principles and concepts of mining law & policy: trends & challenges dr elizabeth bastida...
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Principles and Concepts of Mining Law & Policy: Trends & Challenges
Dr Elizabeth Bastida
TIRI - Governance of Oil, Gas and Mining RevenueBudapest, 26 June 2007
Outline
Mining: Some Facts
Mining Law: Basic Principles and Concepts
Mining Law: Some Trends…
Case-Study: The Mineral Development Agreement between Liberia and Mittal Steel
Mining: A Definition
Extraction of ‘potentially usable substances from land or sea’ (Crowson, 2005);
Mining is ‘The science, technique and business of mineral discovery and extraction’ (US Bureau of Mines, 1968);
Mining: interlinked and sequential stages. Prospecting and exploration; Development; Ore extraction and processing; Closure and remediation of site.
(UNEP, 2000)
Mining: Principal Classes of Minerals Metalliferous minerals
Energy minerals
Industrial and construction minerals
Diamonds and precious gems
MMSD, 2002
Mining: Types of Processes Surface mining:
open extraction of minerals, with removal of overlying earth and rocks to expose the ore
predominant process: 84% metallic mines;
Underground mining: extraction by an excavation driven below the surface
Solution mining dissolution of ores lying in deep deposits which are pumped up to the surface, salt and potash, some uranium deposits
Water-based mining minerals gathered in river beds, coastal waters, amenable to dredging typically of relatively dense minerals, such as gold, diamonds, tin, titanium
minerals, or zircon
Waste dump or tailings re-treatment (to work minerals previously discarded)
Crowson, 2005
Mining: Characteristics
Physical characteristics of minerals Non-renewable nature Site-specific Heterogeneity: Minerals as different to petroleum
resources Needs of processing to be turned into saleable
products
Very slow return of the investment Long lead time to develop mineral deposits Extent, rigor, and cost of pre-production activities
Capital intensive nature
Risky nature of mining investment
The Miners Large multinational companies
operate in a wide range of countries, select exploration and project targets on a ‘global’ basis selling their products on regional or world markets
State-owned companies few examples: Codelco, LKAB Some concentrate in a few products
Medium-sized companies and national players typically operate several small to medium-sized deposits, in one or more than one country prevail in most locally and regionally traded minerals, particularly industrial minerals
Juniors very dynamic in minerals exploration some seek to negotiate a deal with larger company once discovery made; Others will try to gain a controlling interest in the operating mine .
Small and artisanal miners mostly concentrated in producing ‘high unit value products’ Small operations, minor shares of global production’ often operate ‘on the fringes of the law’
Crowson, 2005
Mining: Local Impacts Positive facts and impacts:
a wealth-creation process; can have a crucial role as a catalyst of development
Impacts on the environment, land and other natural resources: the destruction of habitat, the visual impact of an open pit or waste dump, and the potential chemical impact of improperly treated wastes
Richards, 2003
Large-scale mining: Large infrastructure requirements. Intense consumer of energy and water for the extraction and processing stages.
Requires access to land: Interfaces with other land uses lands owned or held publicly, privately or communally, used for other activities or purposes, environmentally relevant.
Potential impacts on local communities
Regional and local economic impacts: Mineral endowment is just one form of natural capital which represents potential wealth. Mining does not create local and regional development per se, but this has to be proactively
enabled
Legal, Regulatory and Contractual Framework for Minerals Development
In broad terms, mineral resources investment and development at a national level are governed by a multi-layered framework of treaties, laws, regulations and contracts.
International treaties (as established under domestic legal systems) Investment regime: Bilateral Investment Treaties – Regional treaties Environmental protection
Constitutional provisions
Mining Code: varying approaches Definition of ownership, allocation of functions of governmental authorities and mineral
tenure regime More comprehensive regime for minerals investment and development -with fiscal terms-
Set of laws and regulations: Administrative law & regulation – Labour law Environmental law, protected areas laws, forest law, water law Health & safety regulations
Contracts
Mineral Tenure Regimes
At its most basic Mining Law (in the sense of mineral tenure regimes) defines:
• mineral ownership;
• rules and procedures for the allocation, maintenance, transfer and termination of mineral rights;
• rules and procedures for access to land;
• rights and obligations of mineral rights holders.
Mineral Tenure Regimes: Access to Mineral Rights
Definition of ownership: Most often: Definition of State ownership of minerals in the
subsoil.
Definition of method of access to mineral rights Licensing or sequence of mineral titles (‘permits’, ‘licenses’,
‘leases’, ‘claims’, ‘concessions’) Contractual approaches Combined approaches
Definition of criteria to grant access: Objective criteria: First-come, first-served Subjective criteria: A selected candidate
Maintenance of mineral rights: Work or investment obligations Single annual fee
Mineral Rights: Types and Status –
Common provisions Duration, renewal and relinquishment Extension of areas
Types of mineral rights Multi-licensing approach: Reconnaissance, exploration,
exploitation, sometimes beneficiation Single licensing approach: Covering all activities from
prospecting and beyond exploitation
Status of mineral rights: Exclusive? Can they be sold, leased, transferred, or subject to any
other agreement?, Prior authorisation from the mining authority?
Access to Land
Definition of precedence
Rules and procedures for use of land and other resources
Rules and procedures for compensation
Dispute resolution
Environmental Regulation
Interfaces with Mining Code Central approach: Framework environmental law + handful special mining
regulations Sectoral approach: Specific set of environmental regulations in mining law
Regulatory environmental instruments Use of EIA Environmental Management and Monitoring Plans
Mine closure regime Prevention Costs internalisation Reclamation
Emerging approaches: Third-party certification Interfaces with voluntary regulation.
Agreements used in the mining industry Mining agreements between the state and
a mining company
Agreements between partners in a project: JV – JOA
Agreements used with lenders, buyers, suppliers
Agreements with landowners or landholders for access to land
Otto & Cordes, The Regulation of Mineral Enterprises, 2002, 4-1.
State Mining Agreements
In general terms, a mining agreement between the government and a company comprises arrangements setting forth the rights and obligations of the parties in the course of the various stages of the project.
Various terms: Mineral Development Agreement, Economic Development
Agreements More generally, if the company is a foreign investor:
Foreign Investment Contracts, Transnational Mineral Agreements
A ‘good’ mining agreement… ‘can stand the test of time by providing for renegotiation,
stabilisation, phase-in and arbitration clauses,
Strikes a fair balance of profits between the host country and the TNC,
Precisely determines the rights and obligations of the parties…
Takes into consideration the communities or entities not party to the deal but who will be interested or affected by it’.
Barberis, 22.
Best practice principles for licensing and selection
Guiding principles and criteria for the licensing and selection process should be listed in the laws and applied throughout in regulations and the licensing process:
Transparency: The tender and contracting process should be as transparent as possible. Criteria, rules and information should be made available to all interested parties in order to create
an equal field of competition;
Competition: Based on equality of competitors and adjudicated by objective criteria focusing on efficiency, technology, financing and organisation;
Economy and efficiency: To reduce unnecessary delays, risks, uncertainties and expenses;
National development and best value: Selection of the tenderer will be made on the basis of the proposal that provides the best value for the country. Criteria can include plan of work and investment; financial and technical capacity and previous experience; socio-economic benefits for the State, including commitments regarding compensation to affected communities, local employment and development, actions on environmental protection.
The promotion of Health and Safety;
The protection of the environment and nature.
EU Hydrocarbons Licensing Directive: a good model of best practice
State Agreements: Types
Traditional Concession Agreements used early 20th century, mostly in former colonies granted ‘almost unrestricted rights’
Service Agreements Ownership retained by government or State company Contractor under its supervision or control Contract of Work (Indonesia) –hybrid form-: Company undertakes exploration
and exploitation on behalf government.
Typical Mineral Development Agreements Government ownership and control -Joint Ventures (Myanmar – Uzbekistan)- Development issues - Upstream and downstream linkages
Investment Promotion Agreements ‘Gap fillers’ (Otto) Stabilisation Agreements
See Otto, 2002
State Agreements: Types
To supplement or complement existing law To expand and clarify rights, i.e.
Central Asian RepublicsTo strengthen certain obligations –as environmental
provisions- (Mozambique). To spell out more specific regulations, i.e.
to narrowly limit discretionary powers of government authorities;
To provide safeguards that may not be clear in the law specific assurances needed by investment: to freeze or
stabilise certain terms (Mineral Investment Agreements)
To provide a special regulatory system due to special requirements of large projects and their potential to make a substantial, strategic impact on the overall economy (Western Australia).
Agreements aimed at complementing existing lawI.e., article 2 ‘Convention minière’ Niger:
‘This Convention aims to determine general, legal, financial, fiscal, economic, administrative, customs and social conditions in which the company will undertake exploration/exploitation work within the area defined in the exploration or exploitation permit’.
Agreements aimed at limiting discretionary powers of government authorities
The 1998 Tanzanian Mining Act allows the Minister to enter into development agreements with the holder of, or applicant for mineral rights, regarding the conduct or the financing of mining operations under a special mining licence (section 10), ie. to:
Guarantee fiscal stability of a long term mining
project, Specify the circumstances or manner in which the
Minister [or Commissioner] will exercise any discretion conferred on them by the Act;
Define the scope and, as appropriate, limit the extent of environmental obligations or liabilities of the holder of a special mining licence;
Dealing with the settlement of disputes, including provisions providing for international arbitration.
Agreements (or clauses) aimed at freezing or stabilising certain terms
Purpose stabilization clause: To protect the investor from unilateral changes by the government on the terms applicable to the project and ensure stability of regimes.
Ghana:Minerals and Mining Act , 2006
Stability agreement
(1) The Minister may as a part of a mining lease enter into a stability agreement with the holder of the mining lease, to ensure that the holder of the mining lease will not, for a period not exceeding fifteen years from the date of the agreement,
be adversely affected by a new enactment, order instrument or other action
made under a new enactment or changes to an enactment, order, instrument that existed at the time of the stability agreement, or other action taken under these that have the effect or purport to have the effect of imposing obligations upon the holder or applicant of the mining lease, and
be adversely affected by subsequent changes to (i) the level of and payment of customs or other duties relating to
the entry materials, goods, equipment and any other inputs necessary to the mining operations or project,
(ii) the level of and payment of royalties, taxes, fees and other fiscal imports, and
(iii) laws relating to exchange control, transfer of capital and dividend remittance.
(2) A stability agreement entered into under subsection (1) shall be subject to ratification by Parliament.
Ghana:Minerals and Mining Act , 2006
Development agreement
(1) The Minister on the advice of the Commission may enter into a development agreement under a mining lease with a person where the proposed investment by the person will exceed US$ five hundred million.
(2) A development agreement may contain provisions, relating to the mineral right or operations to be
conducted under the mining lease, relating to the circumstance or manner in which the
Minister will exercise a discretion conferred by or under this Act,
on stability terms as provided under section 48, relating to environmental issues and obligations of the
holder to safe-guard the environment in accordance with this Act or another enactment, and
dealing with the settlement of disputes.
(3) A development agreement is subject to ratification by Parliament.
Section 33
Liberia: Minerals and Mining Law 2000
‘Mineral Development Agreement’ (Section 6.6 Law): To set forth matters left to the discretionary authority of the
Minister; To fix tax obligations; To guarantee the investor to be free from currency or other
exchange controls from proceeds of export sales, and to repatriate earnings;
To agree any other terms as the Government considers conducive to the encouragement of investment, such as recourse to international arbitration, guarantee against expropriation, right to import goods and equipment for use in operations and export minerals, and protection against discrimination in favour of any other producer or exporter of minerals in Liberia.
From 1990s: Strengthening Private Investment Participation and Protection General investment regimes:
Liberalisation of FI regimes Emphasis in investment promotion and maintenance of stable investment
climate in international conventions, regional and bilateral investment treaties
New members in ICSID
Investment incentives and taxation. Non-discrimination to foreign capital registration Agreements for investment protection (stabilisation)
A stable and equitable tax regime Income tax Non- or minimum royalties
Law reform: Attractive regimes for FI. Role of law in creating an ‘enabling environment’ for investment; in reducing
risks and ensuring returns
Trends from late 1980s…
Move to privatisation of State-owned companies Service contracts usually entered between private companies (see AMPLA Model Mining Services Contract, http://
www.ampla.org/ampla_contract.html)
From negotiation and discretionary powers to standardised legal regimes General move away from joint venturing and equity participation Move from ad-hoc to model agreements
Most commonly: Reliance on general mining law –rather than on agreements
Use of agreements to provide for investment conditions
Role of private law
Deregulation - minimum transaction costs (the ‘Latin American Mining Law Model’)
1990s: The ‘Latin American Mining Law Model’
General principles:
Ownership of State over minerals in the subsoil Grant of rights for the exploration and exploitation of minerals (‘the concession system’) Principle of public interest
Access to concession: By application on a first-come, first-served basis (Bolivia, Chile, Peru)
Types: Single concession (of exploration/exploitation) (Bolivia, Peru)
Term of concession: Indefinite (as long as objective requirements set out by law are met)
Maintenance of concession: By payment of a single annual fee (Bolivia, Chile; to some extent in Peru).
Procedure: Non-discretionary, non-negotiated administrative procedure
Location: By means of a grid system (‘sistema de cuadrículas’) in Bolivia and Peru.
Status of mineral rights: Real property rights – exclusive – freely transferrable, mortgageable with no need of prior approval
Combined with competitive tax regimes
…and very recently…
With rise of demand and mineral prices: Expressions of assertion of national
sovereignty: Renegotiation or redefinition of fiscal terms; Actions to take control of unused mineral
rights;
Concern for developmental dimension of mining.
Further Trends: Environmental Regulation 1970s in developed countries (e.g. US Mine Control and Reclamation Act
1977)
General trends: Ratification of a widening circle of countries of core treaties on these subjects
Recognition of the right of every person to a healthy environment in Constitutions or environmental laws
Framework or sectoral environmental laws applicable to mining Environmental Impact Assessment From pollution control to more preventive approaches Evolving mine closure regulation (Peru)
Further regulations Main challenges for monitoring and enforcement
Social Inclusion
Right of every person to participate in the decision-making process of activities that can affect their lives
Access to informationParticipation
Protection of rights and lands of indigenous peoples
Ratification of International Labour Organisation (ILO) Convention 169 on Indigenous and Tribal Peoples in Independent Countries (1989)
Emphasis on regulation and formalisation of small-scale mining (linked to strategies of poverty eradication and generation employment)
Major challenges for effective public participation and derive benefits for local communities
Contribution of mining to regional and local economic development
Royalties Re-allocation of mineral revenues Decentralisation Establishing linkages with the rest of the
economy
Major governance challenges Management at local level Enhancing accountability and transparency
Major Challenge
To ensure contribution of mining investment to local and regional development
Role of law and institutions in creating and maintaining an enabling environment for development
Mineral Development Agreement
between
the Government of the
Republic of Liberia
and
Mittal Steel Holdings A.G.
(formerly Mittal Steel Holdings N.V)
Original Agreement: 17 August 2005
Amendment: 28 December 2006
The Parties
LiberiaTorn apart by 14 years civil warWeak institutionsRich mineral resources
Mittal SteelThe largest steel companyA vertically integrated company
The Project
Concession areas of the former Liberian American-Swedish Minerals Company (‘LAMCO’) pursuant to Mining Concession Agreement of 28 April 1960;
Concession includes port and railways
The Agreement
Agreement entered into by transitional government;
Government of elected President Ellen Johnson Sirleaf: Review of all tenders conducted by transitional government;
Renegotiation of MDA.
See Global Witness Report, p. 11
Questions: Process
How were rights to develop the project awarded?
Did the transitional government have the authority to negotiate the agreement?
How was the agreement negotiated?
Was the agreement published?
Were affected communities informed and consulted?
Questions: Area, Land and Facilities How is the area of the concession defined? Is it clearly
delimited?
What are the terms and conditions to access public lands?
What are the terms and conditions to access private lands? What is the procedure if a private landowner is not willing to negotiate land access? Has mining have precedent rights over other land uses?
Does the concessionaire have rights to use assets and facilities to operate the project, such as the industrial infrastructure, the port and railway facilities?
Does the concessionaire have rights to use other natural resources for the purposes of the operation? How does it meet its energy and water requirements?
Questions: Environmental Regulation What are the concessionaire’s
obligations regarding the environment?
Does the MDA provide for mine closure?
Should an audit be conducted to clearly define liabilities of each party?
Questions: Capital and Corporate Structure
What is the concessionaire’s initial capital structure?
How is the Government’s contribution assessed?
How can the capital structure of the Concessionaire evolve pursuant to the MDA?
Which entity undertakes operations?
What are the implications?
Questions:Specific Guarantees
What is the scope of the stabilization clause provided for in the MDA?
Questions: Fiscal Terms What is the income tax rate?
Does the MDA provide for tax exemptions? Tax holidays?
Royalties: On what basis are they calculated? How were rights to develop the project awarded?
What are the basis for the establishment of a surface rental? How is paid? (How is distributed?)
What is the treatment of import duties?