The official position appears to be that the Budget 2012 proposals will apply across the board. However, there are indications that the Ghanaian government is not seeking to undermine investor confidence by reversing the terms of the stability/development agreements but rather is looking to get the mining companies to the negotiating table. Government officials have stated that the stability/development agreements will continue to operate until negotiations have been successfully concluded. The committee review under way in Ghana would thereby suggest that there is room for a consultative process with the mining companies.
There has been some speculation that the Budget 2012 announcement at the end of last year were made in haste. None of those taxes approved under the Budget have been enacted yet. This would suggest that much of the detail of the Budget proposals is being currently worked out. Corporate tax and windfall tax are yet to be tabled while capital allowance and contract area ring-fencing are still in the draft bill stage.
The chairman of the seven man stabilisation regime review committee is a noted jurist and has in the past led the renegotiation of contracts on a major HEP project on the basis of commercial viability; he thus has a track record of credible and commercial decision-making.
Given the growing tendency in Ghana to maximise the contribution of the mining sector to the state coffers, any future dialogue between government and mining companies is likely to take place outside of the public forum. The consensual process is likely then to be a confidential process, done on a case by case basis. This is not too different from what is currently practised. In 2010, the Ata Mills government announced that the mineral royalty ceiling of 6 per cent would be applied uniformly on all mining companies in Ghana irrespective of whether they held stability/development agreements (according to which many mining companies paid the minimum royalty rate of 3 per cent). Many suggest that the flat 5 per cent mineral royalty was the consensually agreed compromise, negotiated down by the mining companies from the initial rate of 6 per cent on the understanding that they would not invoke exclusion based on stability/development agreements.
For the big players, the consensual process is an instant fit given their established relationship with the government; the bargaining power of these mining companies stems from their financial strength and their existing agreements with the government. For senior mining companies with more than a US$500 million investment, the carefully extracted advantages of their development agreements e.g. non-payment of VAT, is likely to be reviewed consensually rather than reversed arbitrarily.
For junior mining companies without such agreements, the bargaining tools will be those of future investments, the exhaustive nature of land (i.e. there are very few areas of mineral concession not laid claim to in Ghana) and the government’s own stated intention of making Ghana’s mining industry more diverse and competitive. For junior mining companies too, with less than a US$500 million investment, any benefits of existing stability agreement e.g. tax holidays, will be subject to the same consensual review rather than arbitrary reversal.
Mining companies can take comfort in Ghana’s track record of legal consistency. There was a windfall tax, of 25 per cent, on the statute books from 1985, which was never applied and then repealed in 2006, the same year that the new mining legislation came into being and also the same year a downward revision of the corporate tax was enacted. This was despite the fact that by 2006, gold prices had already tripled since 2000 without any commensurate increase in operational costs, so the seduction of applying a windfall tax already on the statute books was resisted. This was in line with the lower tax regime introduced that same year.
The seven man stabilisation regime review committee is thus unlikely to throw out existing stability/development agreements in a wholesale manner. One of its stated aims is to determine the terms on which new stability/development agreements will be drawn up. This suggests that while the conditions of future stabilization regimes may be more cautiously negotiated, the process of having stabilization regimes itself will be left undisturbed.
The defence of sovereignty by governments in refuting stabilisation clauses has been rejected by many arbitral tribunals (an arbitration clause being common in such stabilisation/development agreements) especially if the contractual agreement of these stability/development agreements appears reasonable. A case can be made for instance, if the duration of the stabilisation/development period is not too long, or if the same government that agreed the relevant concessions in the stabilisation/development agreement then went on to introduce laws that undermined those very same concessions.