Accra, Ghana//-The Natural Resource Governance Institute (NRGI), a leading independent non-profit organization dedicated to improving countries’ governance over their natural resources particularly oil, gas, and minerals to promote sustainable and inclusive development has urged Ghana’s parliament to consider the implications of higher taxes for the ambitions of constructing a lithium refinery in the country.
In its latest analysis titled- ‘Assessing the Fiscal Regime in Ghana’s Lithium Agreement’ and authored by Thomas Scurfield, an Africa senior economic analyst at the NRGI; and Denis Gyeyir, an Africa senior program officer and Ghana program lead at NRGI, warned: “If Barari makes less profit, it is less likely to be able or willing to finance a refinery”.
The report came out at the time that Ghana’s parliament was reviewing the Government of Ghana and Barari DV Ghana Limited Lithium Agreement. Barari DV Ghana Limited is a subsidiary of Atlantic Lithium Limited.
Ghana’s current lithium hotspot, the Ewoyaa lithium project in Mankessim in the Central Region which is being developed by Atlantic Lithium, a leading lithium exploration and development company based in Australia is expected to be the first lithium-producing mine in Ghana, and West Africa as a whole.
“However, for parliament and other stakeholders to effectively assess this interaction and the wider deal, there should be a rigorous and public feasibility study of a refinery. Otherwise, they will not be able to fully consider the prospect of a refinery being developed, the impact of the Ewoyaa fiscal regime, or the trade-offs between the two”, the report said.
It added that after publishing the feasibility study, the government should consult with industry, development partners, governments of other prospective lithium-producing countries in the region and civil society on the next steps in its pursuit of lithium refining.
With Barari and other companies currently exploring other mineral prospects across the country, the government could look to negotiate a higher government take from any future mines of similarly high profitability. As part of this, it should consider the civil society proposal for a variable royalty rate that slightly increases at higher prices, the report recommended.
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By taking these steps, the government will have a better chance of generating the benefits that it expects, and Ghana needs, from the Ewoyaa mine and the wider sector, it stated.
The Ghanaian government has negotiated a fiscal regime for the Ewoyaa mine that has a higher government take than the regime currently in legislation and the regimes of many other lithium hard rock producers. This is commendable, according to the report.
The report however said, that to reduce the risk that government revenues would disappoint, the government should:
- Require prices to be based on a pricing benchmark for tax purposes to reduce the risk of underpricing.
- Limit the amount of interest the mining company can deduct from taxable income irrespective of the debt-to-equity ratio of the project to reduce the risk of profit shifting.
- Introduce language to the mining lease agreement about its equity being “non-dilutable” to eliminate the risk of dilution if Barari or Atlantic Lithium issues additional shares.
- Establish clear rules in the shareholders’ agreement to reduce the risk of underpayment of state dividends and disclose the shareholders’ agreement to ensure effective oversight.
- Continue building the capacity of its tax and regulatory authorities to effectively audit costs.
The high profitability of the Ewoyaa mine has led to civil society calls for the government to negotiate an even higher government take. As parliament reviews the agreement, it should weigh the trade-offs between renegotiating key tax terms and the time this process will take, which will delay benefits from the project.
The fiscal regime for Ewoyaa
The fiscal regime the Ghanaian government has negotiated with Barari is largely set out in the mining lease agreement.4 5 As Table 1 shows, this regime has a higher royalty rate of 10 per cent and higher free state equity of 13 per cent than the fiscal regime currently in legislation.
Barari will also pay 1 per cent of revenue into a community development fund, which is not provided for in legislation. (For simplicity, we refer to all these fiscal instruments as “taxes” in this briefing, the report indicated.
“The government, through its Minerals Income Investment Fund (MIIF), has purchased an additional 6 per cent of equity in the Ewoyaa mine for USD 27.9 million. We analyze the regime with and without this paid equity.
While it gives the government a larger share of the mine’s profits, the government is acting like an investor in paying for it upfront. It should therefore not be viewed as a tax. MIIF has also purchased 3.06 per cent of the parent company, Atlantic Lithium, for $5 million. We do not include this parent company equity in the fiscal regime that we analyze, given these shares are available to anyone and MIIF purchased them on market terms”.
Assessment of the Ewoyaa Fiscal Regime
“We reviewed the Ewoyaa fiscal regime against the typical objectives of a fiscal regime: maximizing government revenue without deterring investment; reliable revenues; flexibility as profits change; and simplicity to limit tax avoidance risks. As part of this, we compared its performance to the legislated regimes of other current and imminent lithium hard rock producers in Africa and elsewhere.8 Ghana is competing with these countries for investment. This benchmarking therefore provides one indicator of whether the government has got a good deal”.
Background
Amid increasing global demand for minerals needed for the energy transition, the Ghanaian government has signed a deal for the country’s first lithium mine, Ewoyaa. The government signed this mining lease agreement with Barari DV Ghana Ltd, a subsidiary of Atlantic Lithium, in October 2023.1 Parliament has started reviewing the agreement, and will soon decide whether to ratify it.
Ghana has a long mining history, primarily as a gold producer. The government is aiming to leverage the global race for transition minerals to increase how much the country benefits from the sector. The Barari deal is the first the government has negotiated in this context. The debate between government officials, civil society and the wider public about whether the government has got a good deal has therefore been particularly intense.2
The government is aiming to collect more revenue from the sector through higher taxes and increased state participation. Another key objective is increasing the amount of mineral processing (“value addition”) in Ghana to retain greater value for the economy via more government revenue, jobs and, in the case of some minerals, cheaper inputs for other sectors. The government hopes Barari, or other companies, will construct a lithium refinery in the country.
