China: Recent Reform Of Mineral Rights Granting System

Last Updated: 24 October 2017
Article by Libin Zhang and Yanbin Zhao

Introduction

In June 2017 the Ministry of Land and Resources (MLR) formally announced the Mineral Rights Granting System Reform Programme, which the Communist Party Central Committee and the State Council approved at the end of 2016. The programme aims to promote the competitive granting of all types of mineral right in China, including in the oil and gas, coal and metallic sectors. The programme requires the competent authorities to implement tender, auction and listing methods to grant mineral rights and imposes strict restrictions on the granting of mineral rights via agreements. It also requires the MLR to delegate its mineral rights approval powers to lower-level competent departments.

Background

Under the relevant Chinese legislation, entities that intend to engage in mineral exploration and mining activities in China must obtain an exploration permit and a mining permit, respectively. An entity which obtains an exploration permit is called an exploration rights holder, while an entity that obtains a mining permit is called a mining rights holder. Mineral exploration rights and mining rights are collectively called mineral rights.

With the implementation of the Mineral Resources Law in 1986, the Interim Provisions on the Administration of the Granting and Transfer of Mining Rights in 2000 and the Administration Measures on Exploration and Mining Rights Tender, Auction and Listing (Trial) in 2003, China's mineral rights granting method gradually changed from a non-competitive and free-of-charge administrative allocation to a competitive granting method. At present, in addition to the competitive granting method, a certain proportion of mineral rights are still granted through agreements that are directly concluded between corporations and the government. Market competition in China's existing mineral rights granting system is far from sufficient and the reform has become a government priority.

In September 2016 the Communist Party Central Committee and the State Council issued the Overall Programme for the Reform of the Ecological Civilisation System, which clearly stated that the government will improve the existing mineral rights granting system and choose the granting methods that meet market economy demand. The Mineral Rights Granting System Reform Programme was formulated to implement the overall programme.

Basic principles

The Mineral Rights Granting System Reform Programme outlines three basic principles for promoting the existing mineral rights system:

  • The government will:
  • promote market competition in the mineral rights granting sector;
  • further expand the scope of the adoption of competitive granting; and
  • encourage all kinds of investors to participate under the principles of fairness and equality.
  • The government will increase its efforts to ensure the security of mineral resources. In addition, it will promote the publicity of information and strengthen social supervision.
  • The government will safeguard the state's rights and interests as the owner of mineral resources and protect the lawful rights and interests of mineral rights holders.

Key aims

The programme highlights four key aims of the reform – namely:

  • promoting the competitive granting of mineral rights;
  • restricting the granting of mineral rights agreements;
  • reforming the management model regarding the granting bonus and mineral rights fees; and
  • delegating approval authority.

Promoting competitive granting of mineral rights

The programme requires competent authorities at all levels to improve their mineral resource planning work and designate the blocks to be granted in a reasonable manner. The government will also provide more information – for instance, the geological data and existing exploration achievements in the blocks to be granted – in order to reduce the information asymmetry between the government and investors.

More importantly, the programme states that, in future, mineral resources allocated through agreements or other administrative methods will be largely reduced and competitive granting will be promoted. An MLR official stated in an interview that mineral resources may be divided into three categories of exploration risk (ie, high, low and no risk) and that the blocks will be classified correspondingly and granted via different methods:

  • For high-risk minerals in unexplored blocks or explored blocks not located in ore fields, mineral rights may be granted to entities that apply first.
  • For high and low-risk minerals in ore fields, exploration rights must be granted through a tender, auction or listing.
  • For sandstone, clay and other non-risk minerals, the competent authorities will grant mining rights directly, rather than exploration rights through a tender, auction or listing.

Restricting granting of mineral rights agreements

Certain corporations are granted mineral rights directly through agreements. At present, mineral rights pertaining to the following blocks can be granted through agreements:1

  • the blocks that have been allocated to key mineral development projects approved by the State Council or the ore fields that provide resources to key construction projects approved by the State Council;
  • the blocks that have been allocated to large and medium-sized mineral development projects approved by provincial governments;
  • the blocks that have been allocated to ore-finding projects which aim to find resources that supersede old mines that are listed as the state's specific projects;
  • the blocks adjacent to blocks whose mining rights have already been granted, provided that the original rights holders intend to expand their exploration or mining area; and
  • the blocks adjacent to the blocks whose exploration rights have already been granted, which involve nearby scattered resources, provided that the original rights holders intend to expand their exploration area.

In order to prevent unfair and unequal competition and other relevant risks that might be caused by granting agreements, the programme will restrict the granting of such agreements. According to the programme, following the reform, mineral rights can be granted via agreements only for:

  • the specific exploration and mining projects and key construction projects determined or approved by the State Council; and
  • the deep section of large and medium-sized mines whose mineral rights have already been granted.

In addition, the programme stipulates that the minerals rights obtained through agreements cannot be assigned within 10 years from being granted.

Reforming management model for granting bonus and mineral rights fees

The programme provides guidelines for reforming the existing management model regarding the mineral rights granting bonus and mineral rights fees. Following the approval of the programme in December 2016, several pieces of legislation have been issued in this regard.

According to the Programme on the Reform of the Mineral Resources Equity Benefit System, issued by the State Council on April 20 2017, mineral rights holders must pay the competent authorities:

  • the mineral rights granting bonus for obtaining such mineral rights;
  • the mineral rights occupancy fee (ie, the rental fee that mineral rights holders must pay each year, which is determined according to block size); and
  • the resource tax for the sale of mineral products.

On June 30 2017 the MLR and the Ministry of Finance jointly promulgated the Interim Administrative Measures for the Collection of Income Derived from the Mining Rights Granting, which provide detailed stipulations regarding payment of the granting bonus. According to the measures, as regards the mining rights that are obtained through competitive granting, the amount of the bonus should depend on the results of the tender, auction or listing. Further, for the sake of reducing the burden on mineral rights holders – in particular, exploration rights holders – the measures stipulate that, where the bonus is higher than the stipulated amount, it can be paid in instalments in accordance with the following principles:

  • Before obtaining an exploration permit, exploration rights holders must pay at least 20% of the granting bonus. The residual amount can be paid annually after the exploration rights have been converted to mining rights.
  • Before obtaining a mining permit, mining rights holders must pay at least 20% of the granting bonus. The residual amount can be paid annually during the term of the mining rights.

Delegating approval authority

The Mineral Resources Law and other relevant legislation establish the basic structure for the granting of exploration rights, which can be approved by:

  • the MLR; and
  • provincial-level authorities.

Mining rights can be approved by:

  • the MLR; and
  • provincial, municipal and county-level authorities.

At present, the MLR is responsible for the approval of:

  • the exploration and mining rights for seven minerals, including oil, gas and radioactive minerals;
  • the exploration rights for 22 minerals with a certain level of scale or exploration inputs; and
  • the mining rights of 23 minerals with large or medium-sized reserves.

In order to make this process more convenient for counterparties and increase approval efficiency, the programme requires the MLR to delegate its approval authorities to lower-level departments.

After the reform, the MLR will have the authority to approve only the granting of:

  • exploration and mining rights for oil, gas, shale gas, radioactive minerals, tungsten and rare earth metals;
  • mining rights for coal mines whose resource reserves exceed 1 billion tons; and
  • mining rights for coal-bed methane, gold, iron, copper, aluminium, tin, antimony, molybdenum, phosphorus and potassium mines that have large-scale resource reserves.

Comment

The Mineral Rights Granting System Reform Programme has selected Shanxi, Fujian, Jiangxi, Hubei, Guizhou and Xinjiang to carry out a two-year trial. After the findings have been summarised and relevant legislation modified or issued, the reform is intended to be implemented nationwide in 2019. The programme shows the government's determination to promote the competitive granting of the mineral rights. However, it is too early to tell whether the reform can achieve its primary goal of establishing a comprehensive mineral rights granting system.

Footnote

1 Notice of the MLR on the Strengthening and Standardising of the Administration of Agreements Granting Mineral Rights (Guo Tu Zi Gui [2015] 3).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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