Burkina Faso has been ranked by the Fraser Institute as one of the top five most attractive African countries for mining investment.
It is becoming one of the most attractive mining destinations in Africa not only for its natural resources (particularly gold, zinc, phosphates and manganese), but also due to its mining-friendly administrations, solid land tenure system and a f lat arid landscape which lends itself favourably for exploration activities. The Government of Burkina Faso is currently revising their mining legal framework, to ensure that the jurisdiction remains attractive to foreign investors, but also to allow the benefits from this sector to f low to the local community and business opportunities.
This memo provides an update on certain local law issues to be considered in relation to mining projects in Burkina Faso, including: (i) possible amendments of the Burkina Faso mining code (Part I); (ii) available security in Burkina Faso and costs (Part II); and (iii) certain specific exchange control issues which may arise (Part III).
Part I: Update on the reform of the Burkina Faso Mining Code
Mining activities are regulated by the following acts:
- Mining Code (subject to proposed amendments)1;
- Mining Decree regarding the management of authorisations and mining titles2;
- Mining Decree regarding prescribed tax and mining royalties3; and
- Mining Decree regarding model mining conventions (for industrial exploitation permits, artisanal semi-industrial exploitation and exploration permits)4,
(together, the “Mining Legislation”). However, the Mining Legislation is not exclusive legal framework for mining activities. Other legal instruments that also regulate the mining activities include the Agrarian and Land Reorganisation Act, Code of Public Health, the Water Management Act, Tax Code, Customs Code, Code of Environment, Forestry Code and the Criminal Code (amongst others).
A bill amending the Mining Code was adopted by the Council of Ministers and submitted to the National Assembly in December 2013. It was eventually withdrawn as a result of opposition from mining operators. We understand from local counsel that the reform is still under discussion. It is likely that the bill will be re-submitted to the National Assembly (with possible amendments) during the next session of the Parliament which will start by the end of September 2014.
The main changes the mining bill makes are as follows:
- period of stabilisation of the tax and custom regime limited to 20 years (currently no limitation) and duration of mining conventions reduced from 25 years to 20 years;
- extension of the 10% free carried State participation in the exploitation company to industrial small scale mining permits.
- additional optional State participation in the exploitation company on commercial terms to be negotiated between parties (N.B: from a legal perspective, the mining sponsor can decline to agree terms and the State cannot force the issue);
- creation of a “preferential” dividend for the State (paid to the State before any other allocation of the distributable profit);
- new 20% tax on capital gains on any transfer of mining titles (which doesn’t apply to transfers of licences to subsidiaries before conversion into an exploitation licence);
- a number of tax and customs exemptions or preferential rates currently applicable to holders of exploitation licenses have been removed from the mining code (e.g. patent contribution, employer and apprentice tax);
- creation of a mining fund for local development and other funds partially financed by mining taxes (up to 1% of the annual turnover of the mining company); and
- specific provisions on preference to local businesses and local employees.
Part II: Taking security in Burkina Faso
Burkina Faso has been a member of the treaty for the Organisation and the Harmonisation of Business Law in Africa (“OHADA”) since 6 March 1995. The revised OHADA Uniform Act on Security Law (“Uniform Act”) adopted on 15 December 2010 brought substantial changes to the existing security legislation, making secured lending more streamlined and effective.
OVERVIEW OF RELEVANT SECURITY FOR MINING TRANSACTIONS
The Uniform Act allows lenders to take security over a broad range of assets in Burkina Faso; however, it does not regulate all types of security (e.g. it does not cover security over mining titles). The main problem with taking security in Burkina Faso remains the significant costs of registration.
Under the Uniform Act there is no concept of a floating charge covering all or most of a company’s assets. Generally, each type of asset is subject to a specific security with different creation and perfection requirements. It is possible to take security over future assets and to secure future debts if such future assets or future debts are sufficiently identified.
The forms of security (in addition to foreign security law) include:
- pledge of shares or financial instruments (nantissement de valeurs mobilières et comptes titres);
- pledge of professional equipment and vehicles (gage de matériel professionnel et de véhicules);
- pledge of inventory (gage de stocks);
- pledge over bank accounts (nantissement de compte bancaire);
- security over receivables (cession/nantissement de créances);
- cash collateral (transfert fiduciaire de sommes d’argent);
- guarantee and surety bonds;
- mortgages (hypothèque); and
- security over mining titles / mining convention.
Recent amendments to the Uniform Act have streamlined the perfection process. Since 2011, a public, centralised computerised record for OHADA security interests has existed at all levels (local, national and regional). The record is maintained by the “Registre de Commerce et du Crédit Mobilier” (“RCCM”) – of which Burkina Faso has its own office. Security interests must be registered here in order to be enforceable against third parties. Depending on the date of registration, different priority rankings can be created over the assets, and security interests can be recorded by any of the creditor, security agent or the debtor.
The perfection process varies in respect of different security types; however, it can be summarised as follows: (i) approval by the appropriate corporate entity; (ii) registration with the appropriate local authorities (tax authorities and RCCM); (iii) for most security, notification to the relevant pledged debtors or applicable banks.
The mortgage perfection process follows a different approach: a mortgage must be executed before a notary and registered with the tax authorities as well as the relevant mortgage registry (conservation des hypothèques). On a practical level, the perfection steps mentioned above can, in certain cases, cause certain difficulties (especially in terms of delays).
It should however be noted that it is currently impossible to register a mortgage over a mining title in Burkina Faso as no specific registry exists with which to register it.
COSTS OF PERFECTING SECURITY IN BURKINA FASO
The costs of taking security in Burkina Faso remain prominent despite the Uniform Act reforms. These costs include:
- a 1.05% fee calculated on the registered secured amount in relation to mortgages; and
- a fee equal to 1% of the registered secured amount in relation to security registered with the RCCM.
We have practical experience in how parties seek to address these costs.
Following recent amendments to the Uniform Act, upon an enforcement event, secured lenders in Burkina Faso are (generally) vested with three options:
- the court-sale of pledged assets;
- a petition to court for appropriation of an asset; or
- the self-appropriation of the pledged asset without court order (if agreed between the parties in the relevant security agreement).
An important Uniform Act introduction was to recognise the appointment of a security agent (agent des sûretés). Similar to the Anglo-Saxon security trustee role, a security agent (a local or foreign credit institution or bank (it cannot be a fund or a SPV)) can represent secured creditors for virtually all matters related to security observations.
The role of arbitration has deep roots in Sub-Saharan Africa, including Burkina Faso, and forms or arbitration have long played a central role in dispute resolution within the customary laws of ethnic groups in the region. While the use of arbitration for commercial disputes has been more limited, recent efforts have been made to promote arbitration to resolve commercial disputes. As a result revised and modernised legal frameworks governing arbitration have been introduced, with local arbitration centres becoming more prevalent and active. Burkina Faso is a signatory to the following major arbitration conventions:
- The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards as adopted on 21 June 1984, which is widely recognised as the foundation instrument of international arbitration which requires signatory states to recognise arbitration agreements made in writing, and to refuse to litigate disputes subject to an arbitration agreement. Signatory states must also recognise and enforce arbitral awards, subject to certain exceptions or reservations.
- ICSID Convention as adopted on 14 October 1966, which provides a system for settlement by conciliation and arbitration of investment disputes between host states and foreign investors.
- The OHADA Uniform Act on Arbitration which sets out the basic rules for any arbitration where the seat of arbitration is an OHADA member state.
Bilateral investment treaties and membership of international organisations Burkina Faso has bilateral investment treaties with Belgium, Luxembourg, Guinea, Malaysia, Netherlands and Switzerland. Bilateral treaties which are not yet in force relate to Benin, Chad, the Comoros, Ghana, South Korea, Mauritania, Morocco and Tunisia.
Burkina Faso is also a member of the World Trade Organisation (since June 1995), the West African Monetary Economic Union (whose currency is in CFA Franc)5 and the Economic Community of the Western African States, together with several other regional organisations such as the Multilateral Investment Guarantee Agency, the African Union and the New Partnership for Africa’s Development.
Part III: Exchange control issues
The bank account/exchange control regulations stem from the Burkina Faso mining code and the West African Economic and Monetary Union regulations. We are familiar with local practice in relation to the interpretation of such regulations.
The main difficulties of structuring accounts in Burkina Faso in relation to gold mining projects in particular are as follows:
- proceeds of gold sales must be repatriated to Burkina Faso within one month of payment under the relevant agreement;
- the creation of an offshore account is subject to the prior authorisation of the Minister of Finance in Burkina Faso (and the granting of such authorisation may be subject to certain conditions);
- as a matter of practice, it is not possible to obtain authorisation from the Minister of Finance to create more than one offshore account; and
- most of the payments to be made into/out of the onshore account must be made through an authorised intermediary bank in Burkina Faso.
As a result, care has to be taken in the creation and subsequent operation of any account – onshore or offshore.