By Dang Duong Anh

Following the new Law on Minerals of 2010,1 the Government has recently issued Decree 15/2012/ND-CP dated 09 March 2012 guiding the Law on Minerals of 2010 ("Decree 15"), which will take effect from 25 April 2012. Decree 15 and certain other regulations and policies newly issued by the Government introduce various significant changes in the mining industry of Vietnam. These changes are expected to have substantial impacts on both licensed projects and prospective projects on mining activities in Vietnam.

1. Partly lifting the suspension of the licensing process in mining sector

Following the mineral strategy under Decision 2427 dated 22 December 2011,2 the Prime Minister issued Directive 02 dated 9 January 2012 enhancing the State management on exploration, exploitation, processing, using and export of minerals ("Directive 02"). Directive 02 partly lifts the temporary suspension on issuance of exploration and mining licenses under Official Letter 6033a,3 which has been applied from 30 August 2011.

1.1 Lifting the suspension of the licensing process for certain minerals

Under Directive 02, the licensing process for certain minerals has been reactivated after more than 3 months of suspension. In particular:

  1. Coal: continue issuing exploration and mining licenses in accordance with the relevant master plan;
  2. Bauxite ore: new bauxite mining projects and aluminum production projects will only be implemented until Tan Rai and Nhan Co projects come into operation and have been assessed;
  3. Lead - zinc ore: continue allowing exploration and exploitation in new areas with

  4. condition on deep processing;

  1. Chromite ore: continue issuing mining licenses based on the demand for products processed from chromite in local industries to 2030;
  2. Manganese ore: allow the issuance of exploration and mining licenses to projects implemented in potential areas in Ha Giang, Tuyen Quang and Cao Bang provinces;
  3. Gold ore: only allow the issuance of exploration and mining licenses for root gold deposits with conditions on deep processing, advanced technology and environmental protection;
  4. Copper ore: continue issuing exploration and mining licenses with condition on deep processing;
  5. Apatite ore: continue issuing exploration licenses to additional exploring projects in accordance with the relevant master plan;
  6. Rare earth ore: continue issuing exploration and mining licenses subject to approval of the Prime Minister;
  7. Minerals for making cement: continue issuing exploration and mining licenses for marble, clay and additives in accordance with the relevant master plan; and
  8. Minerals for production of normal construction materials: continue issuing new mining licenses and extending existing licenses for construction stone and sand in accordance with the relevant master plan.

1.2 Blocking the licensing process for some other minerals

Under Directive 02, new exploration and mining licenses will not be issued for the following minerals: placer titanium, placer gold, white marble and granite. New exploration licenses will not be issued for bauxite ores in northern provinces. Directive 02 is however silent on extension and renewal of existing exploration and mining licenses for those minerals. It is expected that the Prime Minister or the Ministry of Natural Resources and Environment ("MONRE") will issue guidance to clarify this issue soon.

2. More restrictions on export of minerals

2.1 Directive 02 sets out various restrictions on export of minerals. In particular:

  1. Export of the following minerals is not allowed: iron ore, lead - zinc ore and concentrate, chromite ore and concentrate, manganese ore and concentrate, copper ore, apatite ore, massive white marble and massive granite.
  2. From 1 July 2012, export of titanium ore which has not been deeply processed will not be permitted. Export of deeply processed titanium ore must be approved by the Prime Minister.
  3. Export of rare earth must be approved the Prime Minister.
  4. Export of coal must strictly conform to the schedule approved by the Prime Minister.

2.2 Decision 2427 approving the Mineral Strategy to 2020 (with vision to 2030) does not allow the export of ores and processed products of "other metallic minerals." Directive 02 however does not have this restriction. Therefore, it is unclear as to whether the restriction under Decision 2427 has been applied or it is still pending a specific direction from the Prime Minister or the relevant ministry (i.e. the Ministry of Industry and Trade ("MOIT") for export of metallic minerals and coal, and the Ministry of Construction ("MOC") for export of minerals for production of construction materials.)

2.3 The export of other minerals which are not mentioned in Directive 02 will continue being implemented in accordance with current regulations on export of minerals, including among others Circular 084 on export of solid minerals and Circular 185 on export of minerals for production of construction materials.

2.4 Under Circular 08, solid minerals6 can be exported if the following conditions are met:

  1. the minerals are exploited from mines other than those determined for domestic deep processing as specified in Appendix 1 of Circular 08; and
  2. the minerals have been processed up to quality standards and meeting the conditions specified in Appendix 2 of Circular 08.

It is noted that under Circular 08, export of nickel concentrate exploited from the mines in Son La and Thanh Hoa provinces will be allowed only until the end of 2013.

2.5 Under Circular 18, the following minerals are prohibited from exporting:

  1. Lime stones and additives in the mines covered in the master plan on exploration, exploitation and processing of minerals used as materials for cement production specified under Decision 105/2008/QD-TTg of the Prime Minister dated 21 July 2008, and other mines supplemented to the master plan as permitted by the Prime Minister;
  2. Clays;
  3. Feldspar;
  4. Construction sand;
  5. Pebbles, gravel and grits;
  6. Construction stone in the mines in south eastern and south western provinces.

Following Circular 18, the Prime Minister has prohibited export of saline sand from 30 June 2010 under Official Letter 5220 dated 22 July 2010.

Other minerals for production of construction materials can be exported if it satisfies the relevant conditions relating to quality standards and processing requirements under Circular 18.

3. New requirement for auction for mining rights

3.1 Under the new Law on Mineral, auction will be required for mining rights with respect to all mining areas, except for those which are delineated as being not subject to auction of mineral mining rights.

3.2 Article 12 of Decree 15 stipulates that the following areas will be considered eligible for delineating as being not subject to auction of mining rights:

  1. Areas containing the minerals which are fundamental to the country's energy security, including coal, uranium and thorium;
  2. Areas containing limestone and clay stone used as materials for cement production, or minerals being cement additives which have been determined as the sources of materials for cement factory projects; areas containing minerals which have been determined as the sources of materials servicing mineral deep-processing factory projects approved or consented in principle by the Prime Minister;
  3. Areas which locates within the national border belt; areas being strategic to the national defence and security;
  4. Areas for development of investment projects for construction of works as specified in Article 65.1(b) of the Law on Minerals;
  5. Areas containing minerals used for production of normal construction materials which are determined to be exploited for supplying materials for the maintenance and repair of technical infrastructure works;
  6. Areas where exploration and exploitation of minerals are restricted according to Article 26.2(a) of the Law on Minerals;
  7. Areas which have been granted with exploration and exploitation licenses before 01 July 2011; and
  8. Other cases as determined by the Prime Minister.

3.3 Based on the above criteria, MONRE will submit its proposal to the Prime Minister for approval of the areas not subject to auction with respect to the minerals falling under the authority of MONRE. Provincial People's Committees ("PCs") will determine the areas not subject to auction with respect to the minerals falling under the authority of PCs.7 Projects do not fall within any category stated above will be subject to auction for the mining rights. However, investors can seek exemption from the auction process from the Prime Minister on a case-by-case basis in accordance with item (viii) above.

4. Selection of investors being entitled to exploration licenses in areas not subject to auction

4.1 In the case where 2 or more applicants apply for the exploration license in an area not subject to auction, the one which satisfies the following conditions the most will be selected:8

  1. Having the highest equity ratio in the total investment capital;
  2. Having contributed capital for implementation of the relevant basic mineral geological survey; and
  3. Having committed to exploit and use the mineral to serve domestic production demand in accordance with the approved mineral plan.

If all the interested applicants satisfy all those conditions, the one submitting the application file first shall be selected.

4.2 Decree 15 applies the first-to-file principle for selecting the licensed investor amongst the ones which equally satisfy all the above conditions. However, amongst those conditions, Decree 15 is not clear as to which condition will be given the higher and highest priority. As a result, it is not clear as to which investor will be selected amongst, says, one having contributed capital for the survey work, and the other having not contributed capital for the survey work but having higher equity ratio.

5. Delineation of areas containing scattered and small scale minerals

Under the Law on Minerals, PCs will issue exploration and mining licenses for the areas which are delineated as containing scattered and small scale minerals. Article 11.2 of Decree 15 specifies a number of criteria for delineation of areas containing scattered and small scale minerals. Annex of Decree 15 provides a list of minerals together with the reserve volume of each kind for classifying them as areas containing scattered and small scale minerals. For example, a nickel mine having the estimated reserve being less than 500 tons, a gold mine having the estimated reserve being less than 0.5 ton, etc. will be considered as an area containing scattered and small scale minerals.

6. Conditions for extension of exploration licenses

6.1 Under Article 17.1 of Decree 15, applicants for extension of its existing exploration licenses must meet the following conditions:

  1. having not completed all the works under the exploration license, or there is any change in the geological structure or exploration method as compared to those in the approved exploration proposal;
  2. having submitted the application file for the extension at least 45 days prior to the expiry date of the exploration license; and
  3. having fulfilled all obligations applicable to it under the Law on Minerals. During the period of applying for the extension, the applicant is entitled to continue its exploration work until the authority rejects its proposal for the extension.9

6.2 Accordingly, if the relevant applicant has completed the exploration works under the existing exploration license, it is not entitled to apply for extension of the exploration license but is supposed to apply for a new one. It is favorable to investors that they can continue the exploration works pending responses from the authorities to their proposals for extension.

7. Conditions for extension of mining licenses

7.1 Under Article 25.1 of Decree 15, applicants for extension of its existing mining licenses must satisfy the following conditions:

  1. having not fully exploited the reserve in the mining site under the mining license;
  2. having submitted the application file for the extension at least 45 days prior to the expiry date of the mining license;
  3. having all obligations applicable to it under the Law on Minerals and relevant laws; and
  4. the proposed mining plan being consistent with the relevant mineral master plan at that time. During the period of applying for the extension, the applicant is entitled to continue its exploration work until the authority rejects its proposal for the extension.10

7.2 Accordingly, if the relevant applicant has fully exploited the reserve under the existing mining license, it is not entitled to apply for extension of the mining license but is supposed to apply for a new one. In addition, if the relevant applicant wishes to increase the exploitation capacity, it needs to submit the revised feasibility study and environmental impact assessment report for approval by the relevant authorities.11 It is favorable to investors that they can continue the exploitation works pending responses from the authorities to their proposals for extension.

7.3 It is not entirely clear under Decree 15 as to whether or not extension of existing mining licenses will be subject to auction although Decree 15 seems to imply that no auction is required. The conditions for extension of mining licensees under Article 25 of Decree 15 do not include the auction requirement.

8. Increase in taxes and financial obligations on mining activities

8.1 New fee for granting mining rights

8.1.1 The new Law on Minerals imposes a new statutory fee called "fee for granting mining rights." The fee for granting mining rights is separate from, and in addition to the mining royalty. In particular, for mining licenses obtained after 1 July 2011, relevant investors have to pay the fee for granting mining rights for the reserve licensed in the mining licenses. With respect to the mines licensed before 1 July 2011, they will have to pay the fee for granting mining licenses for the unexploited reserve. The old Law on Mineral of 1996 (as amended in 2005) did not require for such kind of fee.

8.1.2 The new Law on Minerals imposes a new statutory fee called "fee for granting mining rights." The fee for granting mining rights is separate from, and in addition to the mining royalty. In particular, for mining licenses obtained after 1 July 2011, relevant investors have to pay the fee for granting mining rights for the reserve licensed in the mining licenses. With respect to the mines licensed before 1 July 2011, they will have to pay the fee for granting mining licenses for the unexploited reserve. The old Law on Mineral of 1996 (as amended in 2005) did not require for such kind of fee.

8.1.3 However, Decree 15 just simply states that the formula for calculation, and the payment method of the fee for granting mining rights shall be provided by the MONRE and the Ministry of Finance ("MOF"). Thus, both licensed and to-be-licensed projects have to continue waiting for the guidance from the MONRE and the MOF on the fee for granting mining rights.

8.2 Increase in corporate income tax rate for certain precious minerals

8.2.1 From 01 January 2009 when the Law on Corporate Income Tax of 2008 took effect, the corporate income tax ("CIT") rate is reduced from 28% to 25% for all companies, except for those engaged in prospecting, exploring and mining oil, gas, platinum, gold, silver, tin, wolfram, antimoan, precious stones and rare earth who received an increase from 28% to 32%-50%. Under Decree 124 dated 11 December 2008 on CIT ("Decree 124"), the Prime Minister will decide the specific CIT rate (within the range from 32% to 50%) for each project based on the proposal from the Minister of Finance taking into consideration the location, mining conditions and reserve/deposit of the relevant mine.

8.2.2 Nevertheless, Decree 122 dated 27 December 2012 amending Decree 124 ("Decree 122") provides that the CIT rate for prospecting, exploring and mining platinum, gold, silver, tin, wolfram, antimoan, precious stones and rare earth is now fixed at 50%. In the case where 70% or more of the mine's area locates in a location having extremely difficult social-economic conditions, the CIT rate shall be reduced to 40%. Decree 122 applies to the fiscal year of 2012 onward.

8.2.3 Under Decree 124, mineral exploitation operations are not entitled to CIT incentives. Decree 122 reconfirms this restriction. It is however noted that Decree 124 allows projects licensed before 1 January 2009 to continue enjoying the incentives under the investment certificates for the remainder of the licensed term.

8.3 Increase in environmental protection charges for mineral exploitation

As compared to the ones provided under old Decree 63,12 the rates for calculation of the environmental protection charges for mineral exploitation have been increased under new Decree 74.13 Further regulations and regulatory actions to come

Under its Resolution 103 dated 22 December 2011 promulgating the Action Plan on the mineral and mining industry strategy to 2020, the Government has specified the schedule for issuance of mining regulations and implementation of further regulatory actions in mining industry as follows:

  • By the first quarter of 2012, the decree guiding the new Law on Minerals (i.e. Decree 15) and the decree on auction of mining rights are scheduled to be submitted to the Government for approval and issuance;
  • Within 2012, MONRE is required to issue the criteria of, and delineate the small-scale mineral areas for provinces to manage and issue exploration and mining license;
  • Within 2012, MONRE is required to delineate the areas which are not subject to auction of mining rights; and

VILAF is a business law firm, advising multinational clients on all legal aspects of their business and investment in Vietnam. Dang Duong Anh is Executive Partner in the firm's Ha Noi Office. Website: www.vilaf.com.vn.

Footnotes

1The Law on Minerals No. 60/2010/QH12 dated 17 November 2010, which took effect and replaced the old Law on Minerals of 1996 (as amended in 2005) from 1 July 2011.

2Decision 2427/Q?-TTg dated 22 December 2011 of the Prime Minister approving the Mineral Strategy to 2020 with vision to 2030 ("Decision 2427")

3Official Letter 6033a/VPCP-KTN dated 30 August 2011 on enhancing the management of mineral activities ("Official Letter 6033a").

4Circular 08/2008/TT-BTC dated 18 June 2008 of the Ministry of Industry and Trade providing guidelines for the exportation of minerals ("Circular 08")

5Circular 18/TT-BXD of the Ministry of Construction dated 30 June 2009 on export of minerals for production of construction materials ("Circular 18").

6"Solid minerals" is defined in Circular 08 to include metallic minerals, non-metallic minerals and industrial minerals and exclude coal, minerals for production of construction materials, minerals for production of cement, oil and gas, hydrate, mineral water and thermal water.

7Articles 78.3 and 78.4 of the Law on Minerals.

8Article 13.1 of Decree 15.

9Article 17.2 of Decree 15.

10Article 17.2 of Decree 15.

11Article 25.2 of Decree 15.

12Decree 63/2008/ND-CP of the Government dated 13 May 2008 on environmental protection charges for mineral exploitation, as amended in Decree 82/2009/ND-CP dated 12 October 2009 (collectively "Decree 63")

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13Decree 74/2011/ND-CP of the Government dated 25 August 2011 on environmental protection charges for mineral exploitation ("Decree 74").

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