PANAMA Trends and Developments Contributed by: Roy C Durling, Arias, Fábrega & Fábrega
bly and by the President of the Republic and a cabinet minister. The law becomes effective upon its publication in the Official Gazette of Panama. In 2011, after the approval of the environmental impact study, construction of the project started. In December 2016, the Ministry of Commerce and Industries extended the term of Law No 9 for an additional 20-year period. Prior to the start of mining operations, MPSA had invested more than USD6 billion. In 2019, MPSA began export - ing copper. In the ensuing years, MPSA’s copper exports accounted for 80% of Panama’s total exports (approximately USD2 billion). The first Cobre Panama concession is declared unconstitutional The Supreme Court of Panama, in a decision ren - dered in late 2017, held that Law 9 was uncon - stitutional, which called into question the validity of MPSA’s concession. The ruling became fully binding in late 2021. The Supreme Court’s ruling was in response to complaints filed by an environmental group and an individual. The Court held that Law 9 was unconstitutional because, in granting the con - cession, the government had obviated the pro - cedures established by Cabinet Decree No 267 of 1969, which required a public bidding pro - cess. In addition, the Court held that the gov - ernment had ignored the potential environmental risks associated with the project. Until the ruling became final, Law 9 continued to be effective, and the Panamanian government honoured its terms. The second Cobre Panama concession While the Supreme Court decision was in the process of becoming final, in September 2021,
the government of Panama and MPSA started to negotiate a new contract to replace Law 9. The principal aims of the Panamanian govern - ment were to ensure that the mining operation continued, increase revenue to the Panamanian government, and incorporate protections for mine workers and the environment. In March 2023, the terms of the new conces - sion were agreed. It provided for the following financial terms: • MPSA would pay a variable royalty rate rang - ing from 12 to 16% of gross earnings (earn - ings from the sale of minerals minus direct costs). The applicable royalty percentage would depend on the level of gross earnings. Law 9 established some fixed royalties rang - ing from 2 to 4%. • MPSA would pay Panama withholding taxes on payments to foreign lenders and parties as provided by law. Law 9 exempted MPSA and its affiliates from the payment of any with - holding taxes. • MPSA would no longer benefit from any tax holiday and would pay income taxes as provided by law. Law 9 exempted MPSA and its affiliates from all taxes that might arise in relation to the development of the mining pro - ject, except for municipal taxes and surface canons and royalties, until these entities had repaid all debt acquired for the construction and development of the mining project. • MPSA would make a yearly, minimum guar - anteed payment to Panama of USD375 mil - lion adjusted for inflation (“Minimum Guar - anteed Payment”), comprising the sum of royalty payments and payments of withhold - ing and income taxes. This Minimum Guar - anteed Payment was aimed at ensuring that a minimum payment of royalties and taxes
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