A discussion around the DRC’s new mining code
In 2013, the DRC overtook Zambia as Africa’s largest copper producer. In Zambia concern over regulatory inconsistencies continues to stall industry growth. Regulation of the industry in the DRC was more welcoming than in Zambia ever since the DRC mining code was enacted in 2002. This led to an increase in FDI and, correspondingly, copper production, which grew from 9,000 mt in 2003 to over 1 million mt in 2014. However, in an effort to promote mining as a source of inclusive development, the DRC introduced a new mining code in 2018 that included substantial amendments to the tax regime. “The mining code is problematic due to the immense number of taxes it imposes. The over-taxation in the industry diverts investment from the country, especially the super tax on critical minerals,” explained Nigel Ferguson, managing director of AVZ Minerals, a junior Australian mining company with a majority share in the Manono lithium project, located 500 km due north of Lubumbashi. “Lithium is an industrial commodity, priced similarly to cement, so it must be taxed accordingly. AVZ intends to have future discussions with both the Mines Minister and the President to voice our opinion regarding reforms that will be beneficial to both the State and investors.”
“It is no secret that the new mining code has raised controversy in the sector. Whether that will decrease investment is hard to conclude. However, we see that Chinese investment in the country and the mining sector continues to increase as it is less concerned with the mining code and the changes. Production figures have also not decreased since the implementation of the code.”
Lysa Munkeni, Founder and Managing Partner, Altys Partners
The DRC mining code’s amendments raised great controversy and mining companies threatened to challenge it through international investment arbitration where it conflicted with existing investors’ obligations. The reform follows the recurring African trend of enhancing government control over minerals and rebalancing mining revenues in favour of the State. Protested changes include royalty fees, that increased from 2.5% to 3.5% for precious metals and from 2% to 3.5% for non-ferrous and base metals, as well as a new 10% royalty on minerals deemed by the State to be strategic, including copper, coltan and cobalt. A super profit tax was also introduced, due when the commodity price increases by 25% relative to that quoted in the feasibility study, paid in addition the 30% net profit tax. Another key change has been the reduction of exploitation licenses from 30 to 25 years, in addition to increased restrictions on the free disposal of funds by mining companies.
Coupled with the subcontracting law adopted in 2017, which stipulates that activities can only be subcontracted to Congolese-owned companies, investors in the DRC have become weary of regulatory changes. “The recent change in ownership laws in the DRC under the subcontracting law stipulating that any subcontractor operating in-country must have a Congolese majority ownership of at least 51% was a challenge we had to overcome,” confirmed Richard Van Den Barg, director of T3 Projects, a South African construction contractor operating in the Copperbelt for over a decade.
On the other hand, Congolese contractors welcomed the law with open arms: “The subcontracting law and the government’s local content initiative give more opportunities to local companies, protect the national workforce and promote the Congolese middle-class. It offers some flexibility; if the skill cannot be found locally the mine can rely on expats,” elaborated Oscar Siviwe, general manager of Top Engineering Services, a specialist steel fabrication company operating in the north and south of the DRC. “What must be emphasized and enforced, however, is a strict policy of training and transfer of skills to train Congolese nationals and ensure they can take on these expats roles in the future.”
As a result of regulatory instabilities, analysts predicted that the sector would receive lower investment, however it did not. “It is no secret that the new mining code has raised controversy in the sector. Whether that will decrease investment is hard to conclude. However, we see that Chinese investment in the country and the mining sector continues to increase as it is less concerned with the mining code and the changes. Production figures have also not decreased since the implementation of the code,” commented Lysa Munkeni, founder and managing partner of Altys Partners, a Congolese financial services firm.
The code, however, still lacks clarification on stabilisation, repatriation of export proceeds as well as local ownership, and is still being challenged by mining companies. President Tshisekedi (President of DRC since 25 January 2019) said that he had taken note of the concerns raised and encourages a constructive dialogue between the operators and the government on the code’s implementation and to find a common ground. However, consultations are yet to begin.
"The subcontractor law stipulates that the subcontractor to mining projects must be 51% Congolese-owned. This is an issue considering that the subcontractors who fit this criterion are incapable of managing the projects due to lack of capacity, human resources and expertise."
Djo Moupondo, CEO, SODEICO
“The grades in most of the metals that you find in the DRC are some of the highest in the world. Yet the cost to mine in the DRC is also two and a half times higher than anywhere else in the world,” explained Dr. Willem Jacobs, COO, Africa and Middle East at Barrick Gold, during the digital DRC Mining Week conference of 2020. “The cost of doing business in the DRC has to be addressed. The 2018 mining code in at least three places is very poorly worded so that repayment of loans and dividends is in question.”
In an attempt to provide some clarification, the mining registry published an annotated version of the revised code in July 2020. The annotation paraphrases the new legislation and clarifies additions, deletions and differences relative to the old code. However, it failed to ensure the code’s proper understanding and to provide clarity on topics such as the new local ownership content and its application.
Meanwhile, further changes were introduced in August of 2020, as copper mining companies were informed that they will not be able to renew their waivers (granted in 2013) to export copper concentrate from September onward. A full-scale ban would significantly decrease copper exports and negatively impact Zambia, where Congolese copper and cobalt are processed. By removing the waiver, the government hopes to promote in-country beneficiation. However, the DRC produced 765,000 mt of copper concentrate in the first half of 2020 alone, which the Lualaba Copper Smelter (LCS) cannot process even at full capacity, not taking into account the forecasted increase in production. The DRC’s inadequate power network also prevents mining companies from smelting in-country. After an extensive conversation with the ministry, it was agreed to extend the export ban waiver to April 2021.
Host countries altering their mining regulations will inevitably attract criticism from mining companies that prefer regulatory stability. A further problem with the current mining code is that it introduced the possibility of changes every five years, as opposed to 10. By reducing the fiscal stability clause timeframe, it clashes with the long-term nature of the mining industry. Hence, mining companies must brace themselves for possible further changes to the code in 2023, a year coinciding with national elections which historically trigger violence and instability across the country.