Resource Nationalism: Should PNG Copy Gillard’s Mining Tax?
Late Tuesday night the Australian Senate passed the Mining Resource Rental Tax, a tax on profits generated from the exploitation of non-renewable resources in Australia. It will be replacing Kevin Rudd’s fiercely opposed original proposal, the Resource Super Profit Tax.
The tax, levied on 30% of the “super profits” from corporations mining iron ore and coal in Australia, will kick-off on 1 July 2012. A mining company will only have to pay the tax when its annual profits reach $75 million, a measure designed so as not to burden small domestic miners involved in the iron ore and coal industry.
Julia Gillard has stated that revenue from the tax, estimated at AU$11 billion (K25 billion) over the first three years, will help fund company tax cuts, assist small business (estimated at about 800,000), improve regional capital works, and increase compulsory superannuation contributions. It will also help produce a healthy surplus for her government.
The Sydney Morning Herald yesterday published an article demonstrating that Australia wasn’t the only country keen on introducing a “super profits” tax. They identified the following global clampdown from rich and poor countries alike, all which possess a significant resource base:
South Africa: The world’s biggest mineral producer is debating a 50 per cent windfall tax on ”super profits” and a 50 per cent capital gains tax on the sale of mining tenements.
Ghana: Africa’s second biggest gold producer plans to raise mining taxes from 25 per cent to 35 per cent, with a windfall tax on ”super profits”. Existing 5 per cent royalties on output remain in place.
Guinea: The new frontier in iron ore and bauxite demands a 15 per cent stake in all mining projects, with an option to lift it to 35 per cent.
Namibia: All new mining and exploration to be state-owned.
Zimbabwe: Locals will own 51 per cent of all foreign miners.
Nigeria: Wants all offshore oil contracts renegotiated.
Mongolia: Wants a bigger stake in its Oyu Tolgoi project.
Further more, add to that list India, Peru, China, the Democratic Republic of Congo, Chile, Kazakhstan and Zambia, all which either have new mining taxes on the drawing board or have already introduced them in the past three years.
So where does this leave Papua New Guinea?
Behre Dolbear, a Dever-based mining business consultant group, yesterday released its 2012 annual ranking of countries in terms of political risks for mining investment. Australia (not so sure now), Canada, Chile, Brazil and Mexico topped the list as the five best nations in which to invest mining projects.
Russia, Bolivia, the Democratic Republic of Congo, Kazakhstan and PNG were the five lowest-scoring nations ranked as the worst in terms of political risk for mining projects.
Countries were ranked based on seven criteria: 1) the country’s economic system; 2) the country’s political system; 3) the degree of social issues affecting mining in the country; 4) delays in receiving permits due to bureaucratic and other issues; 5) the degree of corruption prevalent in the country; 6) the stability of the country’s currency; and 7) the competitiveness of the country’s tax policy.
The main reason why PNG ranked so low, based on an average result over these seven criteria, is primarily due to the fact that PNG ranked as the world’s most challenging place to operate a mine in terms of Behre Dolbear’s criteria #3: the degree of social issues affecting mining in the country.
We all know what these means in the PNG context – landowners and landowner driven issues.
But, if one looks closely at the Behre Dolbear report, you will see that PNG does well in other criteria too. Particularly noteworthy is PNG’s equal ranking with Australia and Peru, and actually ranked ahead of the United States, on criteria #7: the competitiveness of the country’s tax policy.
So although PNG is a challenging country to invest in due mainly to social issues for mining companies, from a tax and regulatory perspective, PNG is a very attractive option for miners around the world. And indeed, PNG has been very generous in approving significant 10 year tax holidays for a number of mining projects in the country – including the Chinese operated US$ 1.4 billion Ramu Nickle/Cobalt project.
Gillard has focused her mining tax on Australia’s largest mineral exports, iron ore and coal. In PNG, copper and gold remain the major targets for most of the nearly 100 companies that have active exploration licences in the country, with projects ranging in size from grassroots prospecting to the late-stage evaluation of bulk-tonnage porphyry, and epithermal-hosted resources.
With a booming mineral export-driven economy, increasing pressure on poorly maintained national infrastructure, and a growing young population, is it time for PNG to introduce a copper and gold “super profits” tax in the mold of Gillard’s mining tax?