On April 5, 2013, the Minister of Mines of the Democratic Republic of the Congo (“DRC”) jointly with his Minister of Finances enacted the Inter-Ministerial Decrees No. 122/CAB.MINE/MINES/01/2013 and No.782/CAB.MIN/FINANCES/2013 on the regulation of export of commercial mineral products (“Inter-Ministerial Decree”) which raised strong oppositions from the mining industry in the DRC and negatively impacted the share prices of several listed mining companies active in the DRC.
It arises from the Inter-Ministerial Decree and the letter of transmission addressed to the Association of Congolese Companies (“Fédération des Entreprises Congolaises” (FEC)), Chamber of Mines and other operators of the mining sector that the Inter-Ministerial Decree bans the export of copper and cobalt concentrates while giving a 90-day grace period to mining operators who still hold mining stockpiles of concentrates of copper and cobalt to enable them to export them. The Inter-Ministerial Decree specifies that the stockpiles shall be reported to the relevant departments of mines based on a minute duly signed as from April 12, 2013, which is the date of the notification of the Inter-Ministerial Decree.
Furthermore, the Inter-Ministerial Decree introduces new concepts not provided by the Law No. 007/2002 of July 11, 2002 on the Mining Code (“Mining Code”) such as “commercial mining product” or “deductible expenses” to calculate the basis of the mining royalty which is organized by article 240 and followings of the Mining Code. The same Inter-Ministerial Decree also introduces conditions of deductibility of such expenses not covered by the Mining Code and the Decree No. 038/2003 of March 26, 2003 on Mining Regulations (“Mining Regulation”).
The goal pursued by the Inter-Ministerial Decree is obviously to increase tax revenues for the State and local communities, particularly with regard to the basis of the mining royalty which is due on any sale of Commercial Products defined by article 1, point 42 of the Mining Code as “any mineral substances, in any form whatsoever, extracted for commercial purposes pursuant to mining and/ or quarry exploitation right and/ or any products obtained from these substances in the concentration, processing or transformation plants”. The basis of mining royalty is defined in article 242 of the Mining Code which specifies that “mining royalties are calculated on the basis of the amount of sales minus the costs of transport, costs for analysis concerning quality control of the commercial products for sale, insurance costs and commercialization costs”.
By prohibiting export of copper and cobalt concentrates as their commercialization, the Government wants to set the basis of the mining royalty on the value of the sales of the metals which is obviously greater than the value of the sales of concentrates. By conditioning the deductibility of expenses from the basis of mining royalty, the Government further intends to increase its revenues. According to mining operators, the Inter-Ministerial Decree constitutes a measure by which the Government tends to asphyxiate the mining industry.
Although the Governments’ goals and intentions to increase its tax revenues as well as to improve the well-being of the local communities affected by the exploitation of the mineral resources are legitimate and may be praised as the mining industry is currently the bedrock of the Congolese economy and should therefore generate more revenues for the State and the whole community, the enactment of the Inter-Ministerial Decree encounters many legal and practical challenges.
First, the DRC Constitution in its article 123 provides that the mining regime (exploration, exploitation, commercialization of mining products) is exclusively regulated by the Law. Therefore, issues related to the commercialization of mining products as well as deductibility of expenses to calculate the basis of mining royalty treated by the Inter-Ministerial Decree shall be governed by Law, and not by any kind of regulatory act.
Furthermore, the Mining Code provides in its article 276 on the guarantee of stability for mining investments made within the framework of the Mining Code that “the State shall guarantee that the provisions of this Code may be amended only if, this Code is subjected to a legislative amendment adopted by the Parliament”.
Thus, the matters included and regulated by the Inter-Ministerial Decree may only be regulated by a Law which will amend the Mining Code which is currently under preparation within the framework of the revision of the Mining Code in consultation with the mining industry.
Finally, concerning commercialization of mining products or commercial products or commercial mining products, article 85 of the Mining Code sets the principle of freedom to commercialize mining products within the territory of the DRC as well as abroad. In its paragraph 1, article 85 provides that “subject to the provisions of the following paragraph, the sale of mining products which originate from the exploitation perimeters is free. The holder of an Exploitation Permit may sell his products to the clients of his choice at prices freely negotiated”. This justifies the guarantees provided by the State to the mining operators by article 273 g) which provides that the State guarantees the freedom to export mining products in accordance with the provisions of the Law, and not of any regulatory act.
The legal principle of freedom to commercialize mining products and their export is subject to one exception specified by the Law, particularly by article 85, paragraph 2 of the Mining Code which provides that the commercialization and export of raw commercial mining products may be exported only by authorization of the Minister which is granted only if the following cumulative conditions are met: i) impossibility to treat the substances within the national territory at a cost which is economically viable for the mining project; and ii) existence of advantages for the DRC in the case the export authorization is granted.
The copper and cobalt concentrates are “commercial mining products” as defined by the Mining Code or “commercial mining products” as defined by the Inter-Ministerial Decree, but are not raw commercial mining products or raw minerals which commercialization and export are subject to an authorization of the Minister in accordance with the provisions of the Law.
Therefore, given the points made above, the application of the Inter-Ministerial Decree encounters a real problem of legality.
Furthermore, the Inter-Ministerial Decree will encounter many practical challenges which the most important are mentioned below.
First, it should be noted that the export of copper and cobalt concentrates led to an increase of tax revenues for the State during the past financial years. Although it is true that the promotion of investments in transformation plants which will then lead to commercialization and export of metals from the DRC instead of concentrates would tremendously increase the tax revenues of the State, it is inevitable that the ban on export of copper and cobalt concentrates provided by the Inter-Ministerial Decree will today lead to a dramatic decrease of the tax revenues of the State. In fact, by implementing this ban, the State gives a blow to the mining operators as well as to itself.
Second, the Inter-Ministerial Decree seems to be difficult to implement as processing plants are today facing a huge energy deficit making it difficult to transform concentrates in the DRC. Recognizing the energy deficit in the DRC, the letter of transmission of the Inter-Ministerial Decree to the FEC, Chamber of Mines and other operators of the mining sector specifies that the processing plants shall be authorized to transform the minerals outside of the national territory. The implementation of this exception will also pose certain international tax issues as it will be difficult for the State to calculate the basis of the mining royalty based on a transaction that occurs abroad.
The implementation of the Inter-Ministerial Decree which aims to ban the export of copper and cobalt concentrates in the DRC will therefore encounter many legal and practical challenges. It will be difficult for the DRC Government to implement this ban outside the framework of the process of the revision of the Mining Code which is currently underway.