Possibilities of fair deal between state and the
mining company”
16-17 September 2013 at Finlandia Hall, Helsinki
Pentti Noras, Director International Relations, Geological Survey of Finland GTK
Agenda
• Global developments
• Characteristics of the deal
• Roles of state and the enterprises
• Government control worldwide
• Positive linkages of mining industry
• Pros and cons of the deal in Finland
• What can be done?
1980s: Dispersion of company operations and community relations
INTEGRATED FUNCTIONS OF ”LOJO KALK LTD”
TILL 1980s
SINCE 1990s
Unit operations of mine and plants all by company employees by contractors
Processing up to end products from limestone to prefab construction elements
subcontractors/ customers
Logistics: • Road transports • Rail terminal & transports • Seaport • Shipping
company vehicles company terminal and cars company port service company company reighters
contracted State Rail Port Authority contracted
Power generation & distribution company´s power branch privatized
Operation & Maintenance (O&M) company function contracted
Health & Social care ”Employee Club”
company health post company offering
purchased N
Education & Training Banking Pension Fund
company vocational school cooperative savings & credits company fund w/privileges
Public privatized public fund
Non-mining related production seed crystal for NOKIA decreasingly
3
Changes the world finds, develops and uses natural resources
• Globalization of commerce
• Democratization of governments
• Shortsighted business behaviour
• Increasing flow of information
• Population growth
• Increasing demand for resources
• New demand mix
• Critical sentiments & nationalism
Characteristics of the deal between state and company
• Btw citizens and shareholders (theory), btw regulatory regime and company (practice)
• Rights and benefits of several stakeholders be recognized
• Extremely political: all national levels, foreign-political
• Sensitive to citizen/group activity -- activism
• Rules cannot be fully carved in stone
• ENVIRONMENT
Last updated: November 29, pm2012 12:45
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Enterprise role and the State intervention
• The role of mine enterprise: – bring capital and technology, – comply with business regulations, – generate ”return on investment”, – demonstrate CSR.
• The role of State:
– Set-up and execute ownership functions, – safeguard the socio-economic potential of
mining to the society, ”return on resource use”,, – supplement the negative spill-over effects
from production.
Increased government control in 2010s
• Outright nationalization: Bolivia, Venezuela, Argentina
• Stealth nationalization: Chile, Sweden, Botswana, Ghana, Mongolia,
South Africa, India, Zimbabwe
• Preference to local companies: China, Russia, South Africa,
• Corporate income tax: Canada, Chile, Indonesia, Ghana
• ”Above average profits”: U.K., Ghana, Namibia, Zambia, Tanzania
• Royalties: U.S., India, Zambia, Zimbabwe
• Resource Rent Tax (RRT): Australia, India
• Export/import duties: China, India
• Requirements on using local inputs: South Africa
• Requirements on value-addition: South Africa, Indonesia
• Support to local science and technology: Malawi
What justifies a marked take from licencee to the state?
• return on using of the public capital: revenues and linkages
• market value of minerals
• resources depletion
• competitive land use
• potential of multiple, unforeseen risks
• decreased quality of environment
• project temporarity
• required supervision and inspection
• extra post-closure legacies
Copper price to cost 2000-2012
production cost 90% percentile
LME price
(world production value USD 110 bill. in 2012)
Tax planning -- Yes Tax evasion -- No
• Transfer pricing: combat through additions to the
corporate tax regulations
• Double Tax Agreements: to be amended to protect
the Mongolian tax base
Value-addition of minerals in the U.S.
USD 106 bill. Mine production + scrap (without net exports)
USD 633 bill. Processed materials
USD 2,230 bill. Value-added to GDP (15,100)
USGS 2012
in 2011
16Pentti Noras 3.11.2009
Research &
education
Exploration
Drilling
Blasting
Loading
Hauling
Mine structures
Cluster Finlandesa-Sueco de Industria Minera:
Distribuidoras para Operaciones Mineras
SWEDISH PRODUCERS
RMG
SGU
universities Hagby
Craelius
Flexit
ABB
Alimak
Indau
JamaWassara
Atlas Copco
Toro
Volvo
FINNISH PRODUCERS
Dyno Nobel
Kimit
FORCIT
I Products for underground and open cast mining operations
Source: Ericsson & Noras, 2005, 2012
II Productos para ingenios minero-metalurgicos
Analyzers and automation Filtration Flotation Grinding Physical separation Thickening and clarifying Water treatment
Concentrates production
Ferrous metals and ferroalloys processing
Non-ferrous metals processing Light metals processing
Metals processing
Tailings management
Gaseous and aqueous effluents control
Sulphuric acid production
Source: Ericsson & Noras, 2005, 2013
Finland: mining
advantages
• New test ground for innovations and technology improvement
• Throughout strengthening of the minerals cluster • Replacement of imported raw materials • Employment and revenues for remote areas • Stimulation of transports and other infrastructure in
the North to Barents • Restarting of the sector education and training • Improved public service: geologiacal information,
minerals processing, …
Finland: mining shortcomings
• Poor definition of minerals ownership
• Mining law reminds ”everyman´s right”
• Knowledge and skills
• Shortage of domestic capital
• Limited chances for value-addition -> raw materials exporter
• Narrow taxation base – mainly CIT only
• Prone to tax avoidance
• Inefficient enforcement of laws and regulations
• Risks of environmental, non-foreseen legacies
• Eroded reputation
Improvement of national benefits from mining
#1 Revision of mining taxation • RRT, cash flow tax? • Allowance of directed tax deductions
#2 Revision of environmental requiremements and their
enforcement, #3 Check opportunities for more linkage benefits, #4 Without intention to nationalize the sector,
State majority enterprise for Exploration/Mining to be studied.