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Wednesday, 5 February 2020

Egypt’s government wants a piece of mining profits

REGULATION WATCH- Gov’t looking to get a cut of mining profits through freecarry: The government is mulling the implementation of a freecarry interest mechanism on mining projects to collect a percentage of their net profit every year, Al Mal reports, citing an unnamed government source. The new interest percentage would be applied in addition to, not instead of, the new tax, rent, and royalty model that the government had set last month.

What exactly does this entail? The new model would be implemented somewhat similarly to a signing bonus, allowing the government to collect a cut of annual net profits from companies licensed to operate mines and quarries. The percentage would not be fixed and would be negotiated separately with each new license. Since all other expenses — including tax, royalties, and rent — are fixed, this percentage will be among the main determinants used by the government in awarding concession areas to companies. This would only be applied to expensive minerals that can be extracted at a lower cost.

Background: Private mine and quarry operators will pay out royalties of up to 10%, income tax of 22.5%, and EGP 25k a year per square km in concession rent under an amendment to the Mineral Resources Act last month – coming only a week after Prime Minister Moustafa Madbouly issued the bill’s executive regulations. The new bill was praised by industry players who see it as making the sector more attractive. Bn’aire Naguib Sawiris had also expressed interest in the gold and copper mining industry as a result of the changes.

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