Repatriation obligations in West Africa – the impact on mining companies’ cashflow structure
Mining companies based in West African jurisdictions are commonly faced with an obligation to repatriate revenues deriving from the sale of mined products. For companies operating in The West African Economic and Monetary Union (UEMOA), which comprises Benin , Burkina Faso, Guinea Bissau, Côte d’Ivoire, Mali, Niger, Senegal and Togo, there is an obligation to repatriate under UEMOA regulations 09/2010/CM/UEMOA (the UEMOA Financial Regulations), with penalties for non-compliance being provided for by the relevant national law.
Outside of UEMOA, mining companies may be subject to a requirement to bring revenues from mining products onshore, pursuant to the relevant country’s mining code.
Mining companies should conduct early analysis of how its cash flow structure will be affected by repatriation obligations and any restrictions on the company’s ability to move repatriated funds back offshore to service debt, pay suppliers, fund reserve accounts and pay dividends.
Below we look at some of the issues mining companies consider when operating in UEMOA and non-UEOMA jurisdictions, comparing and contrasting the UEMOA Financial Regulations with the approach of Guinea, a non-UEMOA jurisdiction:
Flexibility under existing laws
In UEMOA jurisdictions, the UEMOA Financial Regulations provide for a number of categories of payments which can be made to an offshore destination and which should cover a large number of likely payments. In Guinea, however, such payments are more restricted.
Obtaining derogations from the existing restrictions
A single UEMOA state should not be able to grant a valid derogation from the obligation to repatriate, or from the categories of permitted offshore payments, under the UEMOA Financial Regulations. In contrast, mining companies in Guinea can agree with the Central Bank to move repatriated funds offshore.
Points requiring a specific adjustment to the cash flow structure
For example, hedging banks will typically not be willing to enter into hedging arrangements directly with a company incorporated in a member state of the Organisation for the Harmonisation of Business law in Africa (OHADA), on the basis that the hedging bank will be unable to obtain a clean legal opinion on the enforceability against the OHADA company of the close-out netting provisions in the hedging arrangements. In those circumstances an offshore hedging structure typically needs to be considered.
Points which may have to be accepted by the parties as inefficiencies inherent in the structure
For example, in Burkina Faso, it proves very difficult in practice to obtain the ministerial approval specified by law for a mining company to open an onshore account in a foreign currency. Coupled with the obligation to repatriate sales proceeds, this can lead to an inefficiency. By way of example, say a company has to repatriate its dollar sales proceeds, converting them into CFA francs in the process in order to hold them onshore. It then has to convert the funds back into dollars in order to service its debt or pay contractors. The currency risk inherent in this is mitigated by the fact that the CFA francs is pegged to the Euro, but there remains a currency exchange inefficiency to be accounted for in the relevant financial model.