Ghana's Budget 2012: Is there cause for concern for the mining industry?

Publication | March 2012


Budget proposals

The announced changes of the 2012 Budget give an indication of Ghana’s drive to increase the contribution of the mining industry to tax revenues.

While many of the changes will rightly concern mining companies operating in Ghana, the reality is that many have stability/development agreements with the government to protect against adverse consequences of newly introduced laws. Many of the provisions of stability/development agreements include concessions to mining companies on corporate taxes, windfall taxes, mineral royalties and property taxes. Essentially, these stability/development agreements could make the announced changes less effective.

Stabilization regime review committee

However, at the start of February, the government established a seven member committee whose stated intention was to review and renegotiate any stability/development agreements that were not in the best interests of the country. Within the committee’s powers of review are:

  • re-drafting of stability/development agreements;
  • determination of whether stability/development agreements comply with the country’s laws relevant to it i.e. mining laws of Ghana and the Ghanaian legal regime for mining (fiscal requirements, foreign exchange regulations and the provisions of the tax laws); and
  • preparation of guidelines to govern the granting of stability/development agreements in the mining industry.

Mitigating Factors


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.

Legal consistency

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.


  • Ghana has woken up to the need to make its extractive industries a real driver of its development and growth. Government revenue barely represented 6 per cent of the total value of mine production and mining contributed hardly 2 per cent of total corporate taxes even before the mining company friendly legislation of 2006 came into force.
  • What Ghana is attempting to establish is dialogue on changing the terms of trade more in its favour; this does not in itself imply a complete reversal of the existing mining regime. In fact, the desire for change (to obtain more tax revenues) would be defeated by a lack of credibility (as mining companies are less likely to invest and hence produce more income to tax where the existing mining regime is subject to dramatic adverse shifts).
  • Many of the announced measures may at first glance seem to be of concern but the picture that is emerging, as the detail of such measures are being worked out, is that the working solution will not only be commercial but context- and case- specific.
  • While change will occur, Ghana has no history of “revolutionary” change to the structure of investment in the mining sector.

In a part of the world, where governments may back-track on agreements with mining companies (designed to avoid exactly that kind of disruption), the uncertainty and weakened bargaining power that would result from the declaration of blanket illegality of stability/development agreements is one that, for mining companies, must be avoided at best and mitigated at worst. An instructive example is the introduction of the new mining code in Zambia in 2008 which made existing development agreements non-binding on Zambia and prohibited the entry into any new development agreements. This forced the hands of the mining companies to enter into negotiations with the government (albeit late) as the non-binding clause allowed the government to introduce new laws and it was up for negotiation as to how much or how little the provision applied to mining companies with development agreements in place. The question for every mining company will thus be when and how to start any discussions.

For every mining company then the key to protecting its position will be knowledge of current market practice for stability/development agreements and an understanding of government interaction with the mining sector. Key to strategising for the future is an insight into what drives government policy.

Norton Rose Group has advised many of the leading investors and banks in Ghana on major mining transactions and thus has acquired an extensive knowledge of market practice and government dynamics. Its long presence in Ghana’s mining sector lends it an intimate understanding of where the market (and the government) is going. Norton Rose Group is thus perfectly placed to assist clients in planning strategies to safeguard their position and expand their practice.



Martin McCann

Martin McCann

Mark Bankes

Mark Bankes

Raj Karia

Raj Karia