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Part B: Mineral Rights - Part B-6: Beneficiation - Processing, Trade & Transport - 35. Beneficiation – Processing, Trade and Transport - 35.13 Incentives for Processing, Trade and Transportation of Development Minerals | 35.13(e) Allocation of Royalty Payments to Local Community

This section relates to payment of royalty to the local communities where the development mineral is mined. It is the expectation that local communities should benefit directly from development minerals mined within their areas. However, even in countries that provide for a share of royalty payments to be distributed to the local communities directly impacted by a minerals exploitation project, the distribution mechanism is often slow and unreliable.

An allocation of royalty payments to the local community can be handled in different ways. One way is for the community’s share of the royalty to be paid directly to it by the exploitation licence holder. This, however, requires that the local community have a bank account and the ability to account for and manage the royalty payments which may or may not be the case.

Another way to allocate royalty payments to the local community is to have them paid in the first instance to a central clearing-house which accounts for the payments and distributes their respective shares to the local community, the national government and any other beneficiaries.

A third way to allocate royalty payments to the local community is to have them paid to a special account of the national treasury where they will be accounted for and immediately segregated into an account of, or for the benefit of, the local community.

Each of the aforementioned allocation methods has pros and cons. The choice of the best approach depends on the capabilities and administrative structure and culture of each country.

It is preferable to have regulations with respect to the allocation of royalty payment towards development projects in the respective areas. However, these will need to be covered in national laws on development projects.

35.13(e) Example:

Article [_]

(1) A percentage of each royalty payment due on development minerals exploited under a licence issued under this [Act][Code][Law]shall be allocated to the local community or communities directly affected by the development minerals exploitation project, as set forth in the section of this [Act][Code][Law] on fiscal terms.

(2) The regulations adopted by the [Regulatory Authority] shall set forth the procedure for certifying the local community or communities that are directly affected by each development minerals exploitation project.

(3) Subject to paragraph (5) below, each royalty payment by the holder of a mining right licence issued by the [Regulating Authority] for the exploitation of development minerals shall be made to the [Regulating Authority] on behalf of the national Treasury. The national Treasury shall, within two weeks of the royalty payment made by the mining right licence holder, determine the share of such royalty payment that is allocated to the certified local communities directly affected by the development minerals exploitation activities and shall allocate that amount in an account of the local communities to be made available to them pursuant to procedures to be agreed upon among the national Treasury Department, the provincial/state authority and the duly constituted representatives of the local communities.

(4) Subject to paragraph (5) below, each royalty payment by the holder of a mining right licence issued by the provincial/state regulating entity for the exploitation of development minerals shall be made to the regulating entity on behalf of the provincial/state Treasury. The provincial/state Treasury shall, within two weeks of the royalty payment made by the mining right licence holder, determine the share of such royalty payment that is allocated to the certified local communities directly affected by the development minerals exploitation activities and shall allocate that amount in an account of the local communities to be made available to them pursuant to procedures to be agreed upon between the provincial/state authority and the duly constituted representatives of the local communities.

(5) Upon the certification to the National Treasury or the provincial/state Treasury by the [Regulating Authority] or by the provincial/state regulating entity, respectively, that the certified local communities have the means and the capability to manage their own finances, the National Treasury or the provincial/state Treasury, as the case may be, shall instruct the mining right licence holder to henceforth pay the local community’s allocation of each royalty payment directly to the account or entity designated to receive such payments.

(6) Each licensing authority and local community certified as provided in this section shall publish a quarterly report of royalty payments made to it.

Annotation

This example first establishes the principle that a percentage of each royalty payment should be allocated to the community or communities directly affected by a development minerals exploitation project. The percentage is to be set elsewhere in the Act.

Next, it provides for the regulations to set forth a procedure for certifying which communities’ qualify to receive the percentage of royalty payments from particular development minerals exploitation projects.

It then provides for nationally licenced exploitation projects to pay their royalties to the Regulating Authority on behalf of the National Treasury, which is to determine the amount allocated to the local communities and to allocate it to an account in their name which shall be available to them on terms to be agreed among the National Treasury, the provincial authority and the representatives of the local community.

A parallel procedure applies at the provincial/state level for the holders of exploitation licences issued by the province/state.

The example further provides for the certification by the Regulating Authority or the provincial/state regulating entity, respectively, that the local communities have the means and the capability to manage their own finances – at which point the National or Provincial/state Treasury is to instruct the licence holder to thereafter make payments directly to the entity or account designated to receive the community’s share of the royalty directly.

Payment of royalties and related payments should be published by the licenced authority or certified local community which will be receiving such payments. This will help in encouraging transparency that can be measured against concrete developments within the local communities.

It should be kept in mind that the royalty payments on development minerals will tend to be modest – except in the case of very large quarries.