Saturday,18 August, 2018
Current issue | Issue 1228, (8 - 14 January 2015)
Saturday,18 August, 2018
Issue 1228, (8 - 14 January 2015)

Ahram Weekly

A positive step for mining?

A new mining law will add billions to government coffers but requires investors to shoulder higher costs, reports Maye Kabil

Al-Ahram Weekly

In a bid to attract foreign investment to a promising sector, the government has replaced a 60-year-old law regulating mineral resources in Egypt with a new one recently signed by the president.

The new law was welcomed by some investors, who say it will increase public revenues and improve the sector’s business environment. But others said the terms of the law are not attractive enough to have a big impact on Egypt’s mining industry.

“The new law guarantees more than LE4 billion of annual revenues, compared to only LE10 million under the old one,” said Yasser Rashed, head of the quarries section of the Federation of Egyptian Industries.

He said the new law significantly raises extraction fees, and directs the revenues of mines and quarries to the treasury and not to municipalities, as was the case previously.

Rashed said the law, 198 of 2014, is a positive step for the country and the industry. “There was a need to amend the old law issued 60 years ago in order to cope with new developments and handle recent prices,” he said.

Under the old law, the annual cost of one km of quarry was LE12.5 for exploration and LE40 for exploitation. This has increased to LE5,000 under the new law, which sees costs revised every four years if need be.

In addition, the new law introduces a five per cent royalty on annual production to be paid to the government. Another one per cent will be taken for what is referred to as corporate social responsibility, for the benefit of municipalities.

The new law and its expected revenues are the result of lengthy negotiations with the Federation of Egyptian Industries. Until recently, the federation considered the law to be unconstitutional because it had not been discussed with civil society and the industrial community.

The government has held meetings with a committee from the federation with the aim of including its suggestions and negotiating points of disagreement.

The negotiations have succeeded in reducing fees from LE10,000, as proposed in the draft, to LE5,000 in the final law.

“It has changed seven points, all of them in favour of the investor,” said Tamer Abu Bakr, head of the mining and petroleum section of the Federation of Egyptian Industries, in a statement released this week.

However, some industry people are not satisfied with the law’s final version.

“If you want to attract investors, and more importantly know-how, you can’t have a five per cent royalty as a minimum. The government officials who drafted the law concentrated on getting more money for the treasury, but what the country needs is to have an industry that attracts investors and create jobs, like other successful countries,” said Muhammad Zaher, chairman of the mining committee in the Canadian-Egyptian Business Council.

“The law allocates one per cent of production to corporate social responsibility. But although this is a good thing, five per cent plus one per cent, plus taxes and rent, makes a lot of expenses for the industry,” Zaher said.

Investors will have to pay the money agreed upon for exploration to the Mineral Resources Authority in advance and will not be allowed to take out profits until the phase has finished. “This makes the process more expensive and takes longer because investors need the money for the work,” he said.

“Procedures in Egypt are more bureaucratic than usual, but we can deal with them. However, for sure less bureaucracy would be better,” said Paul Jones, CEO of Nuinsco Resources, a Canadian company.

Jones sees Egypt as “vastly underdeveloped in terms of mining, and that’s why it has a big opportunity in this industry, which will provide revenues for the country, create a lot of well-paid jobs and offer profits for investors.”

According to Jones, the rules in Canada, a major mining country, are more simple and flexible. The investor is given the land, and he only has to prove that he is working it.

“There is a form to fill in to show how much money you have paid to maintain the ground as long as you pay the money that is required to keep it. You are not forced into action by saying, for example, that you have to find a mine within five years or seven years,” he said.

Jones’s company has been interested in investing in Egypt since 2009. Two preliminary explorations in the southeastern desert have been made and there are indications of gold reserves.

However, after the 25 January Revolution the country became less attractive to foreign investors. “You couldn’t get North American investors to put money in an adventure like that, given all the uncertainties they saw,” he said, adding that mining is a long-term activity that involves pumping in investment for years and so requires political stability.

The writer is a freelance journalist

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