GOVERNMENT OF RWANDA MINISTRY OF FORESTRY AND MINES€¦ · Mining Policy and should have a range...

GOVERNMENT OF RWANDA

MINISTRY OF FORESTRY AND MINES

MINING POLICY

13TH JANUARY 2010

Mining Policy 2010

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Table of Contents

Executive summary................................................................ 2

1. Issue & Background ........................................................ 5

2. Analysis of the Current Situation ......................................... 8

3. Vision & Objectives ........................................................22

4. Strategic Actions – Preferred Options ...................................26

5. Stakeholders’ Views .......................................................37

6. Implementation Plan ......................................................38

7. Financial implications .....................................................43

8. Legal Implications .........................................................44

9. Impact on business.........................................................44

10. Impact on equality, unity and reconciliation ...........................44

Conclusion and next steps .......................................................45

Annex A: Analysis of Strategic Options........................................46

Annex B: Stakeholder consultations ............................................54

Mining Policy 2010

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Executive summary

The present document provides a final Green Paper based on extensive consultations withmining sector stakeholders. It sets out a new mining policy which seeks to comprehensivelycover all aspects of the regulation, institutional and investment framework for the miningindustry as well as providing a clear plan of action to support the sector’s growth.

The mining policy set out in this final Green Paper covers not only mineral extraction,processing and export, but also quarrying, production of construction materials and extractionand processing of semi-precious stones. Currently the key minerals being mined and tradedare: cassiterite (a tin ore); colombo-tantalite (commonly called coltan1 - an ore that is the sourceof niobium and tantalum); wolfram (a tungsten ore); and Gold mined from Gicumbi andNyamasheke districts. Other key minerals include ambrigonite, beryl and semi precious stonessuch as tourmaline, topaz, corundum, chiastorite, amethyst, sapphires, opal, agate and flint.Construction materials which can be used in their primary state or processed includeamphibolites, granites and quartzites, volcanic rocks, dolomites, clay, kaolin, sand and gravel.

a. Current situation

The Rwandan mining industry is currently in a state of transition. It has recently transformedfrom a publicly-run to a private industry and at the same time is moving from a regionaltrading industry to a local extraction and exporting industry. The focus of this policy is oncementing and hastening this transition, recognising the significant potential in the manyproducts that could be made available locally and building on recent progress.

Recent progress includes the updating of the regulatory framework to keep pace with therapid privatisation of mining sector since 2004, through the publication of the new MiningLaw. This Law forms a solid basis for the regulation of the mining industry and will be madeeffective by a number of Ministerial Orders currently being formulated.

Nevertheless, for the minerals sector, many challenges to extraction remain, includingdifficulties accessing finance, dealing with taxes and coping with price risks. Further still, thereis a general dearth of skilled mine engineers, geologists and metallurgists in Rwanda, meaningthat companies have to import skilled staff. These gaps are being addressed with efforts totrain young mining scientists, but this will take time. The knowledge of reserves also remains amajor challenge, but one that can be addressed by effective clarification and thenimplementation of the licence requirements contained in the new mining law together with aneffort to gather all existing information on Rwanda’s mining sector from international sources.Post-extraction value addition to minerals also suffers from a number of challenges, butespecially the relative high cost of energy. Efforts to develop processed quarry products willface the same issue, but do have the potential to be competitive against existing imports.

b. Objectives

This document sets out a framework of five strategic pillars that stem from an analysis of themajor constraints facing the industry. These pillars are effectively the desired outcomes of theMining Policy and should have a range of social, economic and environmental impacts.

1 Coltan is used to make tantalum and niobium. Tantalum is used to make capacitors (a type of battery) which are used in lap tops,mobile phones and other electronic equipment.

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Figure 1 sets out the proposed strategic outcomes (pillars) of the Mining Policy and summarisesthe expected high-level impact.

Figure 1: Five pillars of the revised Mining Policy

11OTF-GoR Retreat Akagera—EAK—02-14-06

OTF Group Proprietary Information

1. Strengthen the enablinglegal, regulatory and institutionalenvironment

2. Develop targeted investment, fiscal andmacro-economic policies

3. Improve mining sectorknowledge, skills and use of bestpractices

4. Raise productivity and establish newmines

5. Diversify into new products andincrease value addition

Session 1: Mining Policy development – process, rationale and contextThe mining policy task force agreed ten pillars as the basis for the mining policy

Objectives (Impact)Strategic Pillars (Outcomes)

Higher productivity (3 industrial mines by2020)

Increased investment ($500 million by 2020) More employment & higher paying jobs

(50,000 employees by 2015) Increased exports ($240million per year by

2020) Reduced imports ($10million per year fall in

construction material imports) Increased tax revenue ($30million per year

by 2020) Reduced environmental impact (no

artisanal treatment in rivers) Greater macro-economic stability

c. Action recommendations

This final Green Paper provides five key strategic outcomes that form the pillars of the newmining policy. Each of these pillars contains a number of programmes to address theconstraints set out in section II and each will contribute towards achieving the objectives andhaving the impact set out in section III above. Figure 2 highlights the strategic pillars andsummarises their corresponding programs.

Figure 2: Summary programmes for each pillar

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Pillar 1 Pillar 2 Pillar 3 Pillar 4 Pillar 5Strengthen theenabling legal,regulatory and

institutionalenvironment

Developcompetitive

investment andfiscal policies for

mining

Improve miningsector

knowledge, skillsand practices

Raiseproductivity and

increaseproduction from

new mines

Diversify intonew productsand increase

value addition

a. Streamlineregulatoryframework

b. Institutionalisestandardsenforcement

c. Address miningsector regulatoryskills gaps

d. Build capacity inpolicydevelopment

a. Put in placefiscal strategy

b. Introduceroyalties

c. Create miningdevelopmentfund

d. Create hedginginstruments

e. Improve priceinformation andforecasts

a. Consolidateexistinginformation onmineral depositpotential

b. Develop programof geologicalsurveying

c. Build humancapacity andexpertise

d. Promote the EITI& corporatesocialresponsibility

a. Establish afinancingmechanism forartisans

b. Raiseproductivity ofartisanal miners

c. Reform licensingfor mineraltraders

d. Produce mininginvestmentopportunities

e. Promote miningbased on properestimation ofvalue of deposits

a. Develop newproductinvestmentopportunities

b. Develop valueadditioninvestmentopportunities

c. Provideimprovedelectricity supplyfor smelters

d. Finalise plans toestablish KigaliMining Campus

Draft Mining Policy Action PlanFramework of pillars

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Under each pillar, a variety of actions to address key challenges have been evaluated withrespect to their suitability, their feasibility and their acceptability along the lines of the newCabinet Manual for policy development. The preferred options are set out in this section withAnnex A containing the details of this analysis. A detailed budget showing different activitiesrelated to implementation of all actions under each program and corresponding costs isattached at the end of this policy document.

In conclusion, it is clear that mining already plays a significant role in the Rwanda economy,providing large-scale employment and contributing over 40% of export revenues. This papershows that not only can this impact be improved, but that with careful regulation and the rightinvestments, mining has the potential to become a major engine of growth for Rwanda over thenext ten years.

The remainder of this Green Paper is structured as required by the Cabinet Manual: Section 1contains the background to mining sector and an overview of why this policy is required;Section 2 provides an analysis of the current situation; the vision and objectives for the miningindustry are set out in section 3; section 4 provides the recommended preferred options for themining policy to introduce; section 5 discusses stakeholders’ views considered and sections6&7 detail the implementation plan and budget; sections 8, 9 & 10 review the legal implicationsof this mining policy followed by the impact of this mining policy on business, equality, unityand reconciliation. Annex A contains details of the options considered in determining therecommended strategic actions.

Mining Policy 2010

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1. Issue & Background

In its Vision 2020 plan, Rwanda set ambitious goals for its development. Between 2000 and2020, the country aims to grow its per capita GDP from $200 to $900, which implies that theoverall economy needs to expand by over 600%. Given its potential to contribute both toRwanda’s economic growth in general and the trade balance in particular, as well as to off-farm employment, Rwanda’s Minerals Industry – which comprises its mining and quarriesindustries - has been identified as a priority focus area.

1.1. History of mining in Rwanda

During the colonial era in the 19th century, Rwanda, Burundi and Tanzania formed GermanEast Africa, but after World War I, Rwanda and Burundi were placed under Belgianadministration. The first geological observations for Rwanda were made during the visit of theGerman Duke Mecklenburg during 1909 in the context of analysing the chain of volcanoes butalso from another study conducted by a geologist called Meyer at around the same time.

Between 1920 and 1930, some Belgians rushed to Rwanda hoping to find the same mineralwealth as in Katanga (Congo) where a mining union known as U.M.H.K (Union Minière duHaut Katanga) had prospered for 15 years. The Bank of Brussels accepted to finance asystematic geological study to determine mineral potential in both Rwanda and Burundi.

Between 1922 and 1923, the first geological mission conducted by A. Saléé, a lecturer atLouvain Catholic University, and a geologist called Delhaye, provided necessary data forelaboration of the first geological map of Rwanda and Burundi at a scale of 1: 200,000. The mapwas published in 1926. Between 1925 and 1927 A. Salée and an engineer called Newpotestablished geological data on the eastern part of Rwanda but mining activities only started in1930 with two main companies: Rwanda – Urundi Tin Mines Company (MINETAIN: Sociétédes Mines d’Etain du Rwanda-Urundi) and Muhinga and Kigali Mining Company (SOMUKI:Société Minière de Muhinga et de Kigali) in 1934. After this point a few other miningcompanies were established including GEORWANDA and COREM in 1945 and 1948respectively.

After independence, the government of Rwanda decided to create a public mining company bygrouping together all existing mining companies in order to try to strengthen the industry. On9th of February 1973 the status of SOMIRWA (Société Minière du Rwanda) was adopted onone side by the government of Rwanda represented by the Minister of Finances and on theother side two mining companies (SOMUKI and MINETAIN) – The government held minorityshares (49%).

Immediately after its creation, SOMIRWA had to face many problems inherited from the oldmining companies from which it had taken over most of the concessions and facilities. Theproblems related in particular to outdated production equipment, the poor state of the mininginfrastructure, the delay of preparatory work and a lack of spare parts. To address theseproblems, a five-year recovery plan (1977-1981) was introduced with expenditures in the orderof one billion Rwandan francs including the construction of a tin smelter. The recovery planestablished targets to increase the production of cassiterite and wolframite from 2200t and 825t

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in 1976 to 2500 tons and 1500 tons per year in 1981. However, the results of this recovery planwere disappointing.

Other development plans were initiated but the donors were not convinced by the study whichwas presented and refused to grant the necessary funding. They demanded that thegovernment of Rwanda endorse the loan, but the government refused because it had begun todistrust the management of the company. Ultimately SOMIRWA could not recover from itsdifficulties and on 23 July 1985 fell into bankruptcy due primarily to low tin prices, heavyinvestment in the smelter which did not bring enough returns and poor management.

After this collapse, from September 1986 to December 1988, the government provided acaretaking of concessions and their dependent property at the cost of 100 million Rwandanfrancs per year. In 1988 COPIMAR (Coopérative de Promotion de l‘Industrie MinièreArtisanale au Rwanda) was founded on the initiative of the Government of Rwanda to re-invigorate the sector of artisanal mining that was practically extinct.

In 1989 REDEMI, a public company was established to continue the work of mining andexploration till another round of privatization was possible. In January 1989, the Régied'Exploitation et de Développement des Mines (REDEMI) launched its mining activities on allconcessions of SOMIRWA which had a total area of 104,000 ha with a capital of 97,225,000francs granted by the Government of Rwanda.2

Given this long history, there was significant potential for the mining industry to have a strongpositive impact on the Rwandan economy. From 1930 to 1968, mining production increasedfrom 20% to 42.5% of all foreign exchange earnings of the country. However, between 1969 and1973, the share of mineral revenues decreased by 42.5% to 21.6% due to a lack of investmentafter independence. While the creation of SOMIRWA aimed to turnaround the industry andincrease the export earnings of minerals, but as we have seen this did not happen and from1980 until 1984 production fell leading to revenues not exceeding 10%. After 1994, there was agradual recovery of revenues due to increased government support and focus, with exportsgrowing gradually to reach 45.7% of total exports in 2001.3

1.2. Privatisation of the sector and its current status

Since 1997, mining and trade in minerals have been recovering mainly due to the privatisationof government owned mines, which increased productivity4, and due to high prices oninternational commodity markets. The government’s vision for the mining sector is to ensurethe optimal and sustainable utilization of its mineral resources. Though mining does notfeature significantly in the EDPRS, there are two targets set out for government: Increase mineral exports by 250% from $US 38 million in 2005 to $US 106 million by 2012 Increase employment in the sector from 25,000 to 37,000 of which 20-30% should be

women.

The main strategies employed to do this are:

Promoting private sector participation in all parts of the mining value chain;

2 D. BIDEGA. Réorganisation du secteur minier au Rwanda. Mémoire de la fin d’études du Centre d’ Etudes Supérieurs del’Administration Publique des mines (CESAM), Paris, 2006, p.17 -203 Ibid.p. p.354 Due mostly to better management practices.

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Ensuring greater effort is put into mineral mapping and exploration; Improving the capacity of small miners.

The mining sector is on track to meet these overall targets set out by EDPRS: Exports earningsexports earnings increased by 28.4% from US$ 70.61 million in 2007 to US$ 90.68 million in2008. Total number of people estimated to be working in this sector is about 50,0005. A total ofabout 185 mining permits are now operational6, owned by 138 differentcompanies/individuals. The key players in the industry are private investors and small scale(artisanal miners).

The majority of the permits belong to small scale miners, categorized after assessment of theirapplication including environment protection, action plan and business plan. Though theywork with basic equipment, they are responsible for a significant part of production. However,this production has been far below the potential production that could be realized if there wereorganized and skilled and the activities have damaged the environment. These small scaleminers are being encouraged to form cooperatives to raise their capacity to afford technical andfinancial requirements for productive mining.

Through the government’s decision to privatize her mineral concessions, a number of largeplayers have entered the market in both exploration and exploitation. These large players aremostly international companies, some of which have joint ventures with local investors. Theyhave to determine potential mineral deposits in their large scale concessions in order to begiven a 30year permit to develop industrial mining. (See Annex 1 for a list of internationalcompanies operating former government owned concessions).

The Government has also worked to improve the institutional environment for managing thesector:

The mineral policy was formulated in 2004; The new mining law replacing the law of 1971 has been passed by Parliament; The privatization of government concessions is complete; OGMR has been formed. This institution is responsible for regulation, technical

supervision, promotion of value addition and participating in formulation of mining andmineral trade policies.

This rapid progress means that the Government’s Mining Policy written in 2004 is now out-of-date. For example, the 2004 Policy can no longer provide a clear framework for regulation of aprivately-run mining industry; it does not address issues of macro-economic stability or fiscalimpact; and it does not include details for how to implement strategic programmes.

5 The percentage of women is unknown to assess against EDPRS targets.6 See Appendix 2 for different kinds of permits issued in Rwanda.

Mining Policy 2010

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2. Analysis of the Current Situation

The mining industry is currently in a state of transition across two axis: moving from apublicly-run to a private industry; and moving from a regional trading industry to a localextraction and exporting industry. The focus of this policy is on cementing and hastening thistransition, building on recent progress.

Recent progress includes the updating of the regulatory framework to keep pace with therapid privatisation of mining sector since 2004, through the publication of the new MiningLaw. This Law forms a solid basis for the regulation of the mining industry and will beeffectuated by a number of Ministerial Orders currently being formulated.

However, many challenges to extraction remain, including difficulties accessing finance,dealing with taxes and coping with price risks. Further still, there is a general dearth of skilledmine engineers, geologists and metallurgists in Rwanda, meaning that companies have toimport skilled staff. These gaps are being addressed with efforts to train young miningscientists, but this will take time. The knowledge of reserves also remains a major challenge,but one that can be addressed by effective clarification and then implementation of the licencerequirements contained in the new mining law together with an effort to gather all existinginformation on Rwanda’s mining sector from international sources.

Post-extraction value addition to minerals also suffers from a number of challenges, butespecially the relative high cost of energy. Efforts to develop processed quarry products willface the same issue, but do have the potential to be competitive against existing imports.

The overarching challenges set out in the five pillars are discussed in more depth below.

2.1. The legal, regulatory and institutional environment

The coordination of the mining industry is currently led by two institutions. MINIRENA hasresponsibility for setting policy and preparing legislation, while OGMR has responsibility forimplementation of the policy and regulation. Figure 3 below sets out the constrained faced byeach agency and collectively.

Figure 3: Roles and constraints facing the two government agencies responsible for mining

© 2009 – OTF Group, Inc.

Session 2: Coordination, regulation and investmentSituation analysis: The institutional framework needs better coordination

Two Government institutions have responsibility for the mining sector:

MINIRENA OGMR

Responsible for:• Developing policy and legislation• Overseeing the whole industry• Monitoring & evaluation

Responsible for:• Harmonising & disseminating existing data,

plus developing new data• Regulating and supervising the industry• Promoting value addition• Contributing to policy development

Collective constraints are:• Limited capacity at MINIRENA constrains development of policy and legislation• There is a general lack of qualified, local skills to recruit and there are difficulties retaining skilled

staff in the mining sector.

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While the coordination of the mining industry requires more capacity in these two institutions,the regulation of the mining industry is already being updated in order to keep pace with therapid privatisation of the mining industry over the last five years. The recently publishedmining law (Law nº 37/2008 of 11/08/2008 on mining and quarry exploitation) is wellformulated, using international standards and provides a strong framework for the creation ofan effective and competitive regulatory environment. Specifically, the mining law will be madeeffective by a number of Ministerial Orders that are currently in the final stages of beingformulated and that will provide the specific details for the implementation of the Mining Law.These Ministerial Orders are:

• Ministerial Order n°…… of ..…. determining the modalities of application of the lawn°37/2008 of 11/08/2008 concerning the exploitation of mines and quarries

• Ministerial Order n°…….. determining the fees applicable to mining and quarryingactivities [with RRA and MINECOFIN]

• Ministerial Order nº….. of …. determining the taxes applicable to mining and quarrying[with RRA and MINECOFIN]

• Ministerial Order n°….. of …. concerning the sale and purchase agreement conditions ofminerals in Rwanda [with MINICOM]

• Ministerial Order nº….. of …. Determining the modalities for management of theenvironment applicable to the law no. ……. Relating to mines and quarries [with REMA]

• Ministerial Order nº..... of ....... relating to the mining convention• Ministerial Order nº..... of ....... relating to the use of explosives [with MININTER].

The newly published Mining law form a solid basis for the regulation of the mining industry.This final Green Paper will be transformed to a White paper for Cabinet approval and willinform the Ministerial Orders listed above and hence will provide the detailed framework forthe implementation of the law.

One area that the Ministerial Orders will seek to change is the permit application process. Thecurrent permit application process is complicated and bureaucratic, see Figure 4 below.

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Figure 4: The current permit application process


Session 2: Coordination, regulation and investmentSituation analysis: The permit application process is managed locally

Request to ExecutiveSecretary of sector withcopy to Mayor, OGMRand Ministry of Natural

Resources

Executive Secretaryverifies request and

signs the survey map

Within 15 days, theExecutive Secretary

transmits the request tothe Mayor

Mayor assesses ifrequest meets

conditions:- < 1 Ha quarry decided byDistrict- otherwise transmitted toOGMR (15 days)

OGMR carries out afield visit, takes a

decision and providesfeedback to the District

within 10 days

Mayor transmitsrequest to the Ministerfor Natural Resources

within 15 days

Any additionalinformation requested

within 30 days

Applicant

Local Government

Central Government

Total time taken= up to 3 months

2.2. Recent financial, fiscal and macro-economic policies

The tax burden on the mining sector is a further area that will be clarified by MinisterialOrders. Currently the proposals will help to create a clear and simple tax regime with littlediscretion, making it easy for investors to calculate their tax liability. Specifically theMinisterial Orders should make provisions for:

Permit fees to be fixed and low – just to cover administrative costs

Superficial taxes/land rents to be made consistent across districts which is good forconsistency and predictability

Royalty rates to be internationally competitive and regionally comparable. Ad valoremroyalty rates should be considered in the future, as they would be administratively feasiblefor Rwanda, and they could provide stable revenues for Government through pricevolatility (as investors take on risk)

Exemption of import duties and corporate taxes on exploratory activities (tax holidays)encourages investment to increase knowledge of reserves. This is an administratively easieroption versus alternatives such as accelerated depreciation which are better technically.

Standard corporate tax rate in line with Rwanda’s overall tax regime

Central administration of taxes, except for land rents.

A further key area is in terms of expenditure. International experience suggests that linking thetax revenues provided to the central government from mining firms more explicitly to localspending is an effective way of building local support for the mining industry anddemonstrating local impact. In this case the Ministerial Orders should propose that aproportion of the national taxes collected could be returned to the community in which themining company is based.

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More generally, it is seen that tax and permit fee revenues from mining contribute only 0.08%of government revenues - a total of approximately FRW 200million, while the mining industryis allocated a budget of roughly the same amount at less than 0.1% of the national budget. Eventhough it is a private sector-led industry, mining can still be seen as in a development stageand hence may require substantial public investments e.g. in building knowledge of reserves,in capacity building or in supporting investments.

A key concern for the government in planning for budget expenditures and in ensuring itsdebt sustainability is the very large fluctuations in prices, production and hence revenues facedby the mining industry. Since the mining industry alone accounted for approximately 50% ofexport revenues in 2008, a fall in prices and production of minerals could combine to reduceRwanda’s earnings of foreign exchange significantly, forcing the government to undertakerestrictive measures in order to maintain economic stability. Figure 5 below shows thatRwanda’s minerals face extraordinary price swings leading to large export earningsfluctuations.

Figure 5: Monthly prices of key exports and calculations of their variation.


Session 2: Coordination, regulation and investmentSituation analysis: Minerals face significant price volatility

• Rwandan mineral prices are volatile – more than tea and slightly more than coffee• In Q1 2009, cassiterite is 33% down, coltan 9.4% and wolfram 3.1% down compared

to Q1 2008• Production is responsive to prices (see next slides)• Export revenues as share of GDP is volatile – ranging from 20-40%• No macro mgmt strategy or tools in existing policy, in new law or in Ministerial Orders

The graph and table in Figure 5 above highlight that mineral prices are significantly morevolatile than those of coffee and tea. This is particularly worrying when combined with theanalysis in Figure 6 below which shows that mineral production is strongly related to the price,i.e. that when prices are high, production volumes increase and that when prices are lowproduction volumes fall. This suggests that revenue fluctuations are likely to be even morepronounced than simply price or volume fluctuations alone.

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Figure 6: Relationship between mineral prices and production


Session 2: Coordination, regulation and investmentSituation analysis: Mineral production is closely related to prices

Currently the government has no mechanisms in place to deal with these fluctuations, both forits own revenues and to help manage the risks of fluctuations for investors. The miningrevenues for 2009 are projected to be significantly lower than 2008 due to the recent price falls.These fluctuations are likely to have a particularly negative affect on smaller investors, as theincreased risk will reduce their capacity to invest in new equipments and modernise, whilelarger firms are likely to view fluctuations over a longer term time horizon. The governmenthas a number of options for dealing with such risks e.g. through price stabilisation funds, byenforcing export standards so that exporters have better relationships with internationalbuyers, by introducing unit or ad valorem royalty rates helps smooth revenues from miningindustry, by establishing a commodity stabilization fund to smooth tax revenues.

However, the most effective way to deal with such fluctuations in the long-term will be todiversify exports into other sectors and to add value to minerals or facilitate downstreamintegration of minerals into other industries, i.e. to reduce dependence on mineralcommodities. Both of these will require significant investments in processing andtransformation plants.

The final element therefore to this analysis of the regulatory and institutional climate is theinvestment framework. One of the key constraints put forward by private mining firms whenasked about their constraints to growth is the local access to capital. There are three mainelements to financing challenges and these are the capacity of small-scale miners to apply forloans, the capacity and willingness of banks to finance the mining industry and the capacityand willingness of the Rwandan government to support large-scale investments with aninjection of its own capital. Figure 7 shows the different financing gaps at each stage of thevalue chain.

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Figure 8: Age of miningtechnicians


Session 3: Productivity, Capacity and Socio-economic benefitsTechnical skills are most needed, but Rwanda has a limited no. of old technicians

Man

ager

ial s

kills

Tech

nica

lsk

ills

How important is each position is in terms of its ability tosupport the industry’s development?

Source: OTF Group Training and Financing Needs Survey Rwanda, Nov 2005 and Sector Objective Setting surveys, Dec 2005

4

20

16

25-40 years 40-57 years57+ years

Figure 7: Financing challenges at each stage of the value chain


• Explorationfinancing is veryexpensive andrisky

• Cost ofbankableresearch studies

•$3M for 7km2

• Reliance onforeign capital(often venturecapital) andexpertise

• Financing toestablishindustrial minesrequiressignificantinvestmentsand relies onprivate equityfor which thereis limited localcapability

• Artisans needsupportplanning forestablishment

• Mechanised: Localbanks lack miningexperience andoffer limitedprovision

• Project financingor joint ventureslimited by lack ofgov’t investment

• Artisans requireequipment, butlack the strict 20-30% collateralrequirements inthe few banks thatare willing to loanto miners

• Informal tradechannels areused to avoidexport credits

• Reliance onforeign partners /intermediaries

• Taxation andexcise duties

• High setup &running costs

•Electricity costs10x Malaysia

• Requires higherproductionquantities, but

• Reliance onforeign capitaland expertise

• Project financingor Joint Venturescan play a rolehere

• Lack of financialliquidity

•Freight to Chinatakes 3mths +

• High cost ofexport credit

• Insufficientquantity exported& lack ofnegotiatingpower

Session 2: Coordination, regulation and investmentSituation Analysis: A range of financing needs exist at each stage in value chain

TransformExplore Establish Exploit Take toMarket

Trade, Test,Treat

PRODUCTION TRADING & TRANSFORMATION

Given the challenges set out above there are a number of actions that the government couldtake to increase the flow of capital to the mining industry. For example the government shouldseek to provide some form of partnership funding for the small-scale mining sub-sector,perhaps through a multi-lateral fund with very low interest rates, or where a percentage ofland rents paid provide the basis for a Public-Private Partnership agreement. The governmenthas decided not to engage further in Joint Venture financing for large extraction andprocessing projects, as it is felt that the Government is not efficient at assessing risks and sowould have the potential to lose out in any deals. This would require significant investmentson the side of the government, but could have a crucial positive impact on private sectorinvestments. Finally, the government could develop a project financing unit in RDB to developlarge-scale projects that can be financed collaboratively by international financial institutions,the government and large private sector firms.

2.3. Existing knowledge, skills and good practices

One of the key means of ensuring that the mining industryhas a positive impact on rural communities and the countryas a whole is through the development of local skills. InRwanda this is a major constraint to the industry’s growthand to its impact, as there has been very limited investmentin local technical mining skills for many years. Specifically,the locally available expertise in geology, mine engineeringor metallurgy is limited to roughly 40 scientists of whomonly 4 are under 40 years old (see Figure 8). These skill gapsare being addressed, but it is estimated that Rwanda willrequire at least 80 scientists and over 300 mining

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technicians over the next five years. If Rwanda is to develop a local mining services industry,many more scientists and technicians will be required to serve the regional market.

Figure 9: Importance of each position in the development of Rwanda’s mining industry


Session 3: Productivity, Capacity and Socio-economic benefitsTechnical skills are most needed, but Rwanda has a limited no. of old technicians

Man

ager

ial s

kills

Tech

nica

lsk

ills

How important is each position is in terms of its ability tosupport the industry’s development?

Source: OTF Group Training and Financing Needs Survey Rwanda, Nov 2005 and Sector Objective Setting surveys, Dec 2005The graph in Figure 9 above provides an analysis of the most important skills needs forRwanda’s mining industry as ranked by Rwandan industry players and foreign experts. Itshows that while the top ranked skills are technical in nature, other skills based on businessand marketing are also deemed to be critical. The major areas of difference are that localindustry players give a lower weight to the importance of business skills and to the regulatoryskills than international firms. Both sets of stakeholders place a strong weight on the technicalskills of geology and mine engineering, but local stakeholders see a more urgent need formining technicians.

While these skills gaps are a concern efforts are ongoing to train young mining scientists andlocal business and marketing skills are being produced, but require mining sector expertiseand specialisation. However, the knowledge of reserves remains a major challenge. Figure 10below summarises the specific knowledge gaps that exist in the Rwanda mining industry.

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Figure 10: Knowledge and skills challenges at each stage of the value chain


Managementskills

Knowledge ofMarkets

Knowledge ofcustomer needs

Source: MBendi; OTF Group research

Mining / extraction

Scaling / crushing

Separation & Sorting:

Grinding / Milling

Classification

Drying

Magnetic separation

Weighing / testing

Grading

Containerizing

Processing

Locate mineralsusing geological

survey data

Examine /research resource

location andquantity

Obtain concession/ permit

Obtain financing

Purchase andinstall machinery

Hire and train staff

Establish mine

Manufacturing Consolidation ofproduct

Transportcontainers

Government;geologist, mine

owner, localartisans

Artisans, SMEs,industrial mining

companies,cooperatives

Collection hubs,artisans, traders,

exporters,processors

InternationalIntermediaries

Geologist, mineowner, local

artisans

Processing firms

Knowledge ofReserves

Knowledge ofTechniques

Knowledge ofMetallurgy

Session 3: Productivity, Capacity and Socio-economic benefitsRwanda needs to increase knowledge around critical components of the value chain

TransformExplore Establish Exploit Take to MarketTrade, Test,Treat

There is extensive knowledge of the potential reserves in those areas that have been mined inRwanda since the 1930s, efforts are underway to consolidate this existing knowledge and tomake it much more publicly accessible, e.g. via the internet. However, there still remains a lackof knowledge of the potential reserves in other areas of the country. The new mining lawrequires permit applicants to have made an initial estimate of the value of the reserves thatthey intend to mine and to have made an initial mapping of the deposit. This will certainlyhelp to build knowledge, but may exclude some of the smallest-scale miners from applying fornew permits due to the high costs of developing these estimates.

Regardless of this development, there is a clear need for the government to take the lead ondeveloping a more comprehensive initial mapping of the zones of high potential, in order toprovide better information and better encourage private investors.

Extractive industries, both nationally and internationally, suffer from a poor public image:trade in conflict diamonds has tainted the image of the precious stones sector and UN publicityhas led to image concerns around coltan trade. These negative perceptions often do not takeinto account the lasting positive impact that mining industries are well-positioned to make onsocio-economic development. The often negative historical impacts of minerals industries onthe safety, health and welfare of mine- and quarry-workers and surrounding communitiesmust be addressed and reversed through knowledge, consultation, planning and commitmentin order to develop a sustainable minerals industry economy that meets the needs of thepresent generation without compromising future generations’ ability to meet their needs7.

In order to do so, it is necessary to consider the communities living adjacent to mines as beingintegral to the mining process through a number of initiatives, including: developing

7 APASA Industry paper on Sustainable Development and CSMI (Center for Sustainability in Mining and Industry) brochure

16

community reinvestment programs for minerals industry revenues; training minerals industryworkers and their families on safety, health and environmental issues; supporting thedevelopment of ancillary and service industries in mining and quarrying communities;establishing and imposing environmental standards and increasing the participation of womenin minerals industry activities, for example the development of a local jewellery sector usinglocal precious stones and metals, local designs and a unique social brand.

Of the list of activities set out above, Rwanda has succeeded in establishing and monitoringenvironmental standards. The other areas of best practices in community support anddevelopment are undertaken on an ad hoc basis by private mining firms, but should beaddressed on a national level within this revised mining policy.

2.4. Current domestic extraction and exports

Currently, many of the larger industry actors are predominantly trading-oriented, withexploration and exploitation activity currently exceeded by trading activity. In addition currenttransformation and processing rates are relatively low however, the government is committedto improving knowledge of local production statistics and to encouraging greater processingthrough the permit process.

Companies’ reluctance to venture into production activities as well as financing institutions’low willingness to provide production financing are exacerbated by the lack of availableresearch data on potential deposits and a lack of production statistics. Expanding productionof minerals therefore requires the collation, packaging and dissemination of existing data onresource potential, together with further efforts to undertake initial stage exploration into areasof high potential. These efforts to improve knowledge of mineral potential coupled with effortsto improve the environment for mining businesses and the marketing of investmentopportunities should lead to greater investments in extraction.

While the contribution of mines and quarries to real GDP is low, 0.4% in 2003 and 0.7% in 2007(3.38 billion Rwf in 2003 and 7.75 billion Rwf in 20078), the sector contributes significantly toexports, representing 17.5% of total exports in 2003 and almost 50% in 2008. The export valueindex of cassiterite, coltan and wolfram noted a compound annual growth rate of 63%, 169%and 203% from 2003 to 20079 respectively. This improved performance was driven by:

Price: The prices of cassiterite, coltan and wolfram increased on the world market: from2003 to 2007 the prices of cassiterite, coltan and wolfram increased annually by 23%, 23%and 40% respectively. The prices of the three minerals further increased respectively by41%, 51% and 9% in 2008. It is important to note that the increase in prices was observed atthe beginning of 2008 but towards the end of the year minerals prices decreased in general.

Production: The total production of the three minerals increased from 1,765 tons in 2003 to7,494 tons in 2007 – an annual growth rate of 44%, split between growth rates of cassiterite,coltan and wolfram of 33%, 7% and 118% respectively10. But, there was a significant fall inwolfram production of 36% from 2007 to 2008 due to difficult access to resources.

Key factors of the good performance in production are:- Large increase in world prices;

8 Source: MINECOFIN; data in real terms at prices of 20019 Base 100 in 2000 i.e. value in 2000 is taken as reference10 Source: BNR, Annual Report 2007; exports are free of board (FOB)

17

- The increased number of investors in exploration and mining within the last two years;- Reducing the time required to process mining and exploration permits;- Active involvement of Rwanda Geology and Mines Authority (OGMR) in advising

miners on how to mine productively and sustainably.

Figure 11: Summary of quantity and prices for the minerals mined and traded in Rwanda

Item 2003 2007 2008 CAGR11 2003-7 CAGR 2007-8Sales Volume (in tons)Cassiterite 1,458 4,566 4,193 33.03% -8.17%Coltan 187 242 1,190 6.66% 391.73%Wolfram 120 2,686 1,708 117.51% -36.41%Total 1765 7,494 7,091 43.55% -5.38%World Prices: $/Kg - nominalCassiterite 3.08 7 9.84 22.78% 40.57%Coltan 8.69 19.85 30 22.94% 51.13%Wolfram 1.89 7.23 7.85 39.85% 8.57%Export value: $millions - nominalCassiterite 4.49 31.97 41.25 63.35% 29.03%Coltan 0.37 19.23 36.03 168.50% 87.36%Wolfram 0.23 19.41 13.40 203.09% -30.96%Total 5.09 70.61 90.68 92.99% 2.55%

Exports earnings from the three main minerals increased by 28.4% from US$ 70.61 million in2007 to US$ 90.68 million in 2008. Of that cassiterite represented 45.5%, coltan represented39.7% and wolfram represented 14.8% in 200812. The decrease noted in the export of wolframvalue in 2008 was due to the small increase in price (compared to larger price increases forcassiterite and coltan in 2008) and significant decrease in wolfram production. Compared tothe production in 2007, we noted a decrease of 5.38% for the year 2008 in total production ofthe three main minerals exported with a decrease of 8.17% and 36.41% in cassiterite andwolfram production respectively. The end of 2008 saw falls in commodity prices as the globalrecession spread and demand for commodities fell. The industry will have to rely onproductivity and production increases to sustain future growth.

This rise in revenues meant that mining became Rwanda’s largest export earner with$94million of direct export revenues in 2008 coupled with a further $43million of mineral re-exports, taking it to almost 50% of total exports (see Figure 12 below).

11 CAGR: compound annual growth rate12 Data from BNR

18

Figure 12: Rwanda’s exports by major product grouping 2002-2008

© 2009 – OTF Group, Inc.1Source: OTF Group mining sector survey, 2006, n= 46

Rwandan exports by sector

$ Millions

Minerals accounted for over a third of physical export revenues in 2008

Session 1: Mining Policy – process, rationale and contextRwanda’s exports of minerals have risen rapidly since 2003

Nevertheless, Rwanda has continued to see a rapid rise in imports over the same period. Ofspecific interest for the mining industry is the rise in imports of construction materials andfertilisers over this period, with a total value of approximately $150million in 2008, see Figure13. This presents a very significant opportunity for import substitution, as Rwanda possessesthe raw materials necessary to produce locally a proportion of these existing imports.

Figure 13: Rwanda’s imports by major product grouping 2003-2008


Session 1: Mining Policy – process, rationale and contextRwanda’s imports of construction materials remain significant

1Source: OTF Group mining sector survey, 2006, n= 46

Rwandan imports by sector

Minerals accounted for over a third of physical imports in 2008

41 52 110 127203

367

41 6949 57

57

167

810

3349

65

136

2723

6074

89

139

2843

4348

72

87

106104

101118

157

0

200

400

600

800

1,000

2003 2004 2005 2006 2007 2008

Beverages

Food stuff

Other Supplies

Fertilizers

Industrial products

Construction Materials

Mineral fuels, oils and products

Machinery & electromechanicalequipments

$ Millions

Given the two figures above, it is clear that mining has both a large current impact onRwanda’s economy and significant potential for the future. However, there are manyconstraints faced by the mining industry throughout the value chain, which will impede theindustry from realising this potential. Figure 14 below shows the broad spread of challengesfacing the mining industry.

19

Figure 14: Overview of production and productivity challenges

5OTF-GoR Retreat Akagera—EAK—02-14-06

OTF Group Proprietary InformationExtractive Industries (includes Mining)Mining Strategy identified local challenges to developing a dynamic mining cluster

TransformExplore Establish Exploit Take toMarket

Trade, Test,Treat

- Sparse knowledge of reserves- Lack of geological and engineering

expertise- Limited Research and production financing- Outdated mining equipment and

techniques- Weak cooperative structure

- Limited processing and transformation- Little understanding of end-customers and

their needs- Low capacity for enforcement of

regulation- Lack of collaboration- High cost of inputs, especially power

- Uneven application of taxes at a local leveland lack of analysis of competitiveness of taxregime for investors in general

- Lack of clarity of investment opportunities

- No fiscal policy for mining revenues &spending

- Limited institutional capacity in OGMR &MINIRENA and weak coordination

PRODUCTION TRADING & TRANSFORMATION

CROSS-CUTTING ISSUES

Customs procedures are one area not already discussed above that hampers miningcompanies’ operations. Specifically, the types of equipment required for mining prospectionand extraction are not well understood by customs officers and hence, the equipment is oftenimpounded at MaGeRwa for long periods while protracted negotiations are conducted by themining firm regarding the use of the equipment. To overcome this constraint, customs officialsneed training and more information on the tariffs applied to mining equipment.

2.5. Progress towards diversification and value addition

Further processing of the existing mineral production is also a priority in order to ensure morevalue is created in Rwanda and to provide greater stability of prices. The major challenges inthis instance lie in the insufficient local production and in the cost and reliability of energy, seeFigure 15. These two factors combined are the reasons why the two existing smelters inRwanda are not working. Other factors for potential investors in value addition are the highfixed investment costs coupled with financing costs and the limited knowledge of reserves.

20

Figure 15: Major constraints to value addition of minerals


- 2 4 6 8 10 12

High input costs (e.g. electricity)High fixed investment costs

Lack of knowledge of reservesProcessing capacity

Interest rates / financing constraintsLow quantities of minerals

Technical skills

Lack of formalized training channelsInfrastructural constraints (e.g.…

Culture / mindset constraintsLack of customer / market…

Lack of markets for finished goodsOther

What are the major constraints to value addition in mining?1

1Source: OTF Group mining sector survey, 2006, n= 25

While a number ofthese constraints

are being addressedin other pillars, thecost of energy, the

low quantity ofminerals anddownstream

markets are two keyareas to beaddressed

Session 4: Develop domestic production, diversification and servicesValue addition and industry linkages – priority challenges to address

Diversifying the portfolio of mining industry products is a further crucial step to developing adynamic mining industry and ensuring stable revenues. Specifically this involves three areas ofdiversification: into construction materials, energy substances and precious stones, see Figure16 below. 13

Figure 16: Expansion and diversification available within the mining industry


Apart from quantifying Rwanda’s rich reserves, there is a need to plan for increasingthe sector productivity and diversification potential

Metals Constructionmaterials

Energysubstances

Preciousstones

Proportionof current

exports

Proportionof futurepotential

? ? ? ? ?

Expand production

Source: Privatization and the Mining Sector - Republic of Rwanda, Ministry of finance and economic planning

Session 4: Develop domestic production, diversification and servicesDomestic production and diversification will depend on knowledge

Diversify into new products

Quarry production and transformation into construction materials has the potential to act as aclosed circuit within Rwanda: quarry products can largely be extracted, transformed andconsumed in-country, benefiting locals at each step. The Rwandan quarries industry is,however, relatively undeveloped, with aggregate quarrying being dominated by largeinternational construction firms, and the majority of value-added construction materials beingimported from Uganda (47%), South Africa (12%), Kenya (11%) and Dubai (10%)14. Manyquarry and construction imports are of products for which Rwanda has an abundance of rawmaterials: e.g. Rwanda imports in average $6 million per year of tiles, despite having richdeposits of granite. Figure 17 below shows the quarry materials that are available in Rwandaand the type of end products that could therefore be locally produced. It shows the existingquantity of domestic production and the current value of imports for each product.

13 Principal minerals by sector: Metals (coltan, tin, wolfram, gold); Precious and semi-precious stones (sapphires, amethyst,tourmaline); Quarries (aggregates, silicon sands, dimension stone, clay, peat, finished products - cement, tiling, concrete)14 Source: Rwanda customs data, 2008. OTF Group analysis

21

Figure 17: Quarry materials available in Rwanda and existing imports15

© 2009 – OTF Group, Inc.Source: GMI Business Plan for Granite Tile plant, 2008

CommercialQuarries

Non-commercialQuarries

Quarry with permanent infrastructureestablished to service a viable market.

Temporary quarries e.g. borrow pitsand project quarries

Limestone

Cement

Fertilizer Concrete

Aggregate

Asphalt

River etc.Sands

CrusherSands ClaysIndustrial

Sands

Glass Pottery

DimensionStone

Lime

Tiles Bricks/roof tiles

Marble /GraniteCement

Impo

rts

2008

(US$

)D

omes

ticpr

oduc

tion

6,029,086 2,152,992 0 0 7,548,925 7,198,467 2,758,715 1,203,241 0

0 100,000 T ? ? ? 240 T ? 50,000 T 0

Session 4: Develop domestic production, diversification and servicesThe expansion of existing quarry products can substitute for imports

The conclusion to be drawn from Figure 17 above is therefore that if Rwanda was able todevelop or grow competitive industries producing these construction materials and otherproducts, it would be able to substitute a significant amount of existing imports.

Currently quarries in Rwanda are classified in 3 categories: The first category comprises ofsmall quarries (<1 ha) and these are managed by the local government i.e. districts. The secondcategory comprises of quarries greater than 1 ha and these are managed by MINIRENA forwhich a permit has to be issued by this Ministry. The third category comprises of governmentquarries and these remain the property of the government. Permits to manage these quarriesare issued when there is an activity of public interest like the construction of roads, airports orbridges. These publicly held quarries are opened for the Ministry of Infrastructure once itwrites officially to MINIRENA to request for the release of the needed number of quarries for aspecific period. MININFRA generally provides the permit for free to the company involved inthe execution of the road-building or bridge-building activities and so these quarries end upbeing run by international rather than local firms. Therefore there is an opportunity to find ameans of enabling local firms to run these public quarries for road-building projects and so toretain profits and revenues locally, while building the domestic skills base.

15 Source: MINECOFIN imports data 2008.

Mining Policy 2010

22

3. Vision & Objectives

Mining brings several benefits to developing countries, manifested mainly as employment(especially in rural areas) and revenue.16 Apart from the obvious example of South Africawhose minerals industries are the backbone of the national economy, players closer to home –like Tanzania whose increase in gold exports from $3.3million in 1998 to $120.5million in 2002led to gold being its top export commodity17 - have product-focused minerals industries thathave made important contributions to their national prosperity.

Given the country’s political stability, its historical success in the extractive industries and itsabundant and hardworking labour force, the potential to develop a vibrant minerals industryin Rwanda certainly exists. The fact that potential exists is substantiated by the recent progressin privatising the industry and by the growth in export receipts up to $94million in exportrevenues recorded in 200818. Equally undeniable, however, is that much remains to be done todevelop the full potential of Rwanda’s minerals industry sectors. Locally produced mineralsshould be contributing much more to the economy and export receipts, as well as to thelivelihood of rural artisans, than they currently do.

3.1. Potential economic impact

The charts in Figure 18 below highlight estimates of the long-term potential of mining tocontribute to the economy. They show that with significant investment there could be a four-fold increase in production and export revenues within the next ten years. For example totallocal production (not including traded minerals) could reach 16,000 tons, with revenues ashigh as $240million per year.

Figure 18: Long-term potential – production and exports19

8

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Cassiterite Coltan Wolfram

Existing Potential

Current v. potential production in tons

9

0

20

40

60

80

100

120

140

160

Cassiterite Coltan Wolfram

Existing Potential

Current v. potential revenues in $millions

Besides economic receipts and jobs, other reasons to focus on the development of Rwanda’sminerals industry include the potential for skills development, development of sustainablecooperative-centred communities, preservation of the natural environment, encouragement ofprivate-public sector partnerships and joint ventures, development of minerals industry-

16 MMSD 200117 Encyclopedia of the Nations – Tanzania’s Mining Sector18 Source: MINECOFIN export data, 200819 Source: MINIRENA-OGMR & OTF Group estimates based on establishment of industrial mining.

23

related services and other businesses and remedying current perceptions of mining activities inthe region.

The Minerals Industry Strategy produced in 2006 included aims to generate cumulativereceipts of $US 347 million over the period 2007-2011 with a target of $100million of revenuesper year by 2011. The peak of $94million in 2008 shows impressive progress towards theseambitious targets, nevertheless with the slump in mineral prices at the end of 2008, achieving$100million of revenues is likely to remain a challenge in the short-term.

In this Mining Policy more emphasis will be placed on achieving the implementation of keyactivities, rather than on export figures, as these will always remain subject to the whims of theinternational market. Figure 19 below shows the overarching actions and outcomes targeted foreach of the main sectors.

Currently, 100% of mining industry export revenues stem from the export-focused metalssector, especially in tin, coltan and wolfram. The primary objective of this Mining Policy is to“optimise local extraction and processing of minerals in Rwanda”.

Figure 19: Overarching vision for the respective sub-sectors

6

Rwanda’s Mining Sector StrategyRwanda’s Extractive Industries could generate an estimated $US 106 Million by 2011

Metalsubstances

Double export volume:– Tripling in local production– Regional mineral

consolidation

10% increase in revenue/T dueto transformation

Rwanda has developed a significant domesticextraction industry, which will enable it to become a

true mining hub, consolidating, processing andcertifying tin, coltan, wolfram and gold.

Investments Vision by 2015

Precious stones

Formalization and upgrade ofmining practices

Sorting, cutting and design

“Rwanda builds the know-how in gem selection,cutting and design expertise to offer sapphire,

amethyst, beryl and tourmaline stones and jewelryto customers and retailers who are socially

conscious”

Quarry Products

Increased local participation inaggregate production

Import substitution forconstruction materials

Product base expansion

“Reliably Rwandan” construction materials provideRwanda’s industrial, residential and infrastructure

projects with value-for-money aggregates, tiles andcement produced by local businesses and

cooperatives

Sub-sector

The domestically focused quarry and construction industry’s contribution to GDP is expectedto reach $287million by 2014. A vibrant local quarries industry - with local playersparticipating in large construction projects - will be required to support this growth and theallied demand for construction materials. Many barriers to local participation in large public-sector-led construction projects exist, specifically owing to the nature of the constructionproject tender process, whereby local players are not currently able to compete on largerconstruction projects. In addition, the quarry rights for large construction projects are rolledinto project scoping and costing, and foreign companies who are awarded bids are given freequarries for use on their projects.

24

Imports of construction materials in 2008 amounted to almost $10.5million20: to become self-sufficient, Rwanda must focus on import substitution by revising and liberalizing the tenderprocess and cultivating local market demand for, and supply of, value-added constructionproducts, moving towards achieving complete import substitution and some exports.Rwanda’s Quarry Sector strategy is to develop Rwanda’s local production and manufacturingcapabilities to reduce the country’s dependence on imported construction materials andincreasing local industry participation and prosperity.

The small precious and semi-precious stones sector will aim to formalize and upgradeextraction and trading, and invest in gem recognition, cutting, polishing and design training.The Precious and Semi-Precious Stones Sector aims to create unique, Rwanda-branded,socially-desirable products to develop consistent export revenues.

3.2. Potential social and environmental impact

In addition to these visions for each set of products, overarching economic, social andenvironmental objectives have been identified, the attainment of which serves as a definition ofindustry success.

Improved environmental impact: The support and facilitation of the implementation of theenvironmental plan for the protection and rehabilitation of damaged environments is essentialfor the sustainability of Rwanda Mining sector. Sustainable minerals industry developmentrequires balancing the protection of the flora and fauna and natural environment with the needfor social and economic development. Through ongoing formalization and rationalization ofmining activities, the industry will increasingly be in a position to ensure the protection and,where feasible, rehabilitation of mines and quarries.

Higher productivity: The development of larger concessions will lead to increasedproductivity. This will be facilitated by the development of a clearer understanding of thereserve potential in specific areas and encourage investors. The benefits in small scale miningwill be improved due to the provision of information of higher yielding deposits, training inbest practices but also support in to undertake initial stage processing.

Increased investment: Rwanda’s mining sector has the potential to provide Rwanda with aunique opportunity to increase foreign direct investment (FDI). In other countries in theregion, the development of the Minerals Industry has been driven by foreign direct investment(historically Belgian and French investment in the region, but increasingly expanding toadditional markets including strong South African interest), bringing technical know-how andmarket linkages while transferring knowledge to the local economy. Such investments can playa significant role in Rwanda’s drive to attain Vision 2020 which requires investment to reacharound 30% of GDP. Rwanda will only succeed in attracting such investments if appropriateincentives are put / kept in place such as lack of restrictions on repatriation of funds, which is akey investment driver.

Employment creation: Apart from contributing to Rwanda’s economic growth in general andthe trade balance in particular, Rwanda Mining sector target to alleviate poverty in the countryby creating greater and high paying jobs to provide alternative sources of income particularlyfor the rural population. Rwanda’s Extractive Industries are some of the most labor intensive

20 Banque Nationale du Rwanda

25

industries, in 2006 the sector was employing an estimated 25,000 Rwandese, but this has thepotential to grow rapidly.

Increased exports and reduced imports: Rwanda’s current need is to break away fromtraditional export offerings such as coffee and tea and find a more diversified palate of exportproducts. In 2008, mining was the largest export of the country, the target of the new miningpolicy is to increase mineral exports and substitute imports especially for products that can belocally produced like tiles, bricks and other construction materials by improving themanagement and regulation of quarries.

Increased tax revenue: The formalization of mining sector will lead to increased tax revenuewith a well defined tax regime comprising corporate tax and a royalty of 2%.

Greater macro –economic stability: The new mining policy will contribute to macro- economicstability by providing support and required adjustment to price fluctuations resulting in thegrowth of mining sector.

26

4. Strategic Actions – Preferred Options

This document provides five key strategic outcomes that form the pillars of the new miningpolicy. Each of these pillars contains a number of programmes to address the constraints setout in section II and each will contribute towards achieving the objectives and having theimpact set out in section III above. Figure 20 highlights the strategic pillars and summarisestheir corresponding programs.

Figure 20: Summary programmes for each pillar

3

Pillar 1 Pillar 2 Pillar 3 Pillar 4 Pillar 5Strengthen theenabling legal,regulatory and

institutionalenvironment

Developcompetitive

investment andfiscal policies for

mining

Improve miningsector

knowledge, skillsand use of best

practices

Raiseproductivity and

establish newmines

Diversify intonew productsand increase

value addition

a. Streamlineregulatoryframework

b. Institutionalisestandardsenforcement

c. Address miningsector regulatoryskills gaps

d. Build capacity inpolicydevelopment




d. Create hedginginstruments

e. Improve priceinformation andforecasts

a. Consolidateexistinginformation onmineral depositpotential

b. Develop programof geologicalsurveying


d. Promote the EITI& corporatesocialresponsibility



c. Reform licensingfor mineraltraders


e. Promote miningbased on properestimation ofvalue of deposits



c. Provideimprovedelectricity supplyfor smelters

d. Finalise plans toestablish KigaliMining Campus

Draft Mining Policy Action PlanFramework of pillars

Under each pillar, a variety of actions to address key challenges have been evaluated withrespect to their suitability, their feasibility and their acceptability along the lines of the newCabinet Manual for policy development. The preferred options are set out in this section withAnnex A containing the details of this analysis.

4.1. Strengthen the enabling legal, regulatory and institutional environment

Revise the permit application process : Applications of permits will in the future be addressedto districts (to ensure that the land is available and other conditions are fulfilled), thenforwarded to OGMR, then to a central committee (MINIRENA, OGMR, MINICOM, RDB,MINIJUST & MINAGRI) which meets twice a month to analyse and draw up final proposals.The committee will transmit final proposal to the Minister of Natural Resources who will makethe final decision. This committee will need to be established and its working procedureselaborated.

27

Figure 21: Process for mining permits

The institutional framework for the regulation of the sector should be clearly establishedwithin Ministerial Orders. Specifically, the roles of MINIRENA, MINICOM, OGMR, Districts,REMA and RBS need to be re-evaluated and spelt out. OGMR will have the key responsibilityto work with Districts, REMA (Rwanda Natural Resources Board) and RBS to ensure that theirregulatory functions are carried out effectively.

Improve the capacity of the main regulatory institutions. The legal and regulatoryenvironment depends to a large extent on the capacity and effectiveness of the twogovernment institutions charged with monitoring and regulating the sector. There are a rangeof different activities that need to take place to build the capacity of both MINIRENA andOGMR.

OGMR will bring in international staff to fill skilled vacancies for which there are no locallyavailable skills, while at the same time recruiting newly graduated scientists to work ascounterparts and receive training and skills transfer. For example, experienced geologicalsurveyors are needed to assess carefully the exploration results of the different miningcompanies at the end of their 4-year concession permits and to ensure that companies notcommitted to proper resource and ultimately reserve estimation do not have their permitsrenewed.

MINIRENA will seek to improve its policy development skills and to raise its capacity ingeneral through recruiting further staff.

4.2. Develop targeted financial, fiscal and macro-economic policies for mining

4.2.1. Fiscal policies

Improve efficiency and predictability of the current taxation system. The existing tax systemprovides for a variety of exemptions for mining firms, but also provides mining companieswith many difficulties in meeting the requirements of RRA. The new tax structure should:

Ensure that mining companies correctly face zero rated import duties oncapital equipment and raw materials as per the EAC custom union rulesthrough tax training and advice to mining companies and to Customs.

Detail and codify accounting rules and procedures for the sector so thatmining firms and the RRA share a common understanding on the basis ofcalculation for corporate tax e.g., which costs are tax deductible, how is capitalexpenditure treated, how are royalties calculated, which losses can be carriedforward. This should reduce the frequency, length and cost of tax disputes andnegotiations.

28

Train RRA officials in the economics and peculiarities of the mining sector inorder to expedite and increase quality of tax audits.

Establish and enforce a clear set of consistent and fixed mining sector fees with lowadministration and compliance costs. Improving the tax regime for the mining sector requiresconsistency and clarity. Specifically this policy suggests that there should be clarifications onmining taxation coupled with provision of information.

Introduce an ad valorem royalty system at competitive rates and with provisions to reducerisks for investors. The proposed royalty system will use an ad valorem basis of valuation,which incurs lower administration and compliance costs than a profit based royalty systemand which would be both administratively feasible for the Rwanda Revenue Authority (RRA)and reduce the bureaucratic burden on businesses. The rate will be set out in the MinisterialOrders after careful consideration to make the rates competitive regionally.

In order to better facilitate the export of minerals and import of equipments for the miningsector training will be provided to customs officials to better understand the mining sector.Specifically, customs officials need to be able to differentiate between minerals and to rapidlyassess that a specific piece of equipment is necessary for the mining sector. To support customsofficials in this endeavour, private mining companies will work with MINIRENA- OGMR toput together a comprehensive list of mining equipment including spare parts and a maximumnumber of pieces of equipment required. This list will be provided to customs to facilitate theirprocessing of mining equipment imports. The list will also contribute to the creation of adatabase such that the quantity of equipment being brought in by mining companies iscarefully registered to avoid one company bringing in masses of equipment tax free and thenselling it on.

Creation of a mining development fund. This fund will be established in order to makestrategic public investments in the mining sector and will receive a share of royalty revenues.Mining companies and investors welcome the idea of a sector specific fund to make strategicpublic investments such as research into areas of high potential to improve primary data.Moreover, the introduction of royalties was viewed more positively if a proportion of therevenues raised were to be reinvested back into the sector. This fund will among others:

Facilitate private sector investment by reducing risk or the cost of miningactivities e.g., analysis of areas of high potential

Build capacity of the sector and other institutions serving the sector such ascommercial banks

Support small-scale mining with technical assistance and business development. To support mining community development through developing best practice

guidelines and part-financing their implementation.

A set proportion of royalty revenues will go into the fund so that the fund is sustained by thesector and mining companies can see that this sector specific tax is being reinvested to supporttheir development and growth. Many countries have set up funds using proceeds fromroyalties to develop the sector and invest in mining communities. Donor support to the sectorcan be channelled into this fund to avoid the danger of donor funds crowding out the privatesector.

29

OGMR will administer the fund as the agency responsible for developing the sector, but thiswill require capacity development and a clear oversight structure for the fund, e.g. a separateboard.

Figure 22: Diagram showing the flow of funds for the Mining Development Fund

4.2.2. Financial policies

In order to increase the level of investments in the mining industry there is a need to: ensureexisting miners in Rwanda can access financing; improve the capacity of small-scale miners tomanage their operations effectively; provide specific incentives for investors; and improveinformation on opportunities.

Train and build the capacity of BRD and commercial banks on the mining sector in order toreduce perception of risk. One of the factors constraining mining companies’ access to credit isthat banks in Rwanda consider mining as a risky sector and are reluctant to provide financingfor the sector of any kind. Three actions will address this by:

Building bank analysts capacity by providing training about the mining sectorand to work with the leaders of commercial banks to raise awareness ofopportunities in mining. This can be done by RDB and OGMR by bringing inexternal expertise

Conducting an audit of mining firms’ financing needs and providing clearknowledge of banking opportunities for mining financing

Targeting foreign banks with mining experience with this information toencourage them to open in Rwanda.

RDB should facilitate project financing. Project financing entails the establishment of a project(e.g. a large mine or processing plant) as a separate legal entity with project managers as majorshareholders & governments or donors often as minority shareholders. Because the debt isheld by the project company, rather than by the project sponsor, creditors have to evaluateonly the project company and the project’s failure does not damage sponsors’ other businesses.Such project financing is generally used for very large investments. While the existing mining

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industry in Rwanda does not need such financing, there are efforts underway to explore large-scale mining opportunities. Designing projects and facilitating financing requires specific skillswhich RDB can facilitate to support the creation of such projects in the future.

4.2.3. Macro-economic fluctuations

It is very difficult to directly reduce market volatility in mineral prices as cyclical fluctuationsare an inherent feature of the sector. The best long-term solutions are for the industry as awhole to diversify into a wider range of minerals and other products, as well as to rapidlymove into added value products and ultimately to be integrated into downstream industries.However, specific actions can be taken to help mitigate against the price risk.

Develop a legal and regulatory framework which reduces the risk for long term investments. Along enough investment timeframe would reduce the impact of market cycles and short termvolatility. Key components of this framework will be to provide legal guarantees on security oftenure and right to repatriate profits, commitment to maintain stability of fiscal regime, and toprovide a sufficient length of concessions. Effectively such a long-term framework will replacethe need for Stabilization Agreements to provide explicit, standardized, and non-negotiableguarantees of stable treatment with respect to fiscal burdens, foreign exchange controls andenvironmental requirements.

Improve price information and forecast intelligence for producers and exporters to inform andimprove the efficiency of their investment and production decisions and their management ofrisk. For example, providing such information will help to ensure that long term investmentand production decisions are not driven by short term volatilities. This could be either a publicservice provided by OGMR or a jointly funded service by the private sector through thechamber of mines/mining association.

Support development of risk management services in the financial sector such as hedginginstruments to manage financial risks associated with fluctuations of foreign exchange ratesand commodity prices. These services will benefit not only mining companies but other tradeorientated sectors.

The government will also seek to address underlying structural vulnerability by encouragingvalue addition and downstream integration with industry. When there is a downturn andprices fall, even if upstream activities suffer, downstream industrial activities can benefit fromlower input prices. Similarly, diversification within the mining sector can reduce reliance on afew commodities i.e. expand into quarry materials and precious stones.

4.3. Improve sector knowledge, skills and use of best practices

4.3.1. Knowledge

One of great challenges that Rwanda’s mining sector faces is that there is no reliable estimatesof existing potential deposits which can attract highly credible investors.

Consolidate existing data on mineral deposits and make it easily available to all. Efforts areunderway to consolidate existing knowledge of potential resources from past research andexploration reports. This data will be set out in a clear and easily accessible form, e.g. on theOGMR website. Nevertheless, there is also a need to continuously develop knowledge ofmineral deposits throughout the country, and especially to identify new zones for exploration

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in areas of high potential. This will require significant investments in geological surveying bythe government and strong enforcement of prospection permits.

Ensure that the existing 4 year prospection and extraction permits produce detailed resourcestatements. The system in Rwanda has been providing for vast concessions to be given tomining companies under exploration and exploitation licences. At the same time, these fouryear licences have not been guaranteeing the mining companies the right to sole proprietorshipof the long-term concession once detailed resource estimation has been undertaken, i.e. thegovernment has left open the option to negotiate a joint venture stake after the resourceestimation has been completed. This was a short-term measure, but is a factor, together withthe availability of minerals from the region, in the limited proper exploration that has beenundertaken. Hence, many companies are simply using artisanal style mining to extract thoseminerals that are easily accessible for the lifetime of the exploration/exploitation licence (fouryears) while continuing to focus mainly on trading minerals. Given that many of these 4 yearlicences are coming up for renewal in 2010 there is a need to ensure that the owners of thelicences are making every effort to undertake effective exploration with a view to developingindustrial mining opportunities (resource and ultimately reserve statements). To do this threeactions are required:

Establish clear criteria for the evaluation of the exploration efforts of holders ofmine concessions. Specifically, the government will set out in Ministerial Ordersthe criteria for evaluation, such as the provision of a validated resourcestatement with effective quality assurance and quality control signed by amember of an internationally recognised professional body. Without such proofof effective exploration, 30year licences will not be granted and without proof ofthe ongoing development of such resource statements companies will not begiven extensions to their 4 year licences.

Carefully monitor the exploration documentation provided by holders ofexisting licences by bringing in an international expert in geological surveying(a “geo-auditer”) to assess the quality of the research and the validity of theresource statements.21

Increase the rigour applied to the small mine permit process such that eachapplicant has to have an initial estimate of the deposit reserves and a rough mapof the deposit to be mined. This will serve to raise knowledge of potentialdeposits.

4.3.2. Skills

Facilitate mining firms to bring in international expertise for a period of 2-3 years throughfree work permits but with a strict skills transfer requirement. Rwanda does not currently havesufficiently skilled workers to fill the jobs required in mining companies, especially geologists,mine engineers, surveyors and mineral processing engineers. Other high-level skills requiredinclude health and safety practices, environmental practices, technical sales skills and assetprotection practices. In the long-term Rwanda will develop degree programmes in Rwandanuniversities and technical training programs at certain technical schools.

21 As suggested by the Africa Mining Vision, 2009

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Develop cooperation (training and exchange programs) with regional geology and mineralinstitutions and joint projects/studies with experienced geology and mineral agencies toacquire advanced skills and best practices.

4.3.3. Best practices

There is a strong concern among stakeholders in the mining industry that it is seen as a dirtyand almost negative industry for the country to be encouraging. This perception has to change,but at the same time the mining industry can do more to demonstrate its positive impact onlocal communities and the country as a whole. Concerns over environmental impact, must beovercome through careful monitoring of the existing environmental regulations. Concerns overthe treatment of labour and the impact on local communities can be overcome throughenforcing strict labour laws and through ensuring that a public-private fund is established tosupport community development.Increase the use of good practices and the spread of socioeconomic benefits by putting in placeguidelines and incentives. There is a need to facilitate the spread of good practices andcorporate social responsibility by developing best practice guidelines and light regulations forcompanies on community development. At the same time incentives for mining companies toengage in community development should be introduced including making the costs ofcommunity development a deductible expense and by publicly recognizing these efforts.Regulations should ensure that the community development is not ad hoc i.e. that it is part ofthe district development plans. Districts should also receive the best practice guidelines forcommunity development, so that they can manage the process more effectively.

Accede to the Extractive Industries Transparency Initiative and provide national guidelines onworking and living conditions for mine workers with inspection to monitor their application.This policy recognises the benefits to joining EITI for Rwanda, see Figure 23 below.

Figure 23: Explanation of the Extractive Industries Transparency Initiative (EITI)


Session 3: Productivity, Capacity and Socio-economic benefitsBenefits in accessing the Extractive Industries Transparency Initiative (EITI)

What is the EITI ?- An effort to make natural resources benefit all. 3.5 billion people live in countries rich in oil, gas and minerals. However,when governance is weak, it may result in poverty, corruption, and conflict. The EITI aims to strengthen governance byimproving transparency and accountability in the extractives sector.

- A coalition of governments, companies and civil society. The EITI is a coalition of governments, companies, civilsociety groups, investors and international organizations with board members drawn from all types of participants.

- A standard for companies to publish what they pay and for governments to disclose what they receive. The EITIhas a robust yet flexible methodology that ensures a global standard is maintained across different implementing countries.

Benefits of joining the EITI for Rwanda- Help attracting investors to Rwanda

- Raises awareness of the Rwandan mining sector through articles and studies

- Increases the amount of information in the public domain, making the government more accountable

- Shares best practices with the other registered mining countries

- Improves the international reputation of the Rwandan Mining Sector

4.4. Raise productivity and establish new mines

Rwanda’s export of minerals has increased rapidly over the last 7 years from around 2,000 tonsin 2002 to over 7,000tons in 2008. This progress is partly due to the increased efficiency of

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privatised concessions and also due to the fact that some of the concessions that were notpreviously being worked are now working. However, there remains significant room forprogress with many of the small-scale mines working unproductively and many furtheropportunities to develop larger concessions. There are two key challenges that remain: on theone hand the government needs to ensure that current mining players receive the necessarysupport and that mining is integrated into existing local development initiatives; while on theother hand it is also imperative to develop a clearer understanding of the reserve potential inspecific areas and to encourage investors.

Most importantly, the benefits of mining for small-scale miners can be dramatically improvedthrough provision of information on higher yielding deposits, through training in bestpractices and through support to undertake initial stage processing.

The government will ensure support for artisanal miners through developing strongercooperatives and a national federation of miners, as well as through providing funding fromthe mining development fund. . This public-private partnership fund could be used for researchand financing instruments and could be self-sustaining from interest and loan repaymentsafter an initial capital injection.

Summary details of proposed artisanal miners support scheme

Small-scale miners need support in three areas to raise their productivity and incomes: Technical assistance: Small–scale and artisanal miners could be significantly more

productive if they were provided with assistance in: identifying easy to exploit deposits; inimproving their techniques of exploitation and in developing initial stage processing(cleaning) activities. Such assistance would take the form of ‘mining extension services’ andwould need to be provided for free initially. In the medium-term there should be a clearplan for small-scale miners or processing companies to collectively pay for these services.

Business development support: The scheme should also provide targeted businessdevelopment support for small-scale miners, especially in business planning, accountingand management skills. The aim of this support is to formalise the activities of small-scaleminers and to provide them with the capacity to seek financing for equipment and othersmall investments from banks. Again such services will need to be provided for freeinitially, but in the medium-term could be supported collectively by miners’ groups and/orthe larger processing companies.

Access to finance: The Rural Investment Facility provides a reduced rate of interest andsemi-guarantee to help investments in rural areas. Since small-scale mining is always inrural areas, this fund could provide the basis for financing the purchase of equipments andother investments. Access to this facility for small-scale miners should be made explicit andpublicised to all miners. The RIF works through commercial banks, but there will be a needto provide ongoing business development support to ensure effective accounting for theloans. Small-scale miners would benefit from this facility, as they often lack collateralrequired for commercial loans and are unable to pay short-term and high rates of interest,due to the delays in payment for their activities.

Fund finance & administration:

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The funds to establish the technical assistance and business development support programmesshould initially come from the mining development fund. But these programmes should in themedium-term become self-sustaining, supported by collaboration between small-scale minersand/or large mining firms. For example, the mining development fund could support the useof the Rural Investment Facility, which already has clear systems in place and financing of$10million for the next 5 years.

Abolish mineral speculation to motivate investors. Currently the existence of relativelyinformal mineral traders in all parts of the country encourages the theft of extracted mineralsand results in a lack of domestic processing. The government will make it compulsory to havemade certain investments in either extraction or processing capacity before it will give anindividual a trading licence.

Create an investment brochure for mining opportunities and target specific mid-size miningcompanies. Once more detailed knowledge is available from resource mapping RDB shouldproduce an investment brochure setting out specific investment opportunities in Rwanda’smining industry. This brochure should be used to target specific mid-size mining companiesthat fit the profile of the types of investors that Rwanda’s mining industry desires. As a smallplayer in the global marketplace, Rwanda must be strategic in its decisions regarding theproducts that it wishes to offer, the unique value that it wishes to add, and the customers thatit wishes to serve. With respect to the latter, Rwandan mining industry players currently oftenhave strong relationships with foreign intermediary traders. Moving forward, the industrymust seek to enter into relationships with the most attractive customer and investor segments,bearing in mind their differing needs and business models. For example, when compared withmajors, junior mining companies value and accept flexibility (of volumes, contract terms etc.)highly22 and are less sensitive to volume constraints, making them potentially suitable partnersfor Rwanda’s minerals industry players. These junior miners contributed more than 50% ofglobal exploration budgets in 2005 and were identified as the most attractive potential investorgroup for Rwanda23.

4.5. Facilitate diversification and value addition

Value creation is a key imperative for Rwanda’s Minerals Industry as it seeks to increase itscompetitiveness on the international marketplace. Private sector investors should recognisethe benefits of value addition for their own profitability, such as through increased competitivedifferentiation, reduced cost of exports, increased export revenues, increased sustainability.Nevertheless, while increasing the amount of value addition should, and will, be a logicalprogression for local businesses24, the government will continue to encourage this process.There are additional benefits to Rwanda from value addition in mining that are not necessarilyconsidered by the private sector, such as job creation, foreign exchange revenues and taxrevenues.

22 On a scale where 1=Not at all important and 5=Extremely important, the following ratings on relevant attributes are as follows(J=Junior miners, M=Majors): “Clear grading systems” – J (1.64), M (3.00); “Consistency of product quality / % mineral content” – J(2.79), M (3.43); “Flexibility of payment” – J (2.50), M (1.86); “Flexibility of contract terms” – J (2.50), M (2.14)23 UNCTAD Strategy for the Promotion of the Industrial Mining of Rwanda, April 200624 UNCTAD Strategy for the Promotion of the Industrial Mining of Rwanda, April 2006

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The definition of value addition within a minerals industry context does not necessarily implythe transformation of a product into a finished article. The concept additionally encompassesprocesses that increase the value per weight of materials through treating or processingmaterials to remove impurities. The new Mining Policy therefore includes key value creationcomponents such as programs to increase the average value of exports and investments incooperative- and community-based value-creation centres.

Raise the mineral content of exports. Current restrictions on mineral content are not appliedrigorously and in the longer-term could be increased such that 100% of tin is exported in ingotform by 2014, 100% of coltan is either of >25% tantalum pentoxide content (Ta2O5) or 60%tantalum pentoxide + niobium pentoxide content, and that all of wolfram exported is >65%wolfram (WO3) content. However, it will be crucial that this increase in concentrationrequirements is managed very carefully and only implemented once there is sufficient materialavailable locally to process. There should be a caveat such that the concentrate requirementsshould not be enforced where private firms can prove that the price gaps are too low betweenthe higher concentrates and lower concentrates i.e. where they can show that price issuesrender processing economically unviable.

Develop opportunities in production of local construction materials. The quarries sector willbe targeted to raise value addition including the development of a granite tile plant, morepottery production and even a glass-making industry. If possible the government procurementguidelines should be reviewed to ensure usage of locally made construction materials wherefeasible. However, there will be a need to allocate materials to specific activities like clay inpottery production, and to identify other raw materials for tiles and bricks as clay is limitedand it cannot be sufficient for both tiles, bricks and pottery. Opportunities in constructionmaterials should be particularly suitable for local investors.

Develop business opportunities for gemstone cutting and polishing enterprises. The semi-precious stones sector should be aiming to export finished jewellery by investing in a cutting,polishing, design and setting centre. This will help in adding value to this mineral and it willalso help in attracting investors to this industry. These can help in creating a gemstonejewellery industry producing rings, earrings, pendants and bracelets. There is a need to marketthis and be in touch with some foreign industry involved in these activities.

Develop a mineral processing centre. Countries focusing on exporting unprocessed richesexport their wealth away. One of the key determinants of the ability to win is therefore theability of minerals industry players to act as a critical supply-demand link, balancing andmanaging the interplay between demand and supply, positioning themselves to add value atthe appropriate step in the value chain. The product-specific price and demand volatility createboth opportunities for substantial reward and substantial threats for this wide range of players,challenging them to find creative ways to act as this critical link within the context of their size,business model and product offerings. Rwanda will focus on acting as a service-oriented hubleveraging the Kigali Mineral Campus and other soft infrastructure. In addition, it will beessential to continually satisfy buyers’ and investors’ evolving needs through a combination ofimproved data provision, increased formalization and ongoing customer and investorresearch, as detailed below.

Encourage the development of a mining services sector. In order to develop a robust miningcluster, it will be critical to develop a local services industry to facilitate the growth of the

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industry. For example, mining companies often need a range of services e.g.: consultancyservices perhaps in mine engineering; the ability to borrow or lease equipment; use localprocurement; testing facilities to undertake mineral analysis and certification; expertevaluation to gain validation of resource statements and many others. Rwanda can boost therapid development of this industry by identifying and targeting specific mining services firmsto start operations in Rwanda, through fact/data-based opportunities and appropriateincentives. Connected to this the government will develop detailed plans and then launch theKigali Mining Campus to provide “soft infrastructure” - a range of mining services – tocustomers and investors, thereby increasing the convenience, reliability and confidence in theindustry as a whole.

Improve electricity supply for processors. The Rwanda Electricity Corporation will work withmineral processors to identify means of improving regularity of electricity supply, e.g. earlywarning systems and priority access. To enable the competitiveness of processing of mineralsin Rwanda, there will be a need to find innovative ways to reduce both the cost and reliabilityof electricity for mineral processors. For example, the connection of the smelter in Gisenyi tothe methane gas project should radically reduce the cost of supplying this plant and hencecould enable RECO to provide a substantial price reduction to this plant individually. Linkingthe Karuruma smelter to two different substations will provide a much stronger reliability ofelectricity, but without a reduction in costs it is unlikely that this smelter can functionprofitably.

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5. Stakeholders’ Views

The mining policy development process has been highly consultative in nature. The policy hasbeen developed by a task force comprising, MINIRENA, OGMR, the President’s Office,Cabinet Secretariat and OTF Group. This taskforce has held numerous consultation meetingswith stakeholders, including: two meetings with mining companies and the Private Sector Federation Rwanda Mining Investors’ Forum Rwanda Development Board Rwanda Revenue Authority MINECOFIN COPIMAR National Bank of Rwanda MININFRA BRALIRWA ELECTROGAZ.

The task force also held two large-scale consultation sessions which brought together thedifferent groups of stakeholders. A detailed phone interview was also conducted to 5 banksbased in Rwanda. The summaries of all of these meetings are contained in Annex B.

In general the private sector demanded a much clearer mining policy framework and desiredto have more clearly codified tax rules, permit fees and licencing requirements. They wereconcerned that the royalty rates should not be set too high, but recognised that royaltypayments are part and parcel of working in an extractive industry. Private sector miners werealso particularly supportive of reforms to mineral trading licences, as they complained ofspeculation.

Government agencies also recognised the need for greater clarity in the policy framework andwere receptive to the introduction of mining royalties. The issue of placing Joint Ventures inlarge-scale mines at the heart of efforts to attract more investors in the mining sector wererejected by the Ministry of Finance, as going against the current government policies andrequiring much greater capabilities at risk analysis than the government has or is willing tobuy-in.

Small-scale miners desired greater government support and were very supportive of theplanned community development guidelines and the mining development fund. Theyparticularly highlighted the need for more support for accessing financing, which should befacilitated through this fund.

The broad consultation workshops were well attended and received praise for the broadthrusts of the policy, with some specific suggestions for improvements that will beincorporated into the Ministerial Orders, e.g. regarding the permit and licencing processes.

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6. Implementation Plan

4

Programs Actions Responsible Budget Timeframe

1. Streamlineregulatoryframework

Produce clear guidelines on districts’ role in processingpermit applications

MINIRENA,OGMR Q1. 2010

Establish a mining committee to review permit applications MINIRENA Q3. 2010

Produce customer charter for Mining Committee processingpermits applications

OGMR,MINIRENA 2012

Set out required quality standards and norms for extractionand export OGMR 2011

2. Institutionalisestandardsenforcement

Establish institutional responsibilities in regulation andstandards enforcement

MINIRENA,OGMR 2010

Train technicians on quality, standards and environmentalmonitoring systems OGMR, REMA 2011

Research appropriate certifications (e.g. conflict free, EITI) OGMR 2011

3. Address miningsector regulatoryskills gaps

Build capacity of existing staff OGMR Q1. 2010

Recruit new staff OGMR 2012

Hire international consultants for short term OGMR Q3. 2010

4. Build capacity inpolicydevelopment

Assess the current capacity of MINIRENA in policydevelopment MIFOTRA 2013

Strengthen MINIRENA capacity in policy formulation MIFOTRA 2013

Total

Pillar 1: Strengthen the enabling legal, regulatory and institutionalenvironment

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5



Establish a clear and simple mining tax collection system RRA,MINIRENA Q1. 2010

Produce one page brief explaining all charges and taxes thatminers have to pay, including details on how, when andwhere these are paid

RRA,MINIRENA Q1. 2010

Detail and codify accounting rules and procedures for mining RRA Q1. 2010

Train RRA officials in the mining sector OGMR Q2. 2010


Introduce a competitive royalty scheme MINIRENA Q1. 2010

Establish an efficient system for royalty payments whichensures a contribution to the Mining Development Fund

MINIRENA,RRA Q1. 2010

Publicise information on Rwanda’s mining taxes and charges MINIRENA Q1. 2010


Develop an action plan for the Mining Development Fund RDB, OGMR Q1. 2010

Assess funding needs and likely revenues from royalties,targeting long-term sustainability OGMR Q2. 2010

Present potential donors and other institutions with theopportunity to support the fund in short-term

RDB, OGMR,MINIRENA Q2. 2010

d. Createhedginginstruments

Undertake research into options for hedging instruments formining and other commodity sectors OGMR 2012

Develop proposals for hedging instruments in Rwanda andmeans of supporting commercial banks to offer such products OGMR 2012

e. Improve priceinformationand forecasts

Purchase annual subscription to mining price data service OGMR, RDB 2012

Disseminate price data through all TradePoint offices RDB 2012

Total

Pillar 2: Develop competitive investment and fiscal policies for mining

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6


a. Consolidateexistinginformationon mineraldepositpotential

Integrate existing data into investment promotion materials OGMR Q4. 2010

Gather all existing information on Rwanda’s mining sector frominternational sources OGMR Q4. 2010

Establish an online resource for existing information on mineral,quarry and precious stone potential in Rwanda

OGMR Q4. 2010

b. Develop aprogram ofgeologicalsurveying

Design a targeted, phased and coordinated research program OGMR 2011

Build domestic geological surveying capabilities to fulfil thisresearch programme OGMR 2011

Improve the capacity of testing and laboratory facilities OGMR 2013


Send young professionals abroad for degrees in geology,metallurgy and mine engineering

OGMR,MIFOTRA Q1. 2010

Establish mining related technical training courses throughapprenticeships and at ETO schools

MINEDUC,MIFOTRA 2013

Establish local degree-level courses on mining subjects KIST, NUR 2012

Create regulation to ensure skills transfer from internationalcompanies MINIRENA 2012

Train district officials on the mining sector and their regulatory role OGMR 2011

d. Promote theEITI &corporateSocialresponsibility

Establish a clear mechanism to collect information on all miningcompanies’ revenues, payments and working practices

MINIRENA,OGMR, RRA 2012

Encourage investments in community development by makingsuch expenses deductible & by publicly recognising these efforts OGMR Q4. 2010

Establish a committee to work towards attaining EITI status OGMR 2011

Create templates for mining community development activities MINALOC Q4. 2010

Total

Pillar 3: Improve mining sector knowledge, skills and practices

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7



Create a National Federation of Mining Cooperatives RCA, OGM,COPIMAR Q3. 2010

Research into best practices in financing artisans’ investmentsand develop a local financing scheme OGMR, RDB 2011

Bring together miners, banks and other stakeholders tointroduce a financing scheme for artisanal miners OGMR, RDB 2011


Provide training for artisans in how to undertake profitablemining OGMR 2012

Develop local mapping capabilities to focus artisans on mostprofitable areas OGMR 2012

c. Abolish mineralspeculation tomotivateinvestors

Make investments compulsory to obtain a licence to trademinerals MINICOM Q1. 2010

Develop security mechanisms to curtail the informal trade ofminerals MINICOM Q3. 2010


Collect and publish statistics on local Rwandan mining andprocessing in international fora OGMR, RDB 2011

Create investment brochures highlighting investmentopportunities in high potential RDB, OGMR 2011

Undertake widespread international marketing campaign toraise awareness RDB, OGMR 2011

Undertake local marketing campaign to build understandingand encourage local investors RDB, OGMR 2011

e. Promote miningbased on properestimation ofvalue ofdeposits

Create legal requirements for mining licences to be conditionalon deposit estimation OGMR 2010

Inspect mining companies’ compliance with the law on depositestimation OGMR 2010

Total

Pillar 4: Raise productivity and establish new mines

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8



Create investment brief for production and processingof local construction materials RDB, OGMR Q1. 2010

Create investment brief for gemstone cutting andpolishing enterprises RDB, OGMR 2012

Create investment brief for local glass manufacturing RDB, OGMR Q2. 2010

Create investment brief on ceramics manufacture RDB, OGMR 2012

Create investment brief on peat and geothermal energy RDB, OGMR 2014


Develop and enforce economically viable mineralexport standards OGMR 2014

Review existing tin smelters and identify furtherinvestment needs and opportunities RDB 2010

Create an investment brief for a wolfram processingplant RDB Q4. 2010

Create an investment brief tor tantalum refining RDB 2014

c. Improveelectricitysupply forprocessors

Work with mineral processors to identify means ofimproving regularity of electricity supply, e.g. earlywarning systems and priority access

RECO Q1. 2010

Incorporate mineral processing energy requirementsinto government plans MININFRA Q1. 2010

Further reduce electricity tariffs for industrial users RECO Q1. 2010

d. Establish KigaliMining Campus

Finalise plans for the Kigali Mineral Campus OGMR 2013

Build initial infrastructure and attract investors OGMR, RDB 2014

Total

Pillar 5: Diversify into new products and increase value addition

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7. Financial implications

The mining policy implementation plan has a total budget of $3.177million over 5 years. A significant proportion of this total budgetis already covered by OGMR’s existing budget. Extra public funding will need to be found for policing of the new mineral tradinglicence requirements, the development of mineral sector university courses and for the establishment of the laboratory at OGMRtotalling around $1.4million. In order for the mining policy to be a success significant private sector investments will also need to bemade into exploration and establishment of new mines, but these are not costed in this budget in Figure 24 below.

Figure 24: Draft budget for implementation of the Mining Policy

TOTALBUDGET

2010 2011 2012 2013 2014

1. Strengthen enabling regulatory, policy and institutional environment $446,622 $278,772 $66,850 $8,000 $49,000 $44,0001. Streamline the permit process $42,472 $5,472 $13,000 $8,000 $8,000 $8,0002. Institutionalise standards enforcement $53,850 $0 $53,850 $0 $0 $03. Address mining sector regulatory skills gaps $273,300 $273,300 $0 $0 $0 $04. Build capacity in policy development $77,000 $0 $0 $0 $41,000 $36,000

2. Develop competitive financial, fiscal and macro-economic policies $175,700 $145,700 $0 $0 $0 $30,0001. Put in place fiscal strategy $47,900 $47,900 $0 $0 $0 $02. Introduce royalties $47,800 $47,800 $0 $0 $0 $03. Create mining development fund $30,000 $30,000 $0 $0 $0 $04. Create hedging instruments $30,000 $0 $0 $0 $0 $30,0005. Improve price information and forecasts $20,000 $20,000 $0 $0 $0 $0

3. Improve sector knowledge, skills and practices $1,868,517 $149,686 $262,346 $407,686 $814,400 $234,4001. Consolidate existing information on mineral deposit potential $143,500 $25,400 $71,900 $15,400 $15,400 $15,4002. Develop a program of geological surveying $796,000 $0 $50,000 $72,000 $602,000 $72,0003. Build human capacity and expertise $884,017 $109,286 $135,446 $295,286 $197,000 $147,0004. Promote the EITI & Corporate Social responsibility $45,000 $15,000 $5,000 $25,000 $0 $0

4. Raise productivity and establish new mines $454,500 $124,500 $85,500 $100,500 $72,000 $72,0001. Establish a financing mechanism for artisans $56,000 $42,500 $13,500 $0 $0 $02. Raise productivity of artisanal miners $28,500 $0 $0 $28,500 $0 $03. Abolish mineral speculation to motivate investors $360,000 $72,000 $72,000 $72,000 $72,000 $72,0004. Produce mining investment opportunities $4,500 $0 $4,500 $0 $0 $05. Promote mining based on proper estimation of value of deposits $10,000 $10,000 $0 $0 $0 $0

5. Diversify into new products and increase value addition $232,000 $96,000 $0 $40,000 $0 $96,0001. Develop new product investment opportunities $100,000 $40,000 $0 $40,000 $0 $20,0002. Develop value addition investment opportunities $80,000 $50,000 $0 $0 $0 $30,0003. Improve electricity supply for processors $6,000 $6,000 $0 $0 $0 $04. Establish Kigali Mineral Campus $46,000 $0 $0 $0 $0 $46,000

GENERAL TOTAL $3,177,339 $794,658 $414,696 $556,186 $935,400 $476,400

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8. Legal Implications

While this mining policy follows closely the approval of the Mining Law in May 2009, thedetailed implementation of both this policy and the Law will be set out by seven MinisterialOrders that will be published in the next few months. These Ministerial Orders will spell outthe details of the permit application process and the details of the royalty scheme for example.

9. Impact on business

The mining policy will increase the taxes paid by mining firms through the introduction of themining royalty. However, at the same time the policy provides a number of improvements tothe business environment through improved transparency and clarity of the permit fees andtax regime for example. The policy will provide for improved mining sector skills andknowledge, which will benefit the private sector over the medium- to long-term. The policyalso sets out measures to improve the productivity of artisanal production which will provideincreased mineral supply for processors.

10. Impact on equality, unity and reconciliation

The mining policy sets out to improve the impact of mining on the local community, byestablishing guidelines for community development for both local districts and larger firms touse in supporting their local stakeholders. These efforts should help to establish stable andeffective communities.

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Conclusion and next steps

This final Green Paper provides a draft for the mining policy. It has already taken intoconsideration the views of many different stakeholders in the mining sector and will befollowed closely by the development of detailed Ministerial Orders that will provide theeffective implementation of the Mining Law passed in May 2009.

It is clear that mining already plays a significant role in the Rwanda economy, providing large-scale employment and contributing over 40% of export revenues. This paper shows that notonly can this impact be improved, but that with careful regulation and the right investments,mining has the potential to become a major engine of growth for Rwanda over the next tenyears.

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Annex A: Analysis of Strategic Options

The Policy elaborates a set of actions that could support the attainment of the objectives andpillars in section III. These sets of actions provide a range of options for attaining the objectivesand this section of the report is dedicated to setting out clearly the different options andproviding some evidence on different initiatives. The aim of this section is to inform the choicesto be made by policy-makers and is broken into the five pillars for ease of comprehension.

A. a) Strengthen the enabling legal, regulatory and institutional environment

Other areas where the government can improve the regulatory environment include the taxsystem and the process for gaining mining permits. The tax system will be discussed in Pillar 2below. For the mining permit system there are a number of options for how the governmentcould streamline the process, see table below. After discussions with stakeholders it was feltthat the current process had a strong degree of relevance as it ensures that all key stakeholdersare involved, but that this process could be streamlined. For example, a committee could beestablished with MINIRENA and OGMR among others to facilitate a faster process centrally,while the district process can also be streamlined.

Figure 25: Options for streamlining the permit process25


Criteria/options

Improve existingdecentralised processfor mining permits andstandards enforcement

Centralise the permitprocess with MINIRENA

Allocate responsibilityof issuing permits and

enforcement ofstandards to OGMR

Suitability

High. Districts must beinvolved in the process toensure that the land isavailable and otherconditions are fulfilled.

Low. Districts must beinvolved in the process

Low. Districts must beinvolved in the process

Feasibility

Medium. The processcould be streamlined tothree stages with relativeease, provided a centralgovernment committeecan meet regularly.

Low. MINIRENA does nothave the capacity to reviewall aspects of every permitapplication.

Low. OGMR would needmany more staff to be outin the field assessing landavailability etc

Acceptability

High. Requires thecreation of a newcommittee, but ensuresall key stakeholders areconsulted.

Medium. Centralgovernment must beinvolved to ensure policy isfollowed.

High. OGMR is in chargeof implementation of themining policy and henceof enforcing standards etc

Regulation of permits and standards

Review thistext

A. b) Develop targeted financial, fiscal and macro-economic policies for mining

There are three strategic objectives under this pillar, these are to: develop and provide newmining financing products; to improve the investment incentives for the mining industry; and,to raise awareness of mining industry potential. It is believed that attaining these three

25 Source: OGMR & OTF Group estimates based on establishment of industrial mining.

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Options5. Policy Options to Consider

ExpenditureOptions

Community Development1. Share of royalty/taxes goes to affected

community or local authority to developsustainable income generating activitiese.g., Mozambique• Centrally or locally administered• Fixed or variable share/rate

2. Mining companies are incentivised(monetary and non monetary) to do socialinvestments/community developmentdirectly

Sector Development1. A sector development fund

• A PPP model with both private andpublic (and donor) resources

• Use for research and financinginvestments

• Self sustaining from interest andrepayment of loans, after initial capitalinjection

Case Study: NamibiaThe Minerals Development Fund of Namibia (MDF) isa semi-governmental institution based in theMinistry of Mines & Energy, and managed by a boardof Directors representing all mining interests in thecountry.

The Fund was established by an Act of Parliament in1995 in order to support the local mining sectorthrough, among others;• The Provision of low-interest loans to viable localmining ventures;• Financing geological exploration and mapping;• Provision of scholarships to Namibian students inmining-related subjects in order to enhance nationalcapacity in this field.

The MDF operates as a revolving fund whereby aninitial capital injection of Euro 40 Million that wasearlier disbursed to mining ventures in Namibia bythe European Development Fund (EDF) is currentlybeing repaid into the Fund.

Such loans were granted to major local miningoperations such as Okorusu Fluorspar (below) andOngopolo Mining & Processing Ltd.

objectives should result in an increase in private investment in the mining industry. However,the type of investors targeted will also be important.

A.b.i) Develop a coherent fiscal strategy

One key reason for the revision of the Mining Policy has been the lack of a clear and well-thought out fiscal strategy for the mining industry. This is an essential component for thegovernment to take a strategic view of the mining industry’s development and to assess theoptimal means of collecting revenues and distributing expenditures. An optimal fiscal strategywill include both a clear and competitive tax framework, as well as an expenditure strategy.

Increased public expenditures to supportresearch and financing within the rural miningcommunity are required.Firstly, it must berecognised that the mining industry’sgovernment budget is limited and that there maybe a need to provide additional funds to theindustry in the short-term in order to provide theplatform that the industry needs. For example,there are no specific expenditure plans to provideresources for small-scale mining communities,e.g. to encourage the development of localmining communities or to provide funds forsmall-scale research.

At the same time it is important to ensure equitywithin Rwanda, taking into account that mineralsare a national resource, but also recognizing thatmining communities are more impacted by itsextraction e.g., environmental damage and willbe more affected in the future when reserves and revenues diminish from mining.

The government should therefore consider establishing a sector development fund along thelines of that established in Namibia, see Figure 26. This fund could be established along apartnership model with both private and public (and donor) resources and could provide fundsfor research and financing investments. The fund should be self-sustaining from interest andrepayment of loans, after an initial capital injection.

A clear and competitive tax framework must be developed in conjunction with improvementsin the manner of tax collection. Due to the specific nature of mining and the fact that theresources being used are finite, governments generally seek to impose additional taxes onmining to compensate. Some of the different options for raising further revenues from themining sector on top of corporate taxation are set out in Figure 27 below.

Why royalties? Miners accept royalties as a common tax in the mining sector for the use of anon renewable resource and are not opposed to the introduction of them in Rwanda. However,miners require the system to be clearly defined and not to create additional uncertainty on thetax burden, also that the royalty rate is not too high, and that there must be accompanying

Figure 26: Namibia Mining finances

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general improvements to the taxation system (in particular reducing fees and loweringcompliance costs).

Issues to consider in designing royalties. The impact of royalties on production and investmentdecisions depends on the design of the royalties: A royalty based on net profits is more economically efficient than royalties based on sales

(ad valorem), but more difficult to administer. A royalty based on gross sales alone will discourage value addition/processing in country By increasing operating costs, the imposition of a royalty will raise the cut-off grade (when

the operation is able to break even or make a profit) of the mine’s reserves and, inconsequence, reduce the life of the mining operation with economic and social effects.However, the revenues from royalties - if correctly managed – can counteract the negativeeconomic and social effects. For example, if used to develop the economy of the area inwhich the mine operates.

Minerals in the ground are finite and will eventually be exhausted. The proceeds frommineral royalty payments should be used to develop other sustainable industries and othersources of income generation in the region(s) where mining is taking place.

Figure 27: Options for additional taxes to compensate for non-renewable nature of mining


Criteria/options

Ad valorem royaltyrates

Profit based royaltyrates Export duty

Suitability

High. Provides for extrarevenues for thegovernment in line withregional tax systems.Helps to reduce taxrevenue fluctuations.

High. Provides extrarevenues forgovernment in line withregional tax systems.The most efficient typeof mining tax.

Medium. Provides extrarevenues for government,but not commonly used inmining due to internal trade.

Feasibility

High. It would berelatively easy to imposeas it is based on sales.

Medium. Difficult toapply as it is based onprofits and wouldexacerbate existingdifficulties of accountingand revenue collection

High. Easy to impose.

Acceptability

High. Consultations withminers suggest awillingness to payroyalties.

Medium. Notacceptable at themoment due toconcerns over thecapacity of RRA toevaluate profits fairly.

Medium. Would benefitsome firms anddisadvantage others.

Tax options

Review thistext

While the options analysis above shows that introducing an ad valorem royalty is the bestoption in the short-term, in the long-term the government should seek to build taxadministrative capacity to enable more efficient but complex fiscal regimes such as depreciationmethods or profit-based royalty scheme. Before setting tax rates the government shouldundertake a thorough review of the effective tax burden in the mining sector to assess theoverall competitiveness of the tax regime for mining.

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Figure 28: Royalty based on gross sales versus Net Smelter Returns

Gross sales Net Smelter ReturnsAdministration:Mining companies pay the royalty on the totalvalue of billed sales or of invoices. Hence theypay royalties on production costs as well asprofit.

Administration:Based on the gross proceeds paid by a smelteror refinery to a miner. Requires set/establishedratios of ore/mineral/ smelter output. Oncethese numbers are established together with avariable reference price, administration isgenerally easy. Effectively this is the sameresult as gross sales at pithead but does notcount smelting/processing costs and allows forquasi-independent valuation of minerals.

Benefits:Easy to administer and provides a simple wayfor the government to collect more revenues

Benefits:Encourages domestic local value addition.Harder to utilize transfer pricing and taxavoidance techniques

Challenges:Firstly, mining companies are easily able toreduce their invoices or billed sales, by sellingto third parties, parent companies, holdingcompanies etc. So while this seems to be astraightforward option, if royalty rates are toohigh (and perhaps in any case) companies willseek to reduce their payments.

Secondly, this type of royalty discourages localvalue addition, as companies with in-houseprocessing would have to pay higher royaltiesdue to the higher value of minerals sold.

Challenges:Slightly more difficult to administer, asrequires a calculation of revenues at the minehead. Harder to conceptualise.

Revised Mining Policy 2010

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A.b.ii) Managing macroeconomic volatility

While improved taxation and expenditure policies will help to ensure that the mining industrycontributes to local economic development without impeding investments, there is a concernthat as the mining industry grows, the price fluctuations, which are a natural aspect of themining industry, could serve to destabilize the government’s macro-economic management.These fluctuations also impact on the private sector’s capacity to invest in development and toits sustainability, especially for smaller entities. However, managing these fluctuations is noteasy. For the private sector, the government can undertake activities ranging from simplyimproving the supply of price information and projections, to developing specific hedginginstruments, right through to actively intervening to provide a price stabilisation fund (seeFigure 29). In terms of government revenues, the options range from introducing ad valoremroyalty rates, to introducing a commodity stabilisation fund whereby the government retainsrevenues in times of boom prices in order to make up the shortfall in times of low prices.However, the best long-term solution is for the industry as a whole to diversify into a widerrange of minerals and other products, but more importantly is for the industry to rapidly moveinto added value products and ultimately to be integrated into downstream industries.

Figure 29: Options to manage macroeconomic volatility


Criteria/options

Price stabilisationfund

Create hedginginstrument s to enablethe private sector to

manage risks

Government purchase ofminerals at low prices in

downturns to boostdemand

Suitability

Medium. Wouldprovide miners withreduced risk and henceencourage extractionand trading.

High. Would provide theprivate sector with anindependent means ofmanaging price volatilityrisks

Medium. Could providesome price stability forminers, but would needsome element of guaranteeand hence similar to pricestabilisation fund.

Feasibility

Medium. Would requiresome governmentinvestments

Low. Requires a strongerand deeper bankingsystem

Medium. The governmentcould manage this, butwould need funds.

Acceptability

Low. Discouragesefforts to raise quality,as minimum price isguaranteed

High. Does not requiregovernment investmentsand is a common tool forminers

Medium. Miners may bekeen on the idea but thiswould require largeinvestments fromgovernment

Macro-economic stabilisation options

Review thistext

A. c) Improve mining sector knowledge, skills and practices

A.c.i) Skills

The lack of locally available expertise is a major constraint to the effectiveness of thegovernment institutions overseeing the mining industry, as well as to the mining industry ingeneral. In the long-term skills can be developed locally through training programs at schools,apprenticeships and degree courses, but in the short-term these skills will need to bedeveloped either by sending people abroad to study or by bringing in experts. There are manyoptions for how the government can develop a skilled local workforce and some of them areset out below in Figure 30. This table shows that a number of the options are attractive and

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leads to the conclusion that the government can perhaps utilise more than one option fordeveloping a skilled workforce in the short-term.

Figure 30: Options to raise skills in the mining sector

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OTF Group Proprietary Information

OTF-RNIC III-Extractive Industry Competitiveness Upgrade Process – Strategy Overview – 10/26/2006 DC

Criteria Send students todegree courses abroad

Facilitate work permitsfor international

expertise, but enforceskills transfer

Develop universitycourses in geology,metallurgy and mine

engineering

Suitability

High. A medium-termsolution for immediateskills gaps. Contracts canbe signed with studentsto ensure they return.

High. Immediate skillsgaps require internationalexpertise to be imported,but Rwanda should makesure this is short-term

High. The demand forfuture graduates is likelyto be sufficient for a smallannual course intake.

Feasibility

High. Relatively easy toundertake and fundsavailable for capacitybuilding.

Medium. More expensiveas requires Rwandancounterparts to also bepaid at the same time, butwould also benefit privatesector firms.

Medium. KIST alreadyhas plans to establish amining sciences program,but this will require fundsand skilled teachers.

Acceptability

High. Plans are alreadyunderway for 20students.

High. The mining sectorwill struggle to competewithout skilled expertisefrom abroad and thisensures that suchexpertise is developedlocally.

High. Training studentslocally is the optimalsolution, but will take timeto develop the curriculumand bring in the right staff.

A. d) Raise productivity and establish new mines

The key challenges for small-scale miners are in: gaining information on the most productiveareas for extraction, borrowing money to buy equipment, undertaking initial cleaning activitiesand in transporting ores to processors. The three options set out in Figure 31 below were allfound to be attractive and the idea of a mining development fund was established in order totake forward all of these types of activities and more.

Figure 31: Options to raise productivity of small-scale miners


Pillar 5 - Small scale artisanal mining sub-sectorStep 6 – Review options vs. decided criteria

Criteria/options

Provide training for small-scale miners in how to

undertake initial cleaningactivities

Develop a scheme tofacilitate small-scale miners

to access equipmentthrough loans

Develop local mapping ofdeposits to focus small-scale

miners on most profitableareas

Suitability

Medium-Low. Will insuresustainability of concessionsand reduce environmentalimpact as well as reducingsmall-scale miners’ costs.

High. Miners recognisepositive results in productivitygrowth and welfare fromutilisation of equipments.

Medium. The ongoing nationalmapping project at a largerscale is still to be completed,might take longer to be done forsmall portions of deposits.However, it is useful for betterplanning of the sub-sector.

FeasibilityHigh. Already started in somezones. Needs involvement ofdistrict officials and RDB-REMA

Medium/Low. Need toovercome collateral issues andfacilitate repayments.

Low. Depends on the nationalmineral mapping projects andthe development of localgeology capabilities.

AcceptabilityHigh. For traditional miners,authorities would support itwithout reservations.

High. Miners are aware of thelack of equipments butcurrently struggle to accessfinancing for such equipments.

Medium. Not seen as a priorityfor small-scale miners, but forinvestors and government (forplanning)

Objective 1: Develop programs to raise productivity of artisanal miners

For large-scale mining and processing activities, there is a need to bring in new companies andinvestors, as well as to ensure proper detailed exploration is being undertaken by existingplayers. Nevertheless, once some more research is undertaken and once potential resources are

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established to an internationally agreed standard, there will be a need to facilitate large-scaleinvestments. Figure 32 below sets out some of the options for encouraging these investments.Specifically it sets out three options covering Joint Ventures, Project Financing and targetedinvestment incentives. The analysis has led to the conclusion that in the short-termimprovements to the investment incentive framework would be the most efficient withperhaps the need to build project financing skills in the long-term.

Figure 32: Options to raise skills in the mining sector


Criteria/options

Establish projectfinancing unit in RDB

Provide joint venturefinancing from

government to reducethe risks to investors

Reduce investor risk byproviding targetedincentives such ascapital allowances

Suitability

Medium. Useful oncecapacity for large-scaleindustrial mining or large-scale processing plants isestablished.

High. The government cantake a share in large-scaleinvestment projects toensure local revenueswhile reducing investor risk

High. 100% capitalallowances are commonlyused for the miningindustry to facilitate heavyinitial investments.

Feasibility

Medium. It would requiresome practicalexperience as well as on-the-job training to buildproject financingcapabilities.

Low. This will requirecostly investments by thegovernment and an abilityto carefully analyse risks.However, there areprecedents e.g. Botswana.

Medium. It will requiresome detailed analysis ofpotential gains andlosses, but this would notbe overly complicated.

Acceptability

Medium. Projectfinancing is a sensibleapproach for largeinvestments and canbring a new dimension forbringing in new investors.

Medium. Internationalorganisations may beunhappy at funds beingused in this manner, andthis goes against the grainof privatisation.

High. Capital allowancesare already beingconsidered as part of thegeneral reforms to the taxsystem.

Pillar 2 - Increase private investment in the mining sectorStep 6 – Review based on criteria and make recommendations

Develop and provide new mining financing products

A. e) Facilitate diversification and value addition

It is beyond the scope of this final Green Paper to assess all of the different opportunities forvalue addition and for diversification of the extractive industries in Rwanda. Instead this finalGreen Paper has set out a range of activities focused on providing the detailed analysis into thepotential returns on investments for each potential product, e.g. semi-precious stones cuttingand polishing; industrial manufacture of pottery and glass; use of stone rather than clay bricksfor construction etc. Figure 33 below shows a potential timeframe for value addition toRwanda’s three principle mineral exports, with an assessment of the viability of each option. Ingeneral this shows that there is certainly potential for Rwanda to add value to its minerals,providing it can radically reduce the cost of energy and once there is a more consistentdomestic production of these minerals in sufficient quantities.

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Figure 33: Timeframe, constraints and opportunities from mineral processing


Opportunity Smelting tin provides significant

value addition, reducestransport costs of tin exportsand creates employment

Two smelters exist, but are notoperational.

Constraints Irregular energy supply and

limited raw materials

Potential actions Energy production

improvements should help, butneed consistent supply – hencedevelop specific schemes formineral processors.

Tin smelting Wolfram processing Tantalum refiningOpportunity Wolframite concentrates provide

significant value addition, createemployment

Constraints High energy costs because it

(Tungsten) retains its strength athigh temperatures and has ahigh melting point)

High extraction and processingcosts

Lack of skilled labor

Potential actions Develop Investment facilities Improve energy production, take

advantage of methane gas inlake Kivu

Opportunity Tantalum refining could add

significant value to existingtantalite exports and createemployment

Would initially require all labourand management to be imported

Constraints Lack of skilled labour High energy costs Significant investment facilitation

needed

Potential actions Develop investment opportunity Improve environment for mineral

processing investments, e.g.Energy availability and cost

Meet with potential investors andestablish investment needs

Develop requirements for skillstransfer within mining contracts

Short-term Medium-term Long-term

Session 4: Develop domestic production, diversification and servicesRwanda can seek to progress towards processing all minerals in country

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