asked the Minister for Energy if he will outline the Government's policy in relation to the method which should be used for assessing liability for royalty payments when mining licences are issued; if, in light of the Tara experience, he intends to ensure that all future licences provide for a royalty based on each tonne of ore extracted; and if he will make a statement on the matter.
Ceisteanna — Questions. Oral Answers. - Mining Royalties.
21.
It is the Government's policy to settle mining lease royalty terms having regard to the nature, characteristics and projected economic outturn of each particular deposit in respect of which a lease application has been made. In settling future royalty terms my Department will take account of experience gained in operating royalty provisions in previous leases and in some cases royalty will be levied on a royalty per tonne basis. Such a royalty basis would not always operate in the State's best interests. In the case of metals, such as zinc and lead for instance, where frequent and substantial metal price and currency fluctuations are a feature of the market a royalty per tonne could yield a poor return to the State when metal prices are high and it could be damaging to the viability of the mining enterprise when prices are low.
I can tell the Minister I had the opportunity of visiting this particular mine this morning as a member of the Committee of Public Accounts. Would the Minister agree, having referred to the experience gained by the State, that that experience was disastrous and that the original lease in 1975 was fundamentally flawed as a result of which — irrespective of the Minister's answer about the price of ore rising or falling on the metal exchange — the taxpayer got ripped off? Whether the price of lead or zinc rose or fell, virtually no royalties accrued to the taxpayer although some £608 million worth of ore has been exported.
I would agree with the Deputy that if we were at this time considering what terms we would apply to a company such as Tara, who were proposing to undertake the development of that mine, those terms would be substantially different.
Does the Minister agree that to permit any multinational company to determine the level of its profits before the State gets any share of the stake is foolish, having regard to the widespread use of the transfer of pricing mechanism in order to present profits in accordance with the wishes of that particular multinational company in any country? A royalty extracted on the tonnage of ore would be more beneficial to the State than a royalty extracted on profits. Will the Minister consider this situation in terms of the mining leases he is examining, and to which he referred earlier, and specifically in the case of Galmoy on the Laois-Kilkenny border?
All I can say is that I am not here to pass historical judgment on decisions that were made in regard to the Tara Mines operation other than to say that, in my view, they were not satisfactory. The house can be assured that in regard to any similar find, a much more satisfactory régime will be applied on behalf of the State.
Finally, does the Minister accept that the present method of levying royalties was so unsuccessful in the case of Tara and the State was so frustrated trying to establish whether royalties were due, that it ended up being forced to sell off the State's stake in Tara Mines — the largest mine in Europe — for a knock down price?
When the Deputy says we are discussing the present royalties system, there is no present royalties system. I said that if there was a new find all the various options would be considered by the Minister and the Government of the day before any final decision would be made. I am assuring the House that a similar arrangement would not again be entered into. The provision in the State mining lease granted to Tara was for royalties to be levied on profits as computed for corporation profits tax purposes. The basis was used very satisfactorily in a number of other mining operations in Ireland prior to the granting of the Tara lease, and it is very commonly used in other countries. As Deputies will be aware, the problem in the Tara case was that significant differences arose on a number of variables in the calculation of the company's profits. If in the future this royalty basis was used again it would, of course, be necessary to define very carefully in advance how the profit figure should be arrived at or to consider whether an entirely different basis should be used.
I would like to ask the Minister if he agrees that all the problems he indicates about the commercial viability of mining apply with equal force to the gas area? In that areas he has a 12.5 per cent royalty on turnover along the lines suggested by Deputy Rabbitte. Would he agree therefore, that it would be more sensible to establish ab initio or a previous system of royalty in advance of a discovery and that that would be known to be the system and that it would give an equitable return to the State?
I do not think it would be advisable to adopt a set of royalty proposals in advance of any find. I think the present position is the most satisfactory one from the point of view of the State. Each discovery should be examined carefully, its value, its extent, its life and the cost involved in extracting the mineral, oil or gas. Based on the expert assessment of the various costs involved, the State should decide at that point what its take would be. In relation to the gas deal, to which the Deputy has referred, it is generally recognised that Ireland has done quite well out of the arrangement that has been entered into.
That disposes of Questions for today.