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The Sierra Leone Extractive Sector amid the COVID-19 Pandemic

What started as "Chinese case of pneumonia" detected in Wuhan City in China on 31st December 2019 and later confirmed by the Chinese National Health Commission as Corona virus, dubbed COVID-19, has spread to every corner of the world. Recent data from the World Health Organization (WHO), indicates that the virus has affected at least 3.6 million people worldwide, with projections that the virus will not end any time soon. 

The epidemiological and environmental measures adopted by WHO and national governments to contain the spread of the virus continue to affect human and economic activities including the oil, gas, and mining industries. The Extractive Industries Transparency Initiative (EITI) Board Chair, Helen Clark, discussed the likely impact and implications of the virus in a release dated 27th March 2020 where she stated that " the upheaval in the markets for oil and other commodities will have far reaching consequences for governments which depend on revenues from the extractive sector", adding that "small changes in commodity prices can have material impact on both industry profitability and government revenues". Like the EITI, an IMF analysis notes that "as a result of the pandemic, the global economy is projected to contract sharply by 3-percent in 2020 much worse than during the 2008 -09 financial crisis". The impact is further heightened by drop in demand for diamond with analysts saying the "diamond sector is grind to halt in some countries".

Mining.com attempted painting a picture of how severe the industry may have been badly hit by the pandemic- slashing at least US$282 billion from the mining sector with the "top 10 companies alone lost a combined US$170 billion in market value". However, the price of gold showed resilience amid the corona virus pandemic with Forbes projecting that "regardless of the economic scenario, gold will retain its status as hedge asset and is a must -own in every investor's portfolio, given how well it has performed historically during the economic downturns".

The Case of Sierra Leone

In Sierra Leone, the environmental regulations instituted by the government to contain the spread of the COVID-19 range from partial to full lock-down including suspension of international flights to Sierra Leone. Vimetco, a large scale bauxite mining company informed the Sierra Leone Extractive Industries Transparency Initiative ( SLEITI) that the "COVID-19 pandemic is having some serious impact on the company operations" to the extent that "third party buyers -especially spot market buyers - are cancelling short-term orders of bauxite". This is a decision that may impact negatively on cash flow. 

The Precious Minerals Department ( PMT) of the National Minerals Agency recorded hardly any revenue on export duty on gold and diamond since April. Until the government of Sierra Leone ease the restrictions on all incoming flights, the PMT may potentially raise little or nothing as revenue for 2nd and 3rd quarters of 2020. These are revenues that may have contributed to government earnings, as well as providing necessary data for SLEITI reporting on the potential of the extractive sectors contribution to the economy.

on 29th April, the Government of Sierra Leone announced that the Open Offshore Petroleum acreages covering several graticular blocks have been provisionally awarded to Cluff Energy Africa and Innoson Oil & Gas Companies as an initial option following the Nation's Fourth Offshore Petroleum License Round. Under normal circumstances, the winning bidders are expected to accept the provisional offer and express interest to negotiate with the Government within one month. With the COVID-19 already scaring potential investors away and wrecking havoc on economies, the Government is hoping that the awardees will submit their responses in a timely manner.  

Important Response Adjustment

There are several options available to the government of Sierra Leone and operational large scale companies to leverage the economic impact of COVID-19 on the extractive sector. Vimetco is considering "scaling down mining operations and purchases to bear necessity" and undertaking some structural adjustment that will send some workers on "COVID-19 sit-at-home scheme with partial salary". Though other companies may have adopted other measures, experts suggested that companies could request government to exempt company operations from lock-down and where possible waive mineral royalties as last resort. With drop in sales revenue, it is certain that tax deferment could be a necessary option on the plates of large scale companies in Sierra Leone. While  tax relaxation may sound realistic, experts have warned that governments must not provide waivers to offshore registered companies as their intent is akin to defrauding state authorities of taxable income. should tax relation measures were to be considered by the government, mines workers' interest and issues of community livelihood must serve the basis of negotiation. 

 

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