of a high quality with respect to bacterial content, mineral content, absence of impurities and much more. Finally, it must be possible to produce, transport and distribute the water at a very low unit cost. The Ministry of Industry, Labour, Trade and Energy recently visited Alaska, which has been showcased as a pioneering country within Arctic water production. The Ministry met with authorities and the water industry. The conclusion from the visit was that despite 6

7 7 Photo: Mads Pihl VisitGreenland

8 Photo: Stian Klo VisitGreenland 8

9 a larger domestic market, better infrastructure, geographic proximity to the big Asian market and good quality water resources, Alaska has had a particular hard time getting things moving on the export market. To date, according to the authorities, a licence has been granted to three water projects, of which two have not yet started production. The third player has started small-scale production, primarily for the home market. The producers confirmed the impression of a very tough competitive market and of export markets being hard to penetrate. rapid growth in China, for example, with consumers increasingly interested in high quality imported brands. In recent years, the consumers in some of the Asian markets, including, for example, the dominant Chinese market, have to an increasing extent demanded high quality imported brands. Rising disposable incomes in China, for example, has seen bottled water average prices increase by 8% in 2015, faster than any other soft drinks category in the market. The Government of Greenland s new strategy makes recommendations as to how Greenland can respond to international market demands for: (a) reliability of supply; (b) a huge, well-documented supply of water; (c) low production, transport and distribution costs; and d) not least a very high quality of drinking water. The report entitled»global Soft Drinks 2016 Packaged Water Comprehensive Analysis of Trends in the Global Packaged Water Market Including Longterm Forecasts«(Global Packaged Water) provides a calculation of average bottled water retail prices in retail shops and restaurants. 2.2 The international ice and water market With a volume growth of nearly 7%, global consumption of bottled water reached more than 223 billion litres in This means that the international market for bottled water has overtaken the market for carbonates as the leading soft drink. Nearly all markets achieved volume growth; with the highest increases being recorded in China, USA and India. Asia has been responsible for most of the volume gains in bottled water during 2015, and the region now takes a share of almost 34% of global consumption. India has more than doubled its consumption over the last five years. However, growth in the dominant China market continued to slow as the economy remained sluggish and summer temperatures disappointed. In West Europe bottled water has experienced accelerated growth of around 5%, thanks to especially strong gains in Italy and Germany. More than 83% of bottled drinking water sold is still water. In some of the larger volume markets carbonated water is still developing and as a result holds a far smaller share of bottled water sold. Nonetheless, the segment of carbonated bottled water is showing By way of example, the average price for a bottle of still water (bottled water per litre) in shops in Germany is DKK 3.35, in the UK the price is DKK 3.82 and in USA the price is DKK Bottled water production in Greenland must, if it is to be able to compete among the low-priced products, arrive on the store shelf in the receiving country at a price of between DKK 3 and DKK 5 for a one-litre bottle. That price must include investments in production plant, operating costs associated with the production, purchase/production of bottles, financing costs, direct and indirect taxes, transport by sea, reloading in the receiving country as well as transport and storage in the receiving country, marketing costs and profit along the entire distribution chain, etc. If it is possible to get a higher price for the product for instance in the case of a branded product the unit cost requirement in the above areas will be correspondingly lower except for the marketing costs, which will be higher. If low unit costs are to be achieved, it will be necessary to identify: (a) a huge, well-documented supply of water; (b) reliability of supply; (c) low production, transport and distribution costs; and (d) not least a very high quality of drinking water. 9

10 2.3 Greenland s ice and water potential Mapping and commercialisation of Greenland s ice and water potential Based on previous analysis and experience of export of ice and water from Greenland, which has focused, with limited success, on deposits which would allow highvalue niche production, extensive field work has been launched with a focus on the possibilities of identifying major glacial meltwater deposits of high drinking water quality which can be produced at a low unit cost. At the request of the Ministry of Industry, Labour, Trade and Energy, the Geological Survey of Denmark and Greenland (GEUS) has issued a report on criteria for designating locations for export of glacial meltwater in Greenland. The report should be seen as the first step in the process of locating major meltwater deposits in Greenland. The criteria recommended are mutually dependent. A location must first and foremost offer sufficient water quality, then it must guarantee reliability of supply and, finally, it must be accessible. Recommendations concerning mapping of Greenland s ice and water potential RECOMMENDATION (1) Identify suitable locations based on criteria concerning water quality, reliability of supply and accessibility for the purpose of drawing up a longlist of potential deposits. BACKGROUND: The work of locating suitable meltwater deposits has already started. But this is a dynamic process where the effort will continuously be adjusted to reflect new knowledge, objectives and priorities. Based on an examination of relevant glaciological, geographical and geochemical parameters, GEUS has listed a number of recommended criteria for the next step in the process of updating knowledge about the potential with regard to major meltwater deposits. The criteria may be divided into three levels, each level depending on the previous level. Figure 1. Criteria for water resources (Source: GEUS) RECOMMENDATION (2) Annual field studies should be carried out to study potential deposits, including the taking of samples and surveying, starting in BACKGROUND: The effort is based on a longlist prepared by GEUS based on criteria concerning reliability of supply and accessibility. The field work should continue for at least five years, and five potential deposits should be analysed in the course of a field season. Water quality Reliability of supply Accessibility RECOMMENDATION (3) Laboratory and modelling work to determine water quality should be carried out based on the field studies of potential deposits, starting in BACKGROUND: In the process of mapping Greenland s glacial meltwater deposits, a number of technical tests should also be made to determine the water quality of such meltwater deposits. The work should be viewed in the context of recommendation (2). 10

11 2.3.2 Sale of surplus water from Nukissiorfiit The public utility company Nukissiorfiit produces water at different locations in Greenland. At some of those locations, a certain amount of surplus water is produced. Following an amendment of the Exports of Ice and Water Act in 2016, it became possible to enter into an agreement for the export of surplus water from Nukissiorfiit. In order to exploit the surplus water produced by Nukissiorfiit, the potential exporter must enter into an agreement with Nukissiorfiit for the supply of water for export, and an exploitation licence must be obtained from the Government of Greenland. It should be noted that, as a general rule, Nukissiorfiit will only enter into agreements for the supply of surplus water if the surplus water is from existing facilities. There is thus no question of Nukissiorfiit assuming the commercial risk of establishing new facilities or expanding the existing production in order to meet any demand from water exporters. Similarly, it will be a precondition for all commercial supply agreements that they rank second after the primary supply of water to the local population and business community. The volumes available for commercial supply will thus be reduced if necessary to maintain the water supply to the local population and business community. 2.4 Benchmark analysis for selected countries There are a number of countries which have entered the market for export of bottled water. There are also a number of countries which, like Greenland, have a large untapped water export potential. One thing that most of those countries have in common is the fact that, geographically, they are closer to their export markets than Greenland is. Some of those countries have the additional advantage of immediate access to a large domestic market. It is therefore important for Greenland to establish a favourable regulatory framework while at the same time, of course, exploiting the special advantages that Greenland enjoys, i.e. unique ice and water products. As requested by the Ministry of Industry, Labour, Trade and Energy, international consultancy and accounting firm PwC has carried out a benchmark analysis of the regulatory framework of selected countries which are regarded as the most evident competitors from a Greenlandic perspective. The countries in question are Iceland, Fiji, Norway, Italy, the UK, Denmark, Germany, USA (Alaska), France and Canada. Photo: Mads Pihl VisitGreenland 11

12 The benchmark analysis carried out by PwC looks at a number of important tax parameters for the purpose of defining the framework for the process of identifying a competitive government take model for Greenland. Corporate and dividend taxation, etc. The (corporate and dividend) tax level is an important parameter when assessing how attractive Greenland is for current and potential exporters of water and for investors. It should be noted that none of the benchmark countries have special corporate and dividend tax rates or depreciation rates which apply only to the mineral water industry. As can be seen from table 1, Greenland has a relatively high corporate tax level, compared with the other countries. The corporate tax rate is 31.8% and is thus higher than the rate payable in Canada, Denmark, Fiji, Iceland, Italy, Norway, the UK and USA (Alaska). Only France and Germany are marginally higher The column Aggregate tax rate at full dividend distribution shows the aggregate taxation including dividend tax. This will often be the most essential factor for a foreign investor. These percentage rates are based on the assumption that all profit is distributed as dividend. As will be seen, Greenland s tax rate of 42-44% is on a level with some of the other countries when comparing the tax level and leaving out double taxation treaties. However, a comparison of the rates under double taxation treaties shows that Greenland with its 35% (only applies Photo: Petter Cohen, Xtravel - Visit Greenland 12

13 Table 1: Table of tax rates in the benchmark jurisdictions * (Source: PwC) Country Corporate tax rate Depreciation rate (plant and machinery) Dividend tax rate **) (The highest rate is without a tax treaty - the lowest rate is the most favorable rate for qualifying ownership interest to tax treaties) Aggregate tax rate at full dividend **, *** distribution Greenland 31,8 % 30%, diminishing- balance % / 35 % **** % / 35 % **** Canada % 20 % 25 % / 5 % % / % Denmark 22 % 25 % 27 % / 0 % 39 % / 22 % Fiji 20 % % 9 % / 0 % (Japan, Qatar, UAE) others 9% 27 % / 20 % France 33,33 % 2,25 book depreciation rate, straight-line 30 % / 0 % 53 % / 33 % Iceland 20 % %, straight-line 18 % / 0 % 34 % / 20 % Italy 24 % 2-10 % 26 % / 0 % 44 % / 24 % Norway 25 % 30 % 25 % / 0 % 44 % / 25 % UK 19 % 18%, diminishing-balance Zero 9 % Germany % Straight-line depreciation over useful life 25 % / 0 % % / % USA Alaska 28.4% (21% federal + a special local rate of 9.4% which is deductible in income for federal tax) A complicated method of accelerated depreciation with different classes of assets, partial diminishing-balance and straightline depreciation 30 % / 5 % 50 % / 32 % * The corporate tax rate in USA (Alaska) was changed with effect from The wording has therefore been updated accordingly. ** Rates to the left (high rate) without a double taxation treaty rates to the right (low rate) most favourable rate for qualifying ownership interest in double taxation treaties (applies to all countries in the column). *** The total tax rate after dividend tax, where all profit is assumed distributed as dividends (applies to all counties in the column). **** Dividends are deductible in the taxable income, which means that the aggregate tax rate may be maximised to the withholding tax rate. Low rate in case of dividend distributions to Denmark, Norway and Iceland. 13

14 to investors in Denmark, Norway and Iceland) has the highest total rate of all the countries in the comparison. The other countries in the comparison have double taxation treaties with a large number of countries. It is noted as regards the figures for Greenland that no double taxation will occur (not paying both corporate tax and dividend tax) because dividends, although they are subject to dividend tax, are deductible from the calculation of corporate tax. Royalty (indirect tax) on water Some of the benchmark countries charge a royalty or indirect tax on the production of bottled water. This is the case for Canada, Denmark, Fiji and Italy and to some extent also USA. The Greenlandic royalty of DKK 0.10 per litre falls in the middle of the range. By way of example, Denmark and also to some extent Fiji have a higher rate. In Alaska, on the other hand, the rate is significantly lower. Conclusion drawn from the benchmark analysis The total government take level in Greenland is among the highest of the benchmark countries. This is because the total level of corporate and dividend tax is in the region of 42-44%. In addition, Greenland is among the countries which charge a royalty for export of water. Royalty is a parameter which should be considered in the context of the general taxation level as the important factor here is the total government take. Table 2: Royalty (indirect tax) on water (Source: PwC) Country Greenland Royalty (indirect tax) DKK 0.1 per litre Canada Rate according to concession/negotiation Denmark A tax of DKK 6.25 per m 3 (DKK per litre) The tax is an excise duty which is levied on water bottled in Denmark Fiji Extraction per month in litres and above Rates (Fiji cents per litre) 0,11 (EUR 0,0005/DKK 0,004) 15,00 (Euro 0,07/DKK 0,50) In addition, a tax on exported bottles is payable plus a rental payment to local land owners. No additional taxes are payable for export of bottled water. Italy Regional taxes may apply. The region of Lazio, for example, operates with a Concession Fee based on the dimensions of the surface area exploited and on the volumes of water bottled. USA / Alaska The royalty is based on acrefeet. An acrefoot is 1,233 m 3. The amounts are calculated relative to annual sales according to the following scale: (i) $ 3 per acrefoot up to acrefeet, however minimum USD 50. (ii) $ 6 per acrefoot from up to acrefeet (iii) $ 8 per acrefoot from up to acrefeet (iv) $ 12 per acrefoot from up to acrefeet (v) $ 15 per acrefoot from up to acrefeet (vi) $ 18 per acrefoot from up to acrefeet (vii) $ 21 per acrefoot from up to acrefeet (viii) $ 24 per acrefoot from up to acrefeet (ix) $ 27 per acrefoot from up to acrefeet (x) $ 30 per acrefoot from acrefeet and above 14

15 2.5 Government take model for bottled water production On behalf of the Ministry of Industry, Labour, Trade and Energy and based on the benchmark analysis concerning the regulatory framework in the countries that must be deemed the most obvious competitors from Greenland s perspective, PwC has analysed a number of government take models for the purpose of fleshing out a possible future model which is competitive internationally and easy to manage. PwC s analysis suggests that large-scale water production would provide an earnings potential for the Greenland society. However, it must be expected that it will take some time to penetrate the market, which is characterised by intense competition. Different tax models with different elements have been analysed. The analysis has been based on the current corporate and dividend tax and included the possibility of imposing a revenue royalty and/or a surplus royalty as well as a unit tax, including a unit tax combined with a revenue royalty. The current tax regime results in proportional taxation. As stated in the benchmark analysis, Greenland has a relatively high level of taxation for companies. At 42-44%, the Greenlandic corporate tax level for dividend distribution of profits is the highest on the scale, together with Alaska, compared with the other benchmark countries. A tax level this high may act as a barrier to an investment decision by a foreign investor. As will be seen from table 3, the various benchmark Table 3: Table on the advantages and disadvantages of the models studied (Source: Ministry of Industry and Energy) Model Profit-based corporate tax Profit-based Characteristics profit Higher government take, higher profit, either proportional or progressive tax Higher government Characteristics loss Low government take in the absence of profit Low government take Remarks management/administration Requirement for control effort e.g. the need to secure compliance with the arm s length principle Requirement for control effort e.g. the need Photo: Samuel Letecheur - Visit Greenland surplus royalty take, higher profit, i.e. in the absence of to secure compliance with the arm s length progressive tax profit principle Per unit tax Low government take High government take Easy to manage e.g. less vulnerable to if the profit is higher to the extent that the transfer price issues. than expected tax needs to be paid, even in the case of loss Amount control is still needed although less than in other profit-based models Gross revenue Low government take High government take Easy to manage e.g. less vulnerable to royalty if the profit is higher to the extent that the transfer price issues. than expected tax needs to be paid, even in case of loss Revenue control is still needed although less than in other profit-based models 15

16 models have different characteristics, advantages and disadvantages. For example, by introducing a unit tax/ revenue royalty model, a very simple regime is obtained, whereas a profit-based model would require a certain standard of regulatory control as controls should be implemented to check that sales prices and costs are at arm s length and, similarly, all costs included in the surplus would have to be checked. It should be noted that the below recommendations concerning taxation should be seen as derogations in the same way as the derogations set out in the Greenland Parliament Act on Mineral Resources and Mineral Resources Activities (the Mineral Resources Act) and in the Greenland Parliament Act on the Exploitation of Hydropower for the Production of Energy (the Hydropower Act). By way of example, under section 12 of the Hydropower Act, an exemption may be granted for taxation of the licensed activities. Calculations of potential tax revenues On behalf of the Ministry of Industry, Labour, Trade and Energy, PwC has given an estimate of potential tax revenues. An annual production volume of 120 million litres, equivalent to the volume of bottled water consumed in Denmark on an annual basis, will result in an annual profit after water production costs of DKK 115 million, if the sales price is DKK 1.00 per litre, and DKK 245 million, if the sales price is DKK 2.00 per litre. If the sales price is DKK 1.00 per litre, this may be illustrated as follows: Table 4: Tax revenues in base case scenario (Source: PwC) Million litres produced Price per litre (DKK) DKK mio. Annual revenue 120 1, Costs (water all inclusive) 120 0,038 * -4,56 Annual profit 115,44 Photo: ShutterStock Government take 25% tax/unit tax DKK 0.04 per litre 33,66 Producer 81,78 * This cost figure can be seen from Nukissiorfiit's absorption costing statement for 2016, see pages of the report. 16

17 Recommendations concerning a more competitive government take model for export of ice and water RECOMMENDATION (4) A simpler and more competitive government take model should be introduced for export of ice and water in Greenland. BACKGROUND: The benchmark analysis carried out by PwC shows that it is necessary to reduce the total government take if Greenland is to be an attractive alternative to its most obvious competitors. It is recommended on that basis to reduce and adjust the level of the total government take in order to make it more attractive to start up production. Photo: Mads Pihl VisitGreenland RECOMMENDATION (5) A model should be implemented which implies a total corporate/dividend tax of 25% as well as a revenue royalty of 4%, which cannot exceed, however, a fixed unit tax of DKK 0.04 per litre. The model implies that each year the Greenlandic corporate and dividend tax paid is deductible from the revenue royalty/unit tax payable. BACKGROUND: Based on the analysis in chapter 6, the so-called model (d) put together by PwC is recommended, which implies a total corporate/ dividend tax of 25% and a revenue royalty of 4%, which cannot exceed a fixed unit tax of DKK 0.04 per litre, where each year the Greenlandic corporate and dividend tax paid is deductible from the revenue royalty/unit tax payable. The revenue royalty/unit tax is deductible from the taxable income. If the unit tax/revenue royalty is combined with corporate/dividend tax, with the amount of unit tax/revenue royalty being reduced by the corporate and dividend tax paid, a certain government take would be secured from the outset, without the total income being lower than the proportional tax percentage. The levels chosen of 4% or a maximum of DKK 0.04 per litre are lower than, for example, in Fiji, and they seem to be reasonable in terms of the economic framework. RECOMMENDATION (6) Statutory authority should be introduced for the Government of Greenland to grant up to five years of royalty exemption as from the date of grant. The fundamental conditions for being granted such exemption should be laid down directly in the Act or in an executive order. BACKGROUND: It is crucial to Greenland s possibilities of attracting investment to the water export area that the overall government take is at a competitive level. In this connection, it is also crucial that producers with the necessary capital strength etc. are attracted as the market is highly competitive. In certain cases, a need may therefore arise to provide some flexibility, and one way of doing so would be to grant royalty (unit tax) exemption but not from direct taxes during a start-up phase where potentially costly investments in facilities and infrastructure are required. Such an incentive structure is also seen in many other countries wishing to support an industry or an export zone during a start-up phase. In order to ensure transparency and predictability, the fundamental conditions for being granted a period of exemption from royalty should be laid down directly in the Act or in an executive order. 17

18 2.6 Regulatory framework The regulatory and legislative framework is an important competitive parameter in the quest to attract businesses and investors. Activities concerning the exploitation of ice and water for export are governed by Greenland Parliament Act No. 7 of 31 May The Act was amended by Greenland Parliament Act No. 3 of 15 May 2014 to amend the Greenland Parliament Act on the exploitation of ice and water for export. The amendment concerned, among other things, the change of authority names and rules concerning the provision of information. The Exports of Ice and Water Act was most recently amended by the Greenland Parliament Act No. 35 of 28 November This legislative change came into force on 1 January 2017 and its purpose is to make it clearer that the Act provides the statutory basis for the Government of Greenland to grant exploitation licences concerning the purchase of surplus water from a public utility company. The Greenlandic Exports of Ice and Water Act includes provisions on: Grant of prospecting licences Grant of exploitation licences Approval of business and closure plan, including, according to the circumstances, subject to the submission of a financing plan as a condition for production start-up Assignment of an exploitation licence requires approval Provision on the possibility of charging royalties Recommendations concerning possible changes and adjustments to the Greenlandic regulatory framework for export of ice and water RECOMMENDATION (7) Statutory authority should be introduced to allow the grant of non-exclusive exploitation licences for land areas. BACKGROUND: Under the current Exports of Ice and Water Act, licences for exploitation of ice and water in land areas for export purposes are granted on an exclusive basis, while exploitation licences for offshore areas are generally granted on a non-exclusive basis. If the Government of Greenland has granted an exclusive exploitation licence for a specified land area to one licensee, the Government cannot also grant an exploitation licence for the same area to another party. It would be expedient to provide the statutory authority necessary to grant non-exclusive exploitation licences for land areas as situations may arise where the best scenario would be to grant multiple licences to exploit ice and water for export from the same resource if the resource in question has the potential required. This would ensure that Greenland s water resources are exploited in the best and most expedient manner possible and that the potential of the resources is not wasted. RECOMMENDATION (8) Consideration should be given to whether it should be possible in an exploitation licence to specify the maximum volume of ice and water that may be exploited under the licence. BACKGROUND: It may be considered whether it should be possible in an exploitation licence to specify the maximum volume of ice and water that may be exploited under the licence (exploitation volume). If non-exclusive exploitation licences become available for land areas, see recommendation (7), it should also be possible to have more than one licensee for a specified area or resource. It may therefore be necessary to specify the maximum volumes in an exploitation licence in order to allow multiple licensees for the same area or ice or water resource. 18

19 RECOMMENDATION (9) It should be possible for the licensee and the Government of Greenland to change exploitation volumes, if so provided for in the exploitation licence. BACKGROUND: At present, the issue of minimum volumes is regulated in the approval of the business plan, see section 8 of the Act. It would be appropriate to introduce a smoother procedure which would make it possible to amend the provisions governing minimum and maximum volumes directly in an exploitation licence. In this connection, consideration may be given to whether the Government of Greenland is to be authorised to decide to increase or reduce exploitation volumes. This may also be relevant with regard to a shared resource. The possibility of changing exploitation volumes under an exploitation licence would provide some flexibility, particularly for long-term exploitation licences where the underlying assumptions or circumstances may change or turn out to differ from what they were at the grant of the licence. However, this should only be possible if so expressly provided for in the exploitation licence. RECOMMENDATION (10) Consideration should be given to whether there is a need to authorise the Government of Greenland to issue orders for coordinated exploitation where two or more ice or water resources are shared by different licensees. BACKGROUND: If two or more ice or water resources are shared by different licensees, but should be subject to coordinated exploitation for resource, economic or social reasons, it may be considered whether the Government of Greenland should be authorised to issue orders for coordinated exploitation. For example, this may be relevant if different licensees are allowed under their exploitation licences to use the same exploitation, pipeline, storage or other facilities. If the Government of Greenland is given the authority to issue orders for coordinated exploitation, it should be possible in the order to specify that the licensee is entitled, against a reasonable fee, to use the exploitation, pipeline, storage or other facilities operated and used by another licensee in connection with the latter s own exploitation of ice and water resources. If this recommendation is acted on, the possibility of such an order being issued should be expressly mentioned in the exploitation licences. Photo: ShutterStock 19

20 RECOMMENDATION (11) Provisions should be amended to authorise the Government of Greenland to lay down terms requiring a licensee to pay the Self-Government by way of a royalty (unit tax) for exploitation and export of ice and water, including terms concerning exemption from payment in certain periods. In addition, provisions should be introduced to authorise the Government of Greenland to lay down terms governing exemption of licensees from direct and indirect taxes (fiscal taxes) in certain periods and on certain terms and conditions. BACKGROUND: At present, the Government of Greenland is authorised to lay down terms requiring licensees to pay by way of indirect taxes, including terms concerning payment of such taxes based on production volume and value. Amended provisions should be laid down which still authorise the Government of Greenland to lay down terms requiring licensees to pay the Self-Government by way of indirect taxes for exploitation and export of ice and water. The provisions should also authorise the Government of Greenland to lay down provisions on exemption of licensees from payment of indirect taxes in certain periods. In addition, provisions should be laid down which authorise the Government of Greenland to lay down provisions on exemption of licensees from payment of direct and indirect taxes (fiscal taxes) in certain periods and on certain terms and conditions. Such amendments to the current provisions would ensure that the Government of Greenland is authorised to introduce a better and more competitive government take model in connection with the exploitation and export of ice and water in Greenland. Authorisations in this regard would contribute to providing a certain measure of flexibility, e.g. during the licensee s start-up phase which involves potentially heavy investment in facilities and infrastructure. The Mineral Resources Act contains a similar provision authorising the Government of Greenland to lay down terms to exempt a licensee from the payment of direct tax if the licensee pays a fee instead. By way of example, the Government of Greenland should be authorised to lay down terms requiring the licensee to pay an annual fee based on the size of the licensed area (area fee) or to pay to the Self-Government a share of the profits realised from the licensed activities (profits fee). 20

21 RECOMMENDATION (12) Consideration should be given to whether there are sufficient advantages involved in introducing a protected designation of origin, e.g. by making designations such as ice cap water protected foodstuff designations. BACKGROUND: By amending the Exports of Ice and Water Act, it would be possible to explore the value of introducing the statutory authority for the Government of Greenland to lay down terms specifying or to decide that designations such as ice cap water or the like are to be protected foodstuff designations. A protected foodstuff designation may be a protected designation of origin, a protected geographical indication or traditional speciality guaranteed. A protected designation of origin indicates that an agricultural product or foodstuff originates from and was produced, processed and prepared in a specific area. Two examples would be cognac and feta cheese. A protected geographical indication indicates that an agricultural product or foodstuff originates from and was either produced, processed or prepared within a limited geographical region. Two examples would be carrots from Lammefjorden and Bayonne ham. Traditional specialities guaranteed are agricultural products and foodstuffs made of or composed by traditional raw materials or produced by traditional methods. By way of example, see Danish Executive Order No of 6 December 2013 on quality schemes for agricultural products and foodstuffs and Regulation (EU) No 1151/2012 of the European Parliament and of the Council of 21 November 2012 on quality schemes for agricultural products and foodstuffs. Photo: AdobeStock 21

22 RECOMMENDATION (13) It should be examined whether there is a need to update the requirements for export water standards so as to be consistent with international standards at all times for the purpose of reducing compliance costs and boosting confidence in Greenland export water. BACKGROUND: It may be considered whether the Exports of Ice and Water Act should be amended so as to be more consistent in relevant aspects with standards and rules applicable in other countries with regard to exploitation and marketing of natural ice cap water etc. and the quality aof drinking water etc. One simple way of making such an update would be to start by looking at Danish Executive Order No. 38 of 12 January 2016 on natural mineral water, spring water and packaged drinking water. The Executive Order implements a number of EU rules concerning exploitation and marketing of natural mineral water, the quality of drinking water, etc. RECOMMENDATION (14) Consideration should be given to whether it would be advantageous to use tender procedures (licensing rounds) in connection with licensing of the water resources analysed and newly mapped by the Self-Government. In this connection, clear evaluation criteria should also be introduced. BACKGROUND: Under the current regulation of the area, applications for a prospecting and exploitation licence are considered on an ongoing basis and according to a first-come first-served principle. The decisive factor in the evaluation of competing applications is therefore, in practice, the date of submission instead of other parameters such as distribution and capital strength, where the applications otherwise satisfy the statutory requirements. The introduction of tender procedures (licensing rounds) is also known from the mineral resources area where, for example, special rules apply to issues such as grant of licences in the area of hydrocarbons. If this recommendation is acted on, clear evaluation criteria would also have to be drawn up so that potential applicants would know in advance the criteria on which they would be evaluated. For example, the evaluation criteria could concern the level of ambition, business plan, capital strength, distribution network and experience and other such criteria. The introduction of tender procedures (licensing rounds) would also support the Self-Government s future marketing campaigns directed at multinational producers and others which, among other things by reason of their internal decision-making procedures, need to have predictable milestones along the process in the form of deadlines and dates. It is also possible to imagine that only certain locations would be available for licensing rounds. By way of example, the locations which are in the process of being analysed and examined by GEUS. It may also be considered whether to introduce limitations on the number of locations which may be licensed to an individual applicant in connection with a licensing round. 22

23 RECOMMENDATION (15) Introduction of application periods in connection with the processing of applications according to the principle of tender procedures instead of the existing application procedure, which is based on the first-come first-served principle. BACKGROUND: Under the current regulation of the area of ice and water, applications for prospecting and exploitation licences are examined as they are received and according to the firstcome first-served principle. In supplement to any introduction of tender procedures (licensing rounds), the possibilities of introducing application procedures where applications received are divided into categories according to their date of submission should be explored. The difference from the current practice would be that, for example, a month would be divided into two application periods instead of the current practice of granting licences according to the first-come first-served principle. If this recommendation is acted on, there would still be an element of first come first served, but if two applications are received for the same area in the same application period, it would be possible to make a discretionary decision as to which of the applicants is in the better position to exploit the area. If this recommendation is acted on, very clear evaluation criteria would have to be introduced, see also recommendation (9) above. RECOMMENDATION (16) Statutory authority should be introduced to allow the Government of Greenland to bar applications for exploitation licences for specific areas. BACKGROUND: In the expectation of tender procedures being introduced, it is important to introduce the statutory authority to bar applications for the area in question. Otherwise, an applicant might seek to get ahead of others by submitting an application before the licensing round actually begins. In the interest of transparency in administration, this authorisation is important although an applicant has no legal right to be granted a licence. RECOMMENDATION (17) A provision should be introduced to establish that legislation concerning cargo transport by sea to, from and within Greenland does not apply to transport by sea of ice and water resources covered by the Exports of Ice and Water Act. BACKGROUND: The Royal Arctic Line (RAL) owns the sole concession for sea transport of cargo to, from and within Greenland. However, the sole concession does not extend to all transport by sea and does not apply, for example, to oil transport by tankers and transport of own cargo by own vessel as part of non-transport activities. The purpose of updating the Exports of Ice and Water Act would be to increase economic growth and create jobs in Greenland by improving conditions for exploitation of ice and water resources for export. Flexibility for the licensee in terms of transport of ice and water resources by sea is only one of a number of important factors which would impact the attractiveness of Greenland for existing and potential ice and water exporters as well as investors. In order to make the legislation concerning transport of exported ice and water by sea as good and flexible as possible, the Greenlandic Sea Transport Regulation should not be applicable to transport by sea of ice and water resources for export which are covered by the Exports of Ice and Water Act. It is expected that a departure from and the exemption from the sole concession would make it more financially attractive to invest in the exploitation of ice and water in Greenland for export. The exemption from the sole concession is thus expected to enhance Greenland s competitive position relative to other countries and improve the licensee s competitiveness in the international market. Photo: AdobeStock 23

24 2.7 Promotion subsidies 2.8 Marketing activities Recommendation concerning promotion subsidies RECOMMENDATION (18) Industrial promotion funds should be provided for establishing contact and launching marketing campaigns to support small Greenlandic players' efforts to engage in cooperation with multinational producers. BACKGROUND: For a small or minor player to break through to the international market, it is crucial to establish some kind of partnership with one of the multinational producers. The subsidies available for ice and water projects should be targeted more specifically than is the case today, so that subsidies are primarily available to seek partners and for other forms of cooperation and sales. The international market for bottled water is characterised by intense competition where the exclusive brands of ice cap water compete with each other within their own market segment while at the same time they often have to compete with more affordable brands of, for example, spring water. Future producers will thus have an important role to play in marketing and creating preference for an ice cap water product and in establishing distribution agreements if high-volume sales are obtained. It is thus also crucial that the right applicants are attracted to Greenland, i.e. applicants with the required capital strength and distribution and marketing channels, etc. 24

25 Recommendations concerning marketing activities as well as branding of Greenlandic water RECOMMENDATION (19) RECOMMENDATION (21) Marketing material should be prepared, Proactive marketing efforts should be including a product catalogue, concerning aimed at a select group of multinational the opportunities presented by Greenlandic meltwater deposits for the purpose of investors with the required capacity, in- producers in order to attract producers or strengthening marketing efforts abroad. cluding in terms of capital strength and BACKGROUND: Based on the meltwater deposits marketing and distribution capacity. that have been studied and analysed, a product BACKGROUND: In light of the intensity of competition, it is imperative for Greenland to attract catalogue will be drawn up as well as any other marketing material which contains the results of producers and investors with the required the water samples and other relevant technical capacity in crucial areas such as capital strength data as well as information about infrastructure and marketing and distribution. Experience and locations at a more general level. from the mineral resources area shows that it is possible to get results in relation to large international companies if an effort to reach out is made and if the opportunities offered are RECOMMENDATION (20) sufficiently interesting. Greenland s meltwater deposits should be For example, the activities could be carried out marketed actively at international and regional trade fairs etc., including with a par- in cooperation with Greenlandic producers, who may be expected to gain from any agreements ticular focus on the Middle East and Asia. made or other partnership formed with an existing player with a consolidated market position. BACKGROUND: A number of trade fairs exist that may serve as a platform on which to market Greenland s water resources. Potential trade fairs etc. are listed in chapter 9. Photo: Stacy William Head VisitGreenland 25

26 3. Status within the ice and water area 3.1 Regulatory framework Current legislation Activities concerning the exploitation of ice and water for export are governed by the Greenland Parliament Act No. 7 of 31 May The Act was amended by Greenland Parliament Act No. 3 of 15 May 2014 to amend the Greenland Parliament Act on the exploitation of ice and water for export. The amendment concerned, among other things, the change of authority names and rules concerning the provision of information. The Exports of Ice and Water Act was most recently amended by Greenland Parliament Act No. 35 of 28 November This legislative change entered into force on 1 January 2017 and its purpose is to make it clearer that the Act provides the statutory basis for the Government of Greenland to grant exploitation licences concerning the purchase of surplus water from a public utility company. Prospecting licence terms Applications for a prospecting licence may be granted always on a non-exclusive basis for a specific area to explore the possibilities of exploiting ice and water for export. The licence may be granted for terms of up to three years at a time. It is not a requirement in order to be granted an exploitation licence that a prospecting licence has been granted first. Nor will such licence automatically entitle the applicant to be granted an exploitation licence. Fees A prospecting licence is subject to a fee of DKK 1,000. Exploitation licence terms Applications for an exploitation licence may be granted for a specific area to exploit ice and/or water for export. 26

27 A licence for the exploitation of water from an offshore area cannot be exclusive. A licence for the exploitation of water from a land area, however, is exclusive. However, a licence to export surplus water from Nukissiorfiit may be exclusive as well as non-exclusive. Fees A fee of DKK 1,000 is charged on submission of an application for an exploitation licence and a subsequent fee of DKK 10,000 is charged when such licence is granted. The activities of others in the area According to the standard licence terms of an exploitation licence, the licensee must observe existing rights. The licence does not restrict the legal activities of others in the area covered by the licence. And, within the licence area, other parties may: a. be granted a licence to exploit ice and water resources for consumption in inhabited areas; b. be granted a permit to establish and operate pipelines, installations, infrastructure, etc. for the purposes of activities falling within the scope of the Mineral Resources Act or the Exports of Ice and Water Act; c. perform surveys and investigations as provided in the Exports of Ice and Water Act; d. exploit ice and water resources for own use. The licensee s activities must not unnecessarily hamper the activities of others and must always respect public utility company Nukissiorfiit s supply obligation. As Nukissiorfiit is subject to a supply obligation to the local population under Greenland Parliament Act No. 13 of 6 November 1997 on Greenland Home Rule Takeover of the Power and Water Supply to Settlements, this consideration will always and without exception be the top priority and a licence under the Exports of Ice and Water Act is conditional on the agreement between the parties regulating this issue. Business and closure plan Exploitation under an exploitation licence is subject to the approval of a business and closure plan. In the business plan, the licensee must document, among other things, matters concerning the quality of the products sold and in general provide information which the Government of Greenland considers relevant, including information about the company s financial soundness and prospects of making a profit as well as an assessment of the environmental and employment aspects of the contemplated activities. The closure plan must state, among other things, the steps to be taken by the company on cessation of activities with respect to clean-up and removal of facilities Photo: Kristian Mainz 27

28 established according to the licence. If the licensee is planning to leave facilities behind in the area which require maintenance or other measures after closure for environmental, health or safety reasons, the closure plan must include plans for such maintenance Royalty A royalty may be charged in connection with the export of ice and water. The royalty will be fixed in the licensee s exploitation licence. The royalty currently charged is DKK 0.10 per litre as regards the projects where the operator itself recovers the water. As for the projects where the water is supplied by Nukissiorfiit, the royalty is proportional to the price agreed between the operator and Nukissiorfiit. Previously, a royalty of DKK 0.50 per litre was charged regardless of the nature of the project, so the royalty has been considerably reduced Promotion subsidies Executive Order No. 14 of 27 June 2016 issued by the Government of Greenland on subsidies for product development, export promotion activities, professional consultancy assistance (clip card scheme), ice and water projects as well as tourism projects provides for the possibility to apply for subsidies for the promotion of ice and water projects. 3.2 Activities within the area Six prospecting licences and five exploitation licences have currently been granted. Three of the five exploitation licences are for the Disco Bay area and the remaining two for Nuup Kangerlua and Paamiut, respectively. 3.3 Transport by sea The Royal Arctic Line (RAL) owned by the Self-Government transports goods within Greenland and between Greenland and Aalborg, Denmark, and Reykjavik, Iceland. RAL has a sole concession covering cargo transport by sea within and to Greenland. The sole concession was granted on 23 November 1992 in pursuance of Greenland Parliament Regulation No. 16 of 30 October 1992 on cargo transport by sea to, from and within Greenland. Therefore, if water, whether so-called bulk water or bottled water, is to be transported by sea, RAL will have to be chartered and RAL s freight rates and sailing schedule will apply. This currently means that export by sea must go through Aalborg, Denmark or Reykjavik, Iceland. RAL and Icelandic Eimskip have established a partnership which means that Greenland will be connected to the rest of the world via Eimskip s international network. This must be expected to pave the way for a number of export opportunities which did not exist in the past because of the transport costs involved, and this could also very well apply to the export of water from Greenland. Today, the sole concession mentioned above does not apply to: 1. Oil transport by tankers. 2. Transport of own cargo by own vessel as part of non-transport activities. 3. Transport of large uniform or extraordinary shipments which for technical or financial reasons dictates another carrier. If a third party is contracted with, the concessionaire (RAL) must be offered to undertake the transport on essentially the same terms and conditions as those which may be obtained from third parties. 4. Transport which according to an agreement previously entered into or under existing legislation may be carried out by others, transport in connection with activities carried out under a licence granted pursuant to the Mineral Resources Act. 5. The limitations following from Greenland s international obligations in relation to free trade and the like. The historical reason for RAL s concession is the need to ensure a basic supply service to all areas of Greenland, including the areas and regions where there is no commercial basis for regular cargo transport. This may be a problem in relation to international free trade commitments if the supply-based concession/exclusive right is extended to business areas that are not part of the basic supply obligation. 28

29 29 Photo: Mads Pihl VisitGreenland

30 4. The international ice and water market trends Global and regional overview bottled water With a volume growth of nearly 7%, global consumption of bottled water reached more than 223 billion litres in This means that the international market for bottled water has overtaken the market for carbonates as the leading soft drink. Nearly all markets have witnessed broad progress; the most significant volume increases being realised in China, USA and India. Table 5: Consumption of bottled water in benchmark countries in 2015 (Source: GlobalData) Consumption (million litres) Total (global) China 37, USA 33, Germany 14, India 11, Indonesia 10, France 8, Brazil 6, Nigeria 5, Russia 4, Japan 3, Canada 2, UK 2, South Korea 2, Other countries 86, Asia has been responsible for most of the volume gains in bottled water during 2015 and the region now takes a share of almost 34% of global consumption. India has more than doubled its consumption over the last five years. However, growth in the dominant China market continued to slow as the economy remained sluggish and summer temperatures disappointed. In West Europe bottled water has experienced accelerated growth of around 5%, thanks to especially strong gains in Italy and Germany. Supported by growth in Turkey, Poland and Romania, East Europe still managed a 3% increase in However, the prolonged economic difficulties still impacting on Russia and the Ukraine worked in the reverse direction. North America has seen slightly slower growth in 2015 (+6%) compared to 2014 (+7%). Health and wellness remain the key drivers of growth, with low calorie and natural products favoured by consumers. Latin America had another good year, with particularly strong growth noticeable in Brazil, Mexico and Peru. Latin America has now more or less closed the gap on East Europe. Among the smaller consumption regions, the Middle East and North Africa achieved growth of over 8% in 2015, largely thanks to strong performances from Saudi Arabia and Tunisia, and the region thus increased its share of global consumption. From smaller volumes bases, Africa and Australasia also made good progress, increasing by 8% and 14%, respectively. 1 Unless otherwise stated, this chapter builds on figures and information from the report entitled»global Soft Drinks 2016 Packaged Water Comprehensive Analysis of Trends in the Global Packaged Water Market Including Longterm Forecasts«(Global Packaged Water) by GlobalData, which was commissioned by the Ministry of Industry, Labour, Trade and Energy for purposes of the strategy. 30

31 Table 6: Bottled water consumption by region (Source: GlobalData) Photo: AdobeStock Consumption (million litres) F Compound annual growth rate Total 167, , , , , , , % Africa 6, , , , , , , % Asia 44, , , , , , , % Oceania , , % East Europe 17, , , , , , % Latin America 14, , , , , , , % Middle East & North Africa 9, , , , , , , % North America 28, , , , , , , % West Europe 45, , , , , , , % 31

32 Photo: Raven Eye Photography VisitGreenland 4.2 Is carbonated water facing a sparkling future? More than 83% of the drinking water sold on bottles is still water. In some of the major volume markets, carbonated water is still in development and thus represents a much smaller share of the bottled water being sold. However, the carbonated bottled water segment is soaring in China, where consumers are increasingly interested in imported high-quality brands. Carbonated water is still a popular choice within the hotel, restaurant and café/bar segment in particular. This was particularly true in European countries such as Turkey and Italy. That said, the small but growing carbonated segment is likely to hold more dynamic growth potential in the future, compared to its more mature counterpart. 4.3 Asia develops a taste for premium products In recent years, consumers in some of the Asian markets, including, for example, the dominant Chinese market, have increasingly demanded high-quality brands. Rising disposable incomes in China, for example, has seen bottled water average prices increase by 8% in 2015, faster than any other soft drinks category in the market. 32

33 In China, for example, consumers have a high awareness of water source quality and as such mineral water saw a robust growth thanks to the perception that it provides healthier hydration in comparison to table water. Another important market, Indonesia, also saw more growth (+9%) for bottled water, thanks to increasing consumer awareness of the importance of hydration. 4.5 Sales channels There have only been small changes between the sales channels, which are generally divided into so-called ontrade (sale through restaurants etc.) and off-trade (retail sale), i.e. water that is sold through restaurants etc. and water that is sold through the retail channel. In 2016, on-trade accounted for 32.2% and off-trade for 67.8% globally. Table 7: Prices in benchmark countries for on-trade and off-trade (2015) (Source: GlobalData) Country Price DKK off-trade per litre Price DKK on-trade per litre Brazil Canada France India Indonesia With Asian consumers being increasingly interested in premium brands, European consumers are still looking for more affordable products. Clearly, a cautious spending environment still remains in place in Europe s post-recessionary period. Japan China South Korea Nigeria Russia Germany Healthy hydration boosts volume growth More than ever, consumers are looking for healthy hydration and are increasingly turning to bottled water to satisfy their needs, particularly mineral water. It is striking that not only consumers in North America and West Europe are focusing on healthy hydration product. UK USA The Global Packaged Water report provides a calculation of average bottled water retail prices in retail shops and restaurants. 33

34 By way of example, the average price for a bottle of still water (bottled water per litre) in shops in Germany is DKK 3.35, in the UK the price is DKK 3.82 and in USA the price is DKK Bottled water production in Greenland must, if it is to be able to compete among the low-priced products, arrive on the store shelf in the receiving country at a price of between DKK 3 and DKK 5 for a one-litre bottle. That price must include investments in production plant, operating costs associated with the production, purchase/production of bottles, financing costs, direct and indirect taxes, transport by sea, reloading in the receiving country as well as transport and storage in the receiving country, marketing costs and profit along the entire distribution chain, etc. 4.6 Outlook bottled water It is likely that growth will continue for all markets. Africa is likely to see the largest increase, with a compound annual growth rate of 9% over the next five years ( ). Nigeria, in particular, is set to see particularly buoyant growth, thanks to the increasing demand for clean pure water. West Europe, however, is expected to see the lowest growth of around 1%. The pursuit of beverages which are perceived as healthier shows no signs of slowing, and with packaged water being seen more and more as an essential purchase, this will only add to category growth over the forecast period ( ). Overall, global growth over the next five years is expected to be around 6%. Photo: Shutterstock Figure 2: Expected growth in global water consumption (Source: GlobalData) Million litres F 2017 F 2018 F 2019 F Years 34

35 4.7 Bulk water In this context, bulk water 2 primarily means drinking water that is transported and sold in large volumes without being bottled first. One of the advantages of exporting bulk water is that, in theory, the water can be bottled anywhere. The export potential in relation to bulk water has attracted much attention. This is due not least to the huge existing and not least future threats of water supply shortage in, for example, the Middle East and parts of Asia, while there are enormous untapped water resources in other parts of the world, including Greenland. Canada Canada is an example of a country that exports bulk water across borders, namely to the US. The example illustrates that water shortage is also a regional or local phenomenon as USA by most measures actually has huge water resources, including not least in for example Alaska. It is only a question of where these resources are located relative to the consumers. Over the years, alternatives to the export of bottled and bulk water have been tabled, but none of these have been implemented. The alternatives have included, among other things: The Great Recycling and Northern Development (GRAND) Canal project which involved damming James Bay at the southern end of Hudson Bay, making it into a freshwater reservoir, and diverting the waters from the 20 feeder rivers of the reservoir to Georgian Bay. The water was then to flow through the Great Lakes and then to South West of the USA via pipelines. 3 The North American Water and Power Alliance (NAWAPA) project which involved diverting water from the Yukon, Liard and Peace River systems into the Rocky Mountain Trench which would be dammed into an 800 km-long reservoir that could direct water into USA.4 There has been a lot of attention in Canada on purifying and using mineral water from an environmental angle, which has probably contributed to creating obstacles to these initiatives. Alaska Alaska as well has a huge bulk water export potential and it was the first jurisdiction in the world to gear its legislation to allow bulk water export. However, according to the authorities in Alaska, there is currently no export of bulk water. In 2002, a Canadian company was reported to have entered into an agreement with a company in Alaska concerning the export of glacial water to China where the water was to be bottled in one of China s free trade zones to reduce payroll costs. 5 However, according to available information, this agreement has not materialised into a specific export activity. Turkey Turkey is yet another country that has turned to the export of bulk water. Information on the Internet suggested that a large bulk water export centre had been built at the mouth of the Manavgat River in the Mediterranean near Antalya. 6 Similarly, according to information on the Internet, Israel signed a 20-year agreement in 2002 concerning the purchase of 50 million m3 of water annually to be shipped from Turkey at a price of USD 1 billion. 7 According to available information, the agreement was never implemented. 8 Outlook 2 There are examples of the term bulk water being used to refer to the sale of small volumes of generic bottled water in supermarkets to meet the general consumption of drinking water by individual households. The term bulk water is not used in that sense in this strategy. 3 Great recycling and northern development canal concept Proposal»21st Century Canada-U.S. Water Problems«: grandcanal2005/proposal.htm 4»The Outline of NAWAPA«by Lyndon H. LaRouche, January 1988: 5 Article:»Water Incorporated« 6 Article:»Can Wet Countries Export Water to Dry Ones?« 7 Article:»The Global trade in water«: 8 PWC, chapter 1, p

36 Prospects It is currently uncertain how the export of bulk water will develop. However, so far there has been no particular activity. is headquartered in Los Angeles, California. The company exports water originating from a ground-water reservoir. The water is tapped on Fiji and is shipped primarily to the US. Some competition must be expected, for instance, from desalinate seawater as the capacity within this area constantly grows Bottled water producers There are four big multinational producers of bottled water: Danone, Nestlé, Coca-Cola and PepsiCo. The big international producers have a business model that is based on the development of a portfolio of brands, including for example also regional brands (this does not only apply to bottled water but also to soft drinks in general). The Danone Group, for example, is behind brands like Evian, Badoit, Volvic and Aqua D or (a Danish brand). The companies producing bottled water typically started out as small companies and then they were taken over by or entered into some form of partnership with one of the major producers about marketing and distribution. Fiji Water Bottling Company There are also independent producers. One example of an independent producer of bottled water is Fiji Water Bottling Company. Fiji Water Bottling Company The company is interesting from Greenland s perspective as it has proven that it is possible for an independent producer to succeed with a business model involving export over long distances to the US instead of primarily selling its products to the home market. Icelandic Water Holdings Another example of a producer and exporter is Icelandic Water Holdings, which sells bottled mineral water from the Ölfus Spring on Iceland under the Icelandic Glacial brand. The company was formed in In 2017, AB InBev acquired an ownership interest of 20%, and AB InBev is in charge of the distribution in the US, where it has become a growing spring water brand in the premium segment. Icelandic Water Holdings is proof that under the right circumstances and with the right concept it is possible to negotiate a partnership with an international player within a relatively short time frame, which in most cases is probably a prerequisite to actual commercial breakthrough outside the home market. Figure 3: Strong competition from regional operators (Source: EuroMonitor International) 9 % Top 10 producers of bottled water in % % of retail in volume 7 % 6 % 5 % 4 % 3 % 2 % 8,9 6,9 6,6 1 % 0 % 2,9 1,9 1,7 1,3 1,3 1,2 1,2 Danone Nestlé Coca-Cola PepsiCo Ting Hsin Yang shengtang San Benedetto Hangzhou Wahaha China Resources Parle Bisleri 9 CITI GPS: Solutions for the Global Water Crisis: The End of Free and Cheap Water (April 2017): 36

37 37 Photo: Shutterstock

38 5. Greenland s ice and water potential Greenland has the world s largest fresh water resources, the inland ice sheet alone representing around 10% of the world s total fresh water resources. 10 However, the extent of Greenland s water resources is not a particular advantage or resource as such in an export context as there are many other factors which will determine if Greenland will succeed in boosting exports. Greenland s ice and water resources are available in different forms, including as meltwater from glaciers and ice growlers and as surface water and spring water. It has become clear that in the ice and water area as opposed, for example, to the mineral resources area the players generally do not themselves spend any resources on carrying out extensive exploration and studies in order to locate and identify suitable water resources. Therefore, the Ministry of Industry, Labour, Trade and Energy has launched extensive field work for the purpose of identifying suitable water resources to stimulate interest in Greenland s ice and water potential. 5.1 Potential major meltwater deposits new studies and analyses initiated Based on previous analysis and experience of export of ice and water from Greenland, which has focused, with limited success, on deposits which would allow highvalue niche production, extensive field work has been launched with a focus on the possibilities of identifying major glacial meltwater deposits of high drinking water quality which can be produced at a low unit cost. At the request of the Ministry of Industry, Labour, Trade and Energy, the Geological Survey of Denmark and Greenland (GEUS) has issued a report on criteria for designating locations for export of glacial meltwater in Greenland. The report should be seen as the first step in the process of locating major meltwater deposits in Greenland. Based on an examination of relevant glaciological, geographical and geochemical parameters, GEUS has listed a number of recommended criteria for the next step in the process of updating knowledge about the potential with regard to major meltwater deposits. The criteria may be divided into three levels, each level depending on the previous level. The criteria recommended are mutually dependent. A location must first and foremost offer sufficient water quality, then it must guarantee reliability of supply and, finally, it must be accessible. 10 Greenland in Figures 2015 (Statistics Greenland) 38

39 Photo: Kristian Mainz Figure 1. Criteria for water resources (Source: GEUS) The specific criteria for each level are discussed individually below. Water quality Reliability of supply Accessibility Criteria water quality The age and origin of the ice are important selling points and should therefore be estimated using ice dynamic modelling Avoid areas with known radioactive deposits, e.g. the alkaline intrusions in South Greenland Evaluate the location relative to the risk of particularly high concentrations of problematic elements in the river sediments. Generally, areas dominated by granite and gneiss will most likely have the least risk of containing traces of problematic metals Areas of low precipitation with a short glacier arm and the shortest possible distance from glacier gate to 39

40 production site will minimise the risk of problematic inorganic parameters Avoid meltwater lakes with cyanobacteria growth and avoid lakes whose feeder streams have cyanobacteria growth The selected meltwater lakes should have a low contribution of surface water or groundwater if located in high-vegetation areas and thus at risk of organic matter being washed out, which may result in a higher germination percentage Avoid developed areas where there is a risk of discharge of wastewater and man-made pollutants into the water resource. Potential production lakes should be screened thoroughly for faecal bacteria. If water production activities are initiated, the water should be continuously screened for bacteriological parameters at an accredited laboratory Avoid sheep-farming areas or areas with large stocks of reindeer or musk ox to avoid contamination with faecal bacteria and Cryptosporidium. Potential production lakes should be screened thoroughly for Cryptosporidium oocysts. If water production activities are initiated, the water should be continuously screened for Cryptosporidium Criteria reliability of supply A location in South or South-West Greenland would provide a longer meltwater season. A forecast should be made of expected future volumes of meltwater based on realistic climate scenarios The catchment area of the water resource, particularly the ice-covered part of this area, should be mapped to establish with certainty that it is large enough to minimise the risk of changes of the ice as such in the catchment area A location with a proglacial meltwater lake upstream would be desirable as it would serve as a buffer in terms of reliability of supply for rapid variations in meltwater volume (on a daily or weekly basis) An ice cap in the catchment area of sufficient size so as not to be significantly reduced in a warmer climate Locations with glacially dammed lakes upstream should be identified and avoided to minimise the risk of sudden drainage (glacial outburst flooding) Criteria accessibility Distance to existing infrastructure (especially ports) and labour should be given top priority for competition reasons The question of which type of export logistics to choose should be considered as the criteria concerning accessibility depend on the type opted for, i.e. whether to use existing shipping infrastructure or establish new port facilities and use own ships Limitations to shipping due to sea and fjord ice should be considered and mapped based on already available historical satellite data Limitations to shipping due to the risk of icebergs should be evaluated, particularly in connection with fjords with calving glaciers. Generally, ice-packed fjords should be avoided Data on water depths for navigation to locations is necessary and must be taken into account in connection with the type of export logistics and load draught opted for A location of a nature which is suitable for establishing buildings/port facilities. Large river deltas, large tidal range and the like may render production and shipping difficult Local knowledge should be compiled and involved before field visits to potential locations Project plan for field work and practical mapping of meltwater resources GEUS and the Ministry of Industry, Labour, Trade and Energy have already initiated a long-term project plan for the purpose of carrying out multi-year field studies at the western coast of Greenland. The goal is to identify a number of locations of large-scale potential for exploitation of glacial meltwater for export. Phase A of the project includes preliminary identification and characterisation of potential locations in preparation for the actual field studies. Phase A ended in the spring of 2017 Phase B includes field studies in the summer of 2017 and subsequent analyses The field studies will generally continue for at least five years Each year, new water production locations should be identified, described and analysed according to the above criteria To the extent that the locations are deemed to be suitable for water production and export purposes, the results will be marketed on an ongoing basis in accordance with a general marketing plan 40

41 41 Photo: Paul Zizka Photography VisitGreenland

42 The studies and analyses will follow the below project plan: A. Preliminary identification of locations GIS analysis of digital maps and satellite data Drawing up a longlist of locations and determining a ranking method Liaising with possible local informants in relation to access routes etc. and other local knowledge B. Accessibility Grading in relation to use of existing infrastructure and labour Evaluation of accessibility etc. from the sea based on existing nautical charts (bathymetry) Expected spreading of sea ice, geographically and seasonal D. Risk profile Risk of radioactivity or toxic minerals by means of existing geological maps Pre-assessment of sedimentation at identified locations Expected presence of icebergs E. Environmental and cultural sensitivity Risk of impact on sensitive ecosystems Reservations and limitations due to proximity to archaeological locations Field-work and laboratory preparations Formulation of requirements to field studies Plan for laboratory analysis of field samples with an overview of when clarification is expected Draft for the first round of field studies based on prioritisation of locations C. Glaciological analysis Calculation of probable hydrological catchment areas of the identified locations Assessment of the risk of changes in catchment area due to ice withdrawal Assessment of the risk of sudden drainage of icedammed lakes or glacial outburst flooding Calculation of probable water supply from precipitation and deglaciation over the year Estimating the age of the source ice by means of numerical ice modelling F. Reporting Approval of reports G. Marketing Implementation of international market campaign in accordance with the general marketing plan (see also chapter 9 below on marketing activities) Based on the preliminary work, a number of general recommendations for the subsequent process have been made. Photo: Shutterstock 42

43 Recommendations concerning mapping of Greenland s ice and water potential RECOMMENDATION (1) Identify suitable locations based on criteria concerning water quality, reliability of supply and accessibility for the purpose of drawing up a longlist of potential deposits. BACKGROUND: The work of locating suitable meltwater deposits has already started. But this is a dynamic process where the effort will continuously be adjusted to reflect new knowledge, objectives and priorities. RECOMMENDATION (2) Annual field studies should be carried out to study potential deposits, including the taking of samples and surveying, starting in BACKGROUND: The effort is based on a longlist prepared by GEUS based on criteria concerning reliability of supply and accessibility. The field work should continue for at least five years, and five potential deposits should be analysed in the course of a field season. RECOMMENDATION (3) Laboratory and modelling work to determine water quality should be carried out based on the field studies of potential deposits, starting in BACKGROUND: In the process of mapping Greenland s glacial meltwater deposits, a number of technical tests should also be made to determine the water quality of such meltwater deposits. The work should be viewed in the context of recommendation (2). 5.2 Mapping of potential water resources in the past Potential bulk water In the context of export of bulk water from Greenland, the focus has first and foremost been on drinking water, as the distances to potential export markets and the infrastructure hardly render export of industrial water possible. Water quality and the capacity for year-round production are two factors of importance to the profitability of a project concerning export of water including bulk water. In 2006 and 2008 studies were conducted to determine the potential for water production in Greenland. With regard to bulk water, studies were made on four locations. The results of the studies showed that one of the four locations in question met criteria concerning water quality and production capacity. The results of the studies are described in the Product Catalogue Bulk Water, which is available at the business portal: Potential ice cap water Ice cap water is unique compared with spring water, well water or other subsoil or surface water. Ice cap water originates from old snowfall that has compressed into ice, which is essentially protected from the negative environmental impact that may occur beneath and above the ice. However, the uppermost layers do not enjoy the same protection from negative environmental impact. While conventional water sources originate from a continuous cycle of evaporation from the Earth to the atmosphere and back again and thereby come into contact with substances such as micro-toxins and traces of medicinal products, glaciers and particularly the ice cap have long turnover times where the ice (which ends up as drinking water) is largely unaffected by any external factors. Due to the special characteristics of glacial ice, this type of ice is particularly suitable for high-profiled origin-labelled bottled water and ice cubes. The water may also be used as base material for different kinds of beverages such as beer and spirits and as admixture in cosmetics and skin care products. 43

44 The work of identifying suitable glacial ice deposits has so far focused on the collection of ice directly from outlet glaciers from the ice cap and from ice growlers taken at the front of one of the glaciers that were analysed. An analysis by GEUS of samples of glacial ice taken directly from outlet glaciers shows that the quality of the water is characterised by a very low content of inorganic components and that the water has no buffer capacity. agreement for the export of surplus water from Nukissiorfiit, the Exports of Ice and Water Act was amended in In order to exploit the surplus water produced by Nukissiorfiit, the potential exporter must enter into an agreement with Nukissiorfiit for the supply of water for export, and an exploitation licence for export purposes must be obtained from the Government of Greenland. The results of the studies are described in the Product Catalogue Ice Cap Water, which is available at the business portal: Sale of surplus water from Nukissiorfiit The public utility company Nukissiorfiit produces water at different locations in Greenland. At some of those locations, a certain amount of surplus water is produced. In order to emphasise the possibility of entering into an It should be noted that, as a general rule, Nukissiorfiit will only enter into agreements for the supply of surplus water if the surplus water is from existing facilities. There is thus no question of Nukissiorfiit assuming the commercial risk of establishing new facilities or expanding the existing production in order to meet any demand from water exporters. Similarly, it will be a precondition for all commercial supply agreements that they rank second after the primary supply of water to the local population and the existing business community. The volumes available for commercial supply will thus be reduced if necessary to maintain the water supply to the local population and business community. Photo: Shutterstock 11 Inatsisartutlov nr. 35 af 28. november 2016 om ændring af Landstingslov om udnyttelse af is og vand med henblik på eksport (Ændring af hjemmel til køb af is og vand fra offentlig leverandør til eksport). 44

45 Table 8: Table of Nukissiorfiit s surplus capacity (Source: Nukissiorfiit) Town/ settlement Crude water source Excess capacity at the facility (m 3 per year) Comments, where applicable Qaqortoq Lake A part of the town is inside the catchment area zone of the water lake. The crude water is high quality, but treated with A3 water treatment in case of an accident inside the water protection zone. Sisimiut Lakes Major pressure on the catchment area. Aromatic hydrocarbons have been found in crude water (toluene, ethylbenzene and xylenes). The values of the aromatic hydrocarbons are far below the threshold values recommended by WHO. Sarfannguit Lake Capacity at the facility is limited, but the crude water supply is sufficient to export crude water. 45

46 6. Regulatory framework 6.1 Benchmark analysis for selected countries There are a number of countries which have entered the market for export of bottled water. There are also a number of countries which, like Greenland, have a large untapped water export potential. One thing that most of those countries have in common is the fact that, geographically, they are closer to their export markets than Greenland is. Some of those countries have the additional advantage of immediate access to a large domestic market. It is therefore important for Greenland to establish a favourable regulatory framework while at the same time, of course, exploiting the special advantages that Greenland enjoys, i.e. unique ice and water products. As requested by the Ministry of Industry, Labour, Trade and Energy, international consultancy and accounting firm PwC has carried out a benchmark analysis of the regulatory framework of selected countries which are regarded as the most evident competitors from a Greenlandic perspective. The countries in question are Iceland, Fiji, Norway, Italy, the UK, Denmark, Germany, USA (Alaska), France and Canada. The benchmark analysis carried out by PwC looks at a number of important tax parameters for the purpose of defining the framework for the process of identifying a competitive government take model for Greenland. Photo: Shutterstock 46

47 Table 9: Table of tax rates in the benchmark jurisdictions * (Source: PwC) Country Corporate tax rate Depreciation rate (plant and machinery) Dividend tax rate **) (The highest rate is without a tax treaty - the lowest rate is the most favorable rate for qualifying ownership interest to tax treaties) Aggregate tax rate at full dividend **, *** distribution Greenland 31,8 % 30%, diminishing- balance % / 35 % **** % / 35 % **** Canada % 20 % 25 % / 5 % % / % Denmark 22 % 25 % 27 % / 0 % 39 % / 22 % Fiji 20 % % 9 % / 0 % (Japan, Qatar, UAE) others 9% 27 % / 20 % France 33,33 % 2,25 book depreciation rate, straight-line 30 % / 0 % 53 % / 33 % Iceland 20 % %, straight-line 18 % / 0 % 34 % / 20 % Italy 24 % 2-10 % 26 % / 0 % 44 % / 24 % Norway 25 % 30 % 25 % / 0 % 44 % / 25 % UK 19 % 18%, diminishing-balance Zero 9 % Germany % Straight-line depreciation over useful life 25 % / 0 % % / % USA Alaska 28.4% (21% federal + a special local rate of 9.4% which is deductible in income for federal tax) A complicated method of accelerated depreciation with different classes of assets, partial diminishing-balance and straightline depreciation 30 % / 5 % 50 % / 32 % * The corporate tax rate in USA (Alaska) was changed with effect from The wording has therefore been updated accordingly. ** Rates to the left (high rate) without a double taxation treaty rates to the right (low rate) most favourable rate for qualifying ownership interest in double taxation treaties (applies to all countries in the column). *** The total tax rate after dividend tax, where all profit is assumed distributed as dividends (applies to all counties in the column). **** Dividends are deductible in the taxable income, which means that the aggregate tax rate may be maximised to the withholding tax rate. Low rate in case of dividend distributions to Denmark, Norway and Iceland. Corporate taxation etc. The corporate tax level is an important parameter when assessing how attractive Greenland is for current and potential exporters of water and for investors. It should be noted that none of the benchmark countries have special corporate and dividend tax rates or depreciation rates which apply only to the mineral water industry. As can be seen from the table, Greenland has a relatively high corporate tax level, compared with the other countries. The corporate tax rate is 31.8% and is thus higher than the rate payable in Canada, Denmark, Fiji, Iceland, Italy, Norway, the UK and USA (Alaska). Only France and Germany are marginally higher. 47

48 The column Aggregate tax rate at full dividend distribution shows the aggregate taxation including dividend tax. This will often be the most essential factor for a foreign investor. These percentage rates are based on the assumption that all profit is distributed as dividend. As will be seen, Greenland s tax rate of 42-44% is on a level with some of the other countries when comparing the tax level and leaving out double taxation treaties. However, a comparison of the rates under double taxation treaties shows that Greenland with its 35% (only applies to investors in Denmark, Norway and Iceland) has the highest total rate of all the countries in the comparison. The other countries in the comparison have double taxation treaties with a large number of countries. It is noted as regards the figures for Greenland that no double taxation will occur (not paying both corporate tax and dividend tax) because dividends, although they are subject to dividend tax, are deductible from the calculation of corporate tax. Royalty (indirect tax) on water Some of the benchmark countries charge a royalty or indirect tax on the production of bottled water. This is the case for Canada, Denmark, Fiji and Italy and to some extent also USA. The Greenlandic royalty of DKK 0.10 per litre falls in the middle of the range. By way of example, Denmark and also to some extent Fiji have a higher rate. In Alaska, on the other hand, the rate is significantly lower. Royalty is a parameter which should be considered in the context of the general taxation level as the important factor here is the total government take. Summary The total taxation level in Greenland is among the highest of the benchmark countries. This is because the total level of corporate and dividend tax is in the region of 42-44%. In addition, Greenland is among the countries which charge a royalty for export of water. However, the important factor is not the individual percentages of taxes and royalties payable, but the total government take 48

49 Photo: Shutterstock Table 10: Royalty (indirect tax) on water (Source: PwC) Country Greenland Royalty (indirect tax) DKK 0.1 per litre Canada Rate according to concession/negotiation Denmark A tax of DKK 6.25 per m 3 (DKK per litre) The tax is an excise duty which is levied on water bottled in Denmark Fiji Extraction per month in litres and above Rates (Fiji cents per litre) 0,11 (EUR 0,0005/DKK 0,004) 15,00 (Euro 0,07/DKK 0,50) In addition, a tax on exported bottles is payable plus a rental payment to local land owners. No additional taxes are payable for export of bottled water. Italy Regional taxes may apply. The region of Lazio, for example, operates with a Concession Fee based on the dimensions of the surface area exploited and on the volumes of water bottled. USA / Alaska The royalty is based on acrefeet. An acrefoot is 1,233 m 3. The amounts are calculated relative to annual sales according to the following scale: (i) $ 3 per acrefoot up to acrefeet, however minimum USD 50. (ii) $ 6 per acrefoot from up to acrefeet (iii) $ 8 per acrefoot from up to acrefeet (iv) $ 12 per acrefoot from up to acrefeet (v) $ 15 per acrefoot from up to acrefeet (vi) $ 18 per acrefoot from up to acrefeet (vii) $ 21 per acrefoot from up to acrefeet (viii) $ 24 per acrefoot from up to acrefeet (ix) $ 27 per acrefoot from up to acrefeet (x) $ 30 per acrefoot from acrefeet and above 49

50 Photo: Sorelle Amore VisitGreenland 50

51 6.2 Government take model for bottled water production As mentioned above, to provide the basis for discussing a possible government take model in the area of bottled water production, PwC has carried out a benchmark analysis of taxation of ice and water projects in a number of countries. On behalf of the Ministry of Industry, Labour, Trade and Energy, and based on the benchmark analysis, PwC has analysed a number of government take models for the purpose of fleshing out a possible future model which is competitive internationally and easy to manage. Alternative production volumes The analysis is based on an assumed annual production volume of 12 million gallons (45.42 million litres) with effect from year 3, which is a considerable amount to sell and an ambitious target. As a supplement to the above, two alternative calculation scenarios have been made: (1) One for a lower production volume than that described in the economic scenario above, i.e. 10 million gallons, and (2) one for a higher production volume of 20 million gallons annually with effect from year 3. Government take models As the basis for the evaluation of a government take model, eight different models have been made for the economic model with the above three production scenarios. The eight different models are as follows: a. A model based on a 6% revenue royalty, subject to a minimum of DKK 0.06 per litre. This model is based on the additional assumption that no corporate or dividend tax is payable. b. A model based on a variable unit tax which gradually increases as the volumes produced increase, and the model is based on the additional assumption that no corporate or dividend tax is payable. The variable unit tax is charged according to the following scale: A unit tax of DKK 0.04 per litre for production of up to 20 million litres annually A unit tax of DKK 0.05 per litre for production of between 20 and 25 million litres annually A unit tax of DKK 0.06 per litre for production of more than 25 million litres annually c. A model based on a combination of unit tax and corporate tax where the corporate tax rate decreases as the unit tax rate increases. The unit tax is deductible from the taxable income. No dividend tax is payable in addition to the corporate tax. The unit tax rates and corporate tax rates used are set out in table 11. Thus, five sub-scenarios have been put together on the basis of this model. d. A model which involves a total corporate/dividend tax of 25% as well as a revenue royalty, which as a minimum must amount to a fixed unit tax per litre, where in each year the Greenlandic corporate and dividend tax paid is deductible from the revenue royalty/unit tax payable. The revenue royalty/unit tax payable is deductible from the taxable income. Three scenarios have been put together with the following royalty/ minimum unit tax rates per litre: Tax revenues in base case scenario (Source: PwC) Unit tax in DKK Corporate tax in % Unit tax per litre and corporate tax rate Unit tax per litre and corporate tax rate Unit tax per litre and corporate tax rate Unit tax per litre and corporate tax rate Unit tax per litre and corporate tax rate

52 A revenue royalty of 4%, subject to a minimum of DKK 0.04 per litre A revenue royalty of 5%, subject to a minimum of DKK 0.05 per litre A revenue royalty of 6%, subject to a minimum of DKK 0.06 per litre e. A model based on the current Greenlandic taxation with a dividend tax rate of 42% and on the assumption that all profits are distributed. This corresponds to the current rules. f. A model which is a supplement to the current Greenlandic taxation, see scenario (e) above, in the form of a 5% revenue royalty plus a two-tiered profit-dependent surplus royalty (5% and 10%, respectively), where in each year the Greenlandic corporate and dividend tax paid is deductible from the revenue royalty payable. The revenue royalty as well as the surplus royalty payable are deductible from the taxable income. The two tiers are defined as follows: Lower tier: In years with an EBIT of 10%, a surplus royalty of 5% of EBIT is payable in addition to the 10% Upper tier: In years with an EBIT of 20%, a surplus royalty of 10% of EBIT is payable in addition to the 20% g. A model based on a 5% revenue royalty as well as two-tiered profit-dependent surplus royalty at increased rates (15% and 25%) and lower thresholds than in model (f). This model is based on the assumption that no Greenlandic corporate and dividend tax is payable. The two tiers are defined as follows: Lower tier: In years with an EBIT of 7.5%, a surplus royalty of 15% of EBIT is payable in addition to the 7.5% Upper tier: In years with an EBIT of 15%, a surplus royalty of 25% of EBIT is payable in addition to the 15% h. A model based exclusively on a two-tiered profit-dependent surplus royalty at even higher rates and with lower thresholds than in models (f) and (g), where no Greenlandic corporate and dividend tax is payable. The two tiers are defined as follows: Lower tier: A surplus royalty of 20% of EBIT is payable Upper tier: In years with an EBIT of 10%, a surplus royalty of 50% of EBIT is payable in addition to the 10% Below follows a more detailed description of the elements of the above models. Corporate and dividend tax If no dividends are distributed, the applicable corporate tax rate is 31.8%. 52

53 Photo: Shutterstock If dividends are distributed, the tax rate will lie in the range of 42-44%, depending on the municipality where the activities are carried out. In scenarios (d) and (e) the dividend tax rate is 42%. These models are based, in all scenarios, on the assumption that the total profit is distributed every year. As mentioned above, the revenue royalty is reduced in model (f) to the extent that corporate or dividend tax is payable each year. The surplus royalty calculated is not reduced. As also mentioned above, it is assumed that the revenue royalty that has been calculated (after reduction for corporate or dividend tax) and the surplus royalty are deductible from the basis on which the corporate/dividend tax is calculated. Discussion of scenarios In the attached Appendix 2, PwC has compared different scenarios and sensitivities based on the above assumptions for the eight models models (a)-(h). For all models and sub-models, five economic scenarios have been put together: the base case scenario described above, two scenarios with higher revenues than in the base case scenario and two scenarios with lower revenues as follows: A reduction in current costs per litre of 5% and investment costs of 10% (upside scenario cost) An increase in sales price per litre of 5% (upside scenario sales) An increase in current costs per litre of 5% and in investment costs of 10% (downside scenario cost) A reduction of sales price per litre of 5% (downside scenario sales) The scenarios have been put together based on total revenues and taxes over a 10-year period of operation (no discounting). In addition, as mentioned above, calculations have been made for the above models and scenarios using different levels of production volumes. Thus, three different levels have been included, defined by production volume from year 3 as follows: Low production scenario million litres annually (10 million gallons) Medium production scenario (equivalent to the model description above) million litres annually (12 million gallons) High production scenario million litres annually (20 million gallons) 53

54 Table 12: Government take base case scenarie (Kilde: PwC) Government take % over 10 years with an expected annual production volume of Base case (DKK million) 10 million gallons 12 million gallons 20 million gallons Model (a) 6% revenue royalty, minimum unit tax of DKK 0.06 per litre no corporate and dividend tax Model (b) Variable unit tax of DKK per litre no corporate and dividend tax 44,7% 39,5% 32,1% 35,3% 32,4% 28,5% Model (c) Unit tax and corporate tax five combinations of rates: Tax per litre 0.01 and 25% corporate tax 30,6% 29,9% 29,0% Tax per litre 0.02 and 20% corporate tax 31,9% 30,5% 28,5% Tax per litre 0.03 and 15% corporate tax 34,0% 31,8% 28,6% Tax per litre 0.04 and 10% corporate tax 36,8% 33,7% 29,2% Tax per litre 0.05 and 5% corporate tax 40,4% 36,3% 30,4% Model (d) 25% corporate/dividend tax and revenue royalty/minimum unit tax where taxes paid are deductible at the following rates: Revenue royalty 4%, subject to a minimum unit tax of DKK 0.04 per litre Revenue royalty 5%, subject to a minimum unit tax of DKK 0.05 per litre Revenue royalty 6%, subject to a minimum unit tax of DKK 0.06 per litre Model (e) Current taxation 42% Model (f) Combination of current taxation as well as revenue royalty and surplus royalty, with the revenue royalty reduced by the amount of the corporate/dividend tax Model (g) Revenue royalty (5%) and surplus royalty of 15% and 25%, no corporate/dividend taxt Model (h) Surplus royalty of 20% and 50%, no corporate/dividend tax 29,8% 26,7% 25,4% 43,5% 32,9% 26,7% 51,8% 39,5% 32,1% 42,0% 42,0% 42,0% 45,3% 44,7% 43,8% 44,6% 42,9% 41,1% 30,3% 31,6% 34,2% The tables on this page and the next pages show the government take in the different models and scenarios. The following colours are used in the tables to illustrate where the government take percentage differs between the models and scenarios. Higher or equal to the current level of taxation Lower than the current level of taxation 54

55 Table 13: Government take upside scenario (lower costs) (Source: PwC) Government take % over 10 years with an expected annual production volume of Upside scenario lower costs (DKK million) 10 million gallons 12 million gallons 20 million gallons Model (a) 6% revenue royalty, minimum unit tax of DKK 0.06 per litre no corporate and dividend tax Model (b) Variable unit tax of DKK per litre no corporate and dividend tax 32,8% 30,2% 26,0% 25,9% 24,8% 23,1% Model (c) Unit tax and corporate tax five combinations of rates: Tax per litre 0.01 and 25% corporate tax 29,1% 28,8% 28,3% Tax per litre 0.02 and 20% corporate tax 28,7% 23,3% 26,9% Tax per litre 0.03 and 15% corporate tax 28,9% 27,8% 26,1% Tax per litre 0.04 and 10% corporate tax 29,7% 25,8% 25,6% Tax per litre 0.05 and 5% corporate tax 31,0% 28,9% 25,6% Model (d) 25% corporate/dividend tax and revenue royalty/minimum unit tax where taxes paid are deductible at the following rates: Revenue royalty 4%, subject to a minimum unit tax of DKK 0.04 per litre Revenue royalty 5%, subject to a minimum unit tax of DKK 0.05 per litre Revenue royalty 6%, subject to a minimum unit tax of DKK 0.06 per litre Model (e) Current taxation 42% Model (f) Combination of current taxation as well as revenue royalty and surplus royalty, with the revenue royalty reduced by the amount of the corporate/dividend tax Model (g) Revenue royalty (5%) and surplus royalty of 15% and 25%, no corporate/dividend taxt Model (h) Surplus royalty of 20% and 50%, no corporate/dividend tax 26,2% 25,7% 25,2% 27,3% 26,2% 25,3% 32,8% 30,2% 26,0% 42,0% 42,0% 42,0% 44,6% 44,1% 44,1% 42,1% 37,4% 35,5% 34,5% 35,3% 37,0% 55

56 Table 14: Government take upside scenario (higher sales price) (Source: PwC) Government take % over 10 years with an expected annual production volume of Upside scenario higher sales price (DKK million) 10 million gallons 12 million gallons 20 million gallons Model (a) 6% revenue royalty, minimum unit tax of DKK 0.06 per litre no corporate and dividend tax Model (b) Variable unit tax of DKK per litre no corporate and dividend tax 34,2% 31,2% 26,6% 25,7% 24,4% 22,5% Model (c) Unit tax and corporate tax five combinations of rates: Tax per litre 0.01 and 25% corporate tax 29,1% 28,7% 28,2% Tax per litre 0.02 and 20% corporate tax 28,7% 23,0% 26,7% Tax per litre 0.03 and 15% corporate tax 28,8% 27,6% 25,8% Tax per litre 0.04 and 10% corporate tax 29,5% 25,4% 25,2% Tax per litre 0.05 and 5% corporate tax 30,8% 28,5% 25,0% Model (d) 25% corporate/dividend tax and revenue royalty/minimum unit tax where taxes paid are deductible at the following rates: Revenue royalty 4%, subject to a minimum unit tax of DKK 0.04 per litre Revenue royalty 5%, subject to a minimum unit tax of DKK 0.05 per litre Revenue royalty 6%, subject to a minimum unit tax of DKK 0.06 per litre Model (e) Current taxation 42% Model (f) Combination of current taxation as well as revenue royalty and surplus royalty, with the revenue royalty reduced by the amount of the corporate/dividend tax Model (g) Revenue royalty (5%) and surplus royalty of 15% and 25%, no corporate/dividend taxt Model (h) Surplus royalty of 20% and 50%, no corporate/dividend tax 26,5% 25,9% 25,2% 29,3% 26,3% 25,4% 34,2% 31,2% 26,6% 42,0% 42,0% 42,0% 44,7% 44,2% 44,1% 42,4% 37,9% 35,7% 34,0% 35,0% 36,7% 56

57 Table 15: Government take downside scenario (increased costs) (Source: PwC) Government take % over 10 years with an expected annual production volume of Downside scenario increased costs (DKK million) 10 million gallons 12 million gallons 20 million gallons Model (a) 6% revenue royalty, minimum unit tax of DKK 0.06 per litre no corporate and dividend tax Model (b) Variable unit tax of DKK per litre no corporate and dividend tax 70,0% 57,1% 41,7% 55,3% 46,9% 37,1% Model (c) Unit tax and corporate tax five combinations of rates: Tax per litre 0.01 and 25% corporate tax 33,7% 32,1% 30,2% Tax per litre 0.02 and 20% corporate tax 38,7% 44,1% 31,1% Tax per litre 0.03 and 15% corporate tax 44,7% 39,9% 32,7% Tax per litre 0.04 and 10% corporate tax 52,0% 48,7% 35,0% Tax per litre 0.05 and 5% corporate tax 60,4% 50,2% 38,0% Model (d) 25% corporate/dividend tax and revenue royalty/minimum unit tax where taxes paid are deductible at the following rates: Revenue royalty 4%, subject to a minimum unit tax of DKK 0.04 per litre Revenue royalty 5%, subject to a minimum unit tax of DKK 0.05 per litre Revenue royalty 6%, subject to a minimum unit tax of DKK 0.06 per litre Model (e) Current taxation 42% Model (f) Combination of current taxation as well as revenue royalty and surplus royalty, with the revenue royalty reduced by the amount of the corporate/dividend tax Model (g) Revenue royalty (5%) and surplus royalty of 15% and 25%, no corporate/dividend taxt Model (h) Surplus royalty of 20% and 50%, no corporate/dividend tax 46,7% 38,1% 27,8% 66,1% 58,1% 34,8% 70,0% 58,1% 41,7% 42,0% 42,0% 42,0% 58,3% 48,2% 45,2% 62,3% 53,1% 42,3% 21,5% 25,2% 29,8% 57

58 Table 16: Government take downside scenario (lower sales price) (Source: PwC) Government take % over 10 years with an expected annual production volume of Downside scenario lower sales price (DKK million) 10 million gallons 12 million gallons 20 million gallons Model (a) 6% revenue royalty, minimum unit tax of DKK 0.06 per litre no corporate and dividend tax Model (b) Variable unit tax of DKK per litre no corporate and dividend tax 71,1% 58,9% 43,7% 56,2% 48,4% 38,9% Model (c) Unit tax and corporate tax five combinations of rates: Tax per litre 0.01 and 25% corporate tax 33,9% 32,4% 30,5% Tax per litre 0.02 and 20% corporate tax 39,0% 45,5% 31,7% Tax per litre 0.03 and 15% corporate tax 45,2% 40,0% 33,6% Tax per litre 0.04 and 10% corporate tax 52,7% 50,2% 36,2% Tax per litre 0.05 and 5% corporate tax 61,3% 51,6% 39,6% Model (d) 25% corporate/dividend tax and revenue royalty/minimum unit tax where taxes paid are deductible at the following rates: Revenue royalty 4%, subject to a minimum unit tax of DKK 0.04 per litre Revenue royalty 5%, subject to a minimum unit tax of DKK 0.05 per litre Revenue royalty 6%, subject to a minimum unit tax of DKK 0.06 per litre Model (e) Current taxation 42% Model (f) Combination of current taxation as well as revenue royalty and surplus royalty, with the revenue royalty reduced by the amount of the corporate/dividend tax Model (g) Revenue royalty (5%) and surplus royalty of 15% and 25%, no corporate/dividend taxt Model (h) Surplus royalty of 20% and 50%, no corporate/dividend tax 47,5% 39,3% 29,2% 65,9% 49,1% 36,5% 71,2% 58,9% 43,8% 42,0% 42,0% 42,0% 56,4% 47,3% 44,2% 60,6% 52,2% 42,3% 22,0% 25,5% 29,8% As will be seen from the tables, most of the models would be reasonable for both parties in the base case scenario and the two upside scenarios. However, models (e), (f) and (g) are generally at the higher end of the scale and if those models are opted for, it would be recommendable to reduce the tax rates of those models. In the downside scenarios, all models except for models (c), (d) and (h) result in a rather high government take which would not be attractive to investors. This would seem to weigh in favour of a combination of revenue royalty and unit tax Calculations of potential tax revenues In this chapter an estimate of potential tax revenues is given, based on the below assumptions. If production costs are assessed based on the current unit costs at the Greenlandic water utilities, it can be 58

59 seen from Nukissiorfiit s absorption costing statement for 2016 that the average unit cost of water in Greenland is DKK per m3 or DKK per litre. A sales price of DKK 1.00 per litre will provide a gross margin percentage relative to water production costs of 96%. A sales price of DKK 2.00 per litre, equivalent to DKK 1.00 per half-litre, will significantly increase the gross margin percentage. An annual production volume of 120 million litres, equivalent to the volume of bottled water consumed in Denmark on an annual basis, will result in an annual profit after water production costs of DKK 115 million, if the sales price is DKK 1.00 per litre, and DKK 245 million, if the sales price is DKK 2.00 per litre. If the sales price is DKK 1.00 per litre, this may be illustrated as follows see the table below: Taking a more conservative production estimate of DKK 45 million litres per year, the annual amounts are DKK 43 million (if the sales price is DKK 1.00 per litre) and DKK 88 million (if the sales price is DKK 2.00 per litre). And, according to PwC, a production of 45 million litres annually is on a par with that of other independent producers. From those amounts the following expenses should be deducted: electricity, heating, bottling plant, materials, production wages, distribution, sales and marketing, payroll as well as administration, etc. The fact that a total cost of DKK per litre may not be sufficient to cover those expenses is reflected in the calculations in alternatives 2, 3 and 5. Based on the above, the tables on the following pages show different alternative calculations of potential tax revenues based on different production volumes, sales prices and costs. Photo: Paul Zizka Photography VisitGreenland Table 4: Tax revenues in base case scenario (Source: PwC) Million litres produced Price per litre (DKK) DKK million Annual revenue 120 1, Costs (water all inclusive) 120 0,038-4,56 Annual profit 115,44 Government take 25% tax/unit tax DKK 0.04 per litre 33,66 Producer 81,78 59

60 Table 17: Tax revenues alternative 1 (Source: PwC) Million litres produced Price per litre (DKK) DKK million Annual revenue 42 1,00 42 Costs (water all inclusive) 42 0,038-40,404 Annual profit 115,44 Government take 25% tax/unit tax DKK 0.04 per litre 11,781 Producer 28,623 Table 18: Tax revenues alternative 2 (Source: PwC) Million litres produced Price per litre (DKK) DKK million Annual revenue 42 1,50 63 Costs (water all inclusive) 42 0,238-9,996 Annual profit 53,004 Government take 25% tax/unit tax DKK 0.04 per litre 14,931 Producer 38,073 Table 19: Tax revenues alternative 3 (Source: PwC) Million litres produced Price per litre (DKK) DKK million Annual revenue 45 2,00 90 Costs (water all inclusive) 45 0,238-10,71 Annual profit 79,29 Government take 25% tax/unit tax DKK 0.04 per litre 21,6225 Producer 57,

61 Table 20: Tax revenues alternative 4 Million litres produced Price per litre (DKK) (Source: PwC) DKK million Annual revenue 120 1, Costs (water all inclusive) 120 0,038-4,56 Photo: Paul Zizka Photography VisitGreenland Annual profit 115,44 Government take 25% tax/unit tax DKK 0.04 per litre 33,66 Producer 81,78 Table 21: Tax revenues alternative 5 (Source: PwC) Million litres produced Price per litre (DKK) DKK million Annual revenue 120 2, Costs (water all inclusive) 120 0,238-28,56 Annual profit 211,44 Government take 25% tax/unit tax DKK 0.04 per litre 57,66 Producer 153, Summary and recommendation Different tax models with different elements have been analysed. The analysis has been based on the current corporate and dividend tax and included the possibility of imposing a revenue royalty and/or a surplus royalty as well as a unit tax, including a unit tax combined with a revenue royalty. The current tax regime results in proportional taxation. As stated in the benchmark analysis, Greenland has a relatively high level of taxation for companies. At 42-44%, the Greenlandic corporate tax level for dividend distribution of profits is among the highest on the scale compared with the other benchmark countries. On that basis, it is recommended to reduce the corporate tax rate in order to make it more attractive to start up production. A tax level this high may act as a barrier to an investment decision by a foreign investor. From a regulatory perspective, the presence of a profit-based model requires increased control, among other things in order to verify that sales prices are at arm s length and, similarly, all individual costs that make up the profit must be subject to control. Overall, a revenue royalty model in the form of a unit tax per litre as a minimum, see model (a), would be 61

62 relatively easy to apply and control, as it is less sensitive to transfer pricing issues. Since the model involves a revenue royalty, controls would still be required with regard to the price, but considerably less so than for profit-based models such as the surplus royalty and corporate tax. The downside of unit tax/revenue royalty models is that they are less attractive to producers if there is a risk of lower profits than expected as in that case the government take may be quite high. From the perspective of Greenland, they would be less attractive in a situation where profits are higher than expected, especially if this is because the price is considerably higher than expected. To a certain extent, this may be mitigated by combining the unit tax with a dividend/corporate tax, the rate of which would have to be lower than the present rate. The problem of the high government take that occurs because of the unit tax in case of lower earnings than expected may be reduced by limiting the size of the government take. Again, however, this would require government control of and insight into earnings. A profit-based model would require a certain standard of regulatory control as controls should be implemented to check that sales prices and costs are at arm s length, which may be a difficult administrative task for the Greenland authorities. However, one could say that with the combined model there is nothing to lose compared with the pure revenue royalty/unit tax model, which may result in situations with low government takes. With proportional taxation, a take of at least the fixed tax rate would be secured. It should be noted that the below recommendations concerning taxation should be seen as derogations in the same way as the derogations set out in the Greenland Parliament Act on Mineral Resources and Mineral Resources Activities (the Mineral Resources Act) and in the Greenland Parliament Act on the Exploitation of Hydropower for the Production of Energy (the Hydropower Act). By way of example, under section 12 of the Hydropower Act, an exemption may be granted for taxation of the licensed activities. The surplus royalty would allow the government take to increase as earnings increase, i.e. progressive taxation, and is better suited than the other models to avoid unrealistically high government takes. However, the surplus royalty is ill-suited to ensure a government take if earnings are low. As mentioned above, such a profit-based tax regime would require increased control. By introducing a unit tax/revenue royalty model, a very simple regime is obtained. Therefore, such a model may be worth considering. If a combination of unit tax/revenue royalty and corporate/dividend tax is opted for, with the amount of unit tax/revenue royalty being reduced by the corporate and dividend tax paid, a certain government take would be secured from the outset, without the total income being lower than the proportional tax percentage. If Greenland is willing to lower the tax rates, this would thus seem to be a model that may also be worth considering and which may even be better as it seems more robust than the pure unit tax/revenue royalty model in terms of ensuring a government take above a certain percentage in all price and earnings scenarios. Recommendations concerning a more competitive government take model for export of ice and water RECOMMENDATION (4) A simpler and more competitive government take model should be introduced for export of ice and water in Greenland. BACKGROUND: The benchmark analysis carried out by PwC shows that it is necessary to reduce the total government take if Greenland is to be an attractive alternative to its most obvious competitors. It is recommended on that basis to reduce and adjust the level of the total government take in order to make it more attractive to start up production. 62

63 RECOMMENDATION (5) A model should be implemented which implies a total corporate/dividend tax of 25% as well as a revenue royalty of 4%, which cannot exceed, however, a fixed unit tax of DKK 0.04 per litre. The model implies that each year the Greenlandic corporate and dividend tax paid is deductible from the revenue royalty/unit tax payable. BACKGROUND: Based on the analysis in chapter 6, the so-called model (d) put together by PwC is recommended, which implies a total corporate/ dividend tax of 25% and a revenue royalty of 4%, which cannot exceed a fixed unit tax of DKK 0.04 per litre, where each year the Greenlandic corporate and dividend tax paid is deductible from the revenue royalty/unit tax payable. The revenue royalty/unit tax is deductible from the taxable income. If the unit tax/revenue royalty is combined with corporate/dividend tax, with the amount of unit tax/revenue royalty being reduced by the corporate and dividend tax paid, a certain government take would be secured from the outset, without the total income being lower than the proportional tax percentage. The levels chosen of 4% or a maximum of DKK 0.04 per litre are lower than, for example, in Fiji, and they seem to be reasonable in terms of the economic framework. RECOMMENDATION (6) Statutory authority should be introduced for the Government of Greenland to grant up to five years of royalty exemption as from the date of grant. The fundamental conditions for being granted such exemption should be laid down directly in the Act or in an executive order. BACKGROUND: It is crucial to Greenland s possibilities of attracting investment to the water export area that the overall government take is at a competitive level. In this connection, it is also crucial that producers with the necessary capital strength etc. are attracted as the market is highly competitive. In certain cases, a need may therefore arise to provide some flexibility, and one way of doing so would be to grant royalty (unit tax) exemption but not from direct taxes during a start-up phase where potentially costly investments in facilities and infrastructure are required. Such an incentive structure is also seen in many other countries wishing to support an industry or an export zone during a start-up phase. In order to ensure transparency and predictability, the fundamental conditions for being granted a period of exemption from royalty should be laid down directly in the Act or in an executive order. Photo: Stian Klo VisitGreenland 63

64 7. Updating the legislative framework The legislative framework is an important parameter in the quest to attract businesses and investors. Highlights of the Greenlandic Exports of Ice and Water Act The Greenlandic Exports of Ice and Water Act includes provisions on: Grant of prospecting licences, see section 3 Grant of exploitation licences, see section 4 Approval of business and closure plan, including, according to the circumstances, subject to the submission of a financing plan as a condition for production start-up, see sections 8-9 Assignment of an exploitation licence requires approval, see section 23 Provision on the possibility of charging royalties, see section 26 See also section concerning the regulatory framework. Below follows a discussion of a number of possible changes that may be implemented in the Greenlandic regulation of ice and water export activities to make this area of the law more business friendly. 64

65 Photo: Mads Pihl VisitGreenland Recommendations concerning possible changes and adjustments to the Greenlandic regulatory framework for export of ice and water RECOMMENDATION (7) Statutory authority should be introduced to allow the grant of non-exclusive exploitation licences for land areas. BACKGROUND: Under the current Exports of Ice and Water Act, licences for exploitation of ice and water in land areas for export purposes are granted on an exclusive basis, while exploitation licences for offshore areas are generally granted on a non-exclusive basis. If the Government of Greenland has granted an exclusive exploitation licence for a specified land area to one licensee, the Government cannot also grant an exploitation licence for the same area to another party. It would be expedient to provide the statutory authority necessary to grant non-exclusive exploitation licences for land areas as situations may arise where the best scenario would be to grant multiple licences to exploit ice and water for export from the same resource if the resource in question has the potential required. This would ensure that Greenland s water resources are exploited in the best and most expedient manner possible and that the potential of the resources is not wasted. 65

66 RECOMMENDATION (8) Consideration should be given to whether it should be possible in an exploitation licence to specify the maximum volume of ice and water that may be exploited under the licence. BACKGROUND: It may be considered whether it should be possible in an exploitation licence to specify the maximum volume of ice and water that may be exploited under the licence (exploitation volume). If non-exclusive exploitation licences become available for land areas, see recommendation (7), it should also be possible to have more than one licensee for a specified area or resource. It may therefore be necessary to specify the maximum volumes in an exploitation licence in order to allow multiple licensees for the same area or ice or water resource. RECOMMENDATION (9) It should be possible for the licensee and the Government of Greenland to change exploitation volumes, if so provided for in the exploitation licence. BACKGROUND: At present, the issue of minimum volumes is regulated in the approval of the business plan, see section 8 of the Act. It would be appropriate to introduce a smoother procedure which would make it possible to amend the provisions governing minimum and maximum volumes directly in an exploitation licence. In this connection, consideration may be given to whether the Government of Greenland is to be authorised to decide to increase or reduce exploitation volumes. This may also be relevant with regard to a shared resource. The possibility of changing exploitation volumes under an exploitation licence would provide some flexibility, particularly for long-term exploitation licences where the underlying assumptions or circumstances may change or turn out to differ from what they were at the grant of the licence. However, this should only be possible if so expressly provided for in the exploitation licence. RECOMMENDATION (10) Consideration should be given to whether there is a need to authorise the Government of Greenland to issue orders for coordinated exploitation where two or more ice or water resources are shared by different licensees. BACKGROUND: If two or more ice or water resources are shared by different licensees, but should be subject to coordinated exploitation for resource, economic or social reasons, it may be considered whether the Government of Greenland should be authorised to issue orders for coordinated exploitation. For example, this may be relevant if different licensees are allowed under their exploitation licences to use the same exploitation, pipeline, storage or other facilities. If the Government of Greenland is given the authoriaty to issue orders for coordinated exploitation, it should be possible in the order to specify that the licensee is entitled, against a reasonable fee, to use the exploitation, pipeline, storage or other facilities operated and used by another licensee in connection with the latter s own exploitation of ice and water resources. If this recommendation is acted on, the possibility of such an order being issued should be expressly mentioned in the exploitation licences. 66

67 Photo: Shutterstock RECOMMENDATION (11) Provisions should be amended to authorise the Government of Greenland to lay down terms requiring a licensee to pay the Self-Government by way of a royalty (unit tax) for exploitation and export of ice and water, including terms concerning exemption from payment in certain periods. In addition, provisions should be introduced to authorise the Government of Greenland to lay down terms governing exemption of licensees from direct and indirect taxes (fiscal taxes) in certain periods and on certain terms and conditions. BACKGROUND: At present, the Government of Greenland is authorised to lay down terms requiring licensees to pay by way of indirect taxes, including terms concerning payment of such taxes based on production volume and value. Amended provisions should be laid down which still authorise the Government of Greenland to lay down terms requiring licensees to pay the Self-Government by way of indirect taxes for exploitation and export of ice and water. The provisions should also authorise the Government of Greenland to lay down provisions on exemption of licensees from payment of indirect taxes in certain periods. In addition, provisions should be laid down which authorise the Government of Greenland to lay down provisions on exemption of licensees from payment of direct and indirect taxes (fiscal taxes) in certain periods and on certain terms and conditions. Such amendments to the current provisions would ensure that the Government of Greenland is authorised to introduce a better and more competitive government take model in connection with the exploitation and export of ice and water in Greenland. Authorisations in this regard would contribute to providing a certain measure of flexibility, e.g. during the licensee s start-up phase which involves potentially heavy investment in facilities and infrastructure. The Mineral Resources Act contains a similar provision authorising the Government of Greenland to lay down terms to exempt a licensee from the payment of direct tax if the licensee pays a fee instead. By way of example, the Government of Greenland should be authorised to lay down terms requiring the licensee to pay an annual fee based on the size of the licensed area (area fee) or to pay to the Self-Government a share of the profits realised from the licensed activities (profits fee). 67

68 RECOMMENDATION (12) Consideration should be given to whether there are sufficient advantages involved in introducing a protected designation of origin, e.g. by making designations such as ice cap water protected foodstuff designations. BACKGROUND: By amending the Exports of Ice and Water Act, it would be possible to explore the value of introducing the statutory authority for the Government of Greenland to lay down terms specifying or to decide that designations such as ice cap water or the like are to be protected foodstuff designations. A protected foodstuff designation may be a protected designation of origin, a protected geographical indication or traditional speciality guaranteed. A protected designation of origin indicates that an agricultural product or foodstuff originates from and was produced, processed and prepared in a specific area. Two examples would be cognac and feta cheese. A protected geographical indication indicates that an agricultural product or foodstuff originates from and was either produced, processed or prepared within a limited geographical region. Two examples would be carrots from Lammefjorden and Bayonne ham. Traditional specialities guaranteed are agricultural products and foodstuffs made of or composed by traditional raw materials or produced by traditional methods. By way of example, see Danish Executive Order No of 6 December 2013 on quality schemes for agricultural products and foodstuffs and Regulation (EU) No 1151/2012 of the European Parliament and of the Council of 21 November 2012 on quality schemes for agricultural products and foodstuffs. RECOMMENDATION (13) It should be examined whether there is a need to update the requirements for export water standards so as to be consistent with international standards at all times for the purpose of reducing compliance costs and boosting confidence in Greenland export water. BACKGROUND: It may be considered whether the Exports of Ice and Water Act should be amended so as to be more consistent in relevant aspects with standards and rules applicable in other countries with regard to exploitation and marketing of natural ice cap water etc. and the quality of drinking water etc. One simple way of making such an update would be to start by looking at Danish Executive Order No. 38 of 12 January 2016 on natural mineral water, spring water and packaged drinking water. The Executive Order implements a number of EU rules concerning exploitation and marketing of natural mineral water, the quality of drinking water, etc. 68

69 RECOMMENDATION (14) Consideration should be given to whether it would be advantageous to use tender procedures (licensing rounds) in connection with licensing of the water resources analysed and newly mapped by the Self-Government. In this connection, clear evaluation criteria should also be introduced. BACKGROUND: Under the current regulation of the area, applications for a prospecting and exploitation licence are considered on an ongoing basis and according to a first-come first-served principle. The decisive factor in the evaluation of competing applications is therefore, in practice, the date of submission instead of other parameters such as distribution and capital strength, where the applications otherwise satisfy the statutory requirements. The introduction of tender procedures (licensing rounds) is also known from the mineral resources area where, for example, special rules apply to issues such as grant of licences in the area of hydrocarbons. If this recommendation is acted on, clear evaluation criteria would also have to be drawn up so that potential applicants would know in advance the criteria on which they would be evaluated. For example, the evaluation criteria could concern the level of ambition, business plan, capital strength, distribution network and experience and other such criteria. The introduction of tender procedures (licensing rounds) would also support the Self-Government s future marketing campaigns directed at multinational producers and others which, among other things by reason of their internal decision-making procedures, need to have predictable milestones along the process in the form of deadlines and dates. It is also possible to imagine that only certain locations would be available for licensing in a tender procedure. By way of example, the locations which are in the process of being analysed and examined by GEUS. It may also be considered whether to introduce limitations on the number of locations which may be licensed to an individual applicant in connection with a licensing round. Photo: Shutterstock 69

70 RECOMMENDATION (15) Introduction of application periods in connection with the processing of applications according to the principle of tender procedures (licensing rounds) instead of the existing application procedure, which is based on the firstcome first-served principle. BACKGROUND: Under the current regulation of the area of ice and water, applications for prospecting and exploitation licences are examined as they are received and according to the first-come first-served principle. In supplement to any introduction of tender procedures, the possibilities of introducing application procedures where applications received are divided into categories according to their date of submission should be explored. The difference from the current practice would be that, for example, a month would be divided into two application periods instead of the current practice of granting licences according to the first-come firstserved principle. If this recommendation is acted on, there would still be an element of first come first served, but if two applications are received for the same area in the same application period, it would be possible to make a discretionary decision as to which of the applicants is in the better position to exploit the area. If this recommendation is acted on, very clear evaluation criteria would have to be introduced, see also recommendation (9) above. RECOMMENDATION (16) Statutory authority should be introduced to allow the Government of Greenland to bar applications for exploitation licences for specific areas. BACKGROUND: In the expectation of tender procedures being introduced, it is important to introduce the statutory authority to bar applications for the area in question. Otherwise, an applicant might seek to get ahead of others by submitting an application before the licensing round actually begins. In the interest of transparency in administration, this authorisation is important although an applicant has no legal right to be granted a licence. RECOMMENDATION (17) A provision should be introduced to establish that legislation concerning cargo transport by sea to, from and within Greenland does not apply to transport by sea of ice and water resources covered by the Exports of Ice and Water Act. BACKGROUND: The Royal Arctic Line (RAL) owns the sole concession for sea transport of cargo to, from and within Greenland. However, the sole concession does not extend to all transport by sea and does not apply, for example, to oil transport by tankers and transport of own cargo by own vessel as part of non-transport activities. The purpose of updating the Exports of Ice and Water Act would be to increase economic growth and create jobs in Greenland by improving conditions for exploitation of ice and water resources for export. Flexibility for the licensee in terms of transport of ice and water resources by sea is only one of a number of important factors which would impact the attractiveness of Greenland for existing and potential ice and water exporters as well as investors. In order to make the legislation concerning transport of exported ice and water by sea as good and flexible as possible, the Greenlandic Sea Transport Regulation should not be applicable to transport by sea of ice and water resources for export which are covered by the Exports of Ice and Water Act. It is expected that a departure from and the exemption from the sole concession would make it more financially attractive to invest in the exploitation of ice and water in Greenland for export. The exemption from the sole concession is thus expected to enhance Greenland s competitive position relative to other countries and improve the licensee s competitiveness in the international market. 70

71 71 Photo: Shutterstock

72 8. Promotions subsidies It is currently possible to apply for subsidies for ice and water projects under the Self-Government s Executive Order No. 14 of 27 June 2016 on subsidies for product development, export promotion activities, professional consultancy assistance (clip card scheme), ice and water projects as well as tourism projects. Overall, a total of DKK 71,460 has been granted in subsidies for a single project since subsidies for ice and water projects became available in Recommendation concerning promotion subsidies RECOMMENDATION (18) Industrial promotion funds should be provided for establishing contact and launching marketing campaigns to support small Greenlandic players efforts to engage in partnership with multinational producers. BACKGROUND: For a small or minor player to break through to the international market, it is crucial to establish some kind of partnership with one of the multinational producers. The subsidies available for ice and water projects should be targeted more specifically than is the case today, so that subsidies are primarily available to seek partners and for other forms of cooperation and sales. 72

73 73 Photo: Shutterstock

74 9. Marketing activities In light of the intensity of the competition in the international market for bottled water, it is crucial that the right applicants are attracted to Greenland, i.e. applicants with the required capital strength and distribution and marketing channels, etc. Experience from other countries, including Iceland, shows that it is first and foremost in cooperation with established multinational producers that a commercial breakthrough on the export markets may be expected. It is therefore important that the planned activities and efforts whether in the form of introduction of a new tax regime or an update of the legislative framework in general are followed up by corresponding initiatives in the area of marketing.. Recommendations concerning marketing activities as well as branding of Greenlandic water RECOMMENDATION (19) Marketing material should be prepared, including a product catalogue, concerning the opportunities presented by Greenlandic meltwater deposits for the purpose of strengthening marketing efforts abroad. BACKGROUND: Based on the meltwater deposits that have been studied and analysed, a product catalogue will be drawn up as well as any other marketing material which contains the results of the water samples and other relevant technical data as well as information about infrastructure and locations at a more general level. RECOMMENDATION (20) Greenland s meltwater deposits should be marketed actively at international and regional trade fairs etc., including with a particular focus on the Middle East and Asia. BACKGROUND: A number of trade fairs exist that may serve as a platform on which to market Greenland s water resources. For example: The China (Guangzhou) International High-end Drinking Water Industry Expo 2017 The SBW Expo th China International High-end Drinking Water Industry Expo Shanghai 2017 The 14 th Global Bottled Water Congress (Barcelona) Events under the auspices of the International Bottled Water Association The International Water Conference (IWC) Events under the auspices of the China Industry Beverage Association The 29 th Annual Canadian Bottled Water Association (CBWA) Convention and Trade Show The 2017 IBWA Annual Business Conference the International Bottled Water Association 74

75 Photo: Shutterstock RECOMMENDATION (21) Proactive marketing efforts should be aimed at a select group of multinational producers in order to attract producers or investors with the required capacity, including in terms of capital strength and marketing and distribution capacity. BACKGROUND: In light of the intensity of competition, it is imperative for Greenland to attract producers and investors with the required capacity in crucial areas such as capital strength and marketing and distribution. Experience from the mineral resources area shows that it is possible to get results in relation to large international companies if an effort to reach out is made and if the opportunities offered are sufficiently interesting. For example, the activities could be carried out in cooperation with Greenlandic producers, who may be expected to gain from any agreements made or other partnership formed with an existing player with a consolidated market position. 75