Use of Non-renewable Resource Revenues for Sustainable Local Development

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1 Use of Non-renewable Resource Revenues for Sustainable Local Development Round Table Meeting, New York September 21, 2007 Kwabena Sarpong Manu 1

2 Structure of Presentation Introductory comments on imposition royalties in Ghana Mineral royalty payments in Ghana The Mineral Development Fund Purpose, beneficiaries Institutional arrangements Use of revenues Lessons Actions to address current weaknesses 2

3 Introductory View on Royalty Imposition The imposition of royalties aims to: # provide a return to the owner of a natural and depleting resource. Royalties are seen by some as the return to a factor of production (the natural resource); # contribute to national revenues (royalties are one of the easiest impositions to administer and collect); # address some of the problems caused by mining, and contribute to the transformation of mining communities. 3

4 Introductory View: Sources of Mining Revenues Royalties Corporate tax Property taxes Dividends Fees 4

5 Corporate Income Tax (Mining) Mineral Royalties Payments Total Mining Contribution Total IRS Collection Mining / Total IRS ,826 1,893 4,719 52, % ,021 3,843 61, % ,555 4,546 9,101 74, % ,311 7,485 11, , % ,942 12,784 19, , % ,713 20,912 40, , % ,880 35,493 38, , % ,094 32,697 46, , % ,061 49,485 53, , % ,146 0 Total 61, , ,520 2,560, % 5

6 60,000 Contribution of Mining Royalties and Corporate Taxes to IRS Collections 50,000 40,000 Cedis million 30,000 20,000 10, Year Corporate Income Tax (Mining) Mineral Royalties Payments 6

7 Mineral Development Fund 20% of total royalties paid into the Fund Shared in the proportion 50% to DA to be shared according to a constitutional formula 20% for the account of the Community Development Scheme 30% to support mining sector institutions and research 7

8 MDF Beneficiaries District Assembly For social infrastructure Stools (Land Owners) To support alternative livelihoods Traditional rulers To keep the image of their office To support community development 8

9 Institutional Arrangements PMU (IRS) Administrator of Stool Lands Revenue District Assemblies Mining Community Development Scheme 9

10 Observations Compliance with regulations There is good compliance with the payment of royalties and the reporting requirements on the part of the large mining companies. The same cannot be said of quarries and salt winners. 10

11 Observations (cont d) Compliance with regulations quarries, salt companies Some of the reasons for low collection in this area could include: # relatively smaller sizes of companies and difficulty in dealing with them # apparent lack of understanding of regulations # products consumed locally, so monitoring of sales can be done only through company records (some information can be gathered from VAT Service though) # quarries generally dependent on Gov t contracts where payments are very erratic. 11

12 Use of Royalties by Communities Objectives of MDF The fund was created for use in communities which host mining operations in order to redress some of the harmful effects of mining and to undertake development projects The fund was also meant to replace payments that used to be made to the stools by some mining companies - AGC. These were however meager at the time they were being paid. 12

13 Use of Royalties by Communities 1. Private good versus personal 2. D 13

14 Use of of Royalties by Communities Traditional Authorities Very difficult to obtain information on use of the Fund by Traditional rulers Chiefs reckon that the monies are solely meant to maintain the stools and the stature of the office Even where development projects have been undertaken this is not significant Some Chiefs think that DAs are taking much more than they ought to receive.das should therefore be responsible for development projects There is no reporting requirement for Chiefs to observe 14

15 Use of of Royalties by Communities District Assemblies DAs quite co-operative operative in providing information In the two DAs visited monies received form the MDF are quite significant in budgets Monies applied to cover the whole district rather than emphasing areas more affected by mining operations Increasingly monies are being applied to recurrent expenditure for example waste management Visibility of contribution of MDF not apparent No reporting requirement on use of MDF 15

16 Use of of Royalties by Communities Preliminary observations (cont d) Chamber of Mines/companies Companies unhappy about pressures on them to contribute more to communities, even though they do what they can Companies unhappy about negative public perception Companies unaware of how much is paid back to communities for development Companies believe not much is done with the monies Companies would be happy to play more pro-active role in the use of the monies 16

17 Use of Royalties by Communities Administrator of Stool Lands Releases from Ministry of Finance have been irregular sometimes Unhappy about the lack of a reporting requirement. Attempts to agree some form of reporting guidelines with Ministry of Local Government have been unsuccessful No legal mandate to monitor how monies are used Aware that not much is being done with the monies by the traditional authorities 17

18 New Bill on MDF Bill is meant to address: Lack of legal basis Transparency and accountability Community participation in decision regarding use of funds Alternative livelihoods 18

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