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The Sierra Rutile Limited Agreement Ratification Act 2002 to be reviewed in 2014

By Leslie Mboka

The Sierra Rutile Limited Agreement Ratification Act 2002 is due to be reviewed in 2014, twelve years since the said agreement came into being. Will the landowners participate in the review process?

It has been a tradition of successive governments of Sierra Leone to signing mining agreements with corporate entities without the participation of landowners and communities proximate to the mining operations. In such circumstances, the interests of affected landowners and communities throughout Sierra Leone have not been mainstreamed or factored into such agreements thereafter creating tension and conflicts between the companies and the host communities. Agreements have been imposed from above and from without.

Of cardinal importance, it is rational for a fragile democracy like Sierra Leone to understand that people’s participation in agreements that profoundly affect their lives, ultimately leads to transparency, accountability, good governance, peace, security and stability. The ship of state has not been sailing in this direction. Shady agreements have been signed giving mining corporations huge tax concessions or holidays. In the Sierra Rutile Concession, the landowners are almost excluded from the extractive economy: without portable water, electricity, poor housing, lack of good health care facilities, the list is endless. This is the shady Sierra Rutile deal:

Fiscal Regime: A series of extraordinary concessions

The financial terms under which Sierra Rutile is currently operating are quite extraordinary. Sierra Rutile Limited has signed three agreements with the government of Sierra Leone, outlining a range of tax concessions.

The Sierra Rutile Limited Agreement Ratification Act 2002

This agreement, an open document, was made in November 2001, just as the war was ending, and was enacted in Parliament in March 2002. The terms are favourable to the company, but dramatically not so by international standards. The royalty rate was set at 3.5 per cent of total sales and income tax at no less than 3.5 per cent of turnover or no more than 37.5 per cent of profits (section 6(c). Crucially, the Act contains a stability clause that allows Sierra Rutile to continue paying the taxes specified in the Act for the duration of the mining lease (25 years) even if the government enacts new legislation raising taxes and royalties for the mining sector (section 11(e). Other terms are:

  1. Import duties set at 5 per cent for import of mining machineries, plant equipment (section 6(g)
  2. No restrictions are placed on the company employing expatriates staff; Sierra Rutile is required only to give preference to Sierra Leoneans (Section 10 (e).
  3. The Act allows Sierra Rutile to create and maintain a security force to provide a deterrent, defence and reaction capability to incidence’. It also allows the company to import arms and ammunition that are appropriate to such security force subject to government approval and that the security force may carry arms and ammunition for the purpose of carrying out its functions (section 11 (q).

In undertaking refurbishment work at the plant sites, all third party-party contractors are allowed to be exempt from paying all local taxes, immigration and labour fees and income tax (section 11 (t).

Memorandum of Understanding, June 2003

In June 2003, the government of Sierra Leone signed a further agreement with Sierra Rutile Limited, overturning some of the provisions in the 2002 Act. The memorandum of understanding (MOU) gives the company a range of extraordinary tax concessions. It:

# Reduces the royalty rate to a minuscule 0.5 per cent until 2014 (section (a) 9), after which it would revert to 3.5 per cent.

# Also reduces the turnover tax to 0.5 per cent, again to 2014 (section (a) 10).

# Scraps entirely the payment of corporate income tax on profits until 2014.

# Reduces import duty on fuel imports to 1 percent until 2014, a reduction from 12 per cent outlined in the 2002 Act (section (a) 11).

Most crucially, the memorandum also provides for the government to purchase up to 30 per cent equity in the company, but on two critical conditions: (Government has now relinquished its shares to the company).

  1. The assignment of PAYE taxes as they accrue up to a minimum of $37 million – meaning that the government will forgo company payment up to 37 million dollars in such taxes.
  2. In lieu of applicable royalty, minimum turnover tax and duty on fuel thru (sic) December 31, 2014 – suggesting that even the minuscule royalty and turnover tax payments noted may be forgone.

In conclusion, this is simply a bad deal for the country and its people. In this nexus, the Community Advocacy and Development Movement (CADEM) is calling on the Government of President Ernest Bai Koroma to create a space for the participation of landowners in the review process of the Sierra Rutile Limited Agreement Ratification Act 2002 in a bid to make it people-friendly. The people of Impere Chiefdom, the most impacted and devastated by rutile mining, have suffered and lived in poverty for too long. Half of Impere Chiefdom is now under water as a result of dredge mining. Rich agricultural lands have been inundated and largely characterized by sand tailings. The participation of landowners in the said review is critical and highly advocated for by civil society.