Two major reforms relating to the new Mining Code and Public Private Partnerships have been voted and will be promulgated and applicable shortly in Democratic Republic of Congo (DRC). Below are the highlights of these two reforms.
1. NEW MINING LAW
Background: This new law was voted by the National Assembly on 8 December 2017 and by the Senate on 22 January 2018. It is now to be promulgated in the coming days by the President of DRC. The new law substantially modifies the existing Mining Code dated 2002 and aims at better allocate the revenues of the mining industry between private operators and the State. It notably incentivizes the development of the mining industry (process and manufacture of minerals) on the territory of DRC – which will require in practice, and as a prerequisite, the development of new electricity generation capacities in DRC.
Based on the final version voted by the parliament and to be promulgated shortly, the new law addresses several items:
1. Management of the mining rights, the changes notably cover but are not limited to;
(a) Share capital to be reserved to the State by the applicant company for an operating licence ("permis d'exploitation") from 5% to 10% and non-dilutable;
(b) The shares of the State are transferred to the company of the assignee in the case of transfer of the operating licence;
(c) Limitation from 30 to 25 years of the period of validity of the operating licences, and several renewal of 15 years permitted (for every renewal, 5% of the shares are transferred to the State in addition to the initial 10%) ;
(d) 1% of proportionate fees to pay in case of transfer of mining assets;
(e) New definition of "Distinct Mine", which is a mine requiring separated operating methods and processes, as well as using a clearly individualized means of production ;
2. Management of the mining domain, the changes notably cover;
(a) New provisions regarding the doorstep regime ("pas de porte") and allocating 100% for the State (except if the mine is tendered, in this case the mining operator must pay 1% of the mine value);
(b) Sub-contracting to be performed by Congolese Companies where the majority of the shares is owned by Congolese, pursuant to law No. 2017-01 dated 8 February 2017 relating to sub-contracting in private industry;
(c) The granting of the mining rights is subject to the written commitment to process and manufacture the minerals on the territory of DRC (the applicant must evidences that he has the capcity, both financial and technical, and must sign an act of commitment). In case of impossibility to process and industrialize on the ground, a derogation can be granted subject to the fulfilment of several criteria.
(d) New provisions regarding the relations between two or several mining titles owners in case of superposition of mining titles;
3. Social and Environmental Responsibilities, the changes notably cover;
(a) Introduction of specifications for mining companies;
(b) Any mining title application is subject to the prior granting of an environmental certificate delivered by the Agence Congolaise de l'Environnement;
(c) The list of social actions and development programmes for neighbouring communities which are required from the mining operator;
4. Tax, custom and exchange legal regime, the changes notably cover;
(a) The specificity, completeness and exclusivity of the tax and custom regime provided by the Mining Code is maintained;
(b) As from the 3rd year of operation, any goods and equipment strictly necessary for mining are subject to the import tax rate of 5%, intermediary goods and other consumables are subject to the import tax rate of 10% - and in any case oil and lubricant remain at a 5% rate;
(c) The new mining fee rates are as follows:
i. 0% for raw materials of common use;
ii. 1% for industrial minerals, solid hydrocarbons and other substances;
iii. 1% for iron and ferrous metals;
iv. 3,5% for non-ferrous metals and base metals;
v. 3,5% for precious metals;
vi. 6% for gemstones;
vii. For strategic metals (such as cobalt), this is 10%.
(d) Strategic metals are to be determined and listed by decree by the Government;
(e) Straight-line depreciation is now the standard and no longer the accelerated method;
(f) The mining operator is required to repatriate 60% of the export proceeds in the amortization period, and 100% after amortization of its investment.
With regards to the entry into force of this new law and its direct application to the ongoing mining agreements:
- The law provides that the existing mining agreements are directly and immediately subject to the new provisions of this law – How this will effectively affect existing mining agreements nevertheless remains to be assessed in consideration of any applicable stabilisation provisions.
- The stability guarantee clause provides that in case of change in the mining legislation within the first 5 years of the entry into force of this new law, the owners of mining titles will benefit from the stability guarantee for tax, custom and change;
- The owners of the mining titles are required to comply with the industrialization requirement (process and manufacture) within 3 years as from the entry into force of this new law;
The application texts (Decrees and Ministerial orders) shall be published within 90 days as from the promulgation of this law.
Do not hesitate to contact us, should you need further explanations on the above.
PUBLIC-PRIVATE PARTNERSHIP LAW
With regards to PPP Law, Public-Private partnerships in DRC were already commonly in use under the form of the French-law inspired mechanism of Public Service Delegations ("Délégations de Service Public"), including the public service concession ("Concessions de Services Publics") or services concessions ("Affermage"). They are notably currently in use in the energy sector, in electronic communications and more generally in the public procurement sector.
The PPP Law further enhances the attempt to introduce and institutionalize PPPs with a view to creating a more extensive legal framework. Notably, the PPP Law reinvigorates the classification of PPPs into contractual and institutional which has been initially declared in the aforementioned sectorial laws.
A question arises as regards the interaction of the PPP Law and the existing laws and their respective scopes of application. Indeed, the PPP Law as drafted expressly provides that "This law does not apply to public-private partnership contracts already governed by specific laws".
1. Classification of PPPs in DRC
The PPP Law introduces a classification of public-private partnerships contracts in two categories:
a) The Public Service Delegation ("Délégation de service public") which is divided into three categories: (i) the concession contracts with initial or additional construction works to be performed and where the company recovers its costs by the direct payment of the users, (ii) the public services contracts where the service is operated by the company and payment is made by the awarding authority and the (iii) incentivised public services contracts where the company is paid by the awarding authority but is also incentivised by the financial results of the services provided.
(b) The Partnership Contract ("Contrat de partenariat") where the company is paid directly by the awarding authority for its global mission of financing, designing and constructing. The Partnership Contract can also include operation and maintenance services, and in this case the company is expressly entitled to receive - in the name and on behalf of the awarding authority - the payment for the services provided (a mandate mechanism is expressly provided in the PPP Law).
PPP Law provides that "natural resources against infrastructure" agreements with long-term financing, as those signed between DRC and China, are Partnership Contracts and subject to the PPP Law.
The use of the Partnership Contract by a public authority is however subject to the prior review and validation of the PPP Advisory Board (see point 2), notably with regards to the criteria provided in the PPP Law (complexity of the project, inability to finance the project or when a similar project has already failed under other contractual schemes).
2. Entities for the supervision and control of PPPs in DRC
The PPP Law sets up two PPP units: (i) the PPP Advisory Board in charge of advising, coordinating and supervising PPPs contracts and the (ii) PPP Regulatory Agency in charge of regulating PPP legislation, conducting a posteriori checks of PPPs and conciliating disputes.
Enforcement decrees covering creation, organisation and financing of these two administrative bodies are to be enacted shortly by the Ministry in charge of planning.
3. Exclusions from tender process
The PPP Law provides a list of situations where a company is not authorised to participate and submit an offer for a PPP Contract. Beyond the exclusions commonly found in PPP contracts (bankruptcy, criminal offence or sanction …), the PPP Law automatically excludes (i) companies where a member of the awarding authority, public agent or elected person has financial interests of any nature or kind whatsoever, (ii) any operator or subcontractor which has contributed to the preparation of the tender or (iii) companies where a member of one of the two PPP agencies has or has had managing functions over the last three years.
4. Over-the-counter contracts and unsolicited proposals
The PPP Law authorises and supervises the use of over-the-counter contracts and unsolicited bids in the following conditions.
As for the over-the-counter contracts, the tender must have been (i) unanswered or (ii) unsuccessful after two attempts or it is proven that the project can be realised or operated for technical reasons or for protection of exclusivity rights by only one operator.
Unsolicited proposals are accepted only if the public authority has not notified, even possibly, its intention to realise the project. If accepted, the public authority must launch a call for tender in accordance with the prescriptions of PPP Law.
5. Tax and Customs incentives
The PPP Law expressly provides that PPP contracts are subject to common law in terms of tax, customs and parafiscal taxes. However, awarded companies may be subject to a 15% income tax relief for the first 3 years of operation.
The PPP contracts are also expressly subject to control change regulations.
The PPP Law provides that all disputes relating to either (i) organisation and launch, (ii) selection or (iii) execution are considered as "disputes" under the meaning of the PPP Law.
A specific dispute process is provided, and if no amicable settlement is found between the parties, then conciliation is attempted by the PPP Regulatory Agency within 3 months. If no settlement is found under the auspices of the PPP Regulatory Agency, then the dispute goes to the competent tribunal or court of DRC.