Download Drilling Down - People and Nature Reconciliation

Approaching Mineral
Legislation
Vietnam
Context of Mining
Legislation
No “perfect model”
But, “best practice” principles
Clarity, transparency
Promoting Clarity and Transparency
- Improve management efficiency, including
of government agencies
- Reassure investors
- Reduce risk of favoritism, special dealing,
diversion of resources for personal or group
gain
Principles for a Fiscal Regime in Mining
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Returns to Ownership
Generally Applicable Taxes and Fees, and
Returns to Equity Participation
Royalties
Royalties are per-unit payments made to the
property owner by the mineral developer for the
right to extract reserves
•Royalty rates vary by mineral and country, and
•The base varies, BUT
•All countries seek to reclaim some payment for
mineral rights
Royalties, Cont.

Royalties ensure government a revenue
stream from the moment extraction begins
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Royalties are the most certain form of
revenues from extractive
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Observations on Vietnam’s draft royalty law
Driving Questions for Mineral
Legislation
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Award of Mineral Rights: How and under what
conditions can companies obtain rights to explore
and extract?
Establish Rights and Responsibilities: What are
the financial, social, economic, environmental, and
reporting responsibilities of extraction companies?
Oversight: What are the government institutions
and procedures for implementing policy and
monitoring the sector?
Mining Legislation Gives Rules of the
Game for Each Step of the process
What are the
guidelines for
closing the
mine?
Exploration
Where can
you explore
and under
what
conditions?
Awarding
Rights
How are
companies
selected?
Development
What are the
guidelines for
opening the
mine?
Production
What are the
terms for
sharing
production
benefits and
mitigating
risk?
What are the
conditions for
moving and
selling the
extracted
resources?
Balancing the interest of multiple
actors
Infrastructure
Environmental Impact
Employment
Maximize
Revenues
Complement
to national
goals
Administrative
Burden
National
Government
Local
Government
Managing
Local Social
Impact
Revenue
sharing
Minimize
Compliance
Costs
Synergy
with global
strategy
Companies
Maximize
Profits
Stable
Investment
Revenue Cycle of a Typical Oil Project
Regularity and capacity utilization
Extended plateau
Fast production
step-up
Increased
oil recovery
Tail end
production
Efficient decisions
Rapid development
Reduce
finding cost
Reduce
capital
expenditures
Revenues
CAPEX
Reduce
operating
costs
OPEX
Reduce
tariffs
Tariffs
Finding cost
Benefits of competition in awarding
rights
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Improve government’s bargaining position
Lessen the burden on oversight bodies for
administration and monitoring
Increase transparency
Attract established extraction companies
Potentially improve environmental and social
impacts
Common practice for maximizing
competition

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Clear consistent rules for awarding contracts
(preferably through auctions)
Information available prior to awarding
contracts when it is available
Terms set in laws (not individual contracts)
Important Topics
What are the major issues addressed
by mining policy?
Process to Award Licenses

Current Practice
–
–
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Mineral Prospecting
Permit
Exploration License
Mineral Mining License
(Auctions are possible
but have not been used)
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Key Questions
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Do all companies have
equal opportunity?
Is the process
transparent?
Do the companies have
sufficient reassurance of
potential to extract after
their initial investment?
How efficient is the
process?
Fiscal Terms

Current Practice
–
–
–
–
–
Royalties based on tax law
with wide margin
Corporate tax
Land rent
License fees
Reclamation
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Key Questions
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–
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What is the percentage and
base for the royalties and
taxes?
What is acceptable cost
recovery?
Do the terms balance the
risk of extraction?
Do they foster competition?
What are the mechanisms
to ensure collection?
When are these revenues
reported? To whom?
Local Content

Current Practice:
–
–
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Incentives to process
minerals on-site
Priority should be given
to recruit local labor
Reference to general
labor laws
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Key Questions
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Are there ways to
incentivize local
employment in the mine?
How could other local
industries potentially
benefit from mining?
How experienced
investors build domestic
capacity in the sector?
Environmental Impact
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Current Practice:
–
–
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All activities must comply
with current
Environmental
regulations
Companies responsible
for ‘protection and
rehabilitation’ of local
environment as set out in
the feasibility study
Water rights determined
by feasibility study
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Key Questions:
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Who is responsible for
monitoring the
environmental impact?
When (if ever) is an
impact assessment done
and who has access to
it?
Who has rights to water?
Who is responsible for
paying for and executing
clean up?
Case studies of engagement
How have citizens in other countries
contributed to mining contracts and
legislation?
Mongolia
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Oyu Tolgoi Carl de Keyzer
Mining Sector
accounts for 25% of
GDP, 70% of Export
Earnings and 16%
of Tax Revenue
Rich in Gold,
Copper, and Coal
Revenue Watch and Citizen Response
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Inform government and citizen of key negotiating
points for major mining projects thru multiple media
Independent analysis of potential revenues and
impacts of different royalty rates
Provide government negotiating team with top
international advisors
Advise parliament on alternations to legislation to
allow for windfall profits tax
Sierra Leone
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Mining Accounts for 87% of GDP
New government in 2007 runs on anticorruption platform
Mineral Law revisions debated by parliament
Revenue Watch and Citizen Response
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Invited a panel of regional experts to discuss the
topic in open forum and create report
Used report to inform appropriate ministry before
proposal went to Parliament
Hosted consultative meetings with Parliamentary
Committee on Mineral Resources
Brought on respected advocates
Provided written input to Cabinet Officials