The 2002 DRC Mining Code (hereafter “the Mining Code”), based on a draft prepared under the auspices of the World Bank, and its corresponding 2003 Mining Regulation introduced a clear and liberal mining regime in the DRC, based on an objective and transparent granting of mining titles and a so-called “exhaustive” tax and customs regime offering considerable tax reductions and exemptions. Allied to a ten-year stability clause, the 2002 Mining Code offered incentives and stability to private investors in the mining industry and has played a large part in the mining boom that the DRC has enjoyed since 2008.
However, in February 2013, a draft law on the revision of the 2002 Mining Code (hereafter “the draft law”) was circulated by the DRC Minister of Mines. The proposed amendments to the Mining Code contained in the draft law include more onerous formalities and conditions for obtaining mining rights and related activities. For example, mining companies would have to use Congolese national sub-contractors in order to benefit from the advantages of the tax and customs regime of the Mining Code. The regime of prior authorizations or approvals would be extended, not only for mining operators but also for sub-contractors and transporters. Certain authorizations would no longer be quasi-automatic when the required conditions are fulfilled and the obligation for certain authorities to motivate a refusal (for example, concerning the renewal or transfer of permits) would be removed.
The draft law also proposes to amend the compulsory free non-dilutable shareholding of the State in the local mining company from the current 5% to 35%, with an additional 5% at each renewal of the mining permit.
The draft law further aims at reducing the tax advantages granted under the Mining Code (see table below), and at reducing the stability guarantee from ten years to three years.
It is clear that the incentives for investors contained in the Mining Code are under threat by these proposed amendments.
Furthermore, the draft law does not address various failings of the Mining Code revealed in practice since its introduction, notably:
- The definition of the “public person” that is entitled to receive the State’s shares in the local mining company;
- The fate of the State’s shares in case of transfer, expiry or renunciation of the mining right;
- The problem of land rights granted within mining perimeters;
- The “deemed approved” system of the list of goods to be imported under reduced import duties that is not applied in practice by the customs authorities;
- Various parafiscal taxes at a national, provincial and local level that are contrary to the “exhaustive” tax system of the 2002 Mining Code;
- Securities and arbitration: an amendment to the Mining Code to bring them in line with OHADA legislation on securities and arbitration could have been envisaged;
- The system of judicial, administrative and arbitral recourses contained in the Mining Code is complex and at some stages inconsistent, ineffective and in need of revision; and
- The Mining Code bans mining conventions between the State and an investor that grants exceptional advantages and incentives to the investor, such as tax holidays: this is why a law granting an exception to this ban is needed to authorize the famous Chinese “mega-contract-” that grants tax holidays and other benefits without any legal basis.
Comparative table of current main tax rates under the general tax regime, under the Mining Code incentives and under the proposed modification.
Click here to view table.
Two recent decrees by the Minister of Mines have further exacerbated the problems faced by mining operators. The first decree, dated 5 April 2013, bans the export of copper and cobalt concentrates and imposes reduced moisture content for concentrated products for export. It also limits the costs deductible in the assessment of the mining royalty. Not only is this decree contrary to the Mining Code, but it also fails to take into account the lack of electrical energy supply in the DRC required for the production of finished products and also ignores the foreign demand for intermediary products. The second decree, dated 17 April 2013, which is also contrary to the Mining Code, obliges mining operators to use only Congolese companies for their supplies and works, although it does permit the use of “external expertise or a qualified foreign company”.