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Part E: Local Development, Labour, Health and Safety - 40. Local Development | 40.2 Local Goods and Services

Local goods and services provisions generally encourage or require mining license holders to procure goods and services needed for business that are produced in-country and/or provided by locally-owned businesses. While these provisions may not necessarily bar mining license holders from importing goods or contracting foreign firms for service, some mining laws will, in some cases, require license holders to demonstrate absence of the applicable goods or services in order to bypass the requirement or offer specific tax incentives to encourage license holders to engage the local market.

The purpose of such legislation is to stimulate the local economy and ensure local employment. Local goods and services should be defined carefully so as to reduce the risk of intermediary or trading companies which are not local in nature. A local company should be defined to maximize the country's goals, and could include a locally registered company, a company with majority national ownership, or a company with both majority national ownership and majority national employees, particularly at the managerial level. The level of detail in the definition of a “local company” will depend on a country’s current capacity and overall goals which should be first set forth and developed in a local content policy. The risk of transfer pricing (see Section C) when such local companies are subsidiaries or affiliates of the mining company should also be carefully assessed and addressed. Furthermore, from a regional perspective, it may be important to nuance the definition of “local” to allow for a prioritization of national followed by regional goods and services.

Additionally, it is essential to develop lists of target goods and services for increasing local capacity which can have spill over effects or be applicable to other parts of the economy, not only applicable to mining for best results. As with the definition of a local company, these lists should be in line with an overall national development plan. Ultimately, the goal is to encourage the creation of local added value rather than mere importers of foreign goods. In the same line, a coherent approach on tax incentives is crucial, especially regarding incentives on imports duties for targeted goods in the list. Targets for local goods and services should be in line with local capacity and reviewed regularly. It is always important to also review bilateral trade and investment treaties as well as WTO rules to ensure consistency with the specific obligations in the proposed mining law.

It is important also that any policy on local good and services policy address the issue of quality and quantity provided in the country. Several legislations in Africa subject the local good and services requirement to “comparable quality, quantity, delivery schedule and price” condition. In that regard, government may encourage and facilitate the creation of mining local goods and services associations in order to help them enhance their capacity to fulfil mining industry requirements.

Finally, as with local employment and training, the local good and services requirement should be clearly stated in law as obligation, while details concerning specific targets, percentages, and schedules can and should be spelled out in more details in regulations and contracts to allow for flexibility in adjusting requirements as local capacity develops. “Local” can also be progressively defined as impacted communities, sub-regional, national regional and continental.

40.2 Example 1:

Article [_]

(1) The holder of a mining right shall in the conduct of mineral operations, and in the purchase, construction and installation of facilities, give preference to

(a) local materials and products and

(b) locally owned or resident service agencies

(2) Without limitations on the preceding sections of this Article [_], a holder of a mineral right shall procure goods and services with [local] content to the maximum extent possible and consistent with safety, efficiency and economy.

(3) A holder of a mineral right shall submit to the [Regulating Authority] for approval, a procurement plan in accordance with subregulation (1)

(4) The procurement plan shall be submitted within one year of the commencement the holder’s operations.

(5) The procurement shall be for an initial period of five years, and subsequently for a further five year period.

(6) The procurement plan shall include:

(a) targets for local procurement;

(b) prospects for local procurement; and

(c) specific support to providers or suppliers as well as measures to develop the supply of local goods and services including broadening access to opportunities and technical and financial assistance”

(7) A person who fails to comply with Sections (1) and (2) above is liable to pay the [Regulating Authority] a penalty of [ten thousand United States dollars] for each month of the first six months of defaults and subsequently then thousand US dollars for each day that the default continues

(8) The procurement plan shall be revised annually to take account of the requirements of the local procurement list.

(9) The holder of a mineral right shall submit semi-annually, reports on the implementation of the procurement plan.

(10) The [Regulating Authority] shall have a local procurement list and specify in the list the goods and services with [National] content which shall be procured in [country] by the holder of a mineral right.

(11) A holder of mineral right, who fails to comply with Section (10) is liable to pay the [Regulating Authority] the full import duty in respect of the goods imported and a penalty as provided in the local procurement list.

(12) The [Regulating Authority] shall review the local procurement list annually.

(13) In assessing tenders for goods and services on the local procurement list, where bids are within [two] percent of each other by price, the bid containing the highest level of [Country National] participation in terms of ownership and management by [Country Nationals] and employment of [Country Nationals] shall be selected.

(14) A person whose local procurement programme has been approved by the [Regulating Authority] under this [Code][Act][Law] shall submit an annual report to the [Regulating Authority] on or before the third first day of January each year, showing the level of compliance with the approved programme.

(15) “local” for the purposes of this Article [_], shall mean on a priority basis (i) citizens or companies or partnerships owned or controlled by citizens of [Country], and in the absence of citizens of [Country]; and progressively citizens or companies or partnerships owned or controlled by citizens of member states of [Sub regional Community] and citizens of member states of the Africa Union.

Annotation

Inspired by language from Ghana’s mining law (2006) and regulations (2012), this provision supplements the general language from the law with more specific provisions from the accompanying regulations. The regulations are particularly noteworthy for their planning, review and reporting requirements, allowing for the parties to develop a detailed procurement plan that is realistic and can be adjusted if necessary.

Although some sections in this provision are taken from the implementing regulations, the example reflects best practices in dealing with the procurement of local goods and services in the context of a mining law.

40.2 Example 2:

Article [_]

(1) The minimum [local] content in any project to be executed in the [Country] mining industry shall be consistent with the level set in the relevant Regulations issued pursuant to this [Act][Code][Law].

(2) Where a project description is not specified in the Regulation, the [Regulating Authority] shall set the minimum content level for that project or project item pending the issuance of a Regulation.

(3) All [company] and contractors shall comply with the minimum [local] content for particular project items, services or products specification set out in the relevant Regulations.

(4) Notwithstanding the provisions of subsection (1) of this section, where there is inadequate capacity to any of the targets in the relevant Regulations, the [Regulating Authority] may authorize the continued importation of the relevant items and such approval by the [Regulating Authority] shall not exceed 3 years from the date of the approval.

(5) The [local] content plan submitted to the [Regulating Authority] by an operator shall contain a detailed plan, satisfactory to the [Regulating Authority], setting out how the [company] and its contractors shall give first consideration to [local] goods and services, including specific examples showing how first consideration is considered and assessed by the [company] in its evaluation of bids for goods and services required by the project.

(6) The [local] content plan submitted to the [Regulating Authority] by any [company] shall contain detailed plan on how the [company] intends to ensure the use of locally manufactured goods where such goods meet the specifications of the industry.

(7) All companies shall consider [local] content when evaluating any bid where the bids are within 1 % of each other at commercial stage and the bid containing the highest level of [local] content shall be selected provided the [local] content in the selected bid is at least 5% higher than its closest competitor.

(8) All [companies] shall maintain a bidding process for acquiring goods and services which shall give full and fair opportunity to [local] contractors and companies.

(9) The award of contract shall not be solely based on the principle of the lowest bidder where a [local] company has capacity to execute such job and the company shall not be disqualified exclusively on the basis that it is not the lowest financial bidder, provided the value does not exceed the lowest bid price by 10 percent.

(10) The [Regulating Authority] shall make regulations which shall require any [company] to invest in or set up a facility, factory, production units or other operations within [Country] for the purposes of carrying out any production, manufacturing or for providing a service otherwise imported into [Country].

(11) The [relevant Regulating Authority charged with fiscal matters] shall, in consultation with the [Minister] make regulations providing an appropriate fiscal framework and tax incentives for foreign and local [companies] which establish facilities, factories, production units or other operations in [Country] for the purposes of carrying out production, manufacturing or for providing services and goods otherwise imported into [Country].

(12) “local” for the purposes of this Article [_], shall mean on a priority basis (i) citizens or companies or partnerships owned or controlled by citizens of [Country], and in the absence of citizens of [Country]; and progressively citizens or companies or partnerships owned or controlled by citizens of member states of [Sub regional Community] and citizens of member states of the Africa Union.

Annotation

Drawn from Nigeria’s Oil and Gas Industry Content Development Act (2010), this provision requires companies to comply with certain local procurement requirements as set out in the relevant regulations passed pursuant to the Act. Companies must also provide a detailed local content plan that set out, among other things, how companies will give priority to locally manufactured goods and services, and must consider local content when evaluating bids for goods and services. To help ensure that locally manufactured goods and services meet industry standards, mining companies are also required to invest in or help establish facilities to facilitate local manufacturing or service-provision of the goods in return for certain fiscal incentives