Project Case Study
Attracting mining sector investment and optimising government revenues for Lao PDR
Helping Lao PDR best develop its mineral deposits
The mining sector in the Lao People’s Democratic Republic has developed rapidly since 2003. By 2011 revenues from the sector made up almost 80% of the foreign direct investments into the country, 45% of total exports and 12% of total government revenue.
However, despite its importance, a lack of conformity in the sector’s regulatory framework has resulted in a considerable variation in the fiscal terms applied to different mining agreements leading to inefficiency responsible for hindering growth.
To deal with this and restore productivity, we were invited by the World Bank in May 2013 to work with the Ministry of Energy and Mines and the Ministry of Finance over six months to review the fiscal regime, find opportunities to streamline and to undertake training for officials responsible for revenue administration.
When it comes to fiscal policy, a key challenge for so many resource-rich countries is deciding how best to both attract investment and optimise government revenues.
A transparent, consistent and stable fiscal framework offers important visibility and reassurance to investors, from where the resultant employment and financial benefits filter down to the local people. However, volatile commodity prices combined with evolving demands on government revenues make for a challenging balancing act in achieving this.
The team responded by carefully reviewing all applicable laws and regulations, using fiscal models to identify the effective tax rate for the sector and evaluated this in an international benchmark analysis. Using this information, they developed key policy options for the Government of Lao PDR and through the construction of tax simulations, identified scenarios of what the different options might mean for mining revenues in the future. The team also delivered training to over 30 government officials on use and development of the modelling to ensure the sustainability of the project in the future.