INDEPENDENT VIEWPOINT

Danger and opportunity lurk within Africa's regional mining legislation

West African and Central African States have recently come together, through international organisations, to initiate regional processes to reconcile and integrate their mining legislation with mixed results.

Author: Bruno Gay
Posted: Thursday , 14 Jun 2012

LONDON (Herbert Smith LLP) - 

There are some issues that are subject to such a degree of State sovereignty that it is difficult to imagine that they could be the object of common and harmonised regulations. At first glance, this might seem to be the case with respect to laws governing mining exploration and exploitation, and the contractual relations arising between the investor and the State concerned.

Recently, however, both West African and Central African States have come together, through international organisations, to initiate regional processes to reconcile and integrate their mining legislation, whilst reaffirming their ownership over their natural resources.  The aim of these processes, some of which have been successful, is to increase transparency of mining policies and improve State management of their resources, as well as to encourage better governance, promote human rights and enhance socio-economic development.

The West African Economic and Monetary Union (WAEMU) which was created in 2003 and is composed of Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo was the first to successfully undertake this process by adopting a Community Mining Code (Regulation No. 18/2003/CM WAEMU of 23 December 2003) (the "Code") applicable to any individual or legal entity holding a mining title throughout the Union's territory. The Code governs all prospecting, exploration, exploitation, ownership, movement, transportation, possession, processing and marketing activities in relation to minerals throughout the WAEMU territory, with the exception of liquid or gaseous hydrocarbons.

It deals with the various issues including status of mining titles and exploitation companies. Similarly, the Code provides, subject to the fulfilment of certain conditions, a variety of guarantees to mining title holders, including:

• favourable tax and customs regimes;
• the protection of private property;
• free import of goods;
• free choice of suppliers and subcontractors, subject to an obligation to use, as far as possible, the services and materials of WAEMU origin;
• free transfer of profits and currency; and
• customs and fiscal stability (with the option to adopt a more favourable regime). 

The Code also places many obligations on the mining title holders, including:

compliance with local legislation;

• dispute resolution (including litigation before national courts or arbitration);
• compliance with local environmental rules; and
• payment of certain fees or taxes during the operating phase.

Some obligations are also specific to the subcontractor of the mining title holders.

It is worth noting that the Code has a direct effect on the laws of the WAEMU States and its provisions are directly enforceable by both investors and the States.

Other African regional organisations, such as the Economic and Monetary Community of Central Africa (CEMAC) created in 1994 and comprising Cameroon, the Congo, Gabon, Equatorial Guinea, the Central African Republic and Chad) and the Economic Community of West African States (ECOWAS) created in 1975 and comprising Benin, Cote d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo), have also engaged in the process of aligning their mining legislation.

While it does not appear that the discussions aimed at developing a community mining code within CEMAC (initiated in September 2009) have been abandoned, the ECOWAS Council of Ministers adopted at its 62^nd session in Abuja on 26 and 27 May 2009, Directive C/DIR3/05/09 on the Harmonisation of Guiding Principles and Policies in the Mining Sector (the "Directive"). The Directive is based in particular on Article 31 of the ECOWAS Treaty on natural resources, which states the need to harmonise and coordinate Member States' policies and programmes in order to "improve the economic and social justice of communities with respect to the decision-making process on the exploitation of natural resources" and promote and protect human rights, the environment, and to safeguard the rights of local communities.

The Directive states that its aim is to provide Member States with a harmonised mining policy and legal framework.  It sets some important guidelines, and takes into account other initiatives such as the adoption of the Code. Besides important provisions relating to the ownership of mineral resources, human rights, the location of mining operations and tax principles and customs, one of the most interesting principles is the affirmation of the possibility for Member States to conclude stability agreements (subject to legislation ratification) with investors.

However, the Directive requires that Member States make "all the necessary arrangements" to comply with it by 1 July 2014. This obligation is binding on States, and the implementation of the Directive appears to require that positive acts of transposition be carried out by the Member States.

Whatever problems may arise with implementing these regulations, it is noteworthy that, once again, many African countries are developing common legal instruments in an innovative way with the aim of attracting foreign investment and protecting fundamental rights.

It is also important to note that mechanisms for harmonising legislation across States will create an improved investment environment, by reason of the advantages that they present in terms of socio-economic development, transparency, protection of human rights and prevention of conflicts.

However, the main concern regarding the adoption of several competing international instruments governing the mining industry is whether their implementation could create confusion and jeopardise investment. The implementation of the Directive by ECOWAS States may raise issues, since certain countries which are party to the ECOWAS treaty are also party to the WAEMU. Concerns may arise should the implementation of the Directive result in the implementation of principles which would contradict the provisions of the Code. The issue is not necessarily that legal principles would clash. Subtle discrepancies in wording could also hinder the Directive's application and call into question the efficiency of the provisions and principles of both the Code and the Directive.

It would therefore be advisable for potential investors in Western and Central Africa to bear in mind that many international organisations (both regional and sub-regional) prescribe or are likely to prescribe secondary legislation, the application of which could be both binding and immediate, and the violation of which could have the potential to jeopardise their investments.

 Bruno Gay is a mining specialist in the Paris offices of major legal firm, Herbert Smith LLP