Saudi Arabia: New Mining Investment Law
The Middle East has primarily always focused its attention on revenue generated from the oil and gas industry. However, recently these countries are venturing out and exploring other sectors in keeping with their aim of economic diversification. Due to their concentration on oil and gas reserves, the land has not been utilized to its full potential; this realization has pushed Middle Eastern countries to tap into their mineral resources to boost the economy and create jobs. In order to realize their goal, GCC countries are either working on or have recently introduced new mining laws to encourage investment and to create a unified regulatory framework towards achieving the aim of development and diversification.
As part of their Vision 2030 program, Saudi is tapping into their primary, midstream and downstream mineral reserves in order to enter into the international mining market and serve the local as well as export market aiming towards its growth alongside the oil & gas and petrochemical industry. In furtherance of this intent, Saudi introduced a new mining investment law in early June 2020, which brings about some significant changes in the old Law.
The Saudi Cabinet has approved the following amendments to be made in the 2004 Mining Investment Law:
- Formation of a permanent mining committee under the Chairmanship of the Minister of MOIMR accompanied by representatives of other Ministries. The powers given to the Committee include making decisions about the allocation of the mining area, objections filed by and against government agencies etc.
- It provides for an exploitation license and a general license, both of which abolishes and supersede the material collection license in the old act.
- The MOIMR is to appoint competent representatives as judicial officers who have the power to inspect, monitor and control violations and ensure that the licensees are performing activities in compliance with the Mining Investment Law and its Implementing Regulations.
- The amendments also include setting up of a committee to determine violations and imposing penalties, and the Law has laid down a comprehensive regime related to violations and penalties as compared to the old Law.
- Priority rights over the purchase of minerals extracted, no longer lies with the government.
- As per the previous Law, the licensees were allotted a maximum period of 60 days to remedy issues related to the environment, wildlife etc. however, under the new Law, this period has been extended to 180 days after which, the license is subject to termination.
- Control restrictions have been removed, any changes regarding control have to merely be notified to the Ministry within 30 days of such change.
- In a force majeure event, the licensee shall be entitled to a substitute site wherever possible, under the discretion of the Ministry.
Royal Decree M/140: Mining Investment Law
Historically, the mining sector has faced a long list of challenges with respect to licensing procedures which restricted private sector investors from entering the market, lack of access to financing and capital that resulted in barriers to entry for Saudi companies; and tough global competition accompanied by lack of support from the government in this particular sector.
The new legislation aims for sustainable growth in the mining sector by:
- providing financial assistance to businesses in the form of short term and long-term loans;
- increasing the spectrum of land that can be explored for the conduct of mining activities;
- establishment of a national database for geological surveys;
- extension of the duration of exploration licenses; and
- The option to mortgage mining licenses and creation of a register of mineral zones.
These amendments bring about changes that can facilitate the economy to compete in international markets, therefore, bringing in foreign investment.
A significant amendment that was brought about in the new legislation was regarding financial support to businesses in the mining sector. The Law, therefore, prescribes financial support by way of medium- and long-term loans. These loans, however, will not be in the form of investment vehicles but a bank account which will be financed by fees, fines and other levies imposed by the Ministry.
The types of minerals defined under the old Law are retained in the amendment with a slight change in the terminology used in its reference. The minerals are now referred to as part of either Class A, B or C, previously referred to as Class 1, 2 and 3. In order to avoid confusion; Class A (Class 3) covers metallic minerals, precious and semi-precious stones and ores requiring advanced processing; Class B (Class 2) covers non-metallic, industrial and raw materials; Class C (Class 1) covers construction material.
The different types of licenses enumerated in the amendment are as follows:
- Mining License
The old Law had a separate class for a mining license for raw materials and quarry licenses, which has now been deleted from the amendment and now mining licenses can be issued for both Class A as well as Class B.
- Small Mine License
As per the old Law, only class B and C were entitled to procure a small mine license. With the amendment, small mine licenses can be issued to Class A and B.
- Building materials and Quarry License
Previously covering Class B and C, the new Law will now only cover Class C.
- Material Collection License
This concept has been done away within the amendment.
- General Purpose License
In order to achieve the purpose of an exploitation or utilization license, a new category of licenses has been added by the new amendment. By procuring this license, one can use land and establish facilities thereof outside the relevant licensed zone.
- Exploration License
The old Law limited the term of validity to 10 years, and the amendment has extended this period up to a period of 15 years.
It is provided that, upon receipt of an application for exploration, exploitation or utilization license, the ultimate responsibility to obtain necessary permits and approvals lies with the Ministry. In the absence of any objections, the application shall be deemed approved, contrarily, the applicant shall be granted an opportunity to amend their application to correct such errors as may be directed by the Ministry.
In case of more than one application being received by prospective licensees for the same site, priority shall be given to the applicant depending on the date on which the application was submitted.
As per the old Law, the Ministry was required to maintain a register of applications along with a register within which details of all the grounds under which the licenses were to be granted. Further, the registers were open to the public for inspection.
In case of rejection of an application, the details of such an application would be made unavailable after a period of 180 days from the date of rejection of the said application.
Under the new Law, the Ministry is required to:
- Maintain a register of all the applications, wherein all details such as renewal, amendment, transfer, extension, mortgage, termination, expiry and any and all such details are to be recorded.
- Along with a license register, the Ministry is also required to maintain a mineral zone register wherein all information regarding mineral formations and reserves are to be recorded.
In keeping with the old Law, confidential information is not to be disclosed before the lapse of 180 days of refusal of the application. However, the new Law allows disclosure without approval in cases where the licensee has abandoned his application and upon receiving reports of valid licenses.
The provisions concerned with abandonment of the application, however, required clarification which has not been provided for in Law. Such confusion can only be clarified upon publication of the Implementing Regulations.
The new Law further calls upon the Ministry to develop a National Geological Database as a central repository as an incentive to investors, by allowing access to all information regarding potential deposits and reserves. The database is expected to bring about a large rollout of investors and encourage more people to obtain licenses for conducting exploration activities.
The old Law prohibited the issuance of license with respect to the following:
- Religious places;
- Historical and archeological sites;
- Land specified under the council of ministers’ resolution;
- Lands on which airports, railways, cities, infrastructure are located; and
- Public facilities, water and agricultural projects, military installations.
The new Law prohibits mining licenses from being issued for religious and military sites, land specified by the resolution of the council of ministers and reserves of hydrocarbon operations. Exploration and exploitation licenses can now be issued for land falling under subdivision b, d and e, as mentioned above.
Financing in the mining sector has always been somewhat of a challenge for Saudi companies due to its capital-intensive nature. The Ministry, in association with the Capital markets, has identified the need of companies and has taken steps to develop attractive financing options in this sector.
The new Law permits licensees to pledge or mortgage their rights under the exploitation and exploration licenses. No prior consent of the Ministry is required in order to transfer such rights to eligible persons. However, the Ministry is supposed to be notified of such a pledge or mortgage so that a record of the same can be entered in the license register. This comes as a relief to potential lenders since it allows them to enforce security over an exploitation license in order to salvage distressed project value by transferring the license to a new developer.
Once the Ministry is notified, it is required to publish a full text of any such notices regarding mortgaged licenses. Such a disclosure, therefore, invokes the confidence of financiers who were previously dependent on the honesty of borrowers. This amendment allows them to obtain copies of such notices.
Mining activities have long-lasting environmental impacts; therefore, the Law imposes a responsibility on the licensees to provide a financial guarantee for rehabilitation and closure of the site concerned. In order to keep a check on the environmental and social impact of mining activities, the licensee is required to submit reports of environmental and social assessments to ensure that the project being undertaken is compliant with the regulations imposed by the Ministry, is economically feasible and contributes socially to local communities.
The licensee is required to submit this report to the competent authority, the approval of which shall be communicated within a period of 60 days of such submission.
Therefore, the new amendment includes several provisions that aim to attract foreign investors in the mining sector, allowing them to benefit from the natural resources that the country has to offer. This new Law allows licensees to undertake exploitation, exploration and also engage in industries that produce metals and mineral products. The new Law is expected to bring about a change in the mining sector by contributing to revenue and job creation, growth in economic and social revenue and better control over governance. In keeping with the objective of attracting foreign investors, the new Law also eases financial limitations and government levies on certain sectors.
The aims and objectives of this amendment are to foster the development of national industries, bring about a change in mining operation and governance, instill a sense of confidence in the minds of investors by promoting transparency.