As Parliament reviews the contentious Barari lithium deal, a report by the Natural Resource Governance Institute (NRGI) suggests that the government may have secured a favorable arrangement.The initial lithium lease with Barari DV Ghana Limited, a subsidiary of Atlantic Lithium Limited, was granted by the government following the discovery of lithium at Ewoyaa in the Mfantseman municipality of the Central Region.

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The Minerals Commission reported that the company has been exploring lithium resources in the Ewoyaa area since 2012, investing around $58 million in the process.According to Atlantic Lithium, the Ewoyaa project features a spodumene pegmatite resource of 35.3 million metric tonnes with 1.25 percent Lithium Oxide (Li₂O).The 15-year lease, covering roughly 42.

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63 square kilometers, provides the company with exclusive rights to mine and produce lithium and related minerals, adhering to the nation’s mining regulations. This followed the company’s completion of exploration, feasibility studies, and negotiations with the state.

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The government asserts that the agreement includes ‘improved’ conditions designed to maximize national benefits, such as a higher royalty rate, state and local participation, and enhanced value addition.Nonetheless, there has been significant opposition and debate since the announcement, given lithium’s crucial role in the global transition to cleaner energy.

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Contrary to claims that the deal is unfavorable to the state, NRGI’s analysis indicates that Ghana’s position is relatively strong compared to other global lithium producers.NRGI’s evaluation shows that the government has secured a more substantial revenue share compared to other lithium-producing countries like Australia, the Democratic Republic of Congo, and Zimbabwe.

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Based on Atlantic Lithium’s feasibility study, NRGI’s model estimates an average effective tax rate (AETR) of 58 percent, excluding state equity. The AETR reflects government revenue as a proportion of mine profits.However, NRGI highlighted that 70 percent of these revenues depend on Atlantic Lithium’s reported profits.

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To reduce tax avoidance risks, NRGI proposed several measures:Pricing Benchmark: Setting a pricing benchmark for tax calculations to reduce the risk of undervaluation.Interest Deduction Limits: Limiting interest deductions from taxable income to prevent profit shifting.Non-Dilutable Equity: Including provisions in the mining lease to ensure equity remains non-dilutable and avoid dilution from new share issues.

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Shareholder Agreement Rules: Establishing clear rules in the shareholder agreement to prevent underpayment of state dividends and ensure transparency.Capacity Building: Strengthening the ability of tax and regulatory bodies to effectively audit project costs.Despite the high tax rates, the fiscal framework is expected to enable Barari to achieve substantial profits.

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NRGI projects an after-tax internal rate of return (IRR) of approximately 102 percent, post-debt financing, prompting discussions about negotiating a higher government share.NRGI also recommended that as Parliament examines the deal, it should weigh the benefits of renegotiating key tax terms against potential delays from extended negotiations.

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The government could also consider negotiating a higher share for future profitable mines, with suggestions from civil society including a variable royalty rate that increases with higher prices.“Another approach to capturing more windfall profits from highly profitable future mines is the introduction of a resource rent tax or additional profit tax.

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However, this would necessitate significant investment in strengthening the capacity of regulatory and tax authorities to monitor costs and assess profits accurately, as higher taxes could incentivise tax avoidance.”NRGI stressed the need to enhance institutional capacity for effective cost audits.

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Furthermore, the report noted that the future of establishing a lithium refinery in Ghana is uncertain due to the government's failure to release the scoping study.“To enhance the chances of establishing a refinery, government should mandate a rigorous feasibility study by Atlantic Lithium, ensure its publication and engage in multi-stakeholder consultations to determine the next steps.

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”The NRGI report stated that by implementing these measures, government can better realise the benefits it anticipates from the Ewoyaa mine and broader lithium sector – potentially positioning Ghana as a benchmark for lithium deals in Africa.

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