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Part C: Fiscal Terms - 36. Fiscal Terms | 36.8 Bonuses

Bonuses are lump sum payments made to the government at certain milestones in the project life cycle; for example, at signing of the mining agreement (signature bonus) or at attaining certain production levels (production bonuses).

Bonuses provide large upfront payments, whether or not the project proves profitable.

Bonus payments are more common in the oil and gas sector than in the hard minerals sector, but some governments do seek bonus payments for awards of mining sector contracts or licenses. Where a country does include bonus payments as part of its licensing procedures, the specific amount of the bonus is rarely laid out in legislation; rather it is typically the subject of bidding processes and can vary from one project to another.

36.8. Example 1:

Article [_]: Mining and quarry rights subject to tender

(1) If the public interest so requires, the [Regulating Authority] submits to tender, in exceptional cases, open or by invitation, mining and quarry rights relating to a deposit which has been studied, documented or possibly worked on by the State or its entities and which is considered as an asset with considerable known value.

(2) In this case, the [Regulating Authority] reserves the mining rights relating to the deposit to be submitted to tender.

(3) The invitation to tender, indicating the terms and conditions for the bids as well as the date on which and the address to which the tenders must be submitted, is published in the Official Gazette. It can also be published in the specialized local and international newspapers.

(4) The bids submitted in accordance with the terms and conditions of the invitation to tender are examined promptly by an Inter-ministerial Commission whose members are appointed and convened by the [Regulating Authority] in order to select the best bid, on the basis of:

a) Plan of work proposed and financial costs relating thereto;

b) Available financial and technical capacity of the bidder;

c) Previous experience of the bidder in carrying out the operations proposed;

d) Various other socio-economic advantages for the State, the province and the surrounding community, including the signature bonus offered.

Annotation

Drawn from DRC’s mining code (2002), this provision allows for the amount of signature bonus offered to be one of the factors considered in determining the best bid.

More detailed procedures, terms and conditions, including any minimum requirements for the bid, are normally spelled out in more detail in regulations and the advertisement for the bid.

It is possible to have a bid in which the only determining factor is the amount of signature bonus offered, while all other terms are fixed in law or regulation, or to include the amount of signature bonus offered as one of several factors to be considered in deciding on the best offer.

36.8. Example 2:

Article [_]

(1) Bonuses paid to the [State mining company] resulting from agreements entered into with its associates shall fully revert to the State by way of the [finance mechanism].

(2) A portion of the bonuses referred to in the previous paragraph shall be spent in projects of regional and local development and promotion of [Country]’s private business community, under terms to be regulated by the [State].

Annotation

Drawn from Angola’s oil and gas code (2004), this provision shows another aspect of bonus payments that may be included in legislation: rules on which public body should collect the bonus and how they should be used.