Romanian Government Approves Draft Law on Mining Activities
The Romanian Government has recently approved a draft law on mining activities that is intended to replace the existing law, enacted in 2003. In order to be enacted, the draft law needs to pass the Parliament test, which means that it will not come into force this year. In addition, the draft can suffer many changes in the parliamentary proceeding.
What is new and important?
- Land access rights
- Transfer of rights and obligations deriving from the mining license
- Obligation of the titleholder to incorporate a Romanian subsidiary after being awarded the mining license
- Elimination of the approval of the production mining licenses by Government Decision
- Mining royalties and special taxes on prospecting, exploration and production of mineral resources
Land access rights
The new law gives titleholders of mining licenses enhanced rights of access to the land necessary for the mining operations. More precisely, if the law is passed, titleholders will have the right to negotiate a concession agreement for land in the public ownership of the state or of the counties/municipalities/communes. Absent such right to negotiate directly, concession rights over land in public ownership would have been granted pursuant to a public tender.
If passed, this legal provision could have as positive effect the unlocking of several projects in the mining sector, given that access to public property land has been one of the main impediments for investors in mining projects in Romania. Such legal provision could also positively impact a future privatization process, as in many instances the quarries of the state-owned companies are located on public property land. However, the privatization legislation is also under review and it still remains to be seen whether the interplay between the new mining law and the future privatization laws will create a stable and friendly environment for investors.
In spite of the potential legislative improvements mentioned above, access to land remains one of the most critical issues for titleholders of mining licenses and any new right regarding access to land, public or private, will have to pass the constitutionality test.
Transfer of rights and obligations deriving from the mining license
According to the mining law currently in force, titleholders of mining licenses can transfer them to other entities, affiliated or unaffiliated, with the prior approval of the National Agency for Mineral Resources (which is the grantor of the mining license). The draft law seems to prohibit the transfer of mining licenses except for changes in the corporate status of the titleholder pursuant to events such as corporate reorganization, presumably, change of control and “any other cases triggering a change in the status of the titleholder”.
It is expected that the interdiction to transfer mining licenses will raise material concerns amongst both current and future titleholders, as it is an unexpected and, we daresay, unnecessary hurdle in their businesses. A transfer of mining licenses performed with the prior consent of the National Agency for Mineral Resources (as it is today), if the assessment of the fulfillment of the transfer conditions is made professionally and diligently, should not impair the proper performance of the mining operations by the transferee and therefore there should be no interdiction to transfer but rather a very strict control of the transfer conditions.
Obligation of the titleholder to incorporate a Romanian subsidiary after being awarded the mining license
The draft law provides that foreign legal persons that have been awarded a mining license in Romania must open a subsidiary in Romania within ninety days after the mining license enters into force and maintain it validly incorporated and in good standing throughout the entire duration of the mining license. Given that the draft law prohibits the transfer of mining licenses, it remains to be seen in what capacity the subsidiary will carry out mining activities: titleholder (but in this case an exemption from the prohibition to transfer should be regulated) or operator (new concept introduced in the mining law but lacking a clear governing legal regime).
Elimination of the approval of the production mining licenses by Government Decision
According to the existing mining law, a production mining license enters into force upon publication of a Government Decision for the approval of the respective license. The governmental approval procedure is a rather lengthy process that in practice lasts anywhere from a few months to several years. Pursuant to the draft law, neither exploration nor production mining licenses would need governmental approval, and the approval and signature of the National Agency for Mineral Resources is considered sufficient. This amendment is welcomed and will represent a clear improvement in the process for obtaining mining licenses in Romania.
Mining royalties and special taxes on prospecting, exploration and production of mineral resources
The draft law on mining activities also seems to regulate a significant departure from the existing regime of mining royalties. While mining royalties are included in the current mining law, the future regulation envisages a royalties regime regulated under a separate law – presumably a royalties law, a draft of which seems to be also undergoing the legislative process.
Moreover, it seems that it will be possible to pay the royalties in kind. However, the mechanism for calculating and actual method of paying in kind royalties is not set out in the law, as it is envisaged to be enacted via a Government Decision. Naturally, the price used for determining the value of the mining product that will be paid as mining royalty is a piece of information of vital importance for investors and unfortunately the draft law does not shed any light on this matter. Regulation of royalties through secondary legislation that can be more easily changed may have a negative impact on the business environment and on the investors’ appetite to enter the Romanian mining market. Given that the law is still a draft, it is still possible to see an improvement after it goes through the review in Parliament.
Depending on the final form in which the mining law and the royalties law will be enacted, one will be able to conclude if and to what extent the royalties regime applicable to ongoing mining licenses has changed and how the principle of stability of mining licenses has been observed.
As regards the special taxes on prospecting, exploration and production of mineral resources, the most important change is that they will be paid to the local budgets and not to the state budget. Sharing the taxes paid by the mining titleholders with the local communities may represent an improvement in the relationship between mining companies and communities impacted by their projects.
To conclude, the draft mining law brings several improvements to the existing legal framework, but stakeholders should monitor the future evolution of the draft, as well as become proactively involved in the public consultations that are expected to follow on the secondary legislation envisaged to be enacted based on the draft law.