Turning point: A new mining law promises to stimulate substantial foreign interest

Whilst investment has increased immensely since the easing of sanctions, the mineral-rich soil of Myanmar’s landscape remains significantly underexplored. Red tape, incomplete surveys, inconsistent record keeping and intermittent ethnic conflicts have restricted the growth of the sector. However, potential remains high in the eyes of most onlookers. According to the Directorate of Investment and Company Administration, only nine foreign enterprises engaged in mining throughout FY2012/13, accounting for 6.85% of total foreign investment in Myanmar for the same period. With resource hungry neighbours such as China and India, export prospects are high, but most foreign parties have been holding back on investment in anticipation of reforms to the current mining legislation, which closes some segments to foreign investment and in others stipulates profit-sharing agreements in which the Ministry of Mines receives substantial return without any risk exposure or capital injection.

New Rules

With foreign investment lagging behind local involvement, the drafting of a new mining law, which was submitted to parliament in late 2013 and expected to be passed in the first quarter of 2014, is being viewed as the turning point that will lead to increased foreign participation. This will in turn create more jobs and raise the technical capacity of local companies within the mining industry. With the previous code dating from 1994, the new law has been earmarked to introduce tax holidays, allow foreign ownership and, importantly, authorise joint-venture profit sharing negotiations without the involvement of government. The latter is in line with the government’s efforts to implement the Extractive Industries Transparency Initiative (EITI) Standard, a set of mining-related governance principles and best practices developed by the Norway-based EITI. Successful implementation will undoubtedly promote investor interest, as a lack of transparency has hindered growth in the past. Environmental groups, which have frowned upon various mining projects such as the Letpadaung copper mine, will also press the government to ensure it lives up to the environmental requirements set out by the EITI Standard.

Other Factors

With tax incentives acting as a magnet for potential miners, the degree to which the Ministry of Finance and local tax authorities are able to effectively administer tax policies will be a critical piece of the puzzle that will form part of the country’s mining landscape. Furthermore, international players within the extractive industry will be hoping that the new law eases the transitions from one phase of a project to another without the need for new paper work, such as exploration to site development.

Although efforts by the government to increase transparency have been given international recognition, the nation still has a long road ahead before it is deemed a relatively corrupt-free investment destination. The country ranked 157 out of 177 countries in the 2013 “Corruption Perceptions Index” by Transparency International; however, this was still an improvement over the 172 ranking from the previous year. Although investor confidence is on the rise, additional work is needed to entice more cautious investors.

Strong Potential

Myanmar is in a position to learn from other emerging markets that have adopted new mining laws to encourage foreign investment such as Mongolia and Indonesia, both of which have significant mineral resources. Ownership policy is a key factor for the new legislation, with a range of options available. For example, Mongolia has placed a 49% cap on foreign ownership and Indonesia requires all foreign-owned mines to have at least 51% ownership transferred to local investors following the 10th year of production. As a relative latecomer, Myanmar is in the rare position of having a wealth of examples from which to develop its own mining code and practices. With its vast mineral deposits, the decision to pass or reject the proposed new mining law will be the first of many challenges for Myanmar to overcome.

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The Report: Myanmar 2014

Mining chapter from The Report: Myanmar 2014

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