Mining stability agreement to renew tension in mining sector - EIU

The Economic Intelligence Unit (EIU) of the United Kingdom on Monday said the government’s formation of a seven-member team to review and renegotiate the mining stability agreements would lead to renewed tension between mining companies and the government.

The EIU March 2012 Country report made available to the Ghana News Agency in Accra revealed the determination of some mining operators to engage government as the mining stability agreements is binding and there was little that the government could do to modify existing agreements without significant legal difficulty.

According to the EIU investigations, the stability agreements seek to protect numerous mining companies in Ghana but as many as 20 large-scale operations do not have such agreements - meaning their operations will immediately be affected by the policy changes.

The EIU noted that some mining companies had indicated that the changes to the mining sector would put their investments at risk, and that it appeared to be a gamble that the government wanted to take.

The EIU acknowledged that the government would have difficult time extracting more from mining companies with agreements, and possibly more difficulty in attracting new mining investments if they were unwilling to sign new stability agreements.

An additional change that the government is introducing is a new bidding system for mining licences in the country. Formerly, licences were awarded on a first-come-first-served basis, and the modalities for ensuring that a company can deliver on its proposed activities are poorly established.

The new system will see concessions put out for international tender and interested companies submitting details proving that they have the technical and financial capabilities to develop awarded concessions.

The new system also will bring much-needed clarity and sophistication to Ghana’s mining sector, as well as contributing to greater transparency through open, competitive processes.

The government’s new-found enthusiasm for policy reforms in the mining sector can probably be seen as a result of the economic boost being provided by the country’s new oil sector as the country begins to feel less dependent on mining and less willing to accept financial arrangements that are not the best possible for the state.

According to the EIU report, in spite of the challenges in the mining sector, Ghana’s mining assets and the track record of political stability continue to make it an attractive destination for mining investments, which will go some way towards ensuring that the reforms did not cause mining investments to dry up as the balance of benefits shifts away from companies and towards the state.