21 May 2015

African Mining Vision Mapping Analysis Research

Terms of Reference

Introduction The Tax Justice Network-Africa (TJN-A) is a Pan-African initiative and a member of the

Global Alliance for Tax Justice. Launched in January 2007, at the World Social Forum (WSF)

in Nairobi, TJN-A promotes socially just, accountable and progressive taxation systems in

Africa. It advocates for tax policies with pro-poor outcomes; tax systems that curb public

resource leakages and enhance domestic resource mobilization. It aims to achieve this by

challenging harmful tax policies and practices that on one hand facilitate illicit resource

outflows and on the other hand favour the wealthy while aggravating and perpetuating

inequality. It strives to promote the role of tax justice in the African development agenda. It

further endeavours to provide a platform dedicated to enabling African researchers,

campaigners, civil society organizations, policy makers, and investigative media to

cooperate and synergies their efforts in the struggle against illicit financial flows, tax

evasion, tax competition and other harmful tax policies and practices. TJN-A has been

successful in raising awareness regarding the role of tax in domestic revenue mobilization

and emergence of good governance as well as in building the capacity of civil society

organizations (CSOs), policy makers in Africa, enabling them to challenge prevailing

harmful tax policies and practices.

The Africa Mining Vision (AMV) was adopted in February 2009 by the African Union

Assembly of Heads of State and Government as the key continental framework to promote

mineral resource based development and structural transformation on the continent. It

seeks to foster a transparent, equitable and optimal exploitation of mineral resources to

underpin broad-based sustainable growth and socio-economic development. TJN-A was

part of the International Study Group (ISG) which was commissioned to produce a baseline

report for the AMV prior to its adoption. TJN-A, together with five other CSOs produced a

report entitled Breaking the Curse: How Transparent Taxation and Fair Taxes Can Turn

Africas Mineral Wealth into Development whose recommendations were instrumental to

the development and adoption of the AMV.

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This shared vision will comprise:

A knowledge-driven African mining sector that catalyses and contributes to the broad-based growth and development of, and is fully integrated into, a single African market through:

o Downstream linkages into mineral beneficiation and manufacturing;

o Upstream linkages into mining capital goods, consumables and services industries;

o Side stream linkages into infrastructure (power, logistics; communications, water)

and skills and technology development (HRD and R&D);

o Mutually beneficial partnerships between the state, the private sector, civil society,

local communities and other stakeholders; and

o A comprehensive knowledge of its mineral endowment.

A sustainable and well-governed mining sector that effectively garners and deploys

resource rents and that is safe, healthy, gender and ethnically inclusive, environmentally

friendly, socially responsible and appreciated by surrounding communities;

A mining sector that has become a key component of a diversified, vibrant and globally

competitive industrialising African economy;

A mining sector that has helped establish a competitive African infrastructure platform,

through the maximisation of its propulsive local and regional economic linkages;

A mining sector that optimises and husbands Africas finite mineral resource

endowments and that is diversified, incorporating both high value metals and lower value

industrial minerals at both commercial and small-scale levels;

A mining sector that harnesses the potential of artisanal and small-scale mining to

stimulate local/national entrepreneurship, improve livelihoods and advance integrated

rural social and economic development; and

A mining sector that is a major player in vibrant and competitive national, continental

and international capital and commodity markets.

The AMV has seven key focus areas namely:

Fiscal regime and revenue management;

Geological and mineral information systems;

Building human and institutional capacity;

Artisanal and small-scale mining;

Mineral sector governance;

Linkages, investment and diversification; and

Environment and social issues.

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Rationale This TOR covers a specific part of the AMV (see Annex). It concerns the conducting of country and regional level research to map the gap and to analyse the extent to which the AMVs Mining Fiscal Regime and Revenue Management area has been domesticated at a national and Regional level. Such an analysis report will enable the evaluation of how far the AMV has been domesticated at national and regional level and to identify main issues in the Mining Fiscal Regime and Revenue Management systems and to draw policy recommendations. The aim is to develop an AMV mapping analysis report basing on the research or case studies carried out in three selected countries namely Zambia, Tanzania and Ghana as well as their respective Regional Economic Communities Mining/Extractives sector Fiscal Regime and Revenue Management policy. Tax Justice Network - Africa (TJN A) will coordinate the research studies. For the actual research process of the AMV mapping analysis experienced external researchers will be engaged. TJN-A and the external researchers will form the working group. The Working Group will convene every other week through skype and in between regularly communicate through email. TJN- A will take the lead on the AMV Mapping Analysis research described in this ToR. The funding for this component derives from TJN-A. The AMV Mapping Analysis research should cover one main area of the AMV namely; the Mining Fiscal Regime and Revenue Management. The actual variables to be covered under this area of the AMV are as per the annex. The Mapping Analysis research will be developed in cooperation with our partner organizations in the study country or region where applicable or necessary. The next step following the Mapping analysis Research will be the development of a mapping analysis (synthesis) report and policy brief. We plan to conduct the mapping analysis research, in three sub-regions namely Southern African Development Community (SADC), East African Community (EAC) and Economic Community of West African States (ECOWAS) in three selected countries namely; Zambia (SADC), Tanzania (EAC country) as well as Ghana (ECOWAS). This will accordingly allow us to construct a more reliable and meaningful mapping analysis report.

Main objectives The main objectives for this mapping analysis are:

1. The development of a scorecard to measure regional and national implementation of the

AMV with indicators on:

1. Fiscal regime and tax compliance

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2. Revenue management

2. Measure progress on the regional harmonisation and national domestication of the AMVs

Fiscal Regime and Revenue Management initiative using research/ case study based evidence at

national and regional level.

As noted in the objectives above, the goal of the research is not only to review the country or region mining fiscal regime and revenue management issues, but also to compare these issues with the AMV and the agreed implementation process. This is an important component of the research as the reliability of the mapping analysis report will depend on the quality of the gap analysis conducted. Not only do we desire to compare the country/regional level extent of domestication of the AMV, but we also expect the researcher to investigate why differences exist between the country level system and the AMV blueprint. It is also expected that the research paper will provide conclusions and recommendations based on the mapping analysis research done. An important element of the research is to document all steps of the mapping analysis, to provide links to all online and documentation sources and information and to include a glossary of terms.

Research report The final report will be used internally as well as externally, will be published on our website and will be shared with our partners. It will provide a quick overview of the findings and more elaborate analysis putting the issues in context with the AMV and the extent of domestication in the specific selected country. The report should enable other researchers to easily follow it and use it to produce a synthesis report with findings from other countries or regions. The report should be no longer than 50 pages plus an annex, to be delivered in English. Contents of the report

- The report should consist of an executive summary, a brief introduction, an overall discussion on different information sources, overall conclusions and recommendations on the mapping and analysis, in text referencing as well as the comprehensive referencing after the recommendations section. The required referencing style is the Harvard Referencing system. Footnotes are also recommended, but should only be used for further elaboration of issues and not for referencing.

Contents of the annex

- A technical comparison of the different parts of the country/region level Mining Fiscal Regime and Revenue Management issues to those of the AMV blueprint. This should be done in a tabular form

- A step-by-step explanation how the mapping was done

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- A score card to measure the level of implementation of the AMV - Any other materials relevant to the mapping analysis process

The report must be accompanied by a solid list of references of all materials borrowed from

internet and any other sources as included in the report.

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ANNEX

Key Tenets Guideline under the AMVs Mining Fiscal Regime and Revenue Management focus Area

The pathways to the implementation of the AMV require a concerted effort to domesticate it at

national level to ensure that its key tenets are incorporated in relevant national visions,

policies, laws, regulations, standards and procedures. As a road map, the pathways to the

implementation of the AMV describe the types of interventions (at national, sub regional and

continental levels) that could contribute to the realization of the AMV key tenets, as reflected

in the AMV Action Plan, and to the achievement of the outcomes depicted in the result areas of

the African Minerals Development Centre (AMDC) Business Plan, the one-stop-facility

established to coordinate the implementation of the AMV at the continental level. Migrating

the AMV at country level is a necessary step towards the realisation of the Vision. Below is

the literature which gives a guideline on what is expected to be covered by the

AMV implementation mapping analysis research.

Fiscal Regime

The expected outcome here is to optimise the share of mineral revenue accruing to resource

rich economies based on AMV Action Plan (2013). The following set of high level questions

are intended to assist the consultant/researcher in doing initial assessment or diagnosis of a

country's mining fiscal regime. The questions are intended to ascertain the extent to which the

overall thrust and specific features of the existing fiscal regime align with or deviate from the

AMV's perspective in optimizing, managing and sharing of mineral revenue. These questions

are however not exhaustive. The questions are as follows:

- Does the fiscal regime deliver value for the country over the long-term?

- Does the fiscal regime ensure that government receives a rising share of the revenues with rising profitability of mining activities? (Progressivity)

- Does the fiscal regime guarantee an appropriate minimum government revenue in all production periods and price cycles? (stability)

- Does the fiscal regime ensure robustness to changing circumstances (stability and flexibility)?

- Is the fiscal regime designed to encourage long-term investments?

- Does the fiscal regime limit opportunity or create loopholes for tax avoidance and evasion?

- Does government offer stability clauses? Are they the appropriate instruments to achieve the desired outcomes and are they limited in duration?

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- Does the fiscal regime contain provisions for capital gains tax?

- Are the instruments of the fiscal regime easy to implement?

- Does the fiscal regime inspire confidence that the country is collecting what is due or owed and what is fair?

- Does the country have adequate administrative capacity and institutions with clear roles / mandates to collect all revenues

- Does the country have oversight audit institution(s) and mechanisms?

- Does the fiscal regime facilitate and encourage mineral economic linkages?

- Does the country have a robust anti-corruption regime, including legally binding anti-corruption clauses?

Challenges and Options

The challenges in the designing of a fiscal regime that ensures that countries receive an equitable share of revenue from their mineral assets over the long term are diverse and complex. The challenges vary along the entire mineral value chain: from licensing and contracting, to auditing of production, revenue assessment and collection, accountability and transparency of the use and management of revenues, from environmental protection to mine closure and related issues. Below are the lists of challenges that inhibit the ability of countries to design and implement fiscal regimes that fairly balance the expectations of host governments and investors followed by options which could address these challenges:

- Lack of transparent and competitive allocation of concessions for known mineral assets;

o Improve countrys knowledge base and information about countrys mineral assets

o Tender / auction of known properties

- Opaque offshore changes in control of national mineral rights resulting in revenue loss;

o Apply transparent criteria in both initial allocation of mineral rights and transfers to other companies

- Capturing an equitable share of the resource rents;

o Consider the introduction of a Resource Rent Tax (RRT) or Additional Profit Tax (APT) based on Return on Investment (ROI) that is greater than the return on investment that is needed to attract investment into the economy. The RRT rate could be offset (reduced) by the degree of upstream and downstream beneficiation, above a well-defined base rate

- Overly generous tax holidays and exemptions that compromise state revenues and contribute to the race to the bottom between African states;

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o Minimize use of tax exemptions and holidays and undertake periodic review of exemptions to ensure that the original case for the granting of exemptions still applies

- Lack of harmonisation of fiscal regimes across the Regional Economic Community (REC) which often contribute to a race to the bottom and compromise state revenues;

o Harmonise with other REC countries, taking into account the peculiar cost structures of the country relative to the region

- Poorly designed royalties and other imposts (fees, levies and trade tariffs) that could add to costs (sterilise resources) and provoke perverse outcomes;

o Improve design of royalties and other imposts

o Plan to adopt alternative fiscal instruments that minimize additions to upfront costs and reduce the value of the resource to the state

o Build appropriate capacity to rely on tax instruments that rely on revenue surplus (through, for example, resource rent tax)

o Trade tariffs should be used to facilitate industrial strategy (for example, to promote linkages)

- Widespread use of fiscal stability clauses, which compromise the countrys ability to adjust the fiscal regime to align with new economic realities or national development strategies;

o Eliminate stability clauses or at least limit them to the requisite taxes for a maximum period to recovery of the initial capital

o If used, make provision for balanced periodic review clauses

- Widespread tax evasion and avoidance schemes like transfer pricing (including over-invoicing of inputs costs, debt servicing (thin capitalization), offshore management fees (overheads), etc.)

o Ensure arms length pricing with associated or related companies

o Introduce country specific transfer pricing regulations and guidelines (OECD rules could assist)

o Enforce rules on thin capitalization (maximum gearing ratio)

o Impose limits (cap) on management, overhead and related costs

o Withholding taxes could be an option

o Ring-fencing, as appropriate

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- Under-invoicing of sales, especially ores and concentrates without terminal prices, and the use of derivatives (hedging below market prices);

o Consider the use of transparent advance pricing mechanisms for ores and concentrates against agreed reference prices

o Use actual market prices (not derivatives) to determine sales for tax calculations

o If hedged prices are to be used, ensure arms length relationship between the company and the hedging financial institution

- Double taxation agreements undermining state revenue collection;

o Manage or handle with care. Could have both positive and negative impacts

o Understand the potential trade-offs to the country arising from double taxation agreements

- Lack of or dilution of an equitable state share of beneficial gains from mineral rights transfer;

o Introduce an effective capital gains tax (CGT) on beneficial transfers of mineral rights, including offshore changes in control of the mother company or ultimate controlling company

o Make the reporting of such changes in ownership mandatory and require state authorisation of changes in the controlling ownership of mineral rights

- State participation/equity (generally equivalent to some taxes (above) such as RRT, in terms of revenue);

o Significant state participation/control is widespread for strategic mineral feed stocks into the domestic economy, such as iron/steel, polymers (from fossil fuels), cement and agro-minerals (NPK), to ensure adequate supply and pricing

o Consider the trade-offs in regard to types of equity

o Ensure transparent reporting by agencies managing state interest and effective oversight mechanisms

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Revenue Use and Management The expected outcome here is improved management and use of mineral revenue - AMV Action Plan (2013). The experience of oil producing countries, especially those in sub-Saharan Africa, highlights the challenges of government in managing mineral revenues. Three specific challenges are deciding on:

how much of the revenues to spend now and how much to save,

how to decouple government spending from the volatility of mineral prices, and

how to safeguard the rest of the economy from undue exchange rate appreciation the so-called Dutch Disease.

Then there is the important issue of how to spend whatever is allocated into current annual budgets.

The following set of high level questions are intended to assist the consultant in doing initial assessment or diagnosis of a country's mining fiscal regime. The questions are intended to ascertain the extent to which the overall thrust and specific features of revenue management constrain or help to achieve desirable development outcomes for citizens. The questions are as follows:

- Does the country have a well-established resource revenue management system?

- Does the country have a comprehensive long-term development plan/strategies?

- Is the countrys budget system linked to the national development plan/strategies?

- Are there clear legal rules on spending / savings of mineral revenue?

- Are resource revenues allocated in line with countrys strategic (long-term development plan) objectives, or with more political considerations?

- Is a reasonable proportion of resource revenues invested in assets to support sustainable development, such as physical infrastructure, education, and health?

- Does the countrys revenue use and management provide reasonable safeguards for sharing the benefits from resource revenues with future generation?

- Are there provisions of public accountability and transparency?

- Are there reporting requirements and guidelines on how resource revenues are managed?

- Are there opportunities for public oversight?

The aforementioned questions highlight a range of critical issues that must inform how a country may manage its mineral revenue. The questions address the administrative and operational challenges in assessing revenue due the state, the inter-generational resource benefits-sharing problem as well as the social contract of accountability and transparency.

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Challenges and Options

Revenues from minerals extraction first accrue to governments and invite strategic decision making on how much to spend now and how to spend it, and how much to save and the management of the saving. The revenues offer governments the fiscal space to fund the provision of physical infrastructure, such as improvements in education and health and social amenities (water, sanitation among others) that daily affect the lives of all citizens. The following are some common challenges to be considered carefully, and their recommended actions:

- Lack of transparency in revenue collection and weak accountability of resource revenue use;

o Adopt the Extractive Industries Transparency Initiative (EITI) requirements for reporting of the payment and collection of resource revenues

o Put in place a sound system for assessing and collecting all mineral revenue due to government

o Develop clear reporting guidelines (timelines, content and medium of dissemination) for institutions assigned responsibilities in the assessment, collection and use of revenues

- Risk of Dutch Disease (real exchange rate appreciation and inequitable inter-sectoral development);

o Spending should be guided by long-term national development plan

o Invest windfall earnings into Sovereign Wealth Fund (SWF) (including Mineral Development Fund and Stabilization Fund) and explore strategies to invest in physical assets and skills to support sustainable development

o Develop incentives to catalyze the development of non-resource sectors

- Mineral revenues are spent disproportionately on current consumption compromising inter-generational equity;

o Consider establishing a SWF

o Develop spending/saving guidelines for the purpose of providing financial capital for future generations, and prudently manage investment in long-term infrastructure (transport, power, water, ICT) to support sustainable development

- Lack of long-term development plan that guides the allocation and use of resource revenues;

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o Formulate a publicly debated comprehensive long-term national development plan and establish priority areas for the allocation of mineral revenues in the short to medium term

- Inequitable distribution of mineral revenue and neglect of local authorities and communities living near mining areas;

o Develop transparent mineral revenue distribution system to local authorities, and where possible directly to communities living in near mining areas

- Lack of credible processes and institutions to ensure accounting and auditing of revenue and payments;

o Clearly define the roles and the responsibilities of institutions involved in the assessment, collection and management of revenues and savings

- Risk of short-term political considerations in the allocation of resource rents because of the lure of electoral successes;

o Improve governance including strengthening the role of independent oversight bodies

Sources: Africa Union (February 2009). Africa Mining Vision/ Africa Union, Africa Development Bank and United Nations Economic Commission for Africa (December 2011) Action Plan for implementing The AMV: Building a sustainable future for Africas extractive industry: From vision to action. Africa Union and United Nations Economic Commission for Africa (2011). Minerals and Africas Development: The International Study Group Report on Africas Mineral Regimes. Africa Union and United Nations Economic Commission for Africa (2011). Overview of the Minerals and Africas Development: The International Study Group Report on Africas Mineral Regimes. Africa Union, Africa Development Bank and United Nations Economic Commission for Africa (October 18, 2012). Concept note of the Eighth African Development Forum (ADF-VIII): Governing and Harnessing Natural Resources for Africas Development. ECA/ADF/8/Inf.3/Rev.1.

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Profile of the research team TJN-A will ensure the research team has the following qualifications:

Experience in conducting country level case study research on mining fiscal, revenue management and related economic issues in the context of selected countries;

Expertise in the field of extractives sector taxation;

An understanding of the political economy of mineral resources extraction and the challenges confronting the sector;

An understanding of the various domestic policy and strategic frameworks, laws, institutions, and other economic processes;

Knowledge of the range of fiscal instruments commonly used in the design of fiscal regime (Mineral fiscal instruments composed of direct and indirect tax instruments) as well as the challenges in the designing of a fiscal regime that ensures that countries receive an equitable share of revenue from their mineral assets over the long term;

Knowledge of the AMV and the AMV implementation guideline/process, gap analysis methodologies and economic issues related to mining;

Knowledge of the AMV principles, goals, objectives and action plan (especially the AMV Action Plan focus areas on the Fiscal Regime and Revenue Management) as fully endorsed by expert panels and AU decision-making processes, technical and political merits, including the AU Assembly of Heads of State and Government;

An understanding of an AMV compliant mineral policy;

Knowledge of what the domestication of the AMV refers to;

Good knowledge of and overview over global and national extractives fiscal regimes, accountability, transparency and the global debate on Finance for Development, Sustainable Development Goals and Illicit Financial Flows;

Knowledge of the Extractives Industry Transparency Initiative (EITI);

Knowledge of sources of information and research findings in the SADC, EAC and ECOWAS context;

Ability to conduct a thorough and multi-sectoral review of existing legal, institutional, policy and regulatory frameworks with regards to compliance and alignment with the AMV;

Ability to develop a gap analysis scorecard;

Ability to conduct AMV gap analysis and to identify AMV compliant or consistent policies; and

Proficiency in English.

Time Frame 25 May 2015: ToR sent to prospective Researcher (s)/Consultant(s) with Call for Proposal

29 May 2015: Prospective Researcher (s)/Consultant(s) expression of interest received

7th June 2015: Prospective Researcher (s)/Consultant(s) Proposal and CV received

12 June 2015: Selected Researcher(s)/ Consultant(s) advised

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19 June 2015: Research Contract/Agreement Signed

22 June 2015: Study Begins

03 July 2015: First Draft Report submitted

22 July 2015: Final Draft Report submitted