Aside from a few major investments, the Myanmar mining sector has lain largely dormant for decades, due to a combination of economic and political factors. To revive interest in the sector, the Ministry of Mines (MoM) has long been pressed by local mining companies and international prospectors to amend outdated mining laws which, in light of increasing global competition, have deterred many would-be explorers. “Mining is an attractive sector for investment, but there have been a limited number of foreign companies engaged because of the lack of legislation and unattractive product-sharing contracts,” said U Zay Htet, managing director of Georesources Group of Companies, a local mining firm. Recent amendments signed by the president in late December 2015, however, look set to alter this situation drastically, and are already attracting a range of foreign players.
Legislative Changes
The new amendments outline six key changes. The first is production-sharing contracts, which stipulate the government’s portion of any mining project by its output, often reaching as high as 30%, on top of royalties. The new law permits firms to use two other mechanisms: profit-sharing and equity participation. The second change lowers royalty rates on different minerals from 10-20% to a range of 2-5%, more in line with other major mining countries. Third and crucially, local firms that hold permits for small- and medium-scale operations will be permitted to form joint ventures with foreign firms to expand their projects to large-scale status. A fourth section sets the maximum tenure period at 50 years for large-scale projects and 15 years for medium-scale ones. Under the fifth change, a form of devolution, boards will be set up for states and divisions that, with permission from the central government, will be able to grant small- and medium-scale licences within specified areas. Sixth, mining investors will be required to set aside a fund for environmental conservation, including rehabilitation after a mine closes. To implement these six principles, the MoM will draft specific regulations during the first quarter of 2016, to be presented in late March.
Long Process
As for what these details might eventually look like, clues may be found in reviewing the history of the process. Until Parliament passed the amendments at the end of 2015, an overhaul of the mining law had been under legislative review since 2013. The causes of the delay have not always been fully clear, as only a limited portion of parliamentary debate is reported on publicly.
Several known issues, however, have shaped the debate. Among the most contentious has been resource and power-sharing agreements between the central government and regional legislatures. Another sticking point has been the role of small-scale mining, particularly the provision for small-scale miners to enter into joint ventures with foreign firms. The Upper House favoured this measure because it would promote the protection of small- and medium-scale mining, while the Lower House and military MPs opposed it, seeking to preserve the previous limits on foreign involvement.
Perks & Snags
Small-scale operators were eager to see the law approved. Given the increasing need among local mining companies to improve skills and boost access to technology and capital, many companies were seeking foreign partners to develop their projects even before the amendments were passed. Forming such partnerships can be tricky and requires careful consideration, according to U La Min Win, managing director of Valentis Resources, a domestic mining firm. “While local companies are craving foreign investment, it is often difficult to undertake ordinary commercial negotiations,” he told OBG. “Many local companies have inflated expectations of value and do not understand traditional farm-in joint ventures.” Nevertheless, he added, foreign companies that made early moves into Myanmar have managed to overcome such obstacles. Such relations should only smooth as firms gain experience in new areas: whereas previous laws limited foreign investment to large-scale mining, the reforms allow this for small- and medium-scale ventures for the first time.
Incumbent Agenda
Although outgoing MPs have interests in the mining industry and will want to protect their existing stake, investors are hopeful that the new law will improve a wide array of conditions as it enters the implementation stage. One of these is conjunctive tenure, which provides holders of an exploration permit with reasonable certainty that they will progress to a mining permit. In the meantime, the newly expanded options for state participation, extended tenure of permits and lower royalty rates should do much to reinforce protection of a company’s discoveries, thus bolstering investor confidence.
Recent political changes give cause for optimism regarding implementation of the new laws. In the lead-up to the 2015 elections, various legislative amends went on the back burner as the main opposition party, the National League for Democracy (NLD) swept up the majority of seats on offer. As the winning party, the NLD is now in a stronger bargaining position to pass certain laws without requiring the consent of the military, for whom 25% of seats are reserved (see Country Profile chapter). Until recently, military authorities were in a position to delay legal changes in order to protect vested interests, such as those of the Union of Myanmar Economic Holdings.
Broader Challenges
With an already existing backlog of permit applications, the NLD has the opportunity to usher in a new wave of investment in mining by prioritising the draft law’s implementation. However, the party has also inherited a host of challenges that will need to be addressed if the reforms are to be successful. One such difficulty lies in brokering peace with various armed ethnic groups, notably the Kachin Independence Army, which as of late 2015 continued to battle state forces along the country’s northern border. Complicating matters further, the conflict is largely funded by the illegal trade of precious stones, particularly jade. Intermittent clashes between the military and rebels are largely concentrated in locations with substantial mineral wealth.
While peace has been reached in certain areas, dialogue is still at a very basic level. For a nationwide ceasefire to truly take effect, a resource-sharing agreement is needed between the state and rebel groups. A ceasefire agreement signed in October 2015 by eight groups has been noteworthy and hailed as historic by outgoing President U Thein Sein.
Sticking Points
Resource-sharing alone has historically been a conundrum, but the reforms are a big step in addressing this. The Upper House MPs favoured decentralisation, supporting the clause to allow the MoM to form regional and state bodies chaired by a local minister. This clause – which overcame resistance by the Lower House – allows individual regions to grant investment permits across specified areas, including for evaluating, prospecting, production, trading of minerals and value-added services associated with mineral extraction. The joint committee that was charged with drafting the amendments was determined, however, to reach a middle ground to assist in its passage, suggesting that regional powers be allowed to give their approval for permits after an application has been scrutinised by the MoM. The likely result is that regional authorities will have more decision-making power going forward.
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