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Senegal improves phosphate benefits

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Senegal improves phosphate benefits
Phosphate rich sedimentary rock. Image credit: Wikimedia Commons

Senegal improves phosphate benefits

Senegal improved its tax and royalty administration to gain more benefits from its phosphate sector.

By Français ci-dessous for the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF)

Senegal’s extractive sector accounted for an estimated 32% of the country’s export revenue and 7% of government revenues in 2022.

Senegal is a leading producer of phosphates, with an annual production of 2.6 million tonnes. The country is also a modest but growing producer of gold, natural gas, and construction materials.

Despite producing phosphates for decades, Senegal has benefited little from the industry. According to the Extractive Industries Transparency Initiative (EITI) in Senegal (EITI-Senegal), phosphate and phosphoric acid sales amounted to almost USD950-million in 2022, but mine operators paid the government just USD13-million that year.

The disappointing amount of government revenue prompted officials to explore how to use better tax and royalty administration to collect more financial benefits from this key economic sector.

“Phosphates play an important role in our mining sector, but government revenues have fallen short of expectations year after year,” says Lamine Diouf, Director of Monitoring and Audit, Ministry of Mines and Geology, Senegal. “They pale in comparison to mining revenue from gold or mineral sands.”

Royalty payment values depend on the market price declared for minerals produced and the volume sold (mostly exported).

Senegal’s mining ministry lacked the capacity to correctly price significant mineral transactions and had to rely on companies’ self-assessments, which sometimes underestimated the value of mineral exports.

Because the phosphate market remains dominated by a small number of relatively large producers and buyers, prices from comparable transactions can be difficult to access.

Senegal improves phosphate benefits
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Senegal benefits from technical assistance (Senegal improves phosphate benefits)

Senegal has benefited from a deep dive technical assistance program on mining taxation provided by the Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development (IGF) in partnership with the African Tax Administration Forum between 2020 and 2023. As part of this program, the IGF worked closely with the officials in Senegal’s mining ministry who audit mineral royalties.

Through bi-weekly technical meetings, we helped them identify comparable mineral prices from global service providers, analyse large quantities of data, identify taxpayer information gaps, and request that information from all mining companies.

We also organised workshops on mineral value chains and provided hands-on assistance in using data analysis tools to detect trends and risks in company declarations.

Finally, following several years of supporting ministry staff in analysing company declarations, understanding market dynamics, and using intelligence from reputable commercial sources, we recommended an administrative measure to reduce the compliance burden for both the government and taxpayers.

We helped regulators develop a reference price—a systematic methodology to assess royalties for phosphate producers based on a safe-harbour approach developed for transfer pricing.

This approach shifts the burden of proof from the government to the companies that deviate from the reference price while eliminating the need for lengthy audits for companies that conform to it.

A reference price for phosphate (Senegal improves phosphate benefits)

Following our engagement, the ministry of mines and geology issued a reference price for phosphate in January 2024 as a ministerial order, or arreté. The ministerial order requires companies, when calculating mineral royalties owed to the state, to either use the reference price or justify any downward price deviation with appropriate evidence.

The reference price defined in the ministerial order is meant to follow changes in the phosphate market. It can be calculated weekly and is based on a transparent index price published by a reputable agency for phosphate from Morocco, a global price-setter in this industry.

The reference price allows for adjustments to the index price that reflect the lower value of Senegal phosphates in the global market.

“With the IGF’s guidance, we have now established a reference price for phosphate which helps ensure that phosphate mining brings shared financial benefits for Senegal,” says Lamine Diouf.

“Additionally, the reference price simplifies the ministry’s audit process, freeing up valuable human resources and optimising royalty collection. It also provides certainty to mining companies about their mineral royalty obligations.”

This phosphate reference price builds on other impacts from a multi-year program that has helped Senegal progress in transfer pricing audits, mineral licence valuation, and mineral royalty assessments.

The article was first published by the Intergovernmental Forum on Mining, Minerals and Sustainable Development

Senegal improves phosphate benefits

Senegal improves phosphate benefits
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