21 Dec
The Ministry of Natural Resources and Environmental Conservation (MoNREC) wants to change how it taxes mining companies. If done well, these reforms could attract responsible investors and provide the government with the funds it needs for vital public services like health and education.
So far, informal small-scale mining and the vast jade mines in Kachin State have dominated Myanmar’s mining sector. While they employ thousands of people, their mining also pollutes without generating much money for the government. In fact, mineral mining (i.e., all mining except jade and gemstones) contributed less than one percent of total government revenues in the 2016-17 fiscal year, according to the Myanmar Extractive Industries Transparency Initiative.
Yet, there is some hope. One opportunity is the reopening of the Bawdwin mine in eastern Shan State. Myanmar Metals—the Australian company that will operate the mine—expects to generate more revenue for the government than all the country’s existing mineral mines combined.
Unfortunately, Myanmar Metals is somewhat of an anomaly. Attracting large-scale foreign companies to Myanmar is difficult. Many investors see the country as a particularly risky place to do business because of ongoing conflicts, political uncertainty and perceived corruption. Accordingly, only a small number of mining companies are exploring here, despite the country’s strong geological promise.
“For a resource rich country with such potential for word-class discoveries, Myanmar has very limited modern exploration data. This makes it all the more important that the government capitalizes on the recent positive momentum in the industry to encourage reputable companies to consider Myanmar as a jurisdiction in which to spend their exploration monies,” said Lachlan Foy, Group CEO of Valentis, a Yangon-based consultancy advising mining companies in Myanmar.
To attract more of this kind of investment, however, Myanmar needs better designed taxes. Myanmar needs a standardized rule-based approach to taxing mining companies. MoNREC recognizes this and has started writing new tax terms and plans to include them in a model contract for large-scale mines, which is a common practice in other countries. This would be the template which all deals with mining companies follow and would act as a clear statement of what international companies can expect in Myanmar.
To work well, the model contract should have clear tax terms that are aligned with international practice and applied consistently to all investors.
A good model contract needs to be balanced: terms should be attractive to investors and generate enough revenue for the government. Finding this balance is difficult, but MoNREC can get there by consulting other government departments, civil society, experts and mining companies to get the best ideas and to receive broad acceptance.
However, there is a danger though that having written and endorsed the model contract, negotiators do not follow it during their deal-making. That’s where transparency comes into play.
It is critical that the rules are followed consistently when mining contracts are negotiated. To ensure this, regardless of who is in charge, MoNREC should disclose both the model contract and the contracts it negotiates with companies. This will allow others to scrutinize the contracts and spot any deviations to ensure Myanmar has received a good deal in each negotiation.
In the longer term, MoNREC should follow other countries by setting out its mining tax objectives in a national minerals policy and using this to change legislation and regulations. But for now, writing a new model contract is a commendable first step.
Ko Ko Lwin is an Analyst with NRGI in Myanmar. David Manley is a Senior Economic Analyst in NRGI’s London office. Sebastian Sahla is a former Myanmar Associate at NRGI and now works as a consultant. NRGI’s recent briefing, Considerations for Taxing Myanmar’s Large-Scale Mining Companies, is available at www.resourcegovernance.org.
