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8/15/16

Guatemala: Mining royalty payments set to increase (from IKN379)

Here's one of the reports in the 'Regional Politics' section of The IKN Weekly, out yesterday evening.



Guatemala: Mining royalty payments set to increase
Last week in the politics section we noted the slight mystery of a new Vice-minister of Mining in Guatemala. This week the reasons behind the change may have become clear, as the country’s President Jimmy Morales announced (10) a whole range of tax increase proposals that include a bump of duty on fuel from Thee Quetzals (GTQ) to Five Quetzals (1 Quetzal = U$0.133) per US gallon, additions to VAT (sales tax) and corporate income tax back up to 29% (from 25%).

All those will affect mining costs in Guatemala indirectly, but the one that really matters is the Jimmy Morales proposal to raise royalties on extractive industries (i.e. O&G and mining) from 1% to 10%. At the moment, several mining companies in Guatemala are paying more than the legally stipulated 1%, with “voluntary payments” topping up royalties to between 5% and 5.5% (the highest profile cases are Goldcorp at Marlin and Tahoe Resources at Escobal). But the royalty initiative is only one of a total of 47 changes proposed by parliamentarians the current Mining Law, there will be a lot to talk about next week including one of the other main events a clause to give official prior consultancy rights to locals directly affected by any mining project. Theoretically this law already exists as part of the OIT169 international rule book to which Guatemala is a signee, but the country now wants prior consultancy in its own organic law.

The law projects will be debated and voted on in parliament next week and once passed, they’re most likely to come into effect on January 1st 2017 (the usual date in Guatemala for fiscal changes, but that’s only an assumption at this stage and there’s nothing to stop them from effecting them immediately). The package is likely to pass largely to the government’s liking too, with influential people such as the US Ambassador to Guatemala making off-record noises of approval for the reforms and the anti-corruption body CICIG approving (and set to receive more State funding as a result). We should also note that the 10% mining royalty isn’t the most extreme proposal out there, as the centre-left TODOS party, an umbrella political coalition made up of several smaller groups typically connected with indigenous rights and rural communities that controls just 18 of the 158 parliament seats in Congress, counter-proposed on Friday a law that raised royalties on mining operations to 25% (11). The 25% level is unlikely to pass however, it has the look of the radical outlier that lets the government proposed 10% pass more easily.