Proposed amendments to the Togolese Mining Code

Publication | February 2014

Introduction

Togo is the world’s fourth most important producer of phosphate, with an output of 1.2 million tons in 2013. Its extractive industry is largely dominated by the exploitation of this substance, which represented 7.5% of the country’s exports in 2011, but its subsoil also holds gold, iron ore, bauxite, gypsum, manganese, uranium and zinc. The State has adopted a mineral diversification approach; in addition, the production of construction materials such as clinker cement (6.6% of exports in 2011) or the marketing of gold and diamonds from neighboring countries also represent a significant part of local mining activities. However, Togo’s agricultural sector remains the largest component of its GDP, namely at 46.2% in 2012, and the Government has initiated an expansion program for its extractive industry, with important investments in its infrastructure. In this respect, stakeholders are currently awaiting the award of a major phosphate contract for the exploitation of its two billion tons of reserves of carbonate phosphate, with the potential to increase the current output levels five-fold. Further pursuing the modernization of its mining sector, the Togolese Government recently announced the reform of its mining code with a view to “balancing ecology, economy and the local population’s interests”, bringing its extractive industries in line with international standards.

Current legislative framework

Togo’s mining sector is governed by law n°96-004 dated 26 February 1996 setting the mining code as amended by law n°2003-012 dated 4 October 2003 (the Mining Code). No regulations are currently in force. Early in January 2014, draft amendments to the Mining Code (the Draft Bill) were circulated to the industry stakeholders as well as a draft of the proposed corresponding decrees of application. This briefing summarises the main amendments to the Mining Code proposed by the Draft Bill, as they pertain to mining titles and industrial exploitation activities.

Mining titles

In addition to setting a clear distinction between the mining and quarry regimes, the Draft Bill proposes a restructuring of the categorization of mining rights, with a total of nine categories of mining rights.

It introduces in particular the authorization of recognition (autorisation de reconnaissance) and the prospection authorization is replaced by a prospection permit (permis de prospection) which provides for exclusive prospection rights over a non-renewable period of two years.

While no changes have been suggested to the provisions governing the research permit, the surface area of such permit remaining limited to 200 sq. km, some rather restrictive provisions are proposed in the Draft Bill with respect to the exploitation permit (permis d’exploitation industrielle or PE), namely that its term would be reduced from 20 years to 10 and its area limited to 10 sq. km, whereas no such limitation is provided in the current Mining Code. This provision is not in line with most other mining codes in Francophone Africa which tend not to impose limitations on the area of a PE and allow for a duration typically of between 20 and 25 years. Furthermore, while a lease (amodiation) of a PE continues to be prohibited under the Draft Bill, the assignment, transfer or pledge of a PE would now be subject to approval of the Council of Ministers rather than the Minister of Mines as currently provided under the Mining Code.

In addition, investment thresholds have been introduced as a criterion to distinguish between artisanal mining, small scale mining and industrial exploitation. For example, the Draft Bill provides that artisanal mining is determined by the level of investment which shall not exceed 50 million (note that the currency is not indicated, but we presume these are FCFA) and small scale mining requires investments to be in an amount between 50 and 500 million FCFA. Finally, the investment level for industrial exploitation must exceed 500 million FCFA.

It is also specifically provided that no mining right can be requested or granted for speculative purposes. This clearly demonstrates the concern of the authorities about the speculative objectives of some of the industry players.

New mining contracts

The Draft Bill introduces the concept of “contrat d’association” (Contract of Association) in addition to the existing concept of “convention d’investissement” (Investment Convention), but does not explain the difference between the two. In fact, most provisions of the Draft Bill refer to both types of agreements together. The real distinction between these two types of agreements remains to be defined, for investors to be able to determine which would be more or less suitable to their operations. However, it is specified that both an Investment Convention and a Contract of Association can provide for more favorable economic and tax provisions.

State participation and local preference

While an increase in the State participation in the capital of mining companies tends to be a strong trend among recent mining legislation reforms in French speaking Africa, the Draft Bill maintains the free-carried State participation at 10%, as well as the possibility for a participation of up to 20% to be provided for the benefit of the private or public Togolese sectors.

Regarding local preference, the Draft Bill follows the trend observed in recent reforms and introduces new requirements in this respect. Indeed, title holders would be required to give preference to local products and services provided they are available upon competitive conditions as to price, quality, warranty and delivery timeframes. Similarly, in case of equivalent qualifications, title holders are required to give preference to Togolese labor. However, these provisions remain flexible in comparison with other newly introduced mining codes which either impose strict quotas or tend to require mining companies to give preference to local services and goods, without making such obligation conditional upon the equivalence of sales conditions, or set specific quotas for the employment of local workers.

Tax provisions

The Draft Bill does not provide for a stand-alone tax regime; therefore, subject to the tax advantages provided in the Mining Code – or any specific regime that may be negotiated as part of a mining convention (Investment Convention or Contract of Association), mining title holders would continue to be subject to standard taxation. However, to the extent they are more favorable, the tax and economic provisions of the Mining Code and of any mining convention may replace entirely those of the Code of Investment and the Law on the Free Trade Zone (Loi sur la Zone Franche).

The main tax and customs provisions of the Draft Bill essentially provide for certain tax benefits consisting of exonerations and customs benefits relating to certain exemptions and a temporary admission regime for certain goods. The advantages vary between the prospection and research stage, on the one hand, and the exploitation stage, on the other.

For example, holders of prospection and research permits benefit from, among others:

  • a temporary admission regime applicable to equipment and machinery imported for mining activities relating to the title;
  • certain exemptions for fuels and lubricants used for machines and equipment as well as consumables;
  • exemptions from import and exportation taxes for personal goods of expatriate personnel;
  • an exoneration from VAT on all services received and all goods acquired on the local markets, and appearing on the mining list, except for petroleum products;
  • an exoneration from income tax and minimum lump sum tax (impôt minimum forfaitaire) for activities relating to the prospection or research title; and
  • an exoneration from the tax on salaries (taxe sur les salaires), property tax (impôt foncier) and registration rights relating to the constitution of a company and the increase of its capital.

In turn, holders of an exploitation permit benefit from a number of tax and customs advantages, including the following:

  • temporary admission regime applicable to equipment set out on the mining list, but only up to a period of three years following the “Date of first production”, namely the date on which there is “a mining exploitation reaching a continuous production over 60 days at 90% of its production capacity, as established by the feasibility study […] or the first expedition for commercial purposes”;
  • an exoneration, for a period ending on the Date of first production, from all rights and taxes due on tools, spare parts (except parts destined for tourism or private vehicles), and materials destined to be permanently integrated in the works;
  • an exoneration, for the entire duration of the exploitation permit, from entry rights and taxes on chemical products, reagents and oils for equipment;
  • accelerated depreciation methods, in accordance with the provisions in force;
  • the creation of a fund for the reconstitution of the deposit or the management of the post closure period, with amounts contributed to such fund being deducted for income tax purposes; and
  • exoneration from (a) VAT up to the Date of first production, (b) income tax and tax on salaries for a period of three years following the Date of first production; and (c) property tax (impôt foncier) for the entire duration of the title.

Furthermore, rates for fixed rights, surface rights and royalties are to be set by a decree and may also be modified by decree. The drafting does not clarify how this is intended to work with the stability guarantee provided under the Mining Code (please see the “Stability clause” section below).  
Finally, the Draft Bill also provides that a title holder’s tax and customs advantages are extended to its sub-contractors for the period during which they provide services to such holder.

Stability clause

A noteworthy introduction is an article relating to the tax stability guaranteed to mining title holders, although stability seems to last only up to the expiration of the first exploitation permit (and possibly not the renewal periods). The clause also includes the possibility to opt for a more favorable regime, if one is adopted subsequently, provided it is applied in its entirety.

Environment and security

With respect to environmental matters, the Draft Bill provides that other than for prospection and research permits, the grant of any mining title1 is subject to the elaboration of an Environmental and Social Impact Study (étude d’impact environnemental et social) leading to the delivery of an environmental conformity certificate. Mining operations are also subject to environmental audits pursuant to the Law on environment (Loi-cadre sur l’environnement).

Furthermore, as regards security measures, the authorities reserve to themselves the right to cure, at the title holder’s expense, the latter’s defaults in the performance of obligations pertaining to the establishment of a security zone and the marking of boundaries.

Local population’s rights and community development

In respect of the local population’s rights and development, the Togolese draft remains in line with the recent trend in mining reforms. Indeed, in the chapter on sustainability and governance, the Draft Bill proposes a number of new provisions providing for (a) obligations on the part of right holders to guarantee respect for human rights; (b) the implementation of control mechanisms to support transparency and good governance in the mining sector, with an obligation on the part of companies to declare their revenues based on audited statements; and (c) the public character of information, registers and documents concerning the grant of mining rights or mining conventions.

Finally, the Draft Bill aims at promoting local and regional development and, in this respect, imposes on exploitation companies the obligation to contribute financially to such development and to realize socio-economic and community works in the affected area. The financial contribution is to be paid yearly, at the end of each year.

Transitional provisions

Lastly, in terms of transition, the Draft Bill provides that mining titles issued prior to the adoption of the new Mining Code remain valid for the duration, area and mineral substances for which they were delivered. However, their holders must comply with the obligations arising under the new Mining Code, to the extent they are not contrary to the terms of their existing title or the applicable conventions.

Conclusion

While new requirements in respect of environmental matters and local beneficiation have been introduced, aiming at addressing the concerns of the local populations involved, the Draft Bill’s other provisions essentially modernise the current legal framework governing mining operations in Togo, bringing it in line with international standards. It remains to be seen whether the final version of the Mining Code will be substantially similar to the current preliminary draft which should be presented to the Government in March 2014.

Norton Rose Fulbright has a strong track record in the mining sector, in addition to an in-depth understanding of the legislative framework and context in Togo and neighbouring countries. We regularly advise mining companies on their investments throughout the African continent and around the world.

This communication has been prepared on the basis of a draft bill which remains subject to changes, and should not be interpreted as reflecting Togolese positive law. The purpose of this communication is to provide general information on the possible upcoming changes to the Togolese mining legislative framework.


  • 1 As drafted, this will only cover the exploitation permit.
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Contacts

Poupak Bahamin

Poupak Bahamin

Washington, DC
Martin McCann

Martin McCann

London
Mark Bankes

Mark Bankes

London