Legal analysis of the promulgation modifying the mining code in the DRC

Gaby KABUE
Managing Partner

Abstract

The Democratic Republic of Congo is full of mining potential, which responsible exploitation brings economic development and reduction of poverty across the country. In spite of tremendous matters experienced by mining sector, the sector remains a cornerstone of development with more than 11000 spectrum mineral substances worth estimated at 3700 billion dollars. The mining sector accounts for 95 percent of export earnings for a contribution of 10 percent to the gross domestic product (GDP), which makes it a pivotal of national economy. DRC’s mineral wealth is widespread in all provinces including copper, coltan, cobalt, diamond, cassiterite, zinc, wolframite, gold, manganese, gas, etc. The statistics reveals that the country is the largest cobalt producer with about 48 percent of the world’s reserves, and 73.940 tons were produced in 2017. The existence of mineral wealth continues to attract countless mining companies operating in the sector. According to the indicators it turns out that the DRC will record an average growth rate of 17 percent during the year 2018, overlooking other mining markets. It is very relevant to mention that the mining sector is peppered with several economic, environmental and social issues, which led the lawmakers to elaborate the mining code of 2002, in order to regulating mining extractive operations and especially to foot an incitative mining law with procedures for granting objective, fast and transparent quarries rights in which tax, customs and exchange. However, stability clauses recommend that mining code of 2002 must be revised after ten years of its application. It is in this purpose that two chambers of parliament revised the mining code as well as adopted a new mining code. In constitutional deadline the bill has been transmitted to the President of the Republic for promulgation. However, the new mining code is not promulgated.

By Gaby Kabue Kayombo

Key words: fiscal system, royalty rate, legal basis, constitutional deadlines, promulgation effect.

 Introduction

 The promulgation of the new law revising the Mining Code of 2002 is a topical issue on which all gazes are focused with backdrop. The mining sector is governed by Law No. 007/2002 of 11 July 2002 and Decree No. 038/2003 of 26 March 2003. Moreover, it exists several regulations established on mining sector. In particular, the mining code includes 344 articles divided into 17 titles. The mining code of 2002 is an incentive mining legislation with procedures of granting the objective mineral rights, fast and transparent in which are structured the tax, customs and foreign exchange.

In fact, after a decade of its application the mining code was obligated to be revised in order to identify its strengths and weaknesses and ultimately bring improvement.

Established in 2002, the mining code has realized ten years of applicability in 2012. During this year all stakeholders including the government, civil society and private sector were intensively involved in the revision work, which allowed them to make proposals for amendments to the topics such as the persistent legal dualism; social responsibilities of mining companies; deterioration and degradation of the environment; claims of local communities regarding access to mineral ownership; expropriation, compensation, relocation and implementation of sustainable development plans aimed improving the economic and social well-being of the communities affected by mining projects during and after exploiting, compensation for communities in case of relocation; public consultation during the preparation of the environmental and social impact assessment to enable the active participation of local communities affected by mining or quarry projects; implementation of the mitigation and rehabilitation plans provided for the current environmental plan or the cessation of mining research or mining activities; the presence of children in artisanal mines;  insufficiency of geological data; non-existence of the investment promotion policy; the lack of objective conditions for the execution and monitoring of exploration and exploitation projects; the inadequacy of tax collection systems; the lack of transparency and the involvement of politico-military authorities in the exploitation and trade of minerals; the question of stability of the provisions relating to tax and customs systems, etc.

Ultimately, the most stakeholders’ opinion converges and arguing that the mining legislation of 2002 did not contribute to the socio-economic development of the country. The favorable tax system has only attracted mining investors; however this did not maximize the State’s coffer in order to eradicate poverty and fight against the economic crisis that the country faces every single day. The Congolese authorities believe that the mining reform initiated will contribute to improving the lives of Congolese. However, mining operators argue that the new mining code does not target corruption, a cancer that is plaguing the mining sector.

Reform of tax system as priority of the new mining code

The meticulous reading of the new mining code shows that the tax system is a priority axis of mining reform.

Indeed, mining investments generally expose mining companies to huge tax burdens. However, in most cases the mining investors require the host countries, flexible tax regimes that allow a good return on their investments. In order to attract investment in the mining sector, the States are obligated to establish tax standards applicable to mining investments and which are generally incentives and derogate from ordinary tax system. It is in this approach that the mining code of 2002 established the tax system that is more profitable to mining investors.

As long as there is strong presence of mining investors and especially the high prices of minerals extracted in the DRC, the Congolese government ultimately would like to seize the opportunity of the mining reform to review up its tax system.

Increasing of mining royalty rate

Currently, the mining royalty rate as fixed in new code devised the congolese government and the mining operators. Before analyzing the provisions related to mining royalty rate it is essential to comprehend the background of mining royalty according to the mining code of 2002.

  • Legal approach related to Mining code of 2002

According to article 220 of the Mining Code, “the holder of the mining exploitation title is liable to mining royalty which base is calculated on the basis of the value of the realized sales, diminished to the transport fees, to the fees of analysis relating to the quality control of the product for sale, insurance fees and commercialization fees“.

Establishing of the mining royalty is an effort undertaken by the Congolese State to allow the holder of mining title to enjoy a tax regime that can contribute to the profitability of investments in the mining sector.

The mining code of 2002 sets the rate of the mining royalty according to the following products:

  • Iron or ferrous metals 0.5%
  • Non-ferrous metals 2%
  • Precious metals 2.5%
  • Precious stones 4%
  • Industrial minerals, solid hydrocarbons and other substances not mentioned 1%
  • Building materials of common uses 0%

The rate of royalty changes according to the nature of the mineral substances. The mining royalty is paid by the holder of the mining title of exploitation to the Public Treasury. The Public Treasury is responsible for distributing revenue from the mining royalty according to the following distribution key: 60 percent will remain acquired by the Central Government; 25 percent is paid into an account designated by the Administration of the Province where the project is located and 15 percent into an account designated by the City or Territory in whose jurisdiction the operation is being carried out.

  • Approach of the new mining code to promulgate

The new mining law submitted to promulgation sets royalty on “strategic metals” at the rate of 10 percent. A measure totally found unacceptable by the majority of mining investors. They believe that such a measure ruins the country’s reputation and leads the country to freeze investment in the sector.

The reasons of the review of the mining tax system are justified by rise of prices on the minerals extracted in the Democratic Republic of Congo. The statistics displays that the price of copper whose Katanga subsoil abounds, reached 14.5 percent in 2016, then its production in 2017 is 1.092 million tons (+ 6.9 percent). Diamonds potentially found in Kasai, rose by 9 percent between 2013 and 2016, its production in 2017 reached 18.9 million carats (+28.1 percent). Zinc, the production of 2017 is 7833 tons (-32.8 percent). Gold, very present in South Kivu, gained 13% in 2017 after a good of 8.6% in 2016, its production in 2017 is 23.3 tons (+2.7). Zinc, the production of 2017 is 7833 tons (-32.8%). Coltan used for the manufacture of smartphones, particularly concentrated in Kivu, its course breaks the ceiling of + 59 percent in 2017. However, the Cobalt, currently aimed for manufacture of batteries of electric vehicles to replace gasoline and diesel, this mineral potentially concentrated in Katanga with about half of the world market is 66000 tons out of 123000 tons comes from the DRC. The country holds 2/3 of known world reserves, the production of Cobalt in 2017 reached 73940 tons (+ 15.5%).

In fact, Cobalt’s strong demand for economic needs in the international market is revolting the State to classify Cobalt as “strategic metals“, whose royalty rate is set at 10%. Compared to the 2002 Mining Code approach, the royalty rate for Cobalt goes from 2 percent to 10 percent. A measure fiercely fought by the mining investors who threaten to go to international arbitration if the Congolese State can not reduce this rate. However, the decision to invest in a country depends in particular on the tax system.

Constitutional provisions relating to the promulgation of the new mining code

The mining code is the domain of the law. It is therefore subject to the rules established by the constitution.

  • Principle

Without prejudice to the other provisions of the constitution, the law determines the fundamental principles concerning the mining regime (article 123 paragraph 3 Constitution of 18 February 2006).

Article 9 of the aforementioned Constitution says: “The State exercises permanent sovereignty over the soil, subsoil, water and forests, over the airspace, fluvial, lacustrine and Congolese maritime as well as on the Congolese territorial sea and on the continental shelf “.

According to this constitutional provision it can deduce the enumeration of the terms “subsoil” which have a direct link with the concept of mines because generally the mineral substances are in the subsoil. The Constitution makes the mining domain a part of the Congolese State. And it’s in this perspective that the lawmakers elaborating the laws in the field of mines in the DRC.

Background of promulgation of the new mining code

 As in all democratic States, the final adoption of law or legislative proposal closes, in principle, the parliamentary phase of the legislative procedure, which normally conducts to the promulgation of the law. The promulgation is the legal act by which the President of the Republic authenticates the existence and the regularity of the law and gives the order to conform to the prescriptions of this law. It is logical that the law revising the mining code was passed in parliament and then transmitted to the President of the Republic.

 Legal basis

 The promulgation of laws is found in the constitution of the State

  • Promulgation effects

The effects of promulgation of laws consist, firstly attesting the existence of the law, giving the regularity of the legislative procedure. Secondly, confiding the text voted the authentic character; authenticates the law. Thirdly ordering public authorities to observe the law and to enforce it; the text is made enforceable.

  • Competency

The power to promulgate laws is the responsibility of the President of the Republic. The President of the Republic is the guarantor of the nation.

  • Extent of the power

The President of the Republic has a wide power in matters of promulgation namely:

Power of Promulgation: The President of the Republic has the power to promulgate the law within fifteen days of its transmission. The constitution does not provide delegation of power in this area (Article 140 of the Constitution of 18 February 2006).

Power to request a new deliberation: Article 137 of the Constitution says, “Within fifteen days of the transmission, the President of the Republic may request the National Assembly or the Senate a new deliberation of the law or some of its articles. This new deliberation can not be refused”.

  • Constitutional deadlines

The prerogative of promulgation laws acknowledged to the President of the Republic required the respect to the constitutional deadlines. According to article 140 “the President of the Republic promulgates the law within fifteen days of its transmission after the expiry of the time …”. The constitutional deadline of 15 days can not be derogated.

  • Failure to promulgate within the deadline

The prerogative of the President of the Republic to promulgate the law is bound to the respect of constitutional deadline. In case of absence of the promulgation law by the President of the Republic within the constitutional deadline, the promulgation is supposed done (article 140 paragraph 2 of the Constitution). In other words, whether the President should not promulgated as required according to the constitutional deadline, the law is supposed promulgated and the text is definitively enforceable.

In the context of the law revising the mining code of 2002, needless to say that the acts of two chambers of the Parliament would have been completed on February 27th 2018. From this adoption date, the objective presumption enables to say that the adopted law was transmitted to the President of the Republic within the constitutional deadline, either 6th  of February mathematically the deadline ran 06th of February 2018. And the President had 15 days to promulgate, mathematically the promulgation should occur on February of 20th, 2017. However, the silence of the promulgation still persists.

 Suspensive effects of promulgation

The Constitutional Court control the compliance of laws of assembly’ acts according to the Constitution which says: “The Constitutional Court is in charge of the control of the constitutionality of laws and acts with the force of law“.

Where a law to be promulgated is found to be unconstitutional, the Constitutional Court may be referral on appeal (Article 139 of the Constitution).

In case the law to be promulgated is found unconstitutional, the Constitutional Court might be referral on appeal (Article 139 of the Constitution).

In such assumption, four scenarios emerge:

1) The President of the Republic within fifteen days following the transmission to him of the law finally adopted;

2) The Prime Minister within fifteen days after the transmission to him of the law finally adopted;

3)  The President of the National Assembly or the President of the Senate within fifteen days of its final adoption;

4) A number of deputies or senators at least equal to one-tenth of the members of each House, within fifteen days of its final adoption.

It so relevant to mention that the referral of  the Constitutional Court for unconstitutionality of law constitute a suspensive effect on the promulgation law.

While this article is writing, the Constitutional Court does not referral an appeal of unconstitutionality of the law revising the mining code submitted to the President of the Republic for promulgation. The referral to the constitutional court for the unconstitutionality of the law could have a suspensive effect on the promulgation of the law revising the mining code.

 Conclusion

 Since 2012, the Mining Code of 2002 has realized ten years of its implementation. At the end of this period, this one is revised to assess the strength and weakness points. It is in this logic that the DRC government has initiated the mining reform, which has made other stakeholders including the private sector, civil society involved in the work of the proposals amendments on the revision of the Code Mining. Remaining in practice, the government through the Ministry of Mines has written the bill on the Revision of the Mining code revising which have been submitted to the parliament institution with a particular focus on the reform of tax system. The tax reform is justified by the rise of mineral prices extracted in the DRC, and the Congolese State has seized the opportunity to revise upwards its tax system, and particularly classify some ores as “strategic metals” with a royalty rate set at 10% contrary to the rate 2 % under the Mining Code of 2002. This rate is fiercely controversial by economic operators operating in the sector. At the end of the acts of the Parliament in margin of the revision of the mining code of 2002, the new mining was transmitted (in constitutional deadline) to the President of the Republic with a view to be promulgated within fifteen days. However, the new mining code is beneficiate signature (promulgtation); the constitution says black on white that the failure to promulgate the law within constitutional deadline, the promulgation is supposed done (Article 140 of the constitution). The most objective legal analysis of the constitutional provisions on the promulgation of laws as the prerogative of the President of the Republic, enable to confirm that the new mining code was transmitted within the constitutional deadlines, and it not exist any constitutional suspensive effect, in this case the new mining code is supposed promulgated under article 140 of the Constitution.

Bibliography

 Legal texts

  • Constitution of February 18th , 2006
  • Act No. 007/2002 of July 11th , 2002 on the Mining Code
  • Organic Law No. 13/026 of 15th October 2013 on the organization and functioning of the Constitutional Court
  • Decree No. 038/2003 of 26 March 2003 on mining regulations
  • Bill to revise the mining code

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