Possibilities of fair deal between state and the mining company - Pentti Noras, GTK

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Possibilities of fair deal between state and the mining company
Pentti Noras, Director for Int'l Relations of Geological Survey of Finland

Mining On Top: Helsinki
16-17 September 2013 | Helsinki

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  • 1. 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
  • 2. 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?
  • 3. 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
  • 4. 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
  • 5. 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
  • 6. New order of industrial production 70% 30% Source: Accenture 2013 Atlantic Pasific Arctic China
  • 7. Last updated: November 29, pm2012 12:45 Mines protest exposes Myanmar dilemma By Gwen Robinson in Bangkok
  • 8. 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.
  • 9. Government take via taxes and royalties currently increasing Ernst & Young 2011-2012
  • 10. 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
  • 11. 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
  • 12. Policy Potential Index (Fraser 2012/2013) Chile
  • 13. Could successfulness of the deal be basis for ranking of countries? NEW RANKING SYSTEM FROM ?
  • 14. MINING Value-adding KnowledgeInfrastructure Supplies Fiscal Mining linkages
  • 15. MINING Fiscal Mining linkages
  • 16. Copper price to cost 2000-2012 production cost 90% percentile LME price (world production value USD 110 bill. in 2012)
  • 17. Mining tax base: sample of 20 TNCs Source: PwC 2010
  • 18. 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
  • 19. Mining linkages MINING Value-addingSupplies
  • 20. 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
  • 21. 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 Jama Wassara Atlas Copco Toro Volvo FINNISH PRODUCERS Dyno Nobel Kimit FORCIT I Products for underground and open cast mining operations Source: Ericsson & Noras, 2005, 2012
  • 22. 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
  • 23. Mining linkages MINING KnowledgeInfrastructure
  • 24. Mongolia: contribution by sector to GDP growth 2008-2012 Source: WB 2013 2011 2012
  • 25. 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, …
  • 26. 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
  • 27. 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.
  • 28. Kiitos! Tack så mycket!
  • 29. MINING Value-adding KnowledgeInfrastructure Supplies Fiscal Mining linkages
  • 30. Industrial Policy Sector Ministries Institutes Awarding Licenses Regulation & Monitoring Tax Collection Benefits Distribution Sustainable Development Plan & Practices 1 2 3 4 Compensations Gvt Agenda