Naito et al - Key Building Blocks in Mining Law Reform

full all chapter5 chapter6 chapter7 chapter8 chapter9

chapter4 chapter5 chapter6 chapter7 chapter8 chapter9

Transparency and Accountability

Policy, Legal and Contractual Framework

Sector Organization and Institutions

Fiscal Design and Administration

Revenue Management and Distribution

Sustainable Development

Naito, K., Remy, F., and Williams, P., Key Building Blocks of Mining Law Reforms, in Review of Legal and Fiscal Frameworks for Exploration and Mining, (London, UK: World Bank Group Mining Department, Mining Journal Books Ltd, 2001)

This book chapter seeks to offer an analysis of some of the key provisions needed for actualizing comprehensive mining law reform. In doing so, the authors address government authority provisions, conditions for access to mineral holding lands, exploration and mineral rights and obligations, environment protection provisions and fiscal terms.

The author demonstrates through various country examples how a state that intends to transition from acquisition and control of mineral deposits to attracting private capital flows into the sector on a basis that produces equitable revenues needs to redefine the role of the state from owner-operator to that of lessor-regulator; the underlining principle, however, is to provide incentives for private participation and non-preferential competition.

In paving the way for private participation, the best practice examples indicate that the status of property and the nature of rights to be attributed from them are of vital importance to the general legal framework. Issues regarding the security of tenure - that is the holder of an exploration license being able to (with a degree of certainty) acquire a mining license when needed, transferability of license and the extent to which  and whether real property status would be granted for such a right (see the contrast between the Indonesian concessions which grant real property rights to title holders meaning property cannot be expropriated without adequate compensation and the Indonesian model which only grants to investors agreements known as ‘Contracts of Work.’) The granting process must also be addressed in any legal framework; this would include lucid terms giving direct authority to a granting body or ministry. Best practice indicates that discretionary granting of rights can lead to sector uncertainty thereby restricting private participation.

Best practice examples also indicate that mining laws should incorporate sector-specific environmental regulations. Separate approval processes for environmental assessments from the licensing function serve to hasten the licensing approval process and eliminate uncertainty. Thus, the license may be approved only when attached with a separate permit for environment assessment, such as in Madagascar. Moreover, environmental mitigation plans should be suited to the nature and permanence of the planned activity such that, for instance, during a reconnaissance phase the minimal impact on the environment should translate to less burdensome environmental impact assessment requirements.

Finally, the chapter outlines that a comprehensive mining legal framework requires a competitive and stable fiscal regime. The assessment of a country’s tax regime must consider an entire tax package, including profit-related taxation, output and input-related taxes. The advantages vary depending on which side one finds himself; for companies, the profit-based system is preferred because they are taxed based on performance, whereas for a producer country, the input and output-related taxes are more advantageous because they react less sensitively to market conditions and provide a more predictable stream of tax revenues. Studies from four countries show that profits surtax (higher taxes when profits exceed certain benchmarks), though economically sound, rarely generate more revenues for the state and may affect investor confidence. In conclusion, the authors demonstrate a trend in mining reform laws toward stabilization of fiscal terms as a means of improving investor confidence though the extent and degree varies across jurisdictions. 

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