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Enhancing ASEAN Minerals Trade and Investment – Country Reports

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					Enhancing ASEAN Minerals Trade and Investment
– Country Reports

REPSF Project No. 04/009b


Authors:


ABARE
Jane Mélanie, Marina Kim, Sam Hester, Peter Berry, Allison Ball and Karen
Schneider


Mekong Economics
Paul Burke, Le Hoa Au Duong and Adam McCarty




Final Country Reports
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the
                 ASEAN Secretariat and/or the Australian Government.
                           CONTENTS



BRUNEI DARUSSALAM COUNTRY REPORT
KINGDOM OF CAMBODIA COUNTRY REPORT
INDONESIA COUNTRY REPORT
LAO PEOPLE’S DEMOCRATIC REPUBLIC COUNTRY REPORT
MALAYSIA COUNTRY REPORT
MYANMAR COUNTRY REPORT
THE PHILIPPINES COUNTRY REPORT
SINGAPORE COUNTRY REPORT
THAILAND COUNTRY REPORT
VIET NAM COUNTRY REPORT
Enhancing ASEAN Minerals Trade and Investment
– Brunei Darussalam
REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                          CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 1
     C.   Minerals production .................................................................................................. 1
     D.   Minerals trade ............................................................................................................ 2
     E.   Investment flows........................................................................................................ 3
     F.   Policy framework ....................................................................................................... 3
     G.   Key issues .................................................................................................................. 4
     H.   Consultation program ............................................................................................... 5
     I.   References ................................................................................................................. 6


                                                     LIST OF TABLES


     Table 2.1: Brunei Darussalam’s Metals Imports ........................................................... 2
     Table 2.2: Consultation Program – Brunei Darussalam .............................................. 5




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ii               REPSF Project 04/009b: Final Country Report – Brunei Darussalam
Enhancing ASEAN Minerals Trade and Investment




A. INTRODUCTION
    Brunei Darussalam is a small Sultanate, occupying 5,765 square kilometres on the
northwest corner of the island of Borneo. Its population was an estimated 358,000 in 2004.
Brunei Darussalam's economy is heavily dependent on revenue from oil and gas. The oil and
gas sector accounts for around 90% of Brunei Darussalam’s total exports, 88% of
government revenue and 53% of GDP although these shares fluctuate from year to year
depending on oil and gas prices. Small-scale manufacturing (mainly textiles and furniture)
and primary production (including agriculture, forestry and fisheries) account for most of the
rest of Brunei Darussalam's merchandise economy.
   Brunei Darussalam’s small minerals sector currently consists of production of cement,
construction aggregates, sand and gravel, and silica sand products. All raw materials for
cement manufacturing are imported. Almost all Brunei Darussalam’s requirements for ferrous
and nonferrous metals and most industrial mineral products other than cement, construction
aggregate, and sand and gravel are met by imports.
   The Government of Brunei Darussalam is seeking to diversify the economy away from oil
and gas as the primary source of revenue and activity, by promoting private sector
development in non oil and gas industries. Much of the focus to date is on the downstream oil
and gas sector and processing industries, capitalising on Brunei Darussalam’s energy
resources and strategic location. This includes a plan to construct a US$1.5 billion aluminium
smelter in Brunei Darussalam, to be operational later this decade.


B. MINERAL RESOURCE BASE
    Brunei Darussalam’s resource base is dominated by its large oil and natural gas
reserves, both onshore and offshore in the South China Sea. There are few other known
resources, with primary and secondary rainforest covering approximately 80% of Brunei
Darussalam’s landmass. Brunei Darussalam reportedly has small resources of carbonate
rocks, coal, kaolin, sand and gravel, and silica sand (Wu 2004). However, detailed
information on these resources is not available.


C. MINERALS PRODUCTION
   Brunei Darussalam produces small volumes of cement, construction aggregate, and sand
and gravel for consumption by the local construction industry. The industrial minerals sector
comprises more than 20 small, privately owned companies that engage in the production and
marketing of construction aggregates, sand and gravel, and silica sand products; as well as a
cement company (Wu 2004).
    Butra HeidelbergerCement Sdn Bhd (BHC) – a joint venture of Heidelberger Zement AG
of Germany and Butra Djajanti Cement Sdn. Bhd. of Brunei Darussalam – is Brunei
Darussalam’s sole cement producer. Its cement plant, which has been in operation since
1996, has a capacity of 500,000 metric tonnes a year (BHC 2005). BHC produces ordinary
portland cement and smaller quantities of slag cement, oil well cement and sulphate resistant
cement. Cement production in 2003 was 235,000 metric tonnes, with production being
relatively flat over the past few years (Wu 2004).
    Toward the end of this decade, Brunei Darussalam’s minerals production may expand to
include primary aluminium. In September 2003, the Brunei Economic Development Board
and Alcoa signed a Memorandum of Understanding to undertake a feasibility study of the
establishment of an aluminium smelting plant and its associated infrastructure in Brunei
Darussalam. Alcoa is carrying out the study in two phases over a period of 24 months, which
began in the fourth quarter of 2003.


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                                                           Enhancing ASEAN Minerals Trade and Investment



    The final investment decision on the aluminium smelter is currently planned by mid-2006,
with building proposed to commence in late 2006. First production would be by end 2008 or
early 2009 (Perry 2005). The proposed aluminium smelting plant is envisaged to have a
production capacity of approximately 300,000 metric tonnes a year of primary aluminium, and
to be located in Sungai Liang (Brunei Economic Development Board and Alcoa Primary
Development Group 2003). This capacity is greater than ASEAN’s total primary aluminium
production in 2004, and is equal to around 1% of world production in that year.
    The total annual contribution of the aluminium smelter project to the economy is
estimated to be US$560 million (Perry 2005). It is expected to create 1,000 direct jobs (equal
to 0.6% of Brunei Darussalam’s current labour force), and 4,000 indirect jobs (equal to 2.5%
of Brunei Darussalam’s current labour force). Local small and medium enterprises will also
be able to take advantage of the potential spin off industries created by the project. Potential
spin off industries in Brunei Darussalam include aluminium foil and cans; reflector sheets;
roofing sheets; vehicle bodies; frame components and wheels; computer parts; and wires
and cables.


D. MINERALS TRADE
   All raw materials (clinker, gypsum, slag, and other additives) for cement manufacturing in
Brunei Darussalam are imported (Wu 2001). The cement produced is used locally in the
construction industry.
    Virtually all Brunei Darussalam’s requirements for ferrous and nonferrous metals, and
most of the industrial mineral products other than cement, construction aggregate, and sand
and gravel, are met by imports (Wu 2001). Brunei Darussalam’s main minerals imports are
iron and steel and related articles, as well as aluminium (see Table 2.1). However, minerals
comprise only a small proportion of Brunei Darussalam’s overall imports. Data on the source
of Brunei Darussalam’s minerals imports are not available.


                      Table 2.1: Brunei Darussalam’s Metals Imports
                Commodity                               1995          2000           2003
                                                      US$000        US$000        US$000
               Iron and steel                          87,982        11,806        19,275
               Articles of iron or steel              195,442        47,985        68,114
               Copper                                   8,498         1,636         2,360
               Nickel                                   1,636             6           108
               Aluminium                               28,863         7,192         8,919
               Lead                                       189            83           196
               Zinc                                     2,161           177           900
               Tin                                      1,991            64            15
               Other base metals                          141            73           143
               Total metals imports                   326,902        69,022       100,030
               Total imports                        2,132,661     1,067,609     1,351,942
               Source: AFTA 2005.


   Inputs to Brunei Darussalam’s planned aluminium smelter will also be imported. It is
expected that alumina would be imported into Brunei Darussalam to be smelted. Primary
aluminium could then be used locally by spin off industries, or exported.




2                                          REPSF Project 04/009b: Final Country Report – Brunei Darussalam
Enhancing ASEAN Minerals Trade and Investment



E. INVESTMENT FLOWS
     Total investment in Brunei Darussalam in 2003 was RB6.5 billion (around US$3.7 billion).
Of this total, the private sector accounted for 86% of investment, with the government
accounting for the remainder. Around 96% of private sector investment in Brunei Darussalam
is from foreign sources (Department of Statistics 2005). The share of the minerals sector in
this investment is unknown, but is likely to be insignificant, with the majority of investment
going into the oil and gas sectors.
    Total foreign direct investment (FDI) in Brunei Darussalam was US$3.1 billion in 2003,
compared with US$0.5 billion in 2000. FDI in Brunei Darussalam accounted for 15% of total
FDI in ASEAN in 2003, compared with 2% in 2000. ASEAN Member Countries accounted for
just over 1% of FDI in Brunei Darussalam in 2003, or around US$36.8 million. Of total FDI
from ASEAN Member Countries, Malaysia and Singapore accounted for a combined 88%,
with Indonesia accounting for the remainder (ASEAN Secretariat 2004).
   Brunei Darussalam invested US$9.1 million in other ASEAN Member Countries in 2003.
Almost all of this went to Singapore, with a very small volume to Malaysia. The majority of
Brunei Darussalam’s FDI in ASEAN was in the trade and commerce sectors – none went into
mining and quarrying or manufacturing (ASEAN Secretariat 2004).
    The planned aluminium smelter to be located in Brunei Darussalam involves a total
investment of US$1.5 billion, all of which will be sourced from FDI (Perry 2005). This planned
investment was equal to nearly half of total FDI in Brunei Darussalam in 2003.


F. POLICY FRAMEWORK
    The Government of Brunei Darussalam is seeking to diversify its economy away from oil
and gas as the primary source of revenue and activity by promoting private sector
development in non oil and gas industries. The Brunei Economic Development Board
(BEDB) was formed in November 2001 to stimulate the growth, expansion and development
of the economy by promoting Brunei Darussalam as an investment destination. In January
2003, the BEDB launched its two- pronged strategy, which aims to attract US$4.5 billion in
FDI and create 6,000 permanent new jobs by 2008.
    The first prong of the BEDB's strategy involves the development of Sungai Liang into a
world class industrial site for petrochemical and manufacturing industries that will capitalise
on Brunei Darussalam's proven gas reserves. In September 2004, the BEDB announced that
it had entered into final negotiations to establish a US$620 million ammonia/urea plant and a
US$300 million methanol plant. The planned aluminium smelter also forms part of this
strategy. The BEDB's second prong involves the construction of a deep water port facility at
Pulau Muara Besar.
    Brunei Darussalam’s tax regime offers incentives for foreign investors to invest in projects
in the country. Brunei Darussalam has a relatively low import tariff regime. There is no
personal income tax, no sales tax, no payroll, manufacturing or export tax. Sole
proprietorship and partnership businesses are not subject to income tax. Only companies are
subject to income tax. The profits of a company are subject to tax at the rate of 30%.
    Brunei Darussalam is making a concerted effort to attract foreign investment to the
country to assist in its economic diversification program. Approved foreign investors can
enjoy a company tax holiday of up to 20 years. Foreign companies can be granted pioneer
industry status and offered pioneer incentives, if certain requirements are met.
    The investment incentives include an exemption of the 30% corporate tax; exemption
from taxes on imported duties on machinery, equipment, component parts, accessories or
building structures; exemption from taxes on imported raw material not available or produced



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                                                      Enhancing ASEAN Minerals Trade and Investment



in Brunei Darussalam intended for the production of the pioneer products; and the ability to
carry forward losses and allowances (Ministry of Industry and Primary Resources 2004).
   Of the industries that have been declared pioneer industries and pioneer products,
several relate to the minerals sector. These are:
    o cement finish mills and cement;
    o rolling mill plants and manufacturing/fabricating iron and steel, steel bars, angle iron,
       u-channel;
    o sheet metal-forming and roofing, walling, fencing, roof trusses, frames, fitting and
      fixtures, ducting, containers for storage and transport, other related building materials;
      and
    o manufacture of non-metallic mineral products such as concrete, gypsum and plaster
      products, including ready mixed concrete, glass fibre insulation production, mineral
      wool, slate products, cut-stone products, abrasives, graphite products, silica and all
      other non metallic minerals products except asbestos (Ministry of Industry and
      Primary Resources 2004).
    The regulations relating to foreign participation in equity in Brunei Darussalam are
flexible. In many instances there can be 100% foreign ownership.


G. KEY ISSUES
   There appears to be some uncertainty regarding the ongoing viability of the domestic
cement industry. Protection against cement imports into Brunei Darussalam was imposed in
1999 in response to import restrictions from Malaysia halting export opportunities and low
cost cement from China and elsewhere flooding the local market. However, the Ministry of
Industry and Primary Resources recently re-allowed the import of cement into Brunei
Darussalam, and press reports suggest the local industry is struggling to compete with
imports (BruneiDirect.com 2005).
   Prospects for downstream minerals processing industries to be located in Brunei
Darussalam appear to be bright. In addition to the incentives discussed above, Brunei
Darussalam offers a relatively stable investment climate, good infrastructure, a well educated
workforce and a strategic location in the region. Its large oil and gas reserves also offer
potentially low cost electricity generation, a key cost component for energy intensive projects
such as aluminium smelting.
   There may also be scope for outward FDI from Brunei Darussalam into the minerals
sectors of other ASEAN Member Countries. If Brunei Darussalam is looking to diversify into
minerals processing activities such as smelting, there may be some benefits to Brunei
Darussalam for minerals enhancing trade and investment within ASEAN.




4                                     REPSF Project 04/009b: Final Country Report – Brunei Darussalam
Enhancing ASEAN Minerals Trade and Investment



H. CONSULTATION PROGRAM
   The consultation program in Brunei Darussalam was conducted by ABARE on 23 June
2005. Organisations and individuals consulted in Brunei Darussalam are listed in Table 2.2.


                     Table 2.2: Consultation Program – Brunei Darussalam
Name                                Position                      Organisation
Hjh Rosmawati Hj Manaf              International Division        Brunei Economic Development Board
Amanda Teo                          International Division        Brunei Economic Development Board
Pg Metali bin Pg Hj Damit           Policy and Planning           Ministry of Industry and Primary
                                                                  Resources
Pg Hj Harun                         Exploration Division          Petroleum Unit, Prime Minister’s
                                                                  Department
Pg Hj Raihan                        Strategic Finance             Petroleum Unit, Prime Minister’s
                                                                  Department
Pg Shahbirin                        Audit Department              Petroleum Unit, Prime Minister’s
                                                                  Department




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                                                    Enhancing ASEAN Minerals Trade and Investment



I.   REFERENCES
AFTA (ASEAN Free Trade Area). 2005. ASEAN Trade Data.
      202.154.12.33/trade/publicview.asp.
ASEAN Secretariat. 2004. Statistics of Foreign Direct Investment in ASEAN - Sixth Edition.
     Jakarta.
BHC (Butra HeidelbergerCement Sdn Bhd). 2005. www.bruneicement.com/compproidx.htm.
Brunei Economic Development Board and Alcoa Primary Development Group. 2003. Brunei
       Economic Development Board and Alcoa Sign MOU to Study Feasibility of a Brunei
       Smelter. Joint Press Statement. 25 September. Pittsburg.
BruneiDirect.com. 2005. Cement Industry Struggles To Stay Alive. 11 May
      www.brudirect.com/DailyInfo/News/Archive/May05/110505/nite05.htm.
Department of Statistics. 2005. Brunei Darussalam Key Indicators 2004. Department of
      Economic Planning and Development. Prime Minister’s Office.
Ministry of Industry and Primary Resources. 2004. Investment Guide: A brief investment
        guide for businesses. Brunei Darussalam.
Perry, J. 2005. Downstream Diversification – Real or Imaginary. Brunei Economic
       Development Board. Presentation to the National Business Conference 2005.
       ASIAINC Forum. 27 April.
Wu, J.C. 2004. ‘The Mineral Industry of Brunei’. U.S. Geological Survey Minerals Yearbook –
       2003. U.S. Geological Survey. Virginia.
Wu, J.C. 2001. ‘The Mineral Industry of Brunei – 2000’. U.S. Geological Survey Minerals
      Yearbook – 2000. U.S. Geological Survey. Virginia.




6                                   REPSF Project 04/009b: Final Country Report – Brunei Darussalam
Enhancing ASEAN Minerals Trade and Investment
–Cambodia

REPSF Project No. 04/009bb




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                          CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 1
     C.   Minerals production .................................................................................................. 1
     D.   Minerals trade ............................................................................................................ 2
     E.   Investment in the minerals sector............................................................................ 2
     F.   Policy framework ....................................................................................................... 3
     G.   Key issues .................................................................................................................. 4
     H.   The way forward ........................................................................................................ 6
     I.   Consultation program ............................................................................................... 7
     J.   References ................................................................................................................. 8



                                                     LIST OF TABLES


     Table 3.1: Production of Mineral Commodities in Cambodia, 2000-2004................... 2
     Table 3.2: Trade in Minerals and Metals, Cambodia, 2003 .......................................... 2
     Table 3.3: Major Types of Mining Tenements in Cambodiaa ....................................... 3
     Table 3.4: Consultation Program – Cambodia .............................................................. 7




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ii                      REPSF Project 04/009b: Final Country Report –Cambodia
Enhancing ASEAN Minerals Trade and Investment




A. INTRODUCTION
   The minerals sector in the Kingdom of Cambodia (Cambodia) is in its infancy.
Cambodia’s mineral resources have not been extensively explored and developed in recent
decades because of war, internal conflict and a lack of resources. Development of the
minerals sector in Cambodia has also been held back by poor geological information and
unattractive conditions for investors in the sector. Cambodia does not produce metallic
minerals in any significant scale; most mining in the country is for construction materials.
   The mining sector contributed a small fraction (0.3%) of the country’s gross domestic
product (GDP) in 2002. This figure has been relatively stable over recent years. Around 100
enterprises operate in the mining and quarrying sector in Cambodia (National Institute of
Statistics 2003). According to Labour Force Survey of Cambodia estimates, the total
workforce in the mining and quarrying sector is 11,000 – 0.17% of Cambodia’s total
workforce of 6.3 million (Wu 2004). The mining sector, given its small size and often unofficial
nature, makes a negligible contribution to government revenues in Cambodia.
    During the 1990s, the Ministry of Industry, Mines and Energy issued 11 exploration
licenses, of which five were for gold exploration in north-eastern Cambodia (Wu 2003).
Around 20 companies currently hold exploration licenses in Cambodia, but no domestic or
foreign company has ever held a mining license in the country. Several ‘pits and quarries’
licenses have been granted. A number of foreign companies are interested in investing in the
minerals sector in Cambodia and the next years may see some important developments in
the sector.


B. MINERAL RESOURCE BASE
    Cambodia has only outdated information available regarding its mineral resources.
Extensive geological work has not been carried out in the country for more than three
decades. Geological investigations and studies by Chinese and French geologists, carried
out in the latter half of the 19th century, indicated that Cambodia has potential for a wide
variety of minerals. While geological maps are available for Cambodia, these maps were
made with old equipment and without access to some areas of the country. Mineral
resources in Cambodia include bauxite, gold, iron ore, silica sand, tin, ruby, sapphire, zircon,
copper, zinc, phosphate and limestone. Cambodia’s mineral wealth remains largely
undetermined, however, and exact reserves of the above mineral resources are uncertain.
Most of the known deposits are located in the northern half of the country.
    Given the absence of a minerals sector in Cambodia, the country largely retains
‘greenfield’ status for minerals development. Cambodia’s mineral deposits remain
unexploited with only a small share of prospective land covered by exploration permits.


C. MINERALS PRODUCTION
    No significant production of any of the major metallic and non-metallic minerals is carried
out in Cambodia. Production of minerals in Cambodia is limited to small-scale mining and
quarrying of construction aggregates, phosphate rock, sands, gravel and other minerals.
Some small-scale, and illegal, mining of gold and gemstones is reported to be undertaken,
but data on this activity are not available. Minerals production data for Cambodia are
presented in Table 3.1. Production of crushed stone and laterite has increased in recent
years while the production of phosphate rock, gravel and silica sand has ceased.
   Production has remained limited to small-scale mining by domestic companies for a
number of reasons, including the lack of basic geological information and other disincentives




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                                                              Enhancing ASEAN Minerals Trade and Investment



to foreign investment affecting Cambodia’s minerals sector. Cambodia’s difficult political
history has also contributed to the current underdeveloped state of its minerals sector.


         Table 3.1: Production of Mineral Commodities in Cambodia, 2000-2004
       Commodity                   Unit                               Year
                                               2000          2001       2002        2003      2004
                                     3
       Crushed stone                 m       95,407       178,197    208,649     302,364    164,748
                                        3
       Gravel                        m            0         2,000      3,904       5,525          -
       Sand for construction         m3     275,995       226,910    202,384      92,632    127,457
                                        3
       Laterite                      m       11,880        10,580    158,897     100,292     49,342
       Phosphate rock                 t       3,521           829        115           -          -
       Silica sand                    t      19,517         5,050          -           -          -
          3
       m = cubic metres; t = tonnes.
       Source: Ministry of Industry, Mines and Energy 2005.


D. MINERALS TRADE
    The vast majority of Cambodia’s production of minerals is for domestic consumption.
Given the small size of the country’s minerals sector, there are no significant minerals
exports from Cambodia. Gemstones exports of US$2.5 million (50,000 carats) in 2002, up
from US$1.3 million (20,000 carats) in 1998, are reported (National Institute of Statistics
2003). Table 3.2 presents Cambodian trade in minerals and metals for the year 2003, but
does not include gemstones data.


                  Table 3.2: Trade in Minerals and Metals, Cambodia, 2003
           Commodity                                                Exports             Imports
                                                                    US$000               US$000
          Aluminium and articles thereof                               44.6             11,486.1
          Articles of stone, cement and other similar
          products                                                       8.0                 0.0
          Copper and articles thereof                                    2.9               236.0
          Iron and steel                                                42.1            19,418.8
          Iron or steel articles                                     1,109.7            27,946.9
          Lead and articles thereof                                      2.3                 1.7
          Metals                                                        49.3             5,489.7
          Nickel and articles thereof                                    0.0                 1.0
          Ores, slag and ash                                             0.0                72.1
          Tin and articles thereof                                       0.0                 9.1
          Zinc and articles thereof                                      5.7             1,158.4
       Source: Ministry of Commerce 2005.

    Given the lack of a domestic minerals industry, Cambodia is a net importer of minerals
and metals to meet domestic demand. Cambodia imported more than US$47 million of iron
and steel, and articles of iron and steel, in 2003. Cambodia also imported US$11.5 million of
aluminium and articles thereof, mostly from China and other Asian countries (Ministry of
Commerce 2005). Cambodia also imports gold – reportedly 1.0 tonne in 2002, up from 0.3
tonnes in 1998 (Wu 2000, National Institute of Statistics 2003). Because Cambodia does not
have an established minerals processing sector, the export values for metals in Table 3.2
primarily reflect re-exports.


E. INVESTMENT IN THE MINERALS SECTOR
    To date, Cambodia has not yet seen significant investment in the minerals sector. In
2004, approved investment in Cambodia equalled US$66 million. None of this investment
flowed to the minerals sector (Cambodian Investment Board 2005). Foreign direct investment


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Enhancing ASEAN Minerals Trade and Investment



(FDI) to Cambodia’s minerals sector has also been negligible. However, a number of
companies are currently carrying out exploration activities in Cambodia, and there is potential
for future inflows of FDI to the minerals sector. In particular, companies from the Republic of
Korea, Australia and other countries are showing an interest in participating in the
development of Cambodia’s mineral resources. Several local mining companies are also
interested in seeking foreign investment capital to assist in developing mineral resources
within the country. Foreign investors have shown interest in mining gold, bauxite and other
resources in Cambodia. Their investment will depend on the results of exploration and the
feasibility of potential investment projects.
   No state-owned enterprises operate in the Cambodian mining sector, and there is strong
commitment in Cambodia to establish an environment conducive to private sector
development (ASEAN Secretariat 2004). The Government of Cambodia considers the private
sector as a partner and an important contributor in generating the necessary investment
required to increase mineral exploration and extraction in the country (General Department of
Mineral Resources 2005).


F. POLICY FRAMEWORK
   The 1993 Constitution, 2001 Law on Management and Exploitation of Mineral Resources,
and 1994 Law on Investment govern the minerals sector, and potential investment in the
sector, in Cambodia. The minerals sector is also subject to the Law on Environmental
Protection and Natural Resource Management of 1997 and other laws, regulations and Sub-
Decrees.
    1. The 1993 Constitution
           Mineral resources in Cambodia are owned by the State. Foreigners cannot own
        land in Cambodia, as set forth in Cambodia’s Constitution. They can, however,
        acquire its long-term use through 99-year leases, and also secure partial ownership
        through a joint venture with a local partner who owns at least 51% of the equity
        (United Nations 2003).
    2. The 2001 Law on Management and Exploitation of Mineral Resources
            The Law on Management and Exploitation of Mineral Resources of Cambodia was
        introduced in 2001. Under this law, the Ministry of Industry, Mines and Energy (MIME)
        is the sole state agency responsible for the development of the minerals sector.
           The Law on Management and Exploitation of Mineral Resources 2001 states that
        exploration and mining license applications will be processed within 45 days. The first
        step in attaining an exploration license in Cambodia is to sign a Memorandum of
        Understanding with the Ministry of Industry, Mines and Energy, although this is not
        mentioned in the law. Royalty rates for minerals in Cambodia are 3-5%. Gemstones
        royalties are 15%. The details of mining licenses in Cambodia are presented in Table
        3.3.
                 Table 3.3: Major Types of Mining Tenements in Cambodiaa
   Stage         Mining tenements              Provisions                              Terms
Mineral        Mineral Exploration     Exclusive right to conduct   Valid for 2 years and renewable for up to 4
Exploration    License                 exploration within           years (2 years at a time). Maximum area
                                                                            2
                                       specified area               200 km .
Mineral        Industrial Mining         Exclusive right to extract   Valid for 5 years and renewable for
Development    License                   minerals within specified    another 10 years (5 years at a time).
                                         area
    a: Other licenses include the Artisanal Mining License, Pits and Quarries Mining License, Gemstone Mining
    License and Mineral Cutting License.
       2
    km = square kilometre.
    Source: Vichett 2002.



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    3. The 1994 Law on Investment
          In 1994, the Law on Investment was ratified in order to attract domestic and foreign
      investors. The Council for the Development of Cambodia (CDC) was established in
      1994 to be responsible for the development and management of investment in
      Cambodia. It has the role of approving and overseeing all investment activities, and
      providing investment incentives. The CDC, through the executive arm of the
      Cambodian Investment Board, is required to process investment license applications
      within 28 working days – reduced from 45 (CDC 2003). The CDC acts as a ‘one-stop
      shop’ for investment applications in Cambodia. The Law on Investment was amended
      in 2003, and has been subject to several Sub-Decrees.
         Investors in Cambodia are guaranteed against nationalisation and there are no
      restrictions on the repatriation of funds (CDC 2003). With the exception of land
      ownership, Cambodian law generally does not discriminate between domestic and
      foreign investors. There are no restrictions on the acquisition of Cambodian firms or
      the percentage of equity that foreigners may hold in locally incorporated companies.
      The gemstone sector is, however, subject to local equity participation requirements.
         The mining sector is not identified as a priority sector by the Government of
      Cambodia. However, priority is given to “export-oriented industries” and “pioneer
      and/or high-technology industries” (United Nations 2003), which would appear to
      encompass primarily the minerals processing sector.
         Qualified investment projects in Cambodia receive licenses, tax exemptions, and a
      partial or full package of incentives. Major advantages potentially available to foreign
      investors include:
       o   a corporate tax rate of 9% compared with the standard corporate tax rate of 20%;
       o   exemption of corporate tax for three or more years;
       o   a five-year loss carry-forward period;
       o   non-taxation on the distribution of dividends or profits or proceeds of investment,
           whether transferred abroad or distributed in the country;
       o   100% import duty exemption for raw materials and other materials; and
       o   100% export duty exemption, if any (UNESCAP 2004).
        There is no precedent of foreign investment in the minerals sector in Cambodia,
      and the details of conditions for investors in the sector remain unclear.


G. KEY ISSUES
    1. Investment environment
          In order to attract FDI, the Government of Cambodia has strengthened the
      country’s legal framework, bolstered its institutions and liberalised regulations in ways
      that are conducive to private sector investment and business activities in Cambodia. In
      general, Cambodia has a very open investment law and is relatively facilitative of, and
      welcoming to, foreign investment. Despite being one of the most open economies in
      the developing world (United Nations 2003), Cambodia has not yet had success in
      attracting investment in the minerals sector.
         Administrative weakness and bureaucratic delays are commonplace in Cambodia.
      Inadequacies in the legal framework for investment are another obstacle. The United
      Nations (2003) reports that some crucial laws and regulations have yet to be adopted
      in Cambodia, such as those dealing with mortgages, securities, bankruptcy, financial
      markets, real estate and commercial contracts. Regulations related to minerals, and
      the ability of Cambodia to regulate and monitor the minerals sector, remain largely
      untested. Enterprises in the minerals and other sectors in Cambodia have an incentive



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Enhancing ASEAN Minerals Trade and Investment



       to remain informal to avoid complex licensing and registration procedures and
       associated formal and informal charges (World Bank 2005).
          According to the World Bank (2005), FDI and the private sector in Cambodia are
       constrained by:
        o   weak governance, including an underdeveloped legal framework and an
            ineffective regulatory regime and excessive red tape;
        o   lack of access to, and the high cost of, finance;
        o   high costs and a lack of infrastructure services such as transport and energy;
        o   limited technical and managerial skills; and
        o   limited access to land, information and competitive markets.

    2. Geological information
           The lack of reliable basic information about Cambodia’s geological resources adds
       a significant constraint to the development of the minerals sector in the country. Scant
       geological information on Cambodia’s mineral resources makes it much more difficult
       for the Government of Cambodia to attract mineral exploration investors.
    3. Licensing
           Despite the introduction of the Law on Management and Exploitation of Mineral
       Resources in 2001, there remains uncertainty about the process for obtaining
       exploration and mining licenses in Cambodia. The first step in the process is to sign a
       Memorandum of Understanding with the Ministry of Industry, Mines and Energy
       (MIME). This step is not mentioned in the Law on Management and Exploitation of
       Mineral Resources. The separation of the roles of the MIME and the CDC, the ‘one-
       stop shop’ for investors in Cambodia, in the process for obtaining exploration and
       mining licenses is unclear and not yet fully resolved. There is some conflict between
       the Law on Management and Exploitation of Mineral Resources, which indicates that
       licensing for the minerals sector is a responsibility of the MIME, and the Law on
       Investment in Cambodia and the role of the CDC as a ‘one-stop shop’. Other
       weaknesses in the minerals sector regulatory regime include uncertainty about the
       right of explorers to obtain a mining license in the case where economic deposits are
       found, and the relatively small size of areas allocated for exploration.
    4. Restrictive minerals policies
          A 2005 Sub-Decree in Cambodia prohibits the export of raw materials, requiring
       that only final products be exported from the country. This poses a significant
       impediment to the development of Cambodia’s minerals sector. The intention of the
       Sub-Decree is to encourage in-country processing. While it is often considered that,
       where countries possess natural resources, value adding through processing can
       improve economic welfare, economic factors need to be taken into account.
       Inappropriate investments that are not in line with comparative advantage can act as a
       drain on an economy’s resources rather than lead to an improvement in economic
       welfare.
          Further, while there is no precedent, and the terms of mining contracts in
       Cambodia are subject to negotiation, there is a leaning in the MIME toward production
       or profit-sharing arrangements, reportedly with a very high share going to the
       Government. Relatively high profit-sharing arrangements reduce the risk adjusted
       profitability of mining relative to investment in other sectors and other countries in the
       region. By lowering expected and actual returns, these arrangements can have a
       negative influence on private sector investment in the minerals sector in Cambodia.




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    5. Financial system and human resources
         The Cambodian financial system is underdeveloped, and does not provide a source
      of investment funds for the minerals sector. There is no capital market in Cambodia
      (UNESCAP 2004).
          In addition to the lack of capital from foreign investors and the domestic financial
      system, there is also a lack of access to technology and specialist skills in the
      minerals sector in Cambodia. Geology and related disciplines are no longer taught at
      Cambodian universities, a development that could have adverse implications for
      capacity building in the minerals sector and for the ability to adopt new and more
      efficient technologies.
    6. Other issues
          There are several other disincentives to investment in Cambodia’s minerals sector.
      For example, land access and rights issues are significant. In 1975, private property
      rights were abolished in Cambodia, a decision that was only officially reversed in
      1989. Even though private land rights were recognised at that time, the vast majority
      of people did not receive land titles. A revised Land Law in 1992 failed to clarify the
      situation and address the issue of land ‘grabbing’ that had been prevalent before the
      implementation of the law. Instead, the law effectively made takeovers of land and
      property legal. A further revision of the Land Law was undertaken by the Asian
      Development Bank in 1998, and the law was approved by the National Assembly and
      Senate in 2001. Despite these revisions, the issue of rights to land continues to be a
      major problem in Cambodia, with an adverse impact of foreign investment in the
      country.
          In addition, transport links within the country and to neighbouring countries, while
      improving, remain weak. Electricity is unreliable and relatively costly. Unexploded
      ordnance poses a significant risk in some areas of the country, and clearing
      unexploded ordnance presents an additional cost. Security in some areas of the
      country remains uncertain. Political risk in Cambodia is abating, but some degree of
      regulatory risk remains, given Cambodia’s relatively weak legislative and regulatory
      infrastructure.


H. THE WAY FORWARD
    1. Ensure international competitiveness of mineral taxation regimes
         The Government of Cambodia could contribute to ease investor concerns about the
      minerals investment environment in order to support the first steps toward the
      development of a healthy minerals sector in the country. As a starting point, this could
      be done by sending a clear signal to the private sector that investing in minerals in
      Cambodia is potentially profitable. A burdensome production or profit-sharing
      arrangement, when combined with royalty payments, income tax and other imposts, is
      a considerable disincentive to investment.
    2. Remove restrictions on trade of unprocessed minerals
         In order to effectively promote the minerals sector in Cambodia, consideration
      should also be given to removing the requirement for firms to export only processed
      minerals.
    3. Enhance regulatory certainty
         Another important area where the Government could play a key role in providing an
      enhanced environment for investment in the minerals sector is in terms of developing
      a more transparent process for obtaining exploration and mining licenses. This would



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        involve resolving the existing confusion between the MIME and the CDC. Similarly the
        resolution of land access issues could contribute to enhance regulatory certainty.
     4. Increase the resources devoted to the provision of geoscientific data
            Some public investment in the provision of basic geological information is required
        if the Government of Cambodia is to see significant minerals sector investment. The
        public provision of scientific information can be expected to increase private mineral
        exploration activity by reducing both the costs and risks associated with exploration.
        Given the lack of resources available to the Government and other competing
        priorities, this investment in what can be considered a ‘public good’ may need to be
        externally-funded.
     5. Improve governance and invest in capacity building
           The performance of the minerals sector is critically dependent on improved
        capacity to manage the sector. This applies to technical skills necessary to develop
        the mining industry as well as to general administration. Enhancing capacity and
        improving governance, especially in relation to the financial obligations imposed on
        potential investors, will also be important for establishing relationships with the mining
        industry.


I.   CONSULTATION PROGRAM
    The consultation program in Cambodia was undertaken by Mekong Economics Ltd. from
27-30 June 2005. Organisations and individuals consulted in Cambodia are listed in Table
3.4.


                         Table 3.4: Consultation Program – Cambodia
Name                       Position                              Organisation
Tim Smyth                  President                             Australian Business Association of
                                                                 Cambodia (and Managing Director,
                                                                 Indochina Research)
Lisa Filipetto             Ambassador                            Australian Embassy
Naomi Viccars              Third Secretary                       Australian Embassy
Nang Sothy                 Director General                      Cambodia Chamber of Commerce (and
                                                                 President, Royal Phosphate Limited)
Heng Bun Hong              Information Officer                   Cambodia Investment Board (CIB), Council
                                                                 for the Development of Cambodia (CDC)
Sok Hach                   Director                              Economic Institute of Cambodia
Sov Chiv Kun               Director General                      General Department of Mineral Resources,
                                                                 Ministry of Industry, Mines and Energy
Sieng Sotham               Director, Department of Geology       General Department of Mineral Resources,
                                                                 Ministry of Industry, Mines and Energy
Chrea Vichett              Deputy Director, Department of        General Department of Mineral Resources,
                           Mineral Resource Development          Ministry of Industry, Mines and Energy
Yos Mony Rath              Deputy Director, Department of        General Department of Mineral Resources,
                           Mineral Resources                     Ministry of Industry, Mines and Energy
Pean Sokhonnora            Deputy Director, General Department   Ministry of Foreign Affairs and International
                           of ASEAN                              Cooperation
Ung Ponnara                Under Secretary of State              Ministry of Industry, Mines and Energy
Nhem Thavy                 Member of Parliament for Kompong      National Assembly of the Kingdom of
                           Thom Province                         Cambodia (and Managing Director, Delcom
                                                                 Cambodia Pte. Ltd.)
-                          -                                     National Institute of Statistics, Ministry of
                                                                 Planning
Wujin Park                 Chairman                              Oksan (Cambodia) Inc
-                          -                                     World Bank Public Information Centre




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                                                  Enhancing ASEAN Minerals Trade and Investment



J. REFERENCES
ASEAN Secretariat. 2004. Guide Book for Investing in ASEAN: Update 2004. Jakarta.
Cambodian Investment Board. 2005. Analysis of Capital by Sector. Phnom Penh.
CDC (Council for the Development of Cambodia). 2003. A Guide to Investing in Cambodia.
     Phnom Penh.
General Department of Mineral Resources. 2005. Policy and Legislation on Trade and
      Investment in Minerals in Cambodia. http://www.gdmr.gov.kh/home.htm.
Ministry of Commerce. 2005. Cambodia: Promising Exports. Phnom Penh.
Ministry of Industry, Mines and Energy. 2005. Production of Mineral Commodities in
        Cambodia. Phnom Penh.
National Institute of Statistics. 2003. Kingdom of Cambodia Statistical Yearbook 2003.
       Phnom Penh.
UNESCAP (United Nations Economic and Social Commission for Asia and the Pacific). 2004.
     Trader’s Manual for Least Developed Countries: Cambodia. New York.
United Nations. 2003. An Investment Guide to Cambodia: Opportunities and Conditions. New
       York and Geneva.
Vichett, C. 2002. ‘Mining regulatory regimes in Cambodia’. Policies, Regulatory Regimes and
        Management Practices for Investment Promotion and Sustainable Development of
        Mineral Resources Sector in Economies in Transition and Developing Countries of
        East and Southeast Asia. United Nations Economic and Social Commission for Asia
        and the Pacific. New York.
World Bank. 2005. Cambodia Country Assistance Strategy of the World Bank Group 2005-
      2008. Phnom Penh.
Wu, J.C. 2004. ‘The Mineral Industries of Cambodia and Laos’. U.S. Geological Survey
      Minerals Yearbook – 2004. U.S. Geological Survey. Virginia.
Wu, J.C. 2003. ‘The Mineral Industries of Cambodia and Laos’. U.S. Geological Survey
      Minerals Yearbook – 2003. U.S. Geological Survey. Virginia.
Wu, J.C. 2000. ‘The Mineral Industries of Cambodia and Laos’. U.S. Geological Survey
      Minerals Yearbook – 2000. U.S. Geological Survey. Virginia.




8                                          REPSF Project 04/009b: Final Country Report –Cambodia
Enhancing ASEAN Minerals Trade and Investment
– Indonesia

REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                           CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
LIST OF FIGURES................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Contribution to the economy.................................................................................... 1
     C.   Mineral resource base............................................................................................... 2
     D.   Minerals production .................................................................................................. 3
     E.   Minerals trade ............................................................................................................ 6
     F.   Investment in the minerals sector............................................................................ 7
     G.   Financial performance and the tax regime.............................................................. 8
     H.   Policy framework ....................................................................................................... 9
     I.   Key issues ................................................................................................................ 12
     J.   The way forward ...................................................................................................... 15
     K.   Consultation program ............................................................................................. 17
     L.   References ............................................................................................................... 18


                                                      LIST OF TABLES


     Table 4.1: Contribution of the Mining Sector to the Indonesian Economy ................ 1
     Table 4.2: Indonesia’s Metallic Mineral Reservesa, 2003 ............................................. 2
     Table 4.3: Selected Non-Metallic Mineral Resources in Indonesia, 2003 ................... 3
     Table 4.4: Minerals Production in Indonesia ................................................................ 5
     Table 4.5: Export and Domestic Sales of Key Metallic Minerals in Indonesia ........... 6
     Table 4.6: Trade and Consumption of Non-Metallic Minerals in Indonesia, 1997 ..... 7
     Table 4.7: Contracts of Work by Generation and Status, End 2004............................ 9
     Table 4.8: Ranking of Deterrents to Investment in Indonesia’s Mining Sector ....... 14
     Table 4.9: Consultation Program – Indonesia ............................................................ 17


                                                     LIST OF FIGURES


     Figure 4.1: Key Metallic Minerals Production Trends, Indonesia, by Volume, 1994–
        2004............................................................................................................................. 4
     Figure 4.2: Key Metallic Minerals Sales Revenue, Indonesia, 1994–2002 .................. 7
     Figure 4.3: Investment in the Mining Industry, Indonesia, 1994–2003 ....................... 8
     Figure 4.4: Status of Contracts of Work, Indonesia, End 2004 ................................. 10




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A. INTRODUCTION
    The Republic of Indonesia (Indonesia) is an archipelago comprising more than 17,000
islands lying between the Indian Ocean and the Pacific Ocean. Located at the convergence
of three tectonic plates – the Eurasian plate, the Indian Ocean-Australian plate and the
Pacific Ocean plate – Indonesia has a unique geological structure with a rich energy and
mineral resource base. The major mineral deposits found in Indonesia are copper, gold,
silver, nickel, tin, and bauxite.
    Despite the significant mineral potential, the contribution of the minerals sector to the
Indonesian economy remains low. This is a result of a combination of political, economic,
legal and social factors, and particularly to uncertainty surrounding the regulatory regime in
the sector. These factors have led to a decline in foreign investor confidence in Indonesia’s
minerals sector and a halt to virtually any new investment in exploration and mining activity
over the past few years.
   The recent increase in foreign direct investment (FDI) in other sectors of the Indonesian
economy signals the potential early success of the government in stabilising the political and
economic climate and reassuring the international investment community. However,
improvement in investment conditions in the minerals sector through the resolution of legal,
regulatory and social issues will be important for the future growth of the sector and for
enhancing its contribution to the Indonesian economy.


B. CONTRIBUTION TO THE ECONOMY
     The contribution of the mining sector to Indonesia’s gross domestic product (GDP) grew
from 1.2% in 1994 to 3.5% in 1998, before declining to less than 3% in recent years (Table
4.1). However, the sector’s contribution to economic activity varies significantly across
different parts of the country and represents a large component of the gross regional product
of several provinces, including Papua, Bangka-Belitung, West Nusa Tenggara and East
Kalimantan. In Papua, for example, the PT Freeport Indonesia copper mine contributed
almost 50% of gross regional product in 2000, although this had fallen from 87% in 1992
(University of Indonesia 2003).
    Over the period from 1994 to 2003, the minerals sector (including coal) is estimated to
have contributed between 1% and 3% of total government revenues, mainly through taxes
and royalties. The value of exports of mineral products, base metals and precious stones has
grown from US$4 billion in 1994 to more than US$7 billion in 2003 and accounted for 12% of
total exports in that year. The sector also provided direct employment to 33,000 persons in
2003, or 0.3% of the total labour force. The relatively small proportion of Indonesia’s total
employment accounted for by the minerals sector reflects the highly capital intensive nature
of mining activities.
         Table 4.1: Contribution of the Mining Sector to the Indonesian Economy
                                                                   Unit             1994                2003
      Contribution to GDPa                                  US$ million            2,284               5,551
      Share of GDP                                                   %                1.2                 2.3
      Government revenues                                   US$ million              358               1,085
      Share of total government revenues                             %                1.1                 2.7
      Contribution to exportsb                              US$ million            4,015               7,588
      Share of total exports                                         %              10.0                 12.4
      Direct employmentc                                     Employees            22,760              33,112
      Share of total labour force                                    %             0.03d                 0.03
a: Excludes oil & gas and quarrying; b: Mineral products, base metals and articles of base metals, and precious
stones (pearls, precious stones and imitation jewellery); c: Indonesian employees only; d: Total labour force data
is for 1996.
Sources: PWC 2005; IMF 2005a; IMF 2005b; BPS Statistics Indonesia 2005; ASEAN Secretariat 2003.




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    In addition to the direct impacts of the mining sector on the Indonesian economy, there
are significant indirect impacts on other areas of economic activity. Recent studies by the
University of Indonesia have estimated the impact of two of Indonesia’s large mining
operations (Kaltim Prima Coal and Freeport Indonesia) on employment and economic
activity. The studies indicate that Kaltim Prima Coal and Freeport Indonesia have output
multipliers of 1.9 and 1.6 times revenue from mineral sales in those areas, respectively, while
the number of indirect jobs created as a result of mining activity was around 12 times and 37
times the direct employment, respectively (PWC 2005; University of Indonesia 2003).


C. MINERAL RESOURCE BASE
    Indonesia has significant mining potential, based on a mix of mineral and energy
resources. It is ranked as one of the most attractive jurisdictions in the world in terms of
mineral prospectivity based on the 2004/2005 Fraser Institute Survey of Mining Companies
(Fraser Institute 2005).
    The total resource base has not yet been fully assessed, with a number of onshore and
offshore areas not explored thoroughly (Suryantoro and Manaf 2002). Indonesia’s major
islands and some smaller islands have been mapped at the 1:250,000 scale, while the
principal island of Java is mapped at the 1:100,000 scale. All geological maps have been
digitalised and are available in electronic format on payment of a fee. Geochemical data,
which is important in the exploration of metallic minerals, is available only for some of the
major islands.
    Indonesia, through the Directorate of Mineral Resources Inventory of the Ministry of
Energy and Mineral Resources, has been a prime contributor to the development of a
regional minerals database under the ASEAN minerals cooperation program. The structure of
the Indonesian database has been accepted by the ASEAN project as the standard for all
countries.
    Indonesia’s known reserves of metallic minerals are dominated by copper, gold, silver,
nickel, and cobalt (Table 4.2). There are also substantial resources of other metallic minerals.
In addition to the minerals in Table 4.2, these include chromite, titan, lead, zinc, platinum,
monazite, molybdenum, and primary iron.
    Reserves of several metallic minerals, including gold and copper are distributed evenly
across the country, while others are concentrated in particular regions. Bauxite, for example,
occurs only in Riau, Bangka Island and West Kalimantan, and nickel and chromite only in the
south eastern part of Sulawesi, Maluku Island (Halmahera) and Papua.


                    Table 4.2: Indonesia’s Metallic Mineral Reservesa, 2003
Commodity                           Unit            Ore Volume           Metal Volumeb       No. of locations
Copper                    million tonnes                4,772.2                41,245.3                    26
Gold (primary)            million tonnes                3,379.5                      3.0                   45
Silver                    million tonnes                3,277.4                     10.5                   24
Nickel                    million tonnes                  598.9                 9,663.4                    25
Cobalt                    million tonnes                  338.1                   184.6                    22
Lateritic iron            million tonnes                    4.5                   670.4                    16
Bauxite                   million tonnes                    2.8                 1,479.2                    11
Iron sand                 million tonnes                    0.7                   351.4                    12
Tin                       million tonnes                    0.5                   425.9                     7
Manganese                 million tonnes                    0.3                   105.0                    17
a: Includes proven plus probable reserves. b: Metal volumes are in thousand tonnes.
Source: Ministry of Energy and Mineral Resources 2004.

   There are also more than 40 types of non-metallic minerals found in Indonesia. Non-
metallic minerals can be classified into four broad groups based on the purpose of use:



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industrial materials, ceramic raw materials, building materials and gemstones. These
minerals are not covered by reserves data, as mining companies rarely report this
information to the central or regional governments. Table 4.3 provides the resources data for
selected non-metallic minerals.


          Table 4.3: Selected Non-Metallic Mineral Resources in Indonesia, 2003
    Commodity                                             Unit       Volume     No. of locations
    Industrial minerals
    Limestone                                   million tonnes    2,156,213.7               392
    Quartz sand                                 million tonnes       17,098.1               190
    Ceramic raw materials
    Feldspar                                    million tonnes       6,500.7                 50
    Kaolin                                      million tonnes         611.2                 82
    Clay                                        million tonnes     200,617.7                252
    Building materials
    Andesite                                    million tonnes      67,112.9                398
    Granite                                     million tonnes     629,530.7                 77
    Marble                                      million tonnes     187,942.5                 92
    Gemstones
    Diamond                                              carats      100,640                  1
    Chalcedony                                  million tonnes           1.8                  9
    Source: Ministry of Energy and Mineral Resources 2004.


    The most commonly found industrial minerals in Indonesia are limestone, quartz
sand/sandstone, sulphur and bentonite. Large deposits of ceramic raw materials include clay,
kaolin, toseki, feldspar, obsidian and perlite; while andesite, basalt, granite, and marble are
some of the widely distributed building materials. Known deposits of gemstones in Indonesia
are relatively limited and consist predominantly of amethyst, diamond, chalcedony, opal and
chert (Ministry of Energy and Mineral Resources 2004).


D. MINERALS PRODUCTION
    Minerals production in Indonesia has expanded quite strongly over the past ten years,
although production of some commodities has declined in the period since 2002 (Figure 4.1;
Table 4.4). In volume terms, the most significant metallic minerals produced are bauxite,
silver, copper and gold. Also significant are nickel and tin.
    Growth in minerals production in Indonesia has been underpinned by the enactment of
the 1967 Mining Law, which introduced the contract of work system for foreign investors. Two
features of the contract of work system, conjunctive title and lex specialis, which are
discussed in more detail in section H, have been designed to provide legal and operating
security for investors. Together with a similar coal contract of work, the contract of work
system has succeeded in attracting foreign investors to explore and develop mineral
resources in many parts of the country. The majority of production under contracts of work is
comprised of gold, followed by nickel and tin. At present, production of minerals in Indonesia
is dominated by foreign companies, although the contribution of Indonesian interests is rising.
    Copper production in Indonesia has grown rapidly over the past decade, largely
associated with expansion of the mill and concentrator plant at the Grasberg mine in Papua
in 1998 and the development of Batu Hijau in 1999. The recent fall in copper production is
mainly attributable to the open pit slippage at the Grasberg mine, although gold production
from the mine was largely unaffected.
    Gold production also increased following the Grasberg expansion and construction of
Batu Hijau. The increase in gold production in 2001 was mainly the result of development of
higher grade reserves, while a decrease in grades in 2002 resulted in a production decline.



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                                                           Enhancing ASEAN Minerals Trade and Investment



Reserves at several major gold mining facilities, including Minahasa and Kelian, are being
depleted and the mines are approaching closure. This is expected to lead to a decline in the
volume of Indonesia’s gold production if no new replacement mines are developed.
    Production of nickel has also grown steadily over the past decade and increased
substantially in 1999 with the expansion of Inco’s Sulawesi plant. Plant optimisation has
helped to further increase production levels since then. A small decline in nickel production
in 2002 occurred largely as a result of ore body complexity and the start of a furnace rebuild
at Inco’s operations. There are substantial nickel deposits in Indonesia that remain
undeveloped as a result of unresolved legal and regulatory issues.
    Tin production has increased moderately over the period since 1994 and Indonesia is a
major producer of tin at the global level. The increase in Indonesian tin production in the early
2000s has not resulted from new operations, optimisation of current operations or grade
improvements, but rather from a growing level of informal onshore tin production, which is
purchased and processed by Tambang Timah and Koba Tin. Both producers have shut down
significant parts of their own tin mines to cope with increased informal production and the
resulting weak tin market conditions (Wahju 2004).
    Metallic minerals in Indonesia are primarily produced at large scale foreign invested
mines. For example, PT Freeport Indonesia’s Grasberg mine in Papua and PT Newmont
Nusa Tenggara’s Batu Hijau mine in Nusa Tenggara dominate the production of copper and
gold. There are a number of small scale mines producing tin, although the bulk of tin is
produced by Tambang Timah and Koba Tin.
    The Government of Indonesia’s participation in metallic minerals production varies. It
holds a majority stake in Aneka Tambang – the major bauxite and nickel producer – and
Tambang Timah, while its stake in Freeport Indonesia is relatively small at less than 10%.
The Government also owns Indonesia’s largest integrated steel plant, Krakatau Steel, and
has a stake in the Indonesia Asahan Aluminium smelter.


Figure 4.1: Key Metallic Minerals Production Trends, Indonesia, by Volume, 1994–2004




Source: Ministry of Energy and Mineral Resources 2005a.



   Most of the metallic minerals produced in Indonesia are used as a feedstock for local
smelters and refineries. PT Freeport Indonesia supplies copper concentrate to the copper
smelter and refinery in East Java, which produces copper cathode as its main product. In
2004, the capacity of the smelter and refinery was expanded by 25% to 250,000 tonnes a
year in response to increasing domestic and international demand (PT Smelting 2005;
Reuters 2004).




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     Two major products of the Indonesian nickel refining industry are nickel matte (Inco) and
ferronickel (Aneka Tambang). The nickel matte produced at Inco’s plant with a nameplate
capacity of 150 million pounds (70,000 tonnes) is sold to Japan, where it is processed into
finished nickel. The company plans to expand production of nickel matte to 200 million
pounds a year by 2009 to meet stronger global demand (Inco Limited 2005).
    Aneka Tambang (Antam) currently operates two plants with a combined capacity of
11,000 tonnes of ferronickel a year. Ferronickel is sold to Europe, Japan, the Republic of
Korea and Chinese Taipei. After the overhaul and instalment of a new furnace at the FeNi II
plant and the opening of FeNi III in 2006, production capacity is expected to more than
double to 26,000 tonnes. The opening of FeNi IV by 2010 could boost production to 30,000
tonnes of ferronickel a year (Antam 2005).
    Tambang Timah and Koba Tin are the two largest refined tin producers in Indonesia. The
recent opening of a new smelting plant on Kundur, in the Riau Islands, has boosted Timah’s
installed capacity to 53,000 tonnes of tin a year. Koba Tin also expanded its smelting
capacity to almost 24,000 tonnes a year in early 2004. Combined output of these producers,
together with several small tin smelters makes Indonesia the second largest tin producer in
the world after China (Central Bank of Republic of Indonesia 2005a; MSC 2004). Higher tin
prices and tight global supplies have aggravated the problem of informal tin exports to
Malaysia and Singapore. Informal trading has tightened the supply of tin concentrates in the
domestic market and adversely affected Koba and Timah operations.
   Non-metallic minerals production in Indonesia is relatively small (Table 4.4). These
minerals are usually produced by domestic private companies under mining licences issued
by regional authorities. Some of the mining is conducted informally by local communities.
Granite is the only non-metallic mineral produced under the contract of work system.


                             Table 4.4: Minerals Production in Indonesia
    Commodity                                                        1994                                2004
                                                                        kt                                  kt
      Metallic Mineralsa
      Copper                                                         333.9                                840.3
      Copper concentrateb                                          1,065.5                              2,810.3
      Goldc                                                            42.5                                92.9
      Silverc                                                        108.0                                262.9
      Tin metal                                                        43.6                                60.7
      Tin concentrate                                                  44.5                                73.1
      Bauxite                                                      1,342.4                              1,330.8
      Nickel ored                                                  2,311.5                              4,095.5
      Nickel matte                                                     46.0                                73.3
      Ferronickel                                                      26.2                                39.5
      Iron sand                                                      334.9                                 89.7
      Non-Metallic Minerals
      Granite                                                      3,072.4                              3,637.4
      Cement (hydraulic)                                            21,907                              35,500e
      Kaolin (powder)                                                  53.2                               15.0e
      Feldspar                                                         40.5                               24.0e
      Gypsum                                                            1.3                                6.0e
      Diamondf                                                           28                                 30e
a: Figures for metallic minerals indicate production under contracts of work; b: Volume for copper concentrate is in
thousand dry metric tonnes; c: Volume for gold and silver is in tonnes; d: Volume for nickel ore is in thousand wet
metric tonnes; e: Estimates for 2003; f: Volume for diamonds is in thousand carats.
kt = thousand tonnes.
Sources: Ministry of Energy and Mineral Resources 2005a; Tse 2003.




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                                                            Enhancing ASEAN Minerals Trade and Investment



E. MINERALS TRADE
   Indonesia exports the majority of its metallic minerals production. Japan is the main
export market for Indonesian bauxite, copper and nickel ores and concentrates. The Republic
of Korea and Singapore are the primary markets for Indonesian refined nickel and tin,
respectively. Other large export markets for metallic minerals include Europe and Asia Pacific
countries.
    Over the period from 1994 to 2004, exports of key metallic minerals in volume terms have
risen. Domestic sales of copper and gold increased in the early 2000s, albeit from a low
base, while domestic sales of tin, bauxite and refined nickel have been negligible (Table 4.5).


       Table 4.5: Export and Domestic Sales of Key Metallic Minerals in Indonesia
                                          Unit             1994        1998         2002         2004
    Copper exports                          kt            317.9        759.7        918.6        624.5
       Domestic sales                       kt                 -        14.5        217.4        118.6
    Gold exports                            t               37.9       108.5        103.6         86.8
       Domestic sales                        t               2.2         2.3         24.5         10.3
    Silver exports                          t               68.8       264.5        192.2        226.6
       Domestic sales                        t              23.7        39.3         76.8         31.2
    Tin exports                              t              34.5        50.4         62.0         59.6
       Domestic sales                        t               1.8         2.1            -          2.0
    Ferronickel exports                     t                5.8         8.6          8.2          7.2
       Domestic sales                        t                 -           -        0.004            -
    Nickel matte exportsa                    t              52.6        41.1         62.8         68.0
    Bauxite exportsa                         t          1,348.1      1,047.9      1,260.0      1,326.6
    a: Data for domestic sales not available.
    kt = thousand tonnes; t = tonnes.
    Source: Ministry of Energy and Mineral Resources 2005a.


    The impact on Indonesia’s revenue from the sale of metallic minerals resulting from the
downward trend in world mineral prices in the mid-1990s was generally offset by expanded
production. This situation has been reversed in more recent years with the rise in world
mineral prices partially offsetting the decline in production volumes. Revenue increases have
been pronounced for copper, gold and silver and relatively modest for other minerals,
including nickel, tin and bauxite (Figure 4.2). For example, copper sales have increased
almost threefold - from US$542 million in 1994 to more than US$1.5 billion in 2002, while tin
sales were only 11% higher in 2002 than their level in 1994.
   The total value of minerals exports from Indonesia, including mineral products, base
metals and articles of base metals, and precious stones, has grown from US$4 billion in 1994
to more than US$10 billion in 2004. In 2004, mineral products accounted for 58% of
Indonesia’s total minerals exports by value, while base metals and articles of base metals,
and precious stones accounted for 39% and 3%, respectively (Central Bank of Republic of
Indonesia 2005b).
    To meet domestic demand, Indonesia also imports a range of metallic and non-metallic
minerals. The total value of mineral products, base metals and articles of base metals, and
precious stones imported to Indonesia in 2004 was US$5 billion. Base metals and articles of
base metals accounted for 91% of total minerals imports, while the shares of mineral
products and precious stones were 9% and less than 1%, respectively (Central Bank of
Republic of Indonesia 2005b). Major metallic minerals imports include alumina and iron ore
from Australia, bauxite from China and zinc from Singapore and China (United Nations
Statistics Division 2005).




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          Figure 4.2: Key Metallic Minerals Sales Revenue, Indonesia, 1994–2002




Note: Sales revenue is net of freight, insurance, agent commissions and other direct costs relating to shipments,
but not net of royalties.
Source: PWC 2005.


     The majority of non-metallic minerals produced in Indonesia are consumed by local
industries. Major domestic consumers include the cement, ceramic, construction, glass,
fertiliser, paper, mineral and steel refining industries. Selected non-metallic minerals which
are imported in the country are listed in Table 4.6. While the potential to produce some
imported minerals domestically is limited, others could be produced in larger volumes than at
present. This represents an important opportunity for import substitution and a potential
increase in non-metallic minerals exports from Indonesia. Such minerals include clay,
bentonite, marble, granite and quartz sand (Ministry of Energy and Mineral Resources 2004).


     Table 4.6: Trade and Consumption of Non-Metallic Minerals in Indonesia, 1997
                                   Consumptiona                Export            Import            Import
                                             kt                      kt              kt         US$ million
    Bentonite                             191.6                    6.2             24.5                 6.9
    Clay                                4,442.2                   0.07             16.4                 2.6
    Granite                                                    5,759.4            115.0              34.2
    Gypsum                                1,131.5                                 513.6              15.2
    Kaolin                                  554.0                126.5            145.0              38.8
    Marble                                  218.9                  1.7             40.8              14.8
    Calcium phosphate                     1,047.2                  1.6            680.0              37.7
    Sulphur                                 455.3                 0.08            343.4              25.8
    a: Consumption figures are for 1996.
    kt = thousand tonnes.
    Source: Ministry of Energy and Mineral Resources 2004.


F. INVESTMENT IN THE MINERALS SECTOR
    Indonesia’s mining investment policy, based on the contract of work system, has
succeeded in attracting foreign investors to the sector and bringing in large volumes of
capital, technology and expertise since the end of the 1960s. However, several factors of
both an economy wide and industry specific nature have led to a significant slowdown in
mining investment activity in recent years. After peaking in 1998 at more than US$2 billion,
investment spending by the mining industry (excluding industrial minerals and oil & gas) has
declined to less than US$0.5 billion a year (Figure 4.3).
    Despite its significant minerals prospectivity, greenfields exploration activity in Indonesia
has fallen to particularly low levels in recent years. From an average of US$40 million in the
period from 1995 to 1997, exploration expenditure declined to US$7 million in 2001-2003



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                                                     Enhancing ASEAN Minerals Trade and Investment



(PWC 2005). This represents less than 1% of global mineral exploration expenditure.
Indonesia has not shared in the recent expansion of global exploration expenditure following
increases in world minerals prices, indicating that international mining companies consider
Indonesia’s investment climate to be less attractive than in other countries.


          Figure 4.3: Investment in the Mining Industry, Indonesia, 1994–2003




Source: PWC 2005.



    The lack of greenfield exploration activity in Indonesia is a significant issue as the
continued development of the mining sector depends on ongoing exploration, discovery and
development of new deposits. Given the generally low success rate of exploration activities in
the mining industry and the lengthy process from discovery to production, it is unlikely that
there will be significant new mine development in Indonesia for some years (PWC 2005).
     Investment in new mine development and fixed assets has also fallen significantly from
its peak in 1998 (Figure 4.3). In addition, most investment in these categories has related to
replacement of capital at existing large mines rather than to the development of new mines or
expansions.
     Improvements in Indonesia’s economic performance and the return of foreign investment
to other sectors in the economy are positive signs of the restoration of investor confidence in
the country. However, to achieve or surpass the levels of investment in the minerals sector of
the mid-1990s will require a significant commitment from all stakeholders to resolve a range
of legal, regulatory, economic and social issues.


G. FINANCIAL PERFORMANCE AND THE TAX REGIME
    Despite the poor investment performance in Indonesia’s minerals sector, there is
evidence that average profitability in the mining industry is relatively high compared with
other countries. On the basis of a survey of 29 exploration and producing companies in 2003,
representing a significant proportion of Indonesia’s minerals, including coal production, it is
estimated that the ten year average return on capital in the mining industry was 7.1%,
compared with 3.1% for Australia (PWC 2005). The return on shareholders’ funds was 13.2%
for Indonesia, compared with 6.9% for Australia. Profitability in the sector is, however, highly
variable and is distorted by a few large and profitable mines with low shareholders’ funds
(PWC 2005).
   Indonesia’s total company tax rate, including royalties was 48.1% in 2003 (PWC 2005).
This is reportedly the highest of eight minerals rich jurisdictions (Guerin 2005). Fifty seven




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per cent of mining taxes and royalties are allocated to the central Government and the
remainder to lower levels of government.


H. POLICY FRAMEWORK
   Under the Indonesian Constitution, all natural resources are under the jurisdiction of the
State and are to be used for the benefit and welfare of the people. Activity in the mining
sector in Indonesia is governed by a range of laws and regulations, including the Investment
Law (1967), the Mining Law (1967), the Law on Regional Administration (1999) - amended by
Law 32 of 2004, the Forestry Law (1999) and the contract of work system.
    1. The 1967 Investment Law
          Investment Law 1 of 1967 provides the broad parameters for foreign investment in
       Indonesia. This is complemented by Investment Law 6 of 1968, which provides the
       framework for domestic investment. It is expected that draft legislation that brings
       together the provisions of both laws will be considered by the Indonesian parliament in
       2005.
          Investment Law 1 identifies sectors of the Indonesian economy that are open to
       foreign investment, including the minerals sector. In the case of mining, the Law states
       that mining investments are subject to the 1967 Mining Law and the contract of work
       system.
    2. The 1967 Mining Law and the contract of work system
          The 1967 Mining Law establishes the broad framework for the operation of the
       mining sector in Indonesia. The detailed operating environment is established by a
       mining right (Kuasa Pertambangan or KP) for domestic investors and a contract of
       work for foreign investors. A contract of work for foreign investors is negotiated with
       the Ministry of Energy and Mineral Resources, which makes a report to the central
       Government’s Investment Coordinating Board, the parliament and the President. This
       report makes a recommendation based on a technical and economic assessment of
       the mining proposal, including its potential contribution to economic growth. If
       approved, the contract of work is signed by the President. It is the contract of work
       system that has been the key determinant of foreign investment conditions and hence
       the overall performance of the mining sector in Indonesia for almost 40 years.
           There have been eight generations of contracts of work, each embodying changes
       to terms and conditions. Table 4.7 outlines the current status of contracts of work for
       the first seven generations. To date, no 8th generation contracts have been signed.


                 Table 4.7: Contracts of Work by Generation and Status, End 2004
        Generation                 1st      2nd       3rd      4th   5th   6th     7th    Total
        Producing                    0         4        2        2     1     1       1      11
        Other                        0         0        1        9     3    21      10      44
        Terminated                   1        12       10       84     3    43      27     180
        Total                        1        16       13       95     7    65      38     235
       Source: Ministry of Energy and Mineral Resources 2005b.



          Total activity under any generation tends to indicate the attractiveness of the terms
       and conditions embodied in the contract. The 3rd generation contract of work, for
       example, discouraged foreign investment in the minerals sector by imposing new
       taxes and restricting foreign remittances. These conditions were removed in the 4th
       generation, leading to a significant increase in investment activity.




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                                                         Enhancing ASEAN Minerals Trade and Investment



        Of the 235 contracts of work granted since 1967, only 55 are currently active with
     11 of them at the production stage (Figure 4.4). A total of 180 contracts have been
     suspended or terminated.


             Figure 4.4: Status of Contracts of Work, Indonesia, End 2004




     Source: Ministry of Energy and Mineral Resources 2005b.



         Two conditions under the contract of work system have been particularly important
     in attracting foreign investment into the mining sector. The first of these is the granting
     of so-called conjunctive title to the contractor, or the right to perform consecutive
     activities, starting from survey and exploration to mine development, production,
     processing and marketing of the final product. Conjunctive title is used instead of
     transferring concession and property rights to the contractor in the event of a mineral
     discovery.
         Indonesia also grants to contracts of work the status of lex specialis. This is
     intended to provide certainty to the investor by ensuring that the contract is not subject
     to changes in government laws or policies after signing, for the period that it is in
     force, typically 30 years.
        Many investors consider that the framework developed by the 1967 Mining Law
     and the contract of work system has been a positive and effective means of
     developing the Indonesian minerals sector. However, changes in other areas of
     Indonesian law and regulation, including those relating to regional autonomy and the
     protection of forests, have resulted in uncertainty for the minerals sector and have
     contributed to the significant decrease in mining investment and activity.
        As a result, the Government of Indonesia is currently considering the draft of a new
     mining law that could make some significant changes to the operating environment for
     investors. In particular, the draft legislation eliminates the differences in treatment of
     foreign and domestic investors by stating that both will be eligible to receive either a
     Mine Operation Permit or a Mine Operation Agreement. If passed, the new mining law
     would therefore replace the current contract of work system.
        The new draft also reduces the role of the central Government in the mining sector
     to one of policy and management oversight. Direct management of mining activities is
     devolved to the local government level, consistent with the overall move to regional
     autonomy within the Indonesian political system. The draft law also explicitly states
     that community development is the responsibility of the permit holder and that this will
     be based on local and community input and supervised at the local level. The draft law
     also addresses areas in which the 1967 law was vague or silent. These include


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       environmental protection, reporting of data and operations, financial requirements,
       land compensation requirements and criminal investigations and penalties (US
       Embassy Jakarta 2001).
           Reception of the draft law has been mixed. Many industry participants believe that
       a new law is not necessary and that appropriate changes could have been handled
       through amendments to regulations. There is also a strong view that the current draft
       seriously weakens the legal certainty that is accorded to investors under the current
       law and contract of work system. This is seen to occur through the removal of the
       contract of work system that provides a contract directly with the central Government;
       the devolution of management authority to the regional level; and the removal of
       various provisions of the current act, including the right to international arbitration. The
       final form of the new law remains to be determined and, hence, the impact that it is
       likely to have on investment and performance in the minerals sector is unclear.


    3. The 1999 and 2004 Laws on Regional Administration
          Law 22 of 1999 granted autonomy to regional governments in a range of economic
       areas from 1 January 2001. The law represents a significant shift in the Indonesian
       political framework and is part of the gradual process of democratisation in the
       country.
          Article 10 of Law 22 states that regional government has the full authority to
       promote and develop the natural resources available in its region and is fully
       responsible for maintaining the environment. In addition, any new contract of work
       under the current Mining Law of 1967 will be signed with the regional governments
       rather than the central Government, although no new contracts have been negotiated
       since the law came into force. Existing contracts of work signed prior to Law 22
       coming into force remain under the administration of the central Government.
          Law 22 has been amended by Law 32 of 2004 in which there is a move toward the
       ‘deconcentration’ of regulatory powers and administrative responsibilities from the
       Bupati level (district) back to the provincial level. The new law states that mineral
       resources management will be followed up by a regulation, which has not yet been
       drafted.
          Under the Laws on Regional Administration, the detailed management of mining
       activities is the responsibility of the regional government while the central
       Government’s role is limited to policy and management oversight. In order to facilitate
       the transition to regional government, the Department of Energy and Mineral
       Resources issued a Standard Operating Procedure on the transfer of mining
       supervision to decentralised regions. In addition, the Minister of Energy and Mineral
       Resources established a task force to assist in transferring mineral title technology
       and mining administration expertise to the regions.
          The Laws on Regional Administration have the potential to generate considerable
       change in the regulation of the mining industry in Indonesia and have had a mixed
       response from industry participants. Many believe that the weakening of the link
       between the investor and the central Government has reduced the level of certainty in
       the investment process. This is because regional governments have not clearly
       defined their requirements of investors, including in relation to the provision of
       community services and environmental protection. This could result in diverse mining
       regimes across regions and varying degrees of attractiveness to potential investors.




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     4. The 1999 Forestry Law
          Among other issues, Law 41 of 1999 prohibits open cut mining in protected forests.
       Protected forests are defined under the law as ‘forest areas whose chief function is to
       protect a life buffer system in order that the water system may be regulated, flood
       prevented, erosion put under control, sea water intrusion prevented and soil fertility
       maintained’. The declaration of protected forests is based on an objective set of
       parameters related to the physical characteristics of the land. These include slope,
       rainfall and soil characteristics. Of the approximately 110 million hectares of forest
       area in Indonesia, 29 million hectares are declared protected.
          In the drafting of Law 41, limited consultation was undertaken with the Ministry of
       Energy and Mineral Resources. A consequence of this has been that substantial
       areas of land where contracts of work had already been awarded have been affected
       by the declaration of protected forests. While the lex specialis provision of a contract
       of work allows existing production to continue, no new mining activity is permitted.
       Many areas that are highly prospective in minerals have been excluded from future
       mineral exploration and development under this law.
           In an attempt to clarify the provisions of the Forestry Law, Law 19 of 2004 was
       promulgated and Presidential Decree 41 of 2004 was released. The latter document
       lists thirteen companies with existing contracts of work that are permitted to conduct
       open pit mining in protected forest areas. This decree was challenged in Indonesia’s
       Constitutional Court by a group of environmental non-government organisations. The
       challenge was rejected by the Court in July 2005 and all thirteen companies are
       legally entitled to continue exploration, development and production activities.
          However, following the verdict of the Constitutional Court, the Forestry Department
       issued a regulation that, inter alia, requires companies that mine in protected forests to
       purchase an area of land double the size of that being mined and to forest that land.
       This is likely to add to the costs of developing a mine site and is not a requirement of
       the contract of work system. The potential future impacts of the Forestry Law on the
       exploitation of Indonesia’s mineral resources remain uncertain.


I.   KEY ISSUES
    Despite Indonesia’s considerable mineral prospectivity, investment in the minerals sector
has declined and Indonesia is not sharing in the benefits of the current global mining boom.
This issue has significant medium term implications as reduced expenditure on greenfield
exploration means that there will be limited new mining activity in Indonesia for some years to
come. There are a number of specific issues that need to be addressed if Indonesia is to
realise the potential of its minerals sector to contribute to economic growth and development.
     1. Sanctity of legal contracts
          The current Mining Law and the contract of work system for foreign investors are
       believed by most participants to provide a high level of certainty in relation to the terms
       and conditions of negotiated contracts. Features of the system contributing to this
       confidence include the fact that the contract is signed with the central Government
       through the Minister of Energy and Minerals Resources, that the lex specialis
       provision ensures that the contract is not subject to changes in government laws and
       policies after signing, and that there is recourse to international arbitration in the case
       of a dispute.
          Proposed changes to the Mining Law, including the dismantling of the contract of
       work system, do not provide the same degree of legal certainty for international
       investors. In particular, while the central Government would issue a licence to mine,
       the actual contract would be with the regional level of government. Under this


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       arrangement it is unclear whether lex specialis would apply. The current draft of the
       legislation also removes the international dispute settlement procedures.
           Although the new Mining Law remains in draft form, the lack of clarity regarding its
       likely final content and the length of time involved in its consideration by parliament
       have had a profound effect on foreign investment in Indonesia’s mining industry.
    2. Lack of clarity of roles of different levels of government
           One outcome of the move to regional autonomy in Indonesia has been confusion
       regarding the roles of different levels of government involved in the management of
       the mining sector and an increase in the overall regulation of the sector. Importantly in
       this context is the fact that regional governments have not necessarily clearly specified
       the requirements or preconditions for investment in the mining sector and that
       negotiations with mining companies are conducted on an ad hoc basis. This has led to
       differences in the attractiveness of regions for investors, and adds to the costs of
       undertaking exploration and development activity.
          In addition, and despite the assistance that the central Government has provided to
       the regions in the transition to regional autonomy, it is generally considered by
       industry participants that the capacity to administer the mining industry is less well
       developed at this level of government. This refers to a lack of technical mining industry
       specific skills as well as to underdeveloped capacity in general administration.
          There is also anecdotal evidence that regional governments have placed increased
       demands on potential investors in relation to the provision of community services,
       environmental protection, the levying of taxes and the direct participation in mining
       activity without the establishment of equity. While this may be considered a means of
       ensuring that the benefits of mining accrue to local communities, it adds to the
       uncertainty of operating in the mining sector and increases the costs of investment.
    3. Conflicts between forestry and mining
          The conflict between provisions of the Forestry Law of 1999 and the mining
       industry has probably created more uncertainty for investors in Indonesia’s mining
       sector than any other legal or regulatory provision and is one of the key reasons for
       the decline in investment activity in recent years.
           The decision of the Constitutional Court relating to the legality of operations of 13
       mining companies in protected forest areas was a strong step toward the resolution of
       this issue. It also demonstrated the dynamic democratisation process in Indonesia and
       the move away from an authoritarian system to one where an independent court
       system was the appropriate forum for resolving conflict. It remains to be seen,
       however, whether the decision of the court provides a framework for dealing with the
       forestry issue in the longer term.
    4. Competitiveness of the tax and royalty regime
          Indonesia’s mining industry tax and royalty regime is not considered highly
       competitive with other minerals prospective jurisdictions. This is a clear impediment to
       investment in the Indonesian industry as competition for investment spending in the
       global mining industry is intense. Fifty one per cent of respondents to the Fraser
       Institute 2004/2005 survey, for example, indicated that the taxation regime was an
       impediment to investment in Indonesia’s mining sector (Fraser Institute 2005).
    5. Environmental protection and sustainability of mining
          Indonesia has an active and vocal environmental non-government organisations
       sector that has voiced considerable concern regarding the environmental performance
       of mining activities and the sustainability of the mining sector. These organisations
       have been particularly active in relation to the protected forests issue and were the



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                                                             Enhancing ASEAN Minerals Trade and Investment



        applicants in the Constitutional Court case discussed above. Their concerns are valid
        as adequate protection of the environment is an important responsibility of the mining
        industry worldwide. In addition, the Government has no clearly articulated policy of
        dealing with the environmental aspects of mining and of ensuring that companies pay
        for the damage potentially created by their activities.
           Notwithstanding this, a question remains as to whether there has been adequate
        voice given to the role that the mining industry can play in economic development in
        Indonesia, especially in some isolated and economically less developed regions of the
        country, and the need to balance this with other objectives, including environmental
        protection.
     6. Illegal mining
           The extent of illegal or informal mining is a problem in the Indonesian mining
        sector. Where this is conducted by local people on a small scale it is often tolerated by
        legal mining companies. However, in some areas, illegal mining is conducted on a
        large scale using heavy equipment, public roads and unlicensed harbour and shipping
        facilities, with full knowledge of the local authorities. Illegal mining can undermine
        contract of work or KP conditions by exploiting mineral deposits that are rightfully the
        property of legal miners. This leads to higher costs for the legal mining community.
        There is also a view that illegal mines have been responsible for serious
        environmental damage in Indonesia, as they have no legal responsibility to restore
        damage, and as a consequence have undermined the environmental reputation of the
        large scale mining industry. They also fail to pay appropriate taxes to different levels of
        government on their activities.
     7. Provision of geoscientific data
           Although Indonesia has an active and high quality geological and geoscientific
        program, it is necessarily subject to a budget constraint. While a considerable
        proportion of the country has been mapped and these resources are made readily
        available to the mining industry, there are gaps yet to be filled.
            The public provision of geoscientific information provides private companies with
        more reliable information than would otherwise be available and hence reduces
        private exploration costs and risks. Any gaps in this database increase the uncertainty
        associated with discovery and act as a disincentive to private exploration investment.
        The 2004/2005 Fraser Institute survey indicates that almost three quarters of
        respondents consider the quality of Indonesia’s geological database to be an
        impediment to investment in the mining sector (Fraser Institute 2005; Table 4.8).


       Table 4.8: Ranking of Deterrents to Investment in Indonesia’s Mining Sector
               Factors                  Number of Respondents Ranking the Factors as Deterrents to
                                                                Investment
                                      Mild deterrent Strong deterrent   Would not pursue      Total
                                                                      investment due to this
                                                                             factor
     Regulatory duplication and            15%            30%                 20%             65%
     inconsistency
     Taxation regime                      19%             19%                  13%               51%
     Quality of infrastructure            50%             27%                  5%                82%
     Political stability                  26%             43%                  13%               82%
     Quality of geological                47%             21%                   5%               73%
     database
     Security situation                   28%             48%                   8%               84%
     Source: Fraser Institute 2005.




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    8. Other issues
           There is a further range of issues that can be considered to discourage investment
       in Indonesia’s mining sector. These include the quality of infrastructure, the stability of
       the political regime and the security situation, especially in regional areas. The Fraser
       Institute survey provides an indication of the level of concern with each of these
       issues. In each case, more than half of respondents to the survey ranked these issues
       as a deterrent to investment (Fraser Institute 2005; Table 4.8).


J. THE WAY FORWARD
    1. Improve the certainty accorded investment in the new Mining Law
          Indonesia has an important opportunity to reform the conditions under which
       investment takes place in the mining sector through the drafting of the new Mining
       Law. Although this has been in development for some time, the current draft does not
       appear to meet the requirements of the global mining community if investment in the
       sector is to increase. While difficult at this late stage, it would be useful to reconsider
       the fundamental principles of the proposed law that reduce certainty to investors
       through the disestablishment of the contract of work system, the replacement of a
       contract with the central Government with a less binding agreement with regional
       authorities, and the removal of the right to international arbitration in the event of a
       contract dispute.
           Without further stakeholder engagement on these critical issues, Indonesia risks
       compromising the potential of the mining industry to contribute to long term economic
       growth and development, especially in isolated and less developed regions. At the
       same time it is imperative that the Mining Law and its associated regulations are
       finalised as soon as practical in order to overcome the current legal and regulatory
       vacuum that is discouraging global mining investors.
    2. Define the roles and responsibilities of different levels of government
          It is also important that the roles and responsibilities of different levels of
       government in relation to the mining industry are clearly identified. There are currently
       perceived and real overlaps in the way in which the industry is administered that are
       creating confusion and increasing costs for investors. These should be streamlined
       and simplified. The drafting of the Mining Law and its associated regulations provides
       an opportunity for these roles and responsibilities to be made transparent and binding.
    3. Enhance capacity and improve governance at the regional level
           The move away from authoritarian central rule to regional autonomy is an integral
       part of democratisation in Indonesia but it needs to be accompanied by capacity
       building at the regional level. This applies to the technical skills necessary to develop
       the mining industry as well as to general administration, including in relation to
       personnel, financial resource management and intra- and inter-governmental
       relations. Increased resources in this area would contribute to meeting these
       objectives. Enhancing capacity and improving governance, especially in relation to the
       financial obligations imposed on potential investors, will also be important for
       establishing strong relationships with the mining industry.
    4. Eliminate overlapping regulation that affects the mining industry
          A clear need for reform in Indonesia is to eliminate the areas of overlapping
       regulation that have an impact on the mining sector. This is most pronounced in the
       case of conflict between the Mining Law and the Forestry Law. Although there has
       been some clarification of this issue through the decision of the Constitutional Court in
       July 2005, it is not clear whether this will provide a framework for resolving potential


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                                                     Enhancing ASEAN Minerals Trade and Investment



       future conflict. The Government of Indonesia needs to carefully consider how to
       implement a workable policy that contributes to preserving valued forest areas while
       not unnecessarily restricting mining exploration and development activity. A whole of
       government approach and the engagement of a wide spectrum of non-government
       stakeholders, including from the mining industry, will be necessary to ensure that the
       full range of issues is taken into consideration.
     5. Achieve a workable balance between environmental protection and economic
        development
          While recognising the very real potential environmental impacts of the mining
       sector, it is also necessary to acknowledge the contribution of mining to economic
       development in Indonesia. Finding an appropriate balance between these objectives
       and demonstrating the benefits of mining to local communities will be important in
       building trust in the industry.
          The perception of the environmental performance of the mining industry in
       Indonesia is generally poor and this might be well deserved in some cases. However,
       there are many examples of good environmental management, and these need to be
       highlighted and publicised. Public education of the benefits of the mining sector in
       general will help to increase confidence in the industry and enhance relationships with
       local communities.
     6. Reduce illegal mining
          Regional authorities need to act decisively to reduce the impacts of illegal mining,
       both in terms of economic costs and environmental damage. This process can be
       aided by legal mining companies engaging with local communities in an effort to
       provide real benefits that will outweigh those derived from illegal activities.
     7. Increase the resources devoted to the provision of geoscientific data
          Indonesia has a highly skilled geoscientific community in government but its
       mapping and geochemical programs are incomplete. Enhanced funding for these
       activities through the central Government budget would reduce the costs and risks of
       exploration activity and contribute to revitalising the mining sector.




16                                           REPSF Project 04/009b: Final Country Report – Indonesia
Enhancing ASEAN Minerals Trade and Investment



K. CONSULTATION PROGRAM
   The consultation program in Indonesia was conducted by ABARE from 13-17 June 2005.
Organisations and individuals consulted in Indonesia are listed in Table 4.9.


                          Table 4.9: Consultation Program – Indonesia
Name                        Position                            Organisation
Bernard Lynch               Counsellor - Economic               Australian Embassy
Grant Dooley                First Secretary – Economic          Australian Embassy
Ben Clanchy                 Third Secretary - Economic          Australian Embassy
Rob Crawford                President Director                  BlueScope Steel Indonesia
Mahendra Siregar            Deputy for International Economic   Coordinating Ministry for Economic Affairs
                            Cooperation
BN Wahju                    Chairman                            Indonesian Mining Association
Noke Kiroyan                President                           Indonesia Australia Business Council
Yus’an                      Deputy Chairman for Investment      Investment Coordinating Board
                            Climate Development
Rubianto Indrayuda          Deputy Director for Mining and      Ministry of Energy and Mineral Resources,
                            Geological Services                 Directorate General of Geology and
                                                                Mineral Resources, Directorate of Mineral
                                                                and Coal Enterprises
Dr. Hadiyanto               Director                            Ministry of Energy and Mineral Resources,
                                                                Directorate General of Geology and
                                                                Mineral Resources, Directorate of Mineral
                                                                Resources Inventory
Bambang Murdiono            Director                            Ministry of Forestry, Bureau of International
                                                                Cooperation and Investment
Koes Saparjadi              Director General                    Ministry of Forestry, Directorate General of
                                                                Forest Protection and Nature Conservation
Boen Purnama                Head of Planning Bureau             Ministry of Forestry, Directorate General of
                                                                Forest Protection and Nature Conservation
Ir. Adi Sarwoko             Advisor for Economy and             Ministry of Settlement and Regional
Soeronegoro                 International Cooperation           Infrastructure
Andrew Wilson               President Director                  PT BHP Billiton Indonesia
Dan Bowman                  Senior Vice President               PT Freeport Indonesia
Hendra Sinadia              Legal Advisor                       PT Freeport Indonesia
Tony Ainscough              Senior Legal Advisor                PT Nusa Halmahera Minerals
Roderick Jones              President Director                  PT Sorikmas Mining
Fathi Hanif                 Policy and Legal Officer            WWF Indonesia




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                                                     Enhancing ASEAN Minerals Trade and Investment



L. REFERENCES
Antam (PT Aneka Tambang Tbk).2005. Website, various pages. www.antam.com
ASEAN Secretariat. 2003. ASEAN Statistical Yearbook 2003. Jakarta.
BPS (Badan Pusat Statistik) Statistics Indonesia. 2005. Selected statistical indicators.
     www.bps.go.id
Central Bank of Republic of Indonesia. 2005a. Trade and Investment News. 20 June.
Central Bank of Republic of Indonesia. 2005b. Selected statistical indicators. www.bi.go.id
Fraser Institute. 2005. Annual Survey of Mining Companies 2004/2005. Vancouver.
      www.fraserinstitute.ca.
Guerin, B. 2005. Jakarta Mines for More Investment. Asia Times Online. April 22.
       http://www.atimes.com/atimes/printN.html
IMF (International Monetary Fund). 2005a. World Economic Outlook Database. April.
IMF. 2005b. International Financial Statistics Database. July.
Inco Limited. 2005. Website, various pages. www.inco.com
Ministry of Energy and Mineral Resources. 2005a. Indonesia Mineral and Coal Statistics
        2005. Jakarta.
Ministry of Energy and Mineral Resources. 2005b. Information on Minerals and Coal
        Enterprises. Jakarta.
Ministry of Energy and Mineral Resources. 2004. National Resources and Reserves of
        Mineral, Coal and Geothermal. Jakarta.
MSC (Malaysia Smelting Corporation). 2004. Annual Report. www.msmelt.com
PT Smelting. 2005. Website, various pages. www.smelting.co.id
PWC (PricewaterhouseCoopers). 2005. mineIndonesia 2004: Review of Trends in the
     Indonesian Mining Industry and previous editions. Jakarta: KAP Haryanto Sahari &
     Rekan - PricewaterhouseCoopers.
Reuters. 2004. Indonesia’s PT Smelting expands capacity 25 pct. 5 May. Singapore.
Suryantoro, S. and Manaf, M.H. 2002. The Indonesian Energy and Mineral Resources
      Development and its Environmental Management to Support Sustainable National
      Economic Development. Paper presented at the OECD Conference on Foreign Direct
      Investment and the Environment. 7-8 February. Paris.
Tse, P-K. 2003. ‘The Mineral Industries of Indonesia and East Timor (Timor-Leste)’. U.S.
      Geological Survey Minerals Yearbook – 2003 and previous editions. U.S. Geological
      Survey. Virginia.
United Nations Statistics Division. 2005. UN Commodity Statistics Database (UN Comtrade).
       United Nations. http://unstats.un.org/unsd/comtrade/.
University of Indonesia. 2003. Economic Analysis of PT. Freeport Indonesia (PTFI). Institute
       for Economic and Social Research. Faculty of Economics.
US (United States) Embassy Jakarta. 2001. Indonesia’s Draft Mining Law. Recent Economic
      Reports. http://www.usembassyjakarta.org/econ/mininglaw2001.html
Wahju, B.N. 2004. Current Status of Mining in Indonesia. Presentation by Chairman of
      Indonesian Mining Association at “The Mining Philippines 2004”. February, Manila.




18                                           REPSF Project 04/009b: Final Country Report – Indonesia
Enhancing ASEAN Minerals Trade and Investment
– Lao People’s Democratic Republic
REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                          CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 1
     C.   Minerals production .................................................................................................. 2
     D.   Minerals trade ............................................................................................................ 3
     E.   Investment in the minerals sector............................................................................ 4
     F.   Policy framework ....................................................................................................... 5
     G.   Key issues .................................................................................................................. 6
     H.   The way forward ........................................................................................................ 8
     I.   Consultation program ............................................................................................... 9
     J.   References ............................................................................................................... 10


                                                     LIST OF TABLES


     Table 5.1: Mineral Reserves, Selected Commodities, the Lao PDR, 2004.................. 2
     Table 5.2: Production of Key Minerals, the Lao PDR, 1997–2003 ............................... 2
     Table 5.3: Production Value of Minerals, the Lao PDR, 1997–2003 ............................ 3
     Table 5.4: Exports of Gypsum, Tin and Gold from the Lao PDR by Fiscal Year ....... 3
     Table 5.5: Minerals Exports from the Lao PDR by Destination, Fiscal Year 2003–044
     Table 5.6: Approved FDI in Mining in the Lao PDR by Fiscal Year ............................. 4
     Table 5.7: Minerals Sector Investment in the Lao PDR, 2002–2003............................ 4
     Table 5.8: Major Types of Mining Tenements in the Lao PDR..................................... 5
     Table 5.9: Consultation Program – the Lao PDR .......................................................... 9




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A. INTRODUCTION
    The minerals sector in the Lao People’s Democratic Republic (Lao PDR) has seen
significant recent developments. Prior to 2003, the mining sector contributed only marginally
to the economy of the Lao PDR. In 2002, the mining and quarrying sector contributed 0.5% of
gross domestic product (GDP). This figure increased to 1.7% in 2003, as the flagship Sepon
mine, owned by the Australian company Oxiana Limited, came into operation (National
Statistics Centre 2005). Mining has progressed from being a marginal sector in the Lao
PDR’s economy to a rapidly growing sector, providing significant economic benefits locally
and nationally.
    Between 2,000 and 5,000 persons were employed in the formal mining sector in the Lao
PDR prior to the commencement of production at the Sepon mine, while 8,000 to 15,000
persons were employed in informal mining. Tax revenues from the minerals sector, prior to
the opening of the Sepon mine, were estimated at US$120,000 a year (World Bank 2003).
     Benefits to the economy of the Lao PDR derived from the minerals sector have increased
considerably since 2003. Oxiana Limited currently pays 3% royalty on all gold produced,
equal to US$2.2 million in 2004. The Sepon mine will, in total, provide more than US$25
million annually to the Government in taxes, royalties, land rentals and dividends. It
contributes more than 15% of the country’s export revenue and makes a significant economic
contribution to Savannakhet Province through, for example, infrastructure, training,
employment and the removal of unexploded ordnance (Oxiana Limited 2005). Production of
gold and copper at the Sepon mine will soon be coupled by the production of gold at Pan
Australian Resources Limited’s Phu Bia Gold Mine, which is due to come into production in
2005.
    The Lao PDR has significant potential to develop a vibrant mining industry. While the
regulatory environment, and capacity of the Lao PDR to manage its minerals sector, is still in
need of development, the events of recent years are promising and indicate that the Lao
PDR is determined to foster the development of a healthy minerals sector in the country. On
the back of the recent success of foreign investors, there is increasing interest in the Lao
PDR’s minerals sector. The sector is one of the most promising long-term growth areas of the
Lao PDR’s economy.


B. MINERAL RESOURCE BASE
    The Lao PDR has relatively under-explored mineral resources. Less than half of the
country has been geologically mapped at a scale of 1:200,000. It is, however, considered to
be highly prospective, particularly in gold and copper, but also in potash, limestone, tin, iron,
lead, zinc, silver and gemstones, primarily sapphires. Based on available data, the mineral
resources of the Lao PDR exceed those of its neighbours. Much of the Lao PDR remains
unexplored with only a very small fraction of the country covered by exploration licenses.
    The minerals potential of the Lao PDR was first systematically explored by French
geologists at the start of the twentieth century. During the colonial period, the French
conducted some basic mapping and more than 500 mineral occurrences were catalogued.
The United Nations carried out a detailed geological survey in the 1960s. Further mapping
and geological surveys were undertaken after the independence of the Lao PDR in 1975
through the assistance of countries such as Viet Nam. Viet Nam continues to assist with
geological activities in the Lao PDR through the INTERGEO Division of the Department of
Geology and Minerals Viet Nam. Private companies have also carried out exploration in the
Lao PDR, and continue to do so. The exploration programs of international companies led
directly to the discovery and development of the Sepon mine (World Bank 2003).




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    A summary of mineral resources for selected commodities in the Lao PDR is presented in
Table 5.1. Given that much of the Lao PDR has not been systematically explored, these
figures should be treated with caution.


        Table 5.1: Mineral Reserves, Selected Commodities, the Lao PDR, 2004
                        Commodity                             Unit      Reservesa
                        Gold                               ‘000 oz           3,639
                        Iron                                     kt         62,666
                        Tin                                      kt         21,668
                        Copper                                   kt          3,831
                        Lead/Zinc                                kt             23
                        Sapphire                          ‘000 cts          23,263
                        Gypsum                                   kt         33,489
                      a: In-ground ores. Includes indicated, inferred and hypothetic reserves.
                      ‘000 oz = thousand ounces; kt = thousand tonnes; ‘000cts = thousand carats.
                      Source: Department of Geology and Mines 2004.



C. MINERALS PRODUCTION
   Mining of gold, copper, zinc, tin and other minerals is currently carried out in the Lao PDR
(Table 5.2). Prior to 2003, the minerals sector in the Lao PDR was dominated by the
production of gypsum, tin and gemstones, and mining was carried out on a small scale.

             Table 5.2: Production of Key Minerals, the Lao PDR, 1997–2003

       Commodity           Unit       1997     1998      1999         2000     2001    2002    2003
       Gemstones         ‘000 ct       212     2,553     6,600         189        -       -   2,303
       Gold                  t           -         -         -           -        -       -      9.7
       Gypsum               kt         144       130       151         142      121     120     102
       Tin                  t        1,030       895       765         800      816     610     593
       Zinc                  t           -         -         -           -   28,745   1,345   3,069

       ‘000 ct = thousand carats; kt = thousand tonnes; t = tonnes.
       Source: Department of Geology and Mines 2003.


     The production of gold in the Lao PDR commenced at the Sepon mine in January 2003.
The value of gold production from the Sepon mine was US$88.7 million in 2003 and US$76
million in 2004. Production of copper at the Sepon mine commenced in 2005. The copper
plant at the mine site has a capacity of 60,000 tonnes a year. Production of gold and copper
at the Sepon mine is expected to last at least 20 years (Oxiana Limited 2005). The Phu Bia
mine, to be opened in 2005, is expected to produce approximately 50,000 ounces (1.6
tonnes) of gold a year (Pan Australian Resources Limited 2005). Padaeng Industry Public
Company Limited of the Kingdom of Thailand (Thailand) commenced zinc production at the
Kaiso zinc deposit in 2001. Given this deposit’s small size, production at the mine is expected
to cease shortly.
    It is likely that the zero values for gemstones production in 2001 and 2002 in Table 5.2
reflect problems with the data rather than actual events, although 2000-2001 was a difficult
time for the gemstones sector in the Lao PDR because of a scandal involving one private
gemstone mining company. Despite the Lao PDR’s rich potential in gemstones, primarily
sapphire, there are currently only a handful of relatively small gemstone mining operations in
the country.
    The significant increase in the value of minerals production in 2003, and the emergence
of the minerals sector as an important sector in the economy, is shown in Table 5.3. The



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Enhancing ASEAN Minerals Trade and Investment



value of minerals production in the Lao PDR increased from US$5 million in 2002 to US$36
million in 2003.


             Table 5.3: Production Value of Minerals, the Lao PDR, 1997–2003
                  Year                        Total Value    Change on Previous Year

                                               US$ million                      %
                  1997                                15.2
                  1998                                 6.1                    (60)
                  1999                                 6.2                       2
                  2000                                 8.6                      37
                  2001                                 7.3                    (15)
                  2002                                 5.3                    (28)
                  2003                                36.1                     586
                Note: negative numbers are enclosed in parentheses.
                Source: Department of Geology and Mines 2003. Exchange rate sourced from World Bank
                2005.



    Some processing of minerals is carried out in the Lao PDR. Oxiana Limited processes
gold and produces copper metal at its Sepon mine site. Zinc, lead and other minerals are
also processed in the Lao PDR, to varying extents. Gemstones are typically exported to
Thailand – a global centre for gemstones processing. Gemstone miners in the Lao PDR are
facing a number of challenges including increasing competition from African countries.


D. MINERALS TRADE
    Prior to the opening of the Sepon mine, about half of the value of minerals production in
the Lao PDR, essentially quarry and industrial minerals, was consumed locally. Some tin,
zinc concentrates and gypsum were exported to the Lao PDR’s ASEAN neighbours, Thailand
and Viet Nam, for processing (World Bank 2003). The opening of the Sepon mine led to a
substantial increase in the Lao PDR’s minerals exports (Table 5.4).


      Table 5.4: Exports of Gypsum, Tin and Gold from the Lao PDR by Fiscal Year
                              Year                              US$000
                              1998-99                              767.0
                              1999-00                            5,993.3
                              2000-01                            4,890.7
                              2001-02                            3,903.9
                              2002-03                           46,502.9
                             Source: Ministry of Commerce 2003.


    In the fiscal year 2003-04, minerals exports accounted for 18% of total exports from the
Lao PDR (Table 5.5). Australia, Viet Nam and Thailand were among the major importers of
Lao PDR minerals. All official exports of gold from the Lao PDR are directed to Australia for
further refining. Gold exports contributed virtually to the total value of exports from the Lao
PDR to Australia in the fiscal year 2003-04 (Ministry of Commerce 2005). Padaeng Industry
Public Co., Ltd. of Thailand exported all zinc ores from its operations at the Kaiso zinc
deposit to Thailand for smelting and refining. During 2005, Oxiana Limited commenced
exporting copper mined at Sepon to Thailand and Malaysia.
   Minerals imports to the Lao PDR are relatively small, largely because the Lao PDR does
not have a significant mineral processing sector or an established heavy manufacturing
sector. However, data on minerals imports are not available.



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                                                                  Enhancing ASEAN Minerals Trade and Investment



       Table 5.5: Minerals Exports from the Lao PDR by Destination, Fiscal Year 2003–04
Commodity                    Australia    Viet Nam      Thailand          China      Chinese          Other      Total
                                                                                      Taipei
                               US$000       US$000          US$000       US$000      US$000       US$000       US$000
Minerals (excluding gold)            0      2,333.3           576.9         34.5          0.5     3,387.7      6,332.8
Gold                          61,102.7            0               0            0            0           0     61,102.7
Total                         61,102.7      2,333.3           576.9         34.5          0.5     3,387.7     67,435.5
Share of total exports (%)        99.8          8.4             0.4          0.6          0.0         2.6         18.0
   Source: Ministry of Commerce 2005.



   E. INVESTMENT IN THE MINERALS SECTOR
       Total investment, including foreign direct investment (FDI), across all sectors has
   increased considerably in recent years, reflecting the improved investment environment in
   the Lao PDR. Recent years also point to a significant increase in minerals sector FDI (Table
   5.6).


                 Table 5.6: Approved FDI in Mining in the Lao PDR by Fiscal Year
                 Year                      2000-01 2001-02 2002-03 2003-04          2004-05
                 Share of total FDI (%)         16         0         4        60           9
                 Number of projects               2        1        25        24          33
                 Source: Department for Promotion and Management of Domestic and Foreign Investment 2005a.


       During the fiscal year 2003-04, a significant inflow of FDI to the mining sector of the Lao
   PDR, equivalent to 60% of total FDI for that year, was approved. This inflow was largely
   related to the Sepon mine, which came into production in 2003, but also to other foreign
   investments, including that of the Australian company Pan Australian Resources Limited (Wu
   2003). The number of approved projects in the minerals sector increased significantly from
   2001 – when foreign investment in minerals in the Lao PDR was negligible. In 2004-05,
   approved FDI in mining was less than in 2003-04 in both absolute terms and as a proportion
   of total approved FDI, reflecting large injections of capital in 2003 by Oxiana Limited and
   other companies.
       Statistics from the Lao PDR’s National Statistics Centre indicate that actual investment
   (as compared to approved investment – some of which is not realised in subsequent years)
   was equivalent to 4.3% of total investment into the Lao PDR in 2003 (Table 5.7).

                Table 5.7: Minerals Sector Investment in the Lao PDR, 2002–2003
                                                                        Unit        2002      2003
                  Number of projects                                                   2          9
                  Foreign investment                                  US$000       750.0   2,200.0
                  Local investment                                    US$000         0.0   4,152.6
                  Total investment in minerals sector                 US$000       750.0   6,352.6
                  Share of total investment                               %          0.6        4.3
                 Source: National Statistics Centre 2005.



       Foreign investment in the Lao PDR’s minerals sector has largely come from Australian
   companies, but also from Thai, Vietnamese, Chinese, North Korean and other sources. In
   2003, 11 companies held prospecting licenses in the Lao PDR (for 30,780 hectares), 14
   companies held exploration licenses (for 680,000 hectares) and 47 companies held mining
   licenses (for 7,813 hectares) (Department of Geology and Mines 2003). State-owned
   enterprises continue to operate in the minerals sector but performed weakly during the early



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Enhancing ASEAN Minerals Trade and Investment



years of this decade as a result of low minerals prices and poor management (World Bank
2003).


F. POLICY FRAMEWORK
   The minerals sector in the Lao PDR is governed by the 1991 Constitution, the 1997
Mining Law and its Implementing Decree of 2002, the 1999 Environmental Protection Law
and its Implementing Decree of 2002, and other laws, regulations and Decrees of the Lao
PDR.
    1. The 1991 Constitution
           All mineral resources in the Lao PDR are the property of the national community
        and are subject to the centralised and unified management of the State. The
        Constitution has no provisions that directly address the ownership and use of mineral
        resources. Foreigners cannot own land in the Lao PDR.
    2. The 1997 Mining Law
            The Mining Law was introduced in May 1997 and its Implementing Decree was
        approved in October 2002. The law was the first to govern private sector investment in
        the mining sector in the Lao PDR, and was developed with the assistance of the World
        Bank and the Asian Development Bank. Prior to the introduction of the Mining Law,
        minerals activities were governed by Mineral Exploration and Production Agreements.
        The Department of Geology and Mines, under the Ministry of Industry and Handicrafts,
        is the body responsible for minerals sector regulation and licensing, monitoring of
        exploration and mining activities and geological work. The major types of mining
        licenses in the Lao PDR are detailed in Table 5.8.

                Table 5.8: Major Types of Mining Tenements in the Lao PDR
    Stage        Mining tenements                Provisions                              Terms
Mineral         Prospecting License   Exclusive right to conduct           Valid for 2 years and renewable for
Prospecting                           prospecting within specified area    up to 2 years (one year at a time)
Mineral         Exploration License   Exclusive right to conduct           Valid for 3 years and renewable for
Exploration                           exploration within specified area    up to 4 years (two years at a time)
Mineral         Mining License        Exclusive    right    to   extract   Valid for at most 30 years and
Development                           minerals within specified area       renewable for another 20 years (10
                                                                           years at a time)



            Under the Mining Law, investment in the mining sector is permitted in one of the
        following forms:
         o Sole investment by the State;
         o Joint investment between the State and domestic and/or foreign parties; and
         o Collective or private investment from domestic parties (Department of Geology
             and Mines 2005).
           The Mining Law states that the Government will invest in all mineral operations
        (even those of Lao PDR companies) at the production phase (art. 23). In practice,
        however, this provision is not applied. The Mining Law does not specify how
        prospecting or exploration licenses are granted. Royalties in the Lao PDR range from
        2% to 5% (excluding gemstones).




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                                                    Enhancing ASEAN Minerals Trade and Investment



    3. The 2004 Law on the Promotion of Foreign Investment
         The Law on the Promotion of Foreign Investment in the Lao PDR of 2004 is seen
      as a relatively investment-friendly piece of legislation. Fully foreign-owned enterprises
      are allowed to operate in the Lao PDR. Foreign-owned enterprises are exempt from
      import duties on equipment and raw materials (Department for Promotion and
      Management of Domestic and Foreign Investment 2005b). Incentives covered in the
      law include:
       o freedom to expatriate earnings;
       o right to employ foreign expatriates (although cannot exceed 10% of the
          enterprise’s labour force); and
       o personal income tax at a flat rate of 10% (Committee for Planning and Investment
          2005).
         Although the Lao PDR’s Mining Law (art. 21, 23) states that foreign investors may
      obtain mining rights only through joint ventures with the State, in practice the Lao PDR
      applies the Law on the Promotion of Foreign Investment of 2004, which states that
      foreigners may invest in the Lao PDR through wholly owned enterprises (World Bank
      2003). The Government often acquires an option to take a share in joint ventures for
      mining projects but does not always elect to exercise that option (World Bank 2003).
         The Department for Promotion and Management of Domestic and Foreign
      Investment (DDFI) is the central Government authority empowered to appraise
      investment applications in cooperation with line ministries and other concerned
      authorities. The DDFI is responsible for monitoring investment projects and providing
      investment incentives and acts as a ‘one stop shop’ for investors in the Lao PDR. For
      minerals-sector investment applications, the DDFI sends relevant documents to the
      Department of Geology and Mines and other relevant line Ministries/Departments for
      review and approval.
         Investments in remote and disadvantaged areas are eligible for special incentives
      from the DDFI. Since the Foreign Investment Law overrides the general taxation laws,
      the tax regime for a mining project – notably corporate profits tax and royalties – is
      negotiated on a case-by-case basis (World Bank 2003). The official length of time for
      exploration and mining license approvals has been reduced from 60 to 45 working
      days.
         The provincial authorities have a significant role in mining oversight in the Lao
      PDR. For example, the Savannakhet provincial authorities collect royalties and payroll
      taxes from the Sepon mine (World Bank 2003). Foreign companies can also apply for
      their mining licenses through provincial authorities, although the process by which this
      can be done is not clear.


G. KEY ISSUES
    1. Important recent developments
         The most significant mining projects in the Lao PDR are the recently developed
      gold and copper mines funded by foreign investors, namely Australian companies
      Oxiana Limited and Pan Australian Resources Limited. Foreign investment in the
      minerals sector in the Lao PDR has resulted in improved and modern technologies
      being introduced in the country, and enhanced environmental and other outcomes
      relative to smaller-scale mining operations. Such investment has also brought
      significant employment and welfare benefits for local communities and the national
      economy. The success of recent investors in the Lao PDR’s minerals sector, and the
      real benefits brought to the country by this investment, are positive indicators for the
      future of the sector.



6                                            REPSF Project 04/009b: Final Country Report – Lao PDR
Enhancing ASEAN Minerals Trade and Investment



    2. The Mining Law
         The overall reaction to the 1997 Mining Law by the international mining community
       was negative, as a result of the broad provisions of the Law that were considered to
       be regressive by many international mining companies (Senebouttalath and Pichit
       2001).
           The Mining Law of 1997 requires that mineral resource developers acquire
       prospecting, exploration and then mining licenses, in that order. The Law does not,
       however, specify how these licenses are granted. The process is not clear and
       transparent, and uncertainty concerning the licensing process raises the risk faced by
       private companies. Further, the process for the extension of mining licenses is also
       not fully and clearly articulated.
          In addition, a number of legal issues have arisen in the implementation of the Law.
       These include issues related to the valuation of minerals, the rights and
       responsibilities of foreign investors to develop mining operations after exploration, and
       the extent to which contractors or subcontractors can be brought to develop separate
       areas covered by a mining tenement (Senebouttalath and Pichit 2001).
          Under the Mining Law, the Government of the Lao PDR also has the option of
       taking an ownership interest in minerals projects in the country. In several instances,
       the Government has agreed to a 10-30% stake in mining operations of foreign
       investors. Government equity participation in minerals projects in the Lao PDR creates
       a conflict of interest as both regulator and shareholder, and places a strain on limited
       public resources.
    3. Licensing
          The Lao PDR has made good progress in establishing a ‘one-stop shop’ for foreign
       investment – the DDFI. However, in practice, obtaining prospecting, exploration and
       mining licenses in the Lao PDR can be a long and difficult process. There is also
       some confusion in the licensing process – about the role of the Department of
       Geology and Mines and the roles of provincial authorities, for example.
           Further, it can be difficult for prospective investors in the Lao PDR to access
       information on taxation and other rules applicable to minerals sector investments.
       Some confusion remains about whether Mineral Exploration and Production
       Agreements, such as those that were entered into by several investors prior to the
       enactment of the Mining Law of 1997, still apply, or whether these Agreements have
       been overtaken by the Mining Law (World Bank 2003). Uncertainty is also created by
       the fact that the general terms for investment in mining are negotiated on a case-by-
       case basis by the Government and foreign investors. Companies must ‘propose’
       financial terms of arrangement with the Government in applications for mining
       licenses.
          A requirement for regular extensions of gemstone mining licenses causes
       uncertainty, risks, costs and delays for private investors in gemstone mining.
       Gemstone producers in the Lao PDR, given their small size, face several issues
       including their ability to sell large enough quantities to overseas buyers, security of
       tenure, and strong competition in gemstone markets, particularly from Africa. There
       has been a temporary halt on new licenses for gold exploration and gemstone mining
       as the Government reviews recent experiences.
    4. Security of mining rights
           The Lao PDR provides a politically stable environment for investors. The
       international perception of the Lao PDR as a high-risk country for investment,
       particularly after problems related to gemstone mining in the Lao PDR several years
       ago, is declining. However, property rights for minerals sector investors are not as



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                                                    Enhancing ASEAN Minerals Trade and Investment



      secure as in some other countries. The involvement of the military in the minerals
      sector is a significant disincentive for private investors, both domestic and foreign, to
      invest in the sector in the Lao PDR. There have been instances of disputes between
      the military and private companies over land rights.
    5. Governance
         The capacity of the Government of the Lao PDR to manage the development of the
      minerals sector is constrained by a lack of resources, including human, technological
      and financial resources. Weaknesses have also been noted in the World Bank’s
      Public Sector Expenditure Review in relation to provincial management and
      distribution of resources (World Bank 2003).
    6. Financial system and human resources
          A number of mining companies operating in the Lao PDR have accessed debt
      financing from the domestic financial system. The major source of significant
      investment funds from the minerals sector is, however, foreign capital. The local
      capital market is weakly developed and not geared toward mobilising investments of
      the scale required for mining operations. Further, the Lao PDR also lacks an
      adequately skilled labour force in several key areas, including geology.
    7. Other issues
           Transport links within the country and to neighbouring countries, while improving,
      still restrain the minerals sector in the Lao PDR. Many prospective areas are remote
      and mountainous, and, consequently, both difficult and costly to access. The Lao PDR
      does not currently have a railway system, which is an impediment to trade. The
      landlocked nature of the Lao PDR reduces the attractiveness of trading in large
      volume, bulk commodities such as minerals. Further, prospective areas for minerals
      are often located in areas with significant problems with landmines and unexploded
      ordnance.


H. THE WAY FORWARD
    1. Improve regulatory certainty
          Importantly, the legal framework provided by the Mining Law of 1997 needs to be
      strengthened. One of the key weaknesses of the Law could be corrected by applying
      time limits on the time to process applications, and clear rules for permit issuance. The
      approval process should be clarified and documented, and accessibility of information
      on legislation and policy requirements in the mining sector improved. The drafting of a
      document outlining the approval process is required to build both regulator and
      investor confidence. To achieve this, key agencies should meet and confirm the
      process and the division of responsibilities. Accessibility of information on legislation,
      policy and guidelines relevant to environmental and social issues in the mining sector
      could be improved by the development of an information kit. Ultimately, this
      information could be made available through the internet (Boland, Kunanayagam and
      Walker 2001).
        Security of tenure could be improved by strengthening the obligations of the
      Government to issue a license in the event of a commercial discovery of resources,
      and also specifying the conditions under which a title can be revoked (World Bank
      2003).
    2. Minimise government involvement in minerals production
         In accordance with international best practice, the Government of the Lao PDR
      should concentrate on fulfilling its role as regulator and leave project ownership and



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           investment roles to the private sector (World Bank 2003). This would be in line with
           the Lao PDR’s pro-private sector stance.
         3. Improve governance and invest in capacity building
              Capacity building to strengthen the ability of the Government of the Lao PDR to
           regulate and manage the minerals sector is needed, particularly at the provincial level.
           More generally, there is a need to improve governance in order to enhance the
           effectiveness of regulations and ensure that the benefits from the sector are
           distributed and utilised effectively.
         4. Address land access issues
              In addition, the Lao PDR needs resources devoted to the development of a
           regulatory framework for allocating and securing property rights over land resources,
           and removing overlapping claims on these resources (World Bank 2003).


I.       CONSULTATION PROGRAM
    The consultation program in the Lao PDR was undertaken by Mekong Economics Ltd.
from 21-24 June 2005. Organisations and individuals consulted in the Lao PDR are listed in
Table 5.9.

                            Table 5.9: Consultation Program – the Lao PDR
     Name                       Position                              Organisation
     Lindsay Owler              Managing Director                     Argonaut Resources (Laos) Co. Ltd.
     Alistair Maclean           Ambassador                            Australian Embassy
     Richard Taylor             First Secretary                       Australian Embassy
     Vinay Inthavong            Chairman                              Bokeo Mining Co., Ltd.
     Dr. Simone Phichit         Director, Mining Concession           Department of Geology and Mines,
                                Management Division                   Ministry of Industry and Handicrafts
     Chansavath Boupha          Head, Geo-Mines Information           Department of Geology and Mines,
                                Centre                                Ministry of Industry and Handicrafts
     Souvath Sisoutham          Senior Geologist, Mining              Department of Geology and Mines,
                                Management Division                   Ministry of Industry and Handicrafts
     Vilayvong Bouddakham       Deputy Director General               Department for Promotion and
                                                                      Management of Domestic and Foreign
                                                                      Investment (DDFI), Committee for
                                                                      Planning and Investment
     Thamma Phetvixay           Director                              Department for Promotion and
                                                                      Management of Domestic and Foreign
                                                                      Investment (DDFI), Committee for
                                                                      Planning and Investment
     Bounphanh                  Deputy Director, Project Screening    Department for Promotion and
     Souvannavong               Division                              Management of Domestic and Foreign
                                                                      Investment (DDFI), Committee for
                                                                      Planning and Investment
     Vongvichet Nithiboun       General Director                      First Pacific Mining Lao Co., Ltd.
     Banthay Komphasouk         President                             Khamkeut Mining Limited
     Khamsouk Sundara           Advisor                               Lane Xang Minerals Group (Oxiana
                                                                      Limited)
     Saman Aneka                Director, Govt. Community Relations   Lane Xang Minerals Group (Oxiana
                                & HR                                  Limited)
     Vanthong Sitthikoune       Vice Chairman                         Lao Mining Association (LMA)
     Phutthasone Phomvisay      Deputy Chief, Foreign Relation        Lao National Chamber of Commerce and
                                Division                              Industry
     Sirisamphanh Vorachith     Deputy Director General, Office of    Ministry of Commerce
                                the Ministry
     -                          -                                     National Statistical Centre, Committee for
                                                                      Planning and Investment
     Morten Larson              Consultant, Energy and Mining         World Bank
     -                          -                                     World Bank Public Information Centre



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                                                     Enhancing ASEAN Minerals Trade and Investment



J. REFERENCES
Boland, N., Kunanayagam, R. and Walker, A. 2001. Lao PDR Mining Sector: Social and
      Environment Sustainability: Report of the World Bank Group Fact-Finding Mission.
      August.
Committee for Planning and Investment. 2005. March 2005 Newsletter. Department for
     Promotion and Management of Domestic and Foreign Investment. Vientiane.
Department of Geology and Mines. 2005. Website Text Accessed from Department of
      Geology and Mines (website inactive). Ministry of Industry and Handicrafts. Vientiane.
Department of Geology and Mines. 2004. Mineral Reserves in Lao PDR. Ministry of Industry
      and Handicrafts. Vientiane.
Department of Geology and Mines. 2003. Lao PDR Mineral Year Book. Ministry of Industry
      and Handicrafts. Vientiane.
Department for Promotion and Management of Domestic and Foreign Investment. 2005a.
      Approved FDI by Sector. Vientiane.
Department for Promotion and Management of Domestic and Foreign Investment. 2005b.
http://invest.laopdr.org/index.htm.
Ministry of Commerce. 2005. Export of Fiscal Year 2003-2004 by Countries of Destination
        and By Group of Products. Vientiane.
Ministry of Commerce. 2003. Trade Statistics.
        http://www1.mot.gov.vn/Laowebsite/News.asp?kind=0.
National Statistics Centre. 2005. Selected Statistics. http://www.nsc.gov.la/.
Oxiana Limited. 2005. Sustainability Report 2004 Summary. Melbourne.
Pan     Australian   Resources      Limited.     2005.     Phu     Bia           Gold      Project.
       http://www.panaustralian.com.au/html/current_projects/lao.htm.
Senebouttalath, C. and Pichit, S. 2001. ‘Current status of regulatory regime for the minerals
      sector in the Lao People’s Democratic Republic’, Policies, Regulatory Regimes and
      Management Practices for Investment Promotion and Sustainable Development of
      Mineral Resources Sector in Economies in Transition and Developing Countries of
      East and Southeast Asia. United Nations Economic and Social Commission for Asia
      and the Pacific. New York.
World Bank. 2005. World Development Indicators. http://publications.worldbank.org/WDI/.
World Bank. 2003. Lao PDR: Review of the Mining Sector for the Study on Future Sources of
      Growth. July.
Wu, J.C. 2003. ‘The Mineral Industries of Cambodia and Laos’. U.S. Geological Survey
      Minerals Yearbook – 2003. U.S. Geological Survey. Virginia.




10                                            REPSF Project 04/009b: Final Country Report – Lao PDR
Enhancing ASEAN Minerals Trade and Investment
– Malaysia

REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                           CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
LIST OF FIGURES................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 1
     C.   Minerals production .................................................................................................. 2
     D.   Minerals trade ............................................................................................................ 3
     E.   Investment in the minerals sector............................................................................ 4
     F.   Policy framework ....................................................................................................... 5
     G.   Key issues .................................................................................................................. 7
     H.   The way forward ........................................................................................................ 9
     I.   Consultation program ............................................................................................. 10
     J.   References ............................................................................................................... 11


                                                      LIST OF TABLES


     Table 6.1: Malaysia’s Indicative Mineral Reserves ....................................................... 1
     Table 6.2: Production of Key Minerals in Malaysia ...................................................... 3
     Table 6.3: Malaysia’s Exports and Imports of Key Minerals, 2004.............................. 4
     Table 6.4: FDI Flows to Malaysia by Sector, 1999–2003 .............................................. 5
     Table 6.5: Consultation Program – Malaysia .............................................................. 10


                                                     LIST OF FIGURES


     Figure 6.1: Key Metallic Mineral Production Trends, Malaysia, by Volume, 1984–
        2004............................................................................................................................. 2
     Figure 6.2: Production of Key Non-Metallic Minerals, Malaysia, 1994–2003.............. 3
     Figure 6.3: Malaysia’s Production and Trade of Mined and Refined Tin, 1984–2004 4




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ii                       REPSF Project 04/009b: Final Country Report – Malaysia
Enhancing ASEAN Minerals Trade and Investment



A. INTRODUCTION
     Malaysia, a federation of 13 states, has a long history of tin mining, which along with
rubber, was a pillar of its economy for much of the 19th and 20th centuries. However, with the
Government’s prioritisation of the manufacturing sector and the continuing decline of
Malaysia’s tin mining industry over the past two decades, the contribution of mining to the
national economy has fallen significantly. In 2004, the value of mined production, excluding
oil and natural gas, was around 0.9% of gross domestic product (GDP). When the oil and gas
sectors are included in industry valuations, the mining and quarrying industry contributes
around 7% of Malaysia’s GDP and employs around 30,000 persons, or 0.3% of the workforce
(Bank Negara Malaysia 2005; IMF 2005). Other factors that have hampered Malaysia’s
minerals sector in recent years include uncertainty surrounding the extent of Malaysia’s
mineral reserves, inconsistencies across state based regulatory regimes, growing pressures
over land resources and concerns over the environmental impacts of mining.


B. MINERAL RESOURCE BASE
     As extensive geological surveys have not been undertaken in Malaysia over the past
fifteen years, there is some uncertainty surrounding the extent of Malaysia’s mineral
reserves. However, according to the available data, Malaysia has relatively small known
reserves of metallic minerals but large reserves of non-metallic minerals. Malaysia’s metallic
mineral reserves are dominated by bauxite, nickel and iron, while ilmenite, copper, tin and
gold are also significant (Table 6.1). However, as these different metals have different values
per unit weight, Malaysia’s most important metallic mineral reserves, when taking potential
values into account are tin and iron ore, followed by copper and nickel. According to the US
Geological Survey, Malaysia is endowed with around 16% of world tin reserves, second only
to China (USGS 2005). Malaysia’s non-metallic mineral reserves consist mostly of marine
sand and limestone, which together comprise 45.5 billion tonnes of Malaysia’s non-metallic
mineral reserves.
    In 2004, mining and exploration leases covered around 0.3% of Malaysia’s land mass.
On Peninsular Malaysia, the majority of this exploration was undertaken jointly by the State
Economic Development Corporation and private companies aiming to identify potential sites
for gold mining. In Sabah, exploration was aimed at a broader range of minerals, including
coal, copper, gold, lead, chromium and nickel.

                       Table 6.1: Malaysia’s Indicative Mineral Reserves
                  Commodity                              Unit        Reserves
                  Metallic minerals
                  Tin                                     mt             0.92
                  Iron                                    mt             50.0
                  Copper                                  mt              0.8
                  Nickel ore                              mt             75.0
                  Bauxite                                 mt             18.0
                  Gold                                     t            106.0
                  Other metallic minerals                 mt              2.1
                  Non-metallic minerals
                  Marine sand                             mt          39,690.0
                  Limestone                               mt           6,850.0
                  Rock aggregates                         mt             980.1
                  Other non-metallic minerals             mt           1,510.5
                mt = million tonnes; t = tonnes.
                Source: MGD 2005a.




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                                                     Enhancing ASEAN Minerals Trade and Investment



C. MINERALS PRODUCTION
    For more than 100 years, the Malaysian mining industry was based around the
production and export of tin, mainly in the peninsular states of Pahang, Perak and Selangor.
Malaysia’s tin concentrate production reached a peak of 83,500 tonnes in 1940 and
decreased gradually to 76,800 tonnes in 1972 (MCM 2004). Malaysia’s tin mining output
dropped significantly to 28,500 tonnes in 1990, and more recently to 2,700 tonnes in 2004
(Table 6.2). Important factors that led to the dwindling in tin production include the gradual
depletion of Malaysia’s economic tin deposits, the closure of existing mines due to low tin
price, and the lack of new areas issued for mining development.
    The current structure of the mining industry is characterised by a small mining and
processing sector for metallic minerals, and a relatively large mining and processing sector
for non-metallic or industrial minerals. In contrast to the oil and gas sector that has a
substantial government stake, the non-energy minerals sector is largely owned and operated
by private companies incorporated in Malaysia.
    Tin mining is now second to gold as Malaysia’s most important metallic mining industry in
value terms. Other metallic minerals mined in Malaysia include iron ore and bauxite, while
Malaysia also produces a host of metallic minerals as a byproduct of tin mining. These
include struverite, ilmenite, zircon and rare earth minerals, such as xenotime and monazite
(MGD 2004). Other changes in Malaysia’s metallic mining industry since 1984 include the
cessation of copper mining in 1999, associated with the closure of the Mamut copper mine
and the significant reduction in bauxite mining, which fell from 680,400 tonnes in 1984 to
2,000 tonnes in 2004 (Figure 6.1). While the volume of iron ore produced in Malaysia has
more than doubled over the past decade, its value remains low relative to gold and tin (Table
6.2).

    Figure 6.1: Key Metallic Mineral Production Trends, Malaysia, by Volume, 1984–2004




Source: MGD 2004.



    The US$84.3 million generated by metallic mineral mining in Malaysia in 2004 was small
compared with the US$404.7 million produced by the non-metallic mineral mining sector
(Table 6.2) (MCM 2005). The non-metallic minerals sector is based around the quarrying of
rock aggregates, such as granite, limestone and sandstone that are used in concrete and
asphalt, mainly by the construction sector. Other important non-metallic minerals in Malaysia
are sand and gravel, clays, limestone and kaolin. With the exception of kaolin, that is used in
ceramics, paper and plastics, these minerals are mainly used in the form of cement, concrete
and bricks by the construction sector. Since 1994, Malaysia’s production of non-metallic
minerals has varied considerably (Figure 6.2). For example, production of rock aggregates
grew through the mid-1990s, reaching 95.4 million tonnes in 1996 before falling to 58.6



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million tonnes in 1999 as the Asian economic downturn reduced demand for construction
materials.

        Figure 6.2: Production of Key Non-Metallic Minerals, Malaysia, 1994–2003




Sources: MGD 2004; MCM 2005.


                       Table 6.2: Production of Key Minerals in Malaysia
                                                      Volume                   Value         Number of
                                                                                              operating
                                                                                                 mines
                                                  1994            2004a           2004a           2004
                                                     kt              kt       US$ million
       Metallic minerals
       Tin                                         6.5              2.7              23.0              30
       Goldb                                       4.1              4.2              50.2              11
       Iron ore                                  243.2           663.7                8.7               8
       Ilmenite                                  116.7            61.5                2.4               0
       Other metallic minerals                   189.5              9.0               0.1               2
       Total metallic minerals                   555.9           741.1               84.3              51
       Non-metallic minerals
       Rock aggregates                        80,257.0        73,006.0              250.2             321
       Sand and gravel                        20,378.0        18,371.0               51.2             877
       Clays                                  22,277.0        22,108.0               53.9           1,184
       Other non-metallic minerals            25,880.5        21,008.6               49.4              56
       Total non-metallic minerals           148,792.5       134,493.6              404.7           2,438
        a: Figures for rock aggregates and sand and gravel are preliminary; b: Volume for gold is in tonnes.
        kt = thousand tonnes.
        Sources: MGD 2004; MCM 2005.


D. MINERALS TRADE
     Reflecting the relatively small scale of mining in the country, Malaysia is a net importer of
metallic and non-metallic minerals. In 2004, Malaysia imported almost US$1.7 billion of these
minerals and earned around US$591 million from exports of minerals (Table 6.3). The
majority of this trade was in gold, which comprised US$310 million of exports and US$1.2
billion of imports.
    After gold, Malaysia’s major metallic mineral imports were tin and iron ore. In 2004,
Malaysia imported 26,900 tonnes of tin in concentrate for processing at its sole tin smelter,
the Malaysian Smelting Corporation Bhd. About half of this concentrate came from Indonesia
while about a quarter came from Zaire, South Africa and Rwanda. The tin smelter produced
about 28,900 tonnes of refined tin, making Malaysia the world’s fourth largest producer of
refined tin behind China, Indonesia and Peru (WBMS 2005). Combined with the sale of pre-



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                                                      Enhancing ASEAN Minerals Trade and Investment



existing refined tin stocks, this production enabled Malaysia to export 29,800 tonnes, mostly
to Japan, Singapore and the Republic of Korea, and to consume 4,700 tonnes, mainly in the
solder and tinplate sectors. These exports generated US$249.7 million in revenues in 2004.
     Because of the relatively low grade of its domestically mined iron ore, Malaysia’s steel
makers imported most of their iron ore requirements, which in 2004 amounted to around 2.2
million tonnes of iron ore. Brazil supplied almost half of this ore while most of the rest came
from Chile and Bahrain. The iron and steel industry absorbed about 90% of Malaysia’s
domestic iron ore production, while China purchased most of the remaining balance.

             Table 6.3: Malaysia’s Exports and Imports of Key Minerals, 2004
                                         Exports                         Imports
                                          kt     US$ million              kt     US$ million
       Tin                              29.8         249.7              26.9          260.5
       Golda                            29.4         310.6             119.4        1,226.2
       Iron ore                         64.2             6.8         2,303.0          154.5
       Ilmenite                         20.7             1.2           126.7           10.8
       Other metallic minerals          23.2             0.5             8.2             2.2
       Non-metallic minerals         1,046.5          22.1           2,661.4           45.0
       Total                         1,213.8         590.9           5,245.6        1,699.2
        a: In tonnes.
        kt = thousand tonnes.
        Source: MCM 2005.


   Malaysia’s trade balance for metallic mineral ores has changed considerably over the
past few years as a result of the decline in mine production. This is most notable for tin
production, where Malaysia’s imports of tin in concentrate have risen from around 12,500 in
1986, when mine production was 29,100 tonnes, to 26,900 tonnes in 2004, when mine
production was 2,700 tonnes (Figure 6.3). Over this period, Malaysia’s trade in copper ores
and concentrates has varied with production at the Mamut copper mine, which when in
operation exported all its copper, and as Malaysia’s only copper mine produced all of
Malaysia’s copper exports.

    Figure 6.3: Malaysia’s Production and Trade of Mined and Refined Tin, 1984–2004




Source: WBMS 2005.



E. INVESTMENT IN THE MINERALS SECTOR
   Investment in Malaysia’s minerals sector is geared primarily toward the mineral
processing industries. In 2004, capital investment approvals granted by the Malaysian
Industrial Development Authority for projects in the processing of non-metallic mineral



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Enhancing ASEAN Minerals Trade and Investment



products equalled US$203.9 million, while that for the processing of basic metal products
equalled US$507.5 million (MIDA 2005). The investment approved in these industries
comprised about 9.4% of the total investment approvals granted to the manufacturing sector
as a whole. Investment in the minerals processing sector exhibited a high degree of domestic
ownership, with local investors accounting for 51% of the investments approved for non-
metallic minerals processing and 86% of the investments approved for the processing of
basic metal products (MIDA 2005).
    In terms of foreign investment, the mining and quarrying sector (including oil and natural
gas) has attracted a significant share of the foreign direct investment (FDI) to Malaysia over
the past few years (Table 6.4). However, most of this investment has been in the oil and gas
sectors.
    Outside the oil and gas sectors, there has been limited foreign investment in Malaysia’s
minerals sector in recent years. Avocet Mining PLC, which since the early 1990s has
developed Malaysia’s largest gold mine at the Penjom site in Pahang, has been the only
foreign mining company to make significant investments in Malaysia’s metallic minerals
sector. In recent years, the company has been carrying out detailed exploration of the
Penjom site and has also begun exploring a second gold property covering an area of 5,600
hectares, also in Pahang state (Avocet Mining PLC 2004).
    In parallel with trends in investment generally, foreign investment flows have been more
prominent in the minerals processing sector. Recent developments in this sector include the
February 2005 agreement between the publicly listed Australian mining company, Grange
Resources Ltd, and the Road Builder Group to invest US$330 million to set up an iron ore
pellet plant in Kemaman, Terengganu. The proposed project involves the shipment of
magnetite concentrate from Australia to be converted into iron ore pellets, that will in turn be
fed to steel plants in the Asian region.

                    Table 6.4: FDI Flows to Malaysia by Sector, 1999–2003
Sector                             Unit        1999        2000      2001      2002        2003
Mining and quarryinga         US$ million      722.4       677.4    911.0    1,089.0       253.0
Manufacturing                 US$ million    1,946.3     1,462.6    423.9      897.0     1,355.0
Trade/commerce                US$ million           -          -        -          -       155.0
Financial intermediation      US$ million           -          -        -          -       762.0
and services
Other                         US$ million    1,226.4     1,647.6   (781.0)   1,217.4       (51.8)
Total                        US$ million     3,895.1     3,787.6     553.9   3,203.4     2,473.2
a: Includes oil and natural gas.
Note: negative numbers are enclosed in parentheses.
Source: ASEAN Secretariat 2004a.


F. POLICY FRAMEWORK
     The regulation of mining in Malaysia is largely underpinned by the fact that Malaysia’s
land resources are under state jurisdiction. Consequently, the states are responsible for
administering mining and exploration licenses within their state boundaries according to state
laws. The federal Government is responsible for the inspection of mining activities throughout
Malaysia, and for all aspects of exploration and mining activities taking place in Malaysia’s
territories and offshore areas. The federal Government also plays a key role in environmental
regulation in Malaysia through the Department of Environment, which administers the
Environmental Quality Act of 1974 (Amendments 1985 and 1996). However, because of the
states’ constitutional responsibility for land in Malaysia, state laws can take precedence over
federal environmental laws when the two sets of laws apply to the same issue (Tan 1998).




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                                                     Enhancing ASEAN Minerals Trade and Investment



    1. National mineral policy
          In an effort to promote the harmonisation and modernisation of state mining laws,
      the federal Government developed the National Mineral Policy in 1994. The policy
      outlines the principles that would underlie an attractive, efficient and stable minerals
      sector regulatory framework in Malaysia. It reaffirms the state governments as the
      owners of mineral resources occurring on state lands and confirms state responsibility
      for issuing exploration and mining licenses. It stipulates that the general policy of both
      state and federal governments will be that holders of an exploration license have the
      right of first refusal for a mining lease on land subject to the exploration license. It
      promotes the right of foreign investors to hold up to 100% equity in a mineral project –
      although it does reserve the right of state and federal governments to hold equity in
      key projects on a paid basis. Other features of Malaysia’s National Mineral Policy are
      that it recognises the mineral industry as a high priority land user in areas of land open
      for exploration and promotes a stable, transparent and competitive fiscal system for
      the minerals sector.
         To foster the implementation of the National Mineral Policy, two pieces of
      legislation were developed; the Mineral Development Act of 1994 and the State
      Mineral Enactment (SME). The Mineral Development Act of 1994 details the
      procedures associated with federal Government regulation of mine sites in Malaysia
      while the SME is a template for state governments to follow in drafting state mining
      legislation that is consistent with the National Mineral Policy. To date, six states,
      namely Selangor, Kelantan, Negeri Sembilan, Johor, Kedah and Melaka, have
      adopted the SME.
    2. Fiscal regime
         According to the Minerals and Geoscience Department Malaysia, the major feature
      of Malaysia’s fiscal regime applicable to the mining sector is the corporate income tax,
      which is levied at 28% of profits (MGD 2005b). In addition, some states impose value
      based royalties on the production of gold and tin and area based premiums or rental
      fees on land used for mining (MGD 2005b). For example, the Pahang state
      government requires gold mining companies to pay an ad valorem tax of 5% on the
      value of their gold production. In addition, these companies are also subject to the
      payment of a tribute to the state government equivalent to 2% of the value of their gold
      production.
          Another feature of Malaysia’s fiscal policy that has an impact on the mining sector
      is the incentives available to selected priority industries, as part of the Government’s
      economic development program. These incentives are generally available for
      investments in the manufacturing, agriculture, tourism and approved services sectors
      (ASEAN Secretariat 2004b), particularly if located along the eastern corridor states of
      Peninsular Malaysia, and in the states of Sabah and Sarawak. Of particular relevance
      to the mining sector is the eligibility of non-metallic minerals processing and basic
      metals processing sectors for the incentive schemes.
          The two main schemes available for promoting investments are ‘Pioneer Status’,
      which allows firms to pay corporate income taxes on only 30% of statutory income and
      ‘Investment Tax Allowance’, which allows firms to use 60% of qualifying capital
      expenditure incurred within the first five years of operation to offset up to 70% of their
      statutory income tax liability each year (ASEAN Secretariat 2004b). Other incentives
      that can be considered for priority industries are the exemptions on import duty and
      sales tax on machinery and equipment, and exemptions on import duty for raw
      materials (ASEAN Secretariat 2004b).




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Enhancing ASEAN Minerals Trade and Investment



    3. Environmental Quality Act 1974
           The federal Government also administers the Environmental Quality Act of 1974,
       which requires mineral enterprises to be subject to an environmental impact
       assessment. The Act also empowers the Minister responsible for environmental
       protection to specify the acceptable conditions for, and in some cases prohibit, the
       release of environmentally hazardous substances in any area of Malaysia. Enterprises
       or individuals seeking to release environmentally hazardous substances beyond these
       levels must obtain a license to do so from the Director General of Environmental
       Quality.


G. KEY ISSUES
    1. Lack of competitive neutrality
          In parallel with the decline of the tin industry resulting from depleting reserves and
       low tin prices, the importance of the Malaysian mineral industry has diminished over
       the past fifteen years. At the national policy level, the industry has languished as a low
       priority sector, overshadowed by the Government’s strong policy drive toward the
       development of the manufacturing sector, and the emphasis on oil and gas sectors.
          Consistent with the country’s economic agenda to support the development of
       industrial activities, the federal Government provides both direct and indirect
       incentives to attract investment in industrial and related sectors. The minerals sector is
       affected only to the extent that the incentives are available for minerals processing.
       The lack of a level playing field places the mining sector at a disadvantage relative to
       other sectors. Within the mining sector itself, there is a clear policy focus on value
       adding of non-metallic minerals such as silica sand, limestone and clay, as opposed to
       the development of metallic minerals. Processed non-metallic minerals are considered
       to provide key inputs to domestic manufacturing industries such as ceramics, and to
       the construction industry.
          The low priority given to the metallic minerals sector is also apparent at the state
       level. With all land resources vested in the authority of state governments, land use
       management is also a state matter. As Malaysia continues to develop, growing
       competition over land use is becoming a major issue. In many states, the tradeoffs
       across competing land uses such as housing, tourism, infrastructure development and
       mining are often resolved in favour of non-mining sectors, where the payoffs are more
       immediate, the benefits more tangible, and the environmental issues less evident.
       Further, states’ decisions on land management tend to reflect the interest of the state
       without taking into account the potential flow-on benefits of mining to the rest of the
       economy.
    2. Poor geological information
          As presented above, Malaysia is endowed with a wide range of metallic and non-
       metallic minerals. The prospects for metallic minerals appear to be particularly high in
       Sabah and Sarawak, areas that are relatively unexplored. In Peninsular Malaysia,
       areas with gold potential are located in the states of Pahang, Kelantan, Teregganu
       and Johor.
          While areas with potential mineral resources have been identified by the Minerals
       and Geoscience Department through geochemical surveys, information on reserves is
       incomplete and out of date. No drilling of core samples of mineral deposits has taken
       place over the past fifteen years.
          The public provision of basic geoscientific information provides private companies
       with more reliable information than would otherwise be available to make investment



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                                                    Enhancing ASEAN Minerals Trade and Investment



      decisions, and hence reduces private exploration costs and risks. The lack of reliable
      geoscientific information in Malaysia contributes to increasing the uncertainty
      associated with discovery and is a disincentive to private exploration investment.


    3. Fragmented regulatory framework
         Considerable effort has been made at the federal level to formulate a National
      Mineral Policy encompassing a template for mineral development at the state level
      through the SME. However, the regulatory framework affecting the minerals sector in
      Malaysia remains highly fragmented. To date, only six states namely Selangor,
      Kelantan, Negeri Sembilan, Johor, Kedah and Melaka, have adopted the SME,
      formulated in 1998. Further, the degree of implementation remains variable.
      Consequently, the regulatory framework varies significantly across the 13 states in
      terms of application procedures, title management systems and applicable royalties.
      Inconsistent regulatory regimes impose an additional cost on potential investors and,
      as such, hinder exploration and mineral development.
         The SME was designed to promote a harmonised and efficient institutional
      framework, and transparent guidelines for the development of the minerals sector. The
      lack of conformity with the SME implies that issues associated with transparency,
      security of tenure and consistency continue to pervade the sector.
         The current system is characterised by uncertain and slow processes for the
      granting of exploration licenses, with decisions perceived as arbitrary and inconsistent.
      There are also major issues associated with security of tenure. Existing state laws
      covering exploration and mineral development provide no guarantees that a company
      investing in mineral exploration will be given the first right of refusal to mine any
      economic deposits found. In addition, the lease period for mineral development is
      often short relative to the economic life of the reserve of mineral deposits, with
      possible renewal not always a feature of these licences. Where renewal is allowed,
      the process is often ad hoc, piecemeal and lengthy. In some cases, the size of
      tenements is also small, requiring investors to negotiate with a number of land owners
      to secure a block large enough to undertake exploration. These issues can be
      expected to have a negative impact on investment in the mining sector, given the high
      capital intensity, long lead time and high risks involved.
    4. Environmental issues
          Related to the low priority accorded the minerals sector is the general perception
      that mining is not compatible with environmental protection. This view is a legacy from
      past experience, where environmental degradation and abandoned mines were often
      associated with tin mining. Even though there are examples of relinquished mining
      land that has been successfully rehabilitated as in the case of the Mines Resort in
      Kuala Lumpur this anti-mining sentiment reinforces the perception that the minerals
      sector is an industry of the past. Against this background, investors face significant
      difficulties in convincing approving authorities that responsible mining can be
      undertaken with the adoption of best practice methods.
         The scepticism of environmental non-government organisations and approving
      authorities is not helped by the fact that, while the Minerals and Geoscience
      Department strongly encourages the rehabilitation of mine sites, the requirement to
      rehabilitate is not currently incorporated in any regulation.




8                                            REPSF Project 04/009b: Final Country Report – Malaysia
Enhancing ASEAN Minerals Trade and Investment



H. THE WAY FORWARD
    1. Restore competitive neutrality
          In the context of Malaysia’s highly industrialised economic structure, it is likely that
       the minerals sector will remain secondary to other sectors, such as the manufacturing
       sector, in terms of its direct contribution to GDP. However, the minerals sector
       underpins many of Malaysia’s sophisticated developments in construction,
       manufacturing and services, and, therefore, has the potential to make a significant
       contribution to economic growth indirectly. In addition, development of the minerals
       sector provides a diversified approach to economic growth in Malaysia as the
       manufacturing sector faces increasing competitive pressures from lower cost
       producers such as China. Malaysia is also well placed to play a broader role within the
       ASEAN region by providing minerals rich countries with access to significant capital
       resources, advanced infrastructure and industry expertise.
           The way forward for the industry needs to involve a multifaceted strategy designed
       to reposition the minerals sector on the government’s agenda at the both the federal
       and state levels. A levelling of the playing field is required relative to other sectors, and
       also within the sector, between metallic and non-metallic minerals. In particular, the
       bias against the minerals sector in terms of investment incentives needs to be
       removed.
          Such a repositioning is unlikely to occur without a targeted education program to
       enhance the profile of the sector in terms of its potential economic spillover benefits
       and environmental performance. The private sector has a key role to play in promoting
       stakeholder engagement at all stages of project development, and delivering on
       outcomes that are consistent with the concept of environmentally and socially
       responsible mining.
    2. Increase the provision of basic geoscientific data
          Issues arising from the lack of reliable basic geoscientific information also deserve
       some attention. The provision of new geoscientific information to support mineral
       exploration should be pursued in order to secure the long term viability of the mineral
       industry in Malaysia. While there is a role for governments in the provision of basic
       geoscientific information, limited government resources create the need for
       partnerships with industry, academia and community organisations to be explored.
       Such partnerships could also provide the support for research programs designed to
       add to Malaysia’s mineral reserves by developing ways of finding new ores and
       extracting currently uneconomic resources, in a sustainable manner.
    3. Enhance coordination between federal and state governments
           The current plethora of regulatory regimes across states is a major impediment to
       private sector investment in Malaysia and this issue needs to be addressed in order to
       provide a consistent, transparent and efficient regulatory framework. In this context,
       better policy coordination is required between federal and state government agencies,
       and across states. Areas where consistency across governments would be particularly
       beneficial for attracting investment in the minerals sector include the processes for
       obtaining exploration and mining licences, security of tenure, the approach to
       resolving land access issues, and the imposition of royalties and other fees. In this
       context, a strong commitment to the SME at the state level would be a major step
       forward in achieving a high level of harmonisation across states’ regulatory regimes.
           The economic sectors associated with mineral development are often isolated
       geographically and technologically from the rest of the economy. Further, the minerals
       sector is capital intensive, requiring substantial investment commitment from the
       private sector. As a result of these factors, the development of the minerals sector in
       Malaysia is unlikely to occur automatically and requires effective policy development


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                                                            Enhancing ASEAN Minerals Trade and Investment



       to support growth of the sector. The extent to which this policy support is provided will
       depend on the political resolve at the federal and state levels to embrace what could
       potentially be a revival of the Malaysian minerals sector.


I.   CONSULTATION PROGRAM
   The consultation program in Malaysia was conducted by ABARE from 20-23 June 2005.
Organisations and individuals consulted in Malaysia are listed in Table 6.5.

                          Table 6.5: Consultation Program – Malaysia
Name                       Position                                Organisation
James Wise                 High Commissioner                       Australian High Commission
Tom Yates                  Senior Trade Commissioner               Australian High Commission
Andrew Mitchell            First Secretary                         Australian High Commission
Eric Vesel                 Regional Manager, South-East Asia       Avocet Gold
Norhayati Mohamad Yusof    Principal Assistant Director            Department of Environment
Dasuki Loo Abdullah        Environment Control Officer             Department of Environment
Peter Binsted              Managing Director                       MacMahon
Muhamad Nor Muhamad        Executive Director                      Malaysian Chamber of Mines
Ir. Abdul Rahman           Member                                  Malaysian Chamber of Mines
Hj. Jaafar b. Chik         Member                                  Malaysian Chamber of Mines
Danny Hor                  Member                                  Malaysian Chamber of Mines (and Senior
                                                                   General Manager, Rahman Hydraulic Tin)
Fuziyah Abd. Wahab         Director, Textile and Mineral           MIDA (Malaysian Industrial Development
                           Industries Division                     Authority)
Yunus Abdul Razak          Acting Director General                 Minerals and Geoscience Department
Mustapha Mohd Lip          Deputy Director General, Operations     Minerals and Geoscience Department
Hamadi Che Harun           Director, Mineral Economics             Minerals and Geoscience Department
Rohimi Che Wan             Deputy Director, Mineral Economics      Minerals and Geoscience Department
Zulkipli Che Kasim         Principal Assistant Director, Mineral   Minerals and Geoscience Department
                           Economics
Kamal Daril                Principal Assistant Director, Mineral   Minerals and Geoscience Department
                           Economics
Mohd Za’im Abd. Wahab      Principal Assistant Director, Mineral   Minerals and Geoscience Department
                           Economics
Ir. DZulkarnain            Director, Minerals Research Centre      Minerals and Geoscience Department
Kamaruzzaman
Zulkifly Abu Bakar         Director, State of Pahang               Minerals and Geoscience Department
Azemi Hj. Eki              Geologist                               Minerals and Geoscience Department
Husein Juni                Geologist                               Minerals and Geoscience Department
Mohamad Yusof Sulaiman     Geologist                               Minerals and Geoscience Department
Salmiah Nawi               Mines Officer                           Minerals and Geoscience Department
Badaruddin Mahyuddin       Principal Assistant Secretary,          Ministry of Natural Resources and
                           Minerals and Geoscience Division        Environment
William Ng                 Director                                Rio Tinto (Malaysia)
Saidin Karim               Research officer                        SIRIM Berhad
Doll Said Ngah             Research officer                        SIRIM Berhad




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Enhancing ASEAN Minerals Trade and Investment



J. REFERENCES
ASEAN Secretariat. 2004a. Statistics of Foreign Direct Investment in ASEAN - Sixth Edition.
     Jakarta.
ASEAN Secretariat. 2004b. Guide Book for Investing in ASEAN: Update 2004. Jakarta.
Avocet Mining PLC. 2004. Avocet Mining PLC Annual Report and Accounts 2004. London.
Bank Negara Malaysia. 2005. Monthly Statistical Bulletin May 2005. Kuala Lumpur.
IMF (International Monetary Fund). 2005. Malaysia: Statistical Appendix. Washington, D.C.
MCM (Malaysian Chamber of Mines). 2005. Malaysian Chamber of Mines Annual Report
     2004. Kuala Lumpur.
MCM. 2004. Malaysian Chamber of Mines Yearbook 2003/4. Kuala Lumpur.
MGD (Minerals and Geoscience Department Malaysia). 2005a (unpublished). Summary of
     Known Mineral Reserves in Malaysia (January 2005).
MGD. 2005b. Fiscal Regimes.
      http://www.jmg.gov.my/files/MALAYSIA&ASEAN/FiscalRegimes.htm.
MGD. 2004. Malaysian Minerals Yearbook 2003. Kuala Lumpur.
MIDA (Malaysian Industrial Development Authority). 2005. Performance of Manufacturing
      and Related Services Sectors 2004. Kuala Lumpur.
Tan, A. K. J. 1998. Preliminary Assessment of Malaysia’s Environmental Law. Faculty of
       Law. National University of Singapore.
       http://sunsite.nus.edu.sg/apcel/dbase/malaysia/reportma.html#sec5.1.
USGS (United States Geological Survey). 2005. Tin: Mineral Commodity Summaries,
     January 2005. Virginia.
WBMS (World Bureau of Metal Statistics). 2005. World Metal Statistics. Volume 58, No. 4,
    April. Ware. England.




REPSF Project 04/009b: Final Country Report – Malaysia                                   11
Enhancing ASEAN Minerals Trade and Investment
– Myanmar

REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                          CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
LIST OF FIGURES................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 2
     C.   Minerals production .................................................................................................. 2
     D.   Minerals trade ............................................................................................................ 4
     E.   Investment in the minerals sector............................................................................ 4
     F.   Policy framework ....................................................................................................... 6
     G.   Key issues .................................................................................................................. 8
     H.   The way forward ...................................................................................................... 10
     I.   Consultation program ............................................................................................. 11
     J.   References ............................................................................................................... 12


                                                     LIST OF TABLES


     Table 7.1: Share of Mining in Myanmar’s GDP, by Fiscal Year ................................... 1
     Table 7.2: Employment in Metallic Mineral Mines, Myanmar, 1980–2001................... 2
     Table 7.3: Production of Key Minerals in Myanmar, by Fiscal Year ........................... 3
     Table 7.4: Exports of Mineral Commodities, Myanmar, by Fiscal Year ...................... 4
     Table 7.5: Investment Flows in Myanmar’s Minerals Sector, by Fiscal Year ............. 5
     Table 7.6: Number of Mines, Myanmar, 1980–2001 ...................................................... 5
     Table 7.7: Major Types of Mining Tenements in Myanmar .......................................... 7
     Table 7.8: Consultation Program – Myanmar ............................................................. 11


                                                     LIST OF FIGURES


     Figure 7.1: Key Minerals Production Trends, Myanmar, by Volume, 1995–2001 ...... 3




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                           Enhancing ASEAN Minerals Trade and Investment




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ii                  REPSF Project 04/009b: Final Country Report – Myanmar
   Enhancing ASEAN Minerals Trade and Investment



   A. INTRODUCTION
       The Union of Myanmar (Myanmar) has extensive mineral resources and a centuries-old
   history of mining – particularly of gemstones, but also gold, zinc, lead, iron, copper, tin and
   tungsten (United Nations 1997). Mining of precious minerals in Myanmar dates back as far as
   the second century B.C. (Ministry of Mines 2004). Excellent potential exists for further mineral
   discoveries in the country. Significant investment and trade impediments currently restrict the
   development of the minerals sector in Myanmar. These impediments include restrictive
   minerals, investment and trade policies, cumbersome licensing and approval procedures,
   weak infrastructure and poor governance.
       The minerals sector makes up only a small share of Myanmar’s economy (Table 7.1). In
   fiscal year 2001-02, the most recent year for which data are available, mining contributed
   0.3% of gross domestic product (GDP) in an economy that is dominated largely by
   agricultural production. The importance of mining to Myanmar’s economy has remained
   largely unchanged since 1990 (Central Statistical Organisation 2002).


                       Table 7.1: Share of Mining in Myanmar’s GDP, by Fiscal Year
              Unit       1990-91   1995-96      1996-97     1997-98      1998-99     1999-00      2000-01     2001-02a
                MK
Mining
             billion         0.6        2.6          4.2         5.2          5.7         7.6         10.2           10.4
sector
              US$
production
             million        90.9      457.9       723.7        843.3       913.3      1,218.9      1,586.4     1,562.0
                MK
             billion       151.9      604.7       792.0      1,119.5      1,609.8     2,190.3      2,552.7     3,523.5
GDP
              US$
             million   24,211.7 107,783.1 135,129.0 181,038.0 256,585.1 351,952.0 397,268.0 527,151.1
Share of          %          0.4          0.4       0.5           0.5           0.4         0.3         0.4         0.3
GDP
   a: Figures for 2001-02 are preliminary.
   Note: The data are reported in both Myanmar kyat and US$. The figures in US$ were calculated using the official
   exchange rate sourced from World Bank 2005. The values in US$ are not reflective of the actual value of
   production in Myanmar. For 2001-02, using an estimated unofficial exchange rate of 700 kyat/US$, the value of
   minerals production was a more realistic US$14.9 million. The unofficial exchange rate estimate was sourced from
   United Nations 2002.
   Source: Central Statistical Organisation 2002.


       The total number of persons employed in the mining industry in Myanmar in 1999 was
   121,000, up from 101,700 in 1990 (Wu 1999, Central Statistical Organisation 2002).
   Employment in Myanmar’s metallic minerals sector has declined in recent decades (Table
   7.2). In 1980, 16,826 persons were employed in metallic mineral mines in Myanmar. This
   number had fallen to 7,176 – a reduction of 57% - by 2001. The majority of employment in
   metallic minerals mines in Myanmar has been in surface mines. In 2001, 5,515 persons were
   reported to work in surface mines, 1,063 in underground mines, and 598 in “open working”
   mines (Central Statistical Organisation 2002). Many persons are also employed in informal
   mining activities in Myanmar. It is estimated that 20,000 persons are employed in artisanal
   gold mining (Mra 2002).
      While the minerals sector in Myanmar is relatively small in terms of its contribution to
   GDP and employment, it is an important revenue earner for the Government. In 2000, the
   Myanmar Gems, Jade and Pearls Emporium, a trade fair designed to attract buyers from a
   wide range of countries, generated almost US$40 million in government revenues. The
   emporium has been held at least annually since 1964. The Ministry of Mines (2004) also
   reported that, during the fiscal year 1999-00, US$729,878 was collected in mineral royalties
   and so-called “dead rents” on land leasing for minerals development.




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                                                                Enhancing ASEAN Minerals Trade and Investment



           Table 7.2: Employment in Metallic Mineral Mines, Myanmar, 1980–2001
Year              1980       1985      1990     1995        1996     1997      1998     1999    2000     2001
Employment      16,826      26,991    14,717    13,930      13,820   12,665    10,915   7,743   7,530     7,176
Source: Central Statistical Organisation 2002



   The largest mine in Myanmar is the Monywa copper mine, operated by Myanmar Ivanhoe
Copper Company Limited (MICCL), a 50-50 joint venture between Ivanhoe Myanmar
Holdings Limited of Canada and the state-owned No. 1 Mining Enterprise. The Monywa mine
and plant provide significant economic benefits to Myanmar, including direct jobs for around
1,000 persons and indirect jobs for thousands of others (MICCL 2002).


B. MINERAL RESOURCE BASE
    Myanmar is rich in mineral resources. The country’s mineral resources include copper,
lead, tin, tungsten, zinc, gold, gemstones and other precious stones. The country has the
highest quality rubies and jade in the world (United Nations 1997). Myanmar has world class
deposits of lead-zinc-silver (Bawdwin mine), tin-tungsten (Mawchi mine), fine rubies and
sapphires (Mogok Stone Tract) and jade (United Nations 1997). The total resource of the
Monywa copper mine may exceed 2 billion tonnes of ore, giving an estimated mine life of
more than 30 years (Ivanhoe Mines Ltd. 2001).
    Despite Myanmar’s mineral wealth, the nation’s mineral resources remain relatively
under-explored. While 86% of the country has been geologically mapped, this mapping, and
exploration, has not been particularly detailed as a result of poor equipment and a lack of
secure access to parts of the country (Moody 1999). The border regions, in particular, are not
well explored. For these reasons, the exact magnitude of mineral reserves in Myanmar
remains undetermined.
    During British colonial rule, geological mapping in Myanmar was carried out by the Burma
Geological Department. Since independence in 1947, the Government, private companies
and several other institutions have carried out geological mapping in Myanmar (United
Nations 1997). The Department of Geological Survey and Mineral Exploration is the body
currently responsible for geological activities in the country.


C. MINERALS PRODUCTION
     The main minerals produced in Myanmar include copper, zinc, lead, tin, tungsten, gold
and precious stones. Production of many of the key metallic minerals has declined in
Myanmar over the past decades. Lead production was 14,100 tonnes in 1962-63 (Thein
2004) and had fallen to 800 tonnes by 2001-02 (Central Statistical Organisation 2002)
(Figure 7.1). The downward trend in minerals production reflects to a large extent the
Government’s restrictive policies toward the minerals sector, and capital constraints faced by
enterprises operating in the sector. It is argued by Thein (2004) that the isolationist self-
reliant policy of the socialist period in Myanmar did significant harm to the minerals sector
because of the lack of access to external capital during this time.
    Table 7.3 presents the production of key minerals in Myanmar for the period 1980-2002.
More recent data on minerals production are not available. In contrast to metallic minerals,
there has been a significant increase in the production of precious minerals, including
gemstones and gold, since the move toward private participation in Myanmar’s minerals
sector in the late 1980s.




2                                                        REPSF Project 04/009b: Final Country Report – Myanmar
Enhancing ASEAN Minerals Trade and Investment



      Figure 7.1: Key Minerals Production Trends, Myanmar, by Volume, 1995–2001




                 Note: Copper production is not included in this graph because of poor data.
                 Source: Central Statistical Organisation 2002.

              Table 7.3: Production of Key Minerals in Myanmar, by Fiscal Year
Mineral                              Unit    1980-81      1985-86    1990-91      1995-96      2000-01   2001-02
Metals and ores
Copper matte                           t          270          142       108          263          125       50
Nickel speiss                          t          142           54        98           83           60       23
Antimonial lead                        t          279          294       110           88          117       40
Refined lead                           t       6,592         5,807     1,562        2,074        1,200      810
Zinc concentrates                      t       7,104         8,403     3,820        1,704        1,960      620
Tin concentrates                       t          755          892       272          490          244      250
Tungsten concentrates                  t          636          338        13          144            -        1
Mixed tin, tungsten & scheelite        t       2,355          2966     1,155        1,106          265      152
Copper concentratesa                   t             -     36,015     30,033       27,856            -        -
Precious Minerals
Jade                                   t            28          43       239        1,943       11,096     8,174
Gemstones                           ‘000 ct         78          86       294       12,881       48,676    45,442
Refined silver                     ‘000 oz        428          422       123          142           65        43
Refined gold                       Fine oz           -         830         -        3,106        3,619     4,225
a: Official copper production for 1998-99 onwards has not been published.
Fine oz = fine ounces; ‘000 ct = thousand carats; ‘000 oz = thousand ounces; t = tonnes.
Source: Central Statistical Organisation 2002.


    The structure of the mining sector in Myanmar is mixed with large scale mines, such as
the MICCL’s Monywa open-cut copper mine, co-existing with a number of local and small
scale mining operations. The initial design capacity of Monywa copper mine was 25,000
tonnes of copper annually (MICCL 2002). Capacity of the Monywa mine has increased to
39,000 tonnes a year in 2005. The Bawdwin mine, in northern Shan state, was the richest
silver mine in the world for a period during the 1930s (United Nations 1997). Currently, the
mine produces lead, zinc and silver, and is operated by the state-owned No. 1 Mining
Enterprise (Ministry of Mines 2004). Many domestic mining operations in Myanmar, for
example tin and tungsten mines, are relatively small in scale.
   Limited minerals processing is undertaken in Myanmar. The country’s largest mining
company, MICCL, processes copper concentrates into sheets. Tin concentrates are
processed at a tin smelter near Yangon (United Nations 1997). Further, some processing of
gemstones into jewellery is carried out within Myanmar. However, a more significant share of
Myanmar sourced gemstones is processed in Thailand. Myanmar also has a small steel
producing capacity.




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                                                                 Enhancing ASEAN Minerals Trade and Investment



D. MINERALS TRADE
     According to official statistics, Myanmar’s external sector contributes 2-3% of GDP.
However, official statistics underestimate the situation because of valuation through the
official exchange rate and the significant amount of unrecorded border trade (Thein 2004).
    In 2001-02, the minerals sector accounted for 2% of the total value of Myanmar’s exports,
compared with 9% in 1980-81. This decrease in the importance of minerals exports reflects
the sluggish minerals sector in Myanmar, and faster growth in garments and other export
oriented industries (Thein 2004).
    In volume terms, exports of base metals and ores increased from 16,000 tonnes in 1980-
81 to 42,000 tonnes by 2001-02 (Table 7.4). Copper, gemstones, gold, antimonial lead and
nickel are produced primarily for export, while other minerals mined in Myanmar are mostly
consumed domestically (Fong-Sam 2002).
    The main destinations for Myanmar minerals exports include Japan, China and other
ASEAN nations (United Nations 1996). The importance of ASEAN nations for Myanmar
exports fell significantly after the Asian financial downturn, and exports have been
increasingly oriented toward China (Thein 2004). Copper is exported primarily to Japan.
    Sales of gemstones and other precious stones in Myanmar are carried out through
biannual emporiums and gem trading centres, as well as by private license holders. The
competitive bidding emporiums are attended by dealers from many countries. Significant
quantities of Myanmar’s gemstones are exported to Thailand, through both legal and illegal
channels.
   Myanmar imports iron and steel to meet domestic demand (Myanmar Inter Safe Co., Ltd.
2005). Imports of base metals and manufactures in 2001-02 were equal to MK1.4 billion, or
US$231 million at the official exchange rate (Central Statistical Organisation 2002).

            Table 7.4: Exports of Mineral Commodities, Myanmar, by Fiscal Year
Commodity                        Unit       1980-81      1985-86      1990-91      1995-96     2000-01   2001-02a
Metallic minerals                     kt         16           30           33           34          37         42
                            US$ million        29.1         13.6         11.5         12.5        50.4       43.1
Precious and semi-
precious mineralsb           US$ million         16.1          8.8          13.7        24.4      56.5       19.0
Total mineralsc             US$ million          45.1         22.4          25.2        36.9     106.9       62.1
Share of total                        %           9.1          7.1           5.3         4.1       5.4        2.4
exports
a: Figures for 2001-02 are preliminary; b: Includes silver and pearls; c: Includes pearls.
kt = thousand tonnes.
Source: Central Statistical Organisation 2002.



E. INVESTMENT IN THE MINERALS SECTOR
    After Myanmar’s independence, the Government entered into joint ventures with British
companies to carry out commercial minerals activities in the country. However, during the
1960s, all private companies were nationalised and mining was predominantly carried out by
the State (Win 1996).
     Following the implementation of the relatively liberal Foreign Investment Law in 1988,
foreign direct investment (FDI) started to flow into Myanmar, including to the minerals sector.
In 1996-97, Myanmar’s minerals sector received MK1.1 billion (US$178 million) of FDI
inflows (Table 7.5). Since the onset of the Asian financial downturn in 1997, however, FDI
inflows into Myanmar across all sectors have practically ceased. This is partly because
ASEAN Member Countries had been significant investors in Myanmar, but also because of
the realisation of the difficulties of operating in Myanmar and the lack of progress in the
reform process in the country (Thein 2004). By 1997-98, minerals sector FDI had fallen to


4                                                       REPSF Project 04/009b: Final Country Report – Myanmar
 Enhancing ASEAN Minerals Trade and Investment



 MK20 million (US$3 million). FDI inflows to the minerals sector picked up in 1999-00, but
 have since fallen to negligible levels. The fourth round of bidding for mining licenses run by
 the Ministry of Mines in 1999 was judged widely as a failure after only one license was
 awarded.

         Table 7.5: Investment Flows in Myanmar’s Minerals Sector, by Fiscal Year
                          1990-91 1995-96 1996-97           1997-98      1998-99     1999-00   2000-01      2001-02a
Domestic investment
(US$ million)                  3.1       28.1     0.2           0.0            0.0       0.0          0.0         0.0
Foreign investment
(US$ million)                 55.1      155.8   178.3           3.3            4.9      16.0          1.1         0.0
Total investment
(US$ million)                 58.2      183.8   178.5           3.3            4.9      16.0          1.1         0.0
Share of minerals
sector investment
(% of total
investment)                     17         25       6               0           8         27           0             0
Number of enterprises
making investments in
minerals sector during
the year                         4         15      15               1           4          2           2             0
 a: Data for recent years are preliminary.
 Source: Central Statistical Organisation 2002.

    By 2002, the only foreign mineral exploration companies active in Myanmar were Ivanhoe
 Myanmar Holding Ltd., a subsidiary of Ivanhoe Mines Ltd. of Canada, and Cornerstone
 Resources Ltd. of Australia (Fong-Sam 2002). During the late 1990s, a number of major
 mining companies withdrew from Myanmar. In 1997, Britain’s Rio Tinto announced that it
 would not invest in Myanmar on “human rights” grounds (Moody 1999).
     The largest foreign-invested project in the minerals sector in Myanmar is the Monywa
 copper mine. The Canadian company Ivanhoe Mines Ltd. reported that, by the end of 2000,
 the company had invested a total of US$60 million in Myanmar. Japanese investors provided
 an additional US$90 million to finance construction of the first phase of the project (Ivanhoe
 Mines Ltd. 2002).
     Additional foreign investment in Myanmar’s minerals sector has come from Australia,
 China, Singapore, Thailand and other countries, but has been on a smaller scale. The
 involvement of ASEAN investors in Myanmar’s minerals sector included a 1995 joint venture
 between the state-owned No. 2 Mining Enterprise and Sum Cheong Resources of Singapore
 to develop a gold mine (United Nations 1997). China has shown increasing interest in
 Myanmar’s resources sector.
     The Ministry of Mines (2004) reports that 43 large-scale mining permits, 165 small-scale
 mining permits and 1,320 subsistence mining permits have been issued in Myanmar. An area
 of 2,426 square kilometres is “utilised for mining operations”. Many of these licenses are
 currently inactive.
     The number of mines in Myanmar declined from 148 to 21 between 1980 and 2001, or by
 86% (Table 7.6). The majority of mines were reported to be in the Mandalay division and
 Shan state (Central Statistical Organisation 2002). A significant amount of informal mining
 and Myanmar’s weak statistical reporting capacity imply that these data may not be reflective
 of the actual situation.
                        Table 7.6: Number of Mines, Myanmar, 1980–2001
        Type              1980 1985 1990 1995                1996       1997    1998    1999   2000      2001
        Metallic           110       110       31     20       18         19      19       8      8         8
        Non-metallic         38       38       18       8      17         16      16      11     11        13
        Total              148       148       49     28       35         35      35      19     19        21
         Source: Central Statistical Organisation 2002.



 REPSF Project 04/009b: Final Country Report – Myanmar                                                           5
                                                      Enhancing ASEAN Minerals Trade and Investment



    Public investment in the minerals sector increased considerably during the 1970s, from
2% of total public investment in 1962-63 to 13% by 1978-81, reflecting the Government’s
drive to take control of resource sectors during the socialist years (Thein 2004). However,
because of resource constraints, the Government has indicated its intention to reduce its
involvement in the minerals sector, preferring instead to join the private sector in joint venture
agreements (Mra 2002). Myanmar’s state-owned mining enterprises invested MK21.3 million
in capital expenditures in 1999-00, or US$3.6 million at the official exchange rate (Central
Statistical Organisation 2002).
     With the exception of the Myanmar Gems Enterprise, Myanmar’s state-owned enterprises
have consistently performed poorly in financial terms, despite their privileged position. In
1999-00, Myanmar’s state mining enterprises ran a cash deficit of MK255.6 million, or US$42
million. The Myanmar Gems Enterprise ran a cash surplus of MK976 million in the same
year, equivalent to US$162 million (Central Statistical Organisation 2002). The share of the
value of minerals production attributed to the state-owned sector fell dramatically from 90% in
1986-87 to 11% in 1998-99 (Thein 2004), reflecting the resource constraints faced by the
state-owned sector and the privatisation of some state-owned mines.
    Ivanhoe Myanmar Holding Ltd.’s proposed gold mine is a potentially significant
development in Myanmar’s minerals sector. Ivanhoe Myanmar Holding Ltd. submitted their
feasibility study to the Government for consideration in April 2004, and is currently in
negotiation with the Government over joint venture arrangements. Among other potential
developments, the Ministry of Mines is considering the development of an iron mine and a
refinery in the Tanintharyee division (Business Tank 2005).


F. POLICY FRAMEWORK
    The minerals sector in Myanmar is governed by the 1994 Mines Law, the 1988 Foreign
Investment Law and other applicable regulations. The position of state-owned enterprises in
Myanmar is governed by the State-Owned Economic Enterprises Law (1989). The Myanmar
Gems Law (1995) concerns the regulations of precious stones in the country. Foreigners are
not entitled to land ownership in Myanmar but can lease land for periods of up to 30 years
(ASEAN Secretariat 2004). Myanmar does not currently have a Constitution, and the
environmental regulatory framework is weak.
    1. 1994 Mines Law
          The 1994 Mines Law was enacted by the State Law and Order Restoration Council
       in September 1994. The Mines Law states that “all naturally occurring minerals” shall
       be “owned by the State” (chapter VII). The objectives of the Mines Law of 1994 are:
        o to implement the Mineral Resources Policy of the Government;
        o to promote the development of local and foreign investment in respect of mineral
           resources;
        o to supervise, scrutinise and approve applications submitted by persons or
           organisations desirous of conducting mineral prospecting, exploration or
           production;
        o to carry out the development of conservation, utilisation and research works of
           mineral resources; and
        o to protect the environmental conservation works that may have detrimental effects
           due to mining operations.
          Under the law, all prospecting, exploration and production of minerals require a
       permit from the Ministry of Mines. The 1994 Mines Law states that an “integrated
       permit” for mineral prospecting, exploration or production can be issued. The law sets
       royalties at 5-7.5% for gemstones and 1-5% for other minerals.




6                                              REPSF Project 04/009b: Final Country Report – Myanmar
Enhancing ASEAN Minerals Trade and Investment



            The mining industry is regulated by the Ministry of Mines. The Department of
        Mines, under the Ministry, is responsible for policy formulation, licensing, and
        monitoring and evaluation of all licenses and entities in accordance with the Mines
        Law (the various licenses are summarised in Table 7.7). It also has responsibility for
        training, monitoring occupational safety, mineral conservation and environmental
        protection, collection of rents and royalties as well as monitoring trade of all
        commodities in the mining industry. The Department of Geological Survey and Mineral
        Exploration has the function of conducting general mapping and specific mineral
        exploration and resource evaluations (United Nations 1997).

                   Table 7.7: Major Types of Mining Tenements in Myanmar
      Stage              Mining tenements                      Provisions                       Terms
Mineral              Mineral Prospecting Permit      Non-exclusive right to conduct    Valid for 1 year and
Prospecting                                          exploration within specified      renewable for up to 1 year.
                                                     area.                             Maximum area of 4,200
                                                                                       km2
Mineral              Mineral Prospecting Permit      Exclusive right to conduct        Valid for     3 years and
Exploration                                          exploration within specified      renewable   for 2 years and
                                                     area.                             longer       if    required.
                                                                                       Maximum     area of 3,150
                                                                                          2
                                                                                       km .
                     Large Scale Mineral             Exclusive right to extract        Valid for 25 years and
Mineral              Production Permit               minerals within specified area.   renewable by 5 years at a
Developmenta                                                                           time.

                     Small Scale Mineral             Exclusive right to extract        Valid for 5 years and
                     Production Permit               minerals within specified area.   renewable by 4 years.
  a: Mineral Production Permits are in addition to negotiated joint venture agreements with the Ministry of Mines
  Source: Mra 2002.


            Six state-owned enterprises also operate under the Ministry of Mines. The
        enterprises operating in the minerals sector are the No. 1 Mining Enterprise, No. 2
        Mining Enterprise, No. 3 Mining Enterprise and the Myanmar Gems Enterprise. No. 1
        Mining Enterprise is responsible for the production of silver, lead, zinc, and copper,
        and their smelting, refining and marketing. No 2. Mining Enterprise is likewise
        responsible for gold, tin and tungsten production, smelting, refining and marketing. No.
        3 Mining Enterprise is responsible for iron, steel and industrial minerals. Myanmar
        Gems Enterprise is responsible for the mining and marketing of gemstones, issuing
        licenses to local companies and jewellery making (Ministry of Mines 2004).
    2. 1988 Foreign Investment Law
           One of the key reform measures introduced with the shift to a market-oriented
        economy in 1988 was the Foreign Investment Law of 1988. The law was designed to
        encourage and attract foreign investors through investment incentives and simplified
        procedures. The Foreign Investment Law legalises border trade with neighbouring
        countries and provides protection against nationalisation of investments (SGV & Co.
        1998). The law was introduced with the following objectives:
        o promotion and expansion of exports;
        o exploitation of natural resources requiring substantial amounts of capital;
        o technology transfer activities;
        o development of energy conservation activities;
        o regional development; and
        o creation of more employment opportunities (ASEAN Secretariat 2004).
           Under the Foreign Investment Law, foreign investment in Myanmar can take one of
        the following three forms (ASEAN Secretariat 2004):


REPSF Project 04/009b: Final Country Report – Myanmar                                                           7
                                                   Enhancing ASEAN Minerals Trade and Investment



       o   sole proprietorships, partnerships, limited companies, or wholly foreign-owned
           subsidiaries;
       o   production sharing contracts with one of the state-owned enterprises for
           exploration, extraction and sale of petroleum and natural gas and mining
           operations; and
       o   joint ventures, either as partnerships or limited companies with any individual,
           firm, cooperative, or state-owned enterprise.
           Mining is included under the list of economic activities open to foreign investment
      under the Foreign Investment Law. Foreign investors can invest in Myanmar’s
      minerals sector through joint ventures with one of the state-owned enterprises. Joint
      venture agreements are based on either production or profit sharing. Applications for
      exploration and mining licences need to be approved by both the Ministry of Mines
      and the Myanmar Investment Commission. Applications for foreign investment are
      expected to be processed by the Myanmar Investment Commission within 4-6 weeks
      if the application is complete (ASEAN Secretariat 2004).
        Mining is a promoted sector in Myanmar. Potential exemptions and incentives
      under the Foreign Investment Law include:
      o  corporate income tax exemptions for 3 or more years;
      o  exemption from and/or reduction of taxes on imported capital goods for certain
         periods;
      o  the right to accelerate depreciation on capital assets; and
      o  other incentives (ASEAN Secretariat 2004).


G. KEY ISSUES
    1. Investment environment
         Despite the open investment regime and the investment incentives provided to the
      minerals sector, Myanmar is at present a difficult country in which to invest. It is
      currently ranked last of all 123 countries included in the Fraser Institute’s survey on
      “economic freedom”, which reflects the poor economic, trade and investment
      environments in the country (Gwartney and Lawson 2004). The investment
      environment in Myanmar is hindered by:
       o  the existence of dual exchange rates;
       o  a lack of infrastructure, and, in particular, poor access to electricity;
       o  poor and high cost telecommunication services;
       o  an unstable macroeconomic environment;
       o  cumbersome administrative procedures;
       o  political and other risks;
       o  frequent changes in the design and implementation of regulations;
       o  the lack of administrative transparency;
       o  the lack of a level playing field between public and private sector enterprises; and
       o  the current political situation in Myanmar.
         The existence of dual exchange rates can have serious implications for foreign
      businesses operating in Myanmar, and adds another level of risk to carrying out
      business in the country. The official exchange rate is around 0.6% of the unofficial
      market rate (MK6 to US$1 is the official rate; the market rate is currently over
      MK1,000 to US$1). It is widely recognised that Myanmar’s failure to devalue its
      currency and make it fully convertible has become a major obstacle to foreign
      investment, trade and economic growth (Thein 2004).
         Restrictive minerals policies further reduce the attractiveness of investing in
      Myanmar’s minerals sector. A number of restrictions are imposed on FDI in the
      minerals sector. These include the requirement to be involved in a joint venture with


8                                           REPSF Project 04/009b: Final Country Report – Myanmar
Enhancing ASEAN Minerals Trade and Investment



       the Government and a ban on FDI in the gemstones sector. The Government also
       frequently imposes unrealistic requirements on minerals sector investors. For
       example, there have been cases where the Government has made mining licenses
       dependent on plans to build mineral processing facilities, even when such investments
       are deemed to be uneconomic by the investors themselves. The burden of production
       or profit sharing arrangements, royalties and taxes in Myanmar also greatly reduces
       the attractiveness of investing in mining in the country.
           The above factors explain why, despite economic reforms and the Government’s
       official welcoming attitude to foreign investment, FDI inflows to Myanmar, including in
       the minerals sector, remain meagre. The considerable restrictions that exist in
       Myanmar, and the sheer difficulty of operating in the country, are sufficient to dissuade
       most investors, particularly when more attractive investment destinations exist in the
       region.
    2. Trade environment
           The trade environment in Myanmar is also difficult. To obtain a routine import
       license for capital equipment or inputs such as diesel (which cannot be purchased in-
       country) requires the approval of several different government agencies – a process
       that is reported to average four months. Import tariffs are charged, and some imports
       are banned altogether. A ban applies on imports of second-hand capital equipment,
       which appears to be a highly restrictive policy, particularly for a country that has
       limited capital resources. Monetary caps on imports, and limits on the number of
       import licenses able to be applied for, are imposed on enterprises. Difficulties in
       sourcing inputs and capital equipment are one of the biggest problems facing all
       enterprises operating in the minerals and other sectors in Myanmar. Export taxes on
       minerals products are applied (reportedly at 8%), and export licensing procedures are
       notoriously slow and cumbersome. Some restrictions also apply on minerals exports.
           Myanmar’s trade environment is far from facilitative, largely because of the
       Government’s own restrictive trade policies. In recent years, government intervention
       in many areas of the market has become more pervasive (Thein 2004). External trade
       sanctions on Myanmar compound the trade problems faced by enterprises operating
       in the country.
    3. Licensing
          Prior to 2000, mining areas had been auctioned in ‘blocks’ to the private sector.
       Following the lack of success of the 4th round of this bidding system in 1999 (only one
       contract was awarded), the system was replaced by direct negotiations with interested
       companies.
          The current process for obtaining licenses to operate in the minerals sector in
       Myanmar is slow and neither clear nor transparent. It requires the approval of various
       government departments and authorities, at both central and other levels. A new body,
       the Trade Policy Council, is now also involved in the approval process. Information
       about the application process is lacking and could be greatly improved.
    4. Governance
           Governance in Myanmar is weak. Ministries are poorly resourced, and the ability to
       make many decisions is concentrated at the top of the Government’s hierarchy.
       Consequently, because of these procedural requirements, Ministries are known to be
       slow moving. Given the weakness of the rule of law in Myanmar, the implementation
       of regulations is often ad hoc and variable. Frequent, sudden and arbitrary changes in
       policy and the implementation of policy are common.




REPSF Project 04/009b: Final Country Report – Myanmar                                         9
                                                      Enhancing ASEAN Minerals Trade and Investment



     5. Security of rights
            Legal security of property rights, including mining rights, is weak in Myanmar.
        Mining and exploration contracts are not always honoured, and the lack of an
        independent court system means that the private sector does not have the same
        security of rights as in some other ASEAN Member Countries. The “first-come, first-
        served” principle is not enshrined in the 1994 Mines Law. Exploration and extraction
        rights are currently formally separated, and all project conditions are subject to
        negotiation between the exploration and mining phases, which increases the risks for
        private investors.
     6. Financial system and human resources
            Myanmar’s financial sector is also weak and, by many accounts, close to collapse.
        Apart from some small loans, the domestic banking system is not involved in providing
        credit to the minerals sector. The domestic market provides no mechanism for
        managing financial risks. Domestic firms in Myanmar cannot easily obtain foreign
        finance, and financing options are restricted by external sanctions. Approval from the
        Myanmar Investment Commission is needed for foreign borrowing.
            The majority of investment in the minerals sector in Myanmar is through individual
        private financing. While the Government participates in joint venture arrangements
        with many mining companies in Myanmar, it does not usually contribute hard capital to
        finance mining projects.
            Further constraints arise in terms of skills and expertise. While Myanmar has well-
        trained human resources and geologists, the lack of exposure to up-to-date
        technologies and equipment is likely to have an adverse influence on the prospects for
        Myanmar’s minerals sector.
     7. Other issues
            Infrastructure, including transport, is inadequate in Myanmar. Electricity, in
        particular, is unreliable. This can be a significant problem for minerals processors, who
        rely on a constant supply of electricity. Communication infrastructure is poor and
        communication services are costly. Often, there are no telephone connections with
        mine sites. The Government has invested considerably in infrastructure projects in
        recent years.
           Environmental issues related to the minerals sector in Myanmar deserve attention.
        Given the weakness of environmental regulations in Myanmar, many mining
        operations in the country have had significant detrimental impacts on the environment.
        In general, foreign-invested mining operations have tended to have better
        environmental records in Myanmar than smaller-scale mining operations.


H. THE WAY FORWARD
     1. Liberalise trade and investment regimes
            It is important for the Government to engage with the private sector and other
        stakeholders in order to improve the trade and investment environment in the minerals
        sector. A number of issues, from trade licensing requirements to the dual exchange
        rate system, should be addressed to improve the general trade and investment
        climate in Myanmar. The planned formation of a Myanmar Mining Association may
        increase the opportunities for the private sector to be involved in guiding institutional
        and regulatory reform in Myanmar.




10                                             REPSF Project 04/009b: Final Country Report – Myanmar
Enhancing ASEAN Minerals Trade and Investment



     2. Increase regulatory certainty
           Security of mining tenure should be improved by increasing the certainty over the
       right of companies with exploration licenses who make commercial discoveries to
       mine. As a fist step, Myanmar should make the conditions of mining licenses clearer to
       potential exploration investors to reduce the uncertainties and risks they face. In order
       to improve the investment environment for minerals, Myanmar should also review the
       country’s burdensome profit/production sharing arrangements and the involvement of
       state-owned enterprises in the sector.
     3. Improve governance and invest in capacity building
          There is a need for capacity building in the Ministry of Mines and other government
       agencies. Continued professional development of human resources in geology and in
       legal, economic, technical and environmental issues could bring significant benefits to
       the administration of Myanmar’s minerals sector and to the sector itself (United
       Nations 1996).
          Until certain fundamental changes take place in the political and regulatory systems
       in Myanmar, however, there will be less than optimum interest from the private sector
       in developing the country’s mineral resources. The current political situation in
       Myanmar is the largest single impediment to rapid expansion in foreign direct
       investment in the country. A resolution of the political situation, and a move toward
       domestic and international reconciliation, could lead to significant improvement in the
       trade and investment environment in the country.

I.   CONSULTATION PROGRAM
   The consultation program in Myanmar was undertaken by Mekong Economics Ltd. from
6-10 June 2005. Organisations and individuals consulted in Myanmar are listed in Table 7.8.
                         Table 7.8: Consultation Program – Myanmar
Name                       Position                        Organisation
U Aung Bwa                 Director General                ASEAN Affairs Department, Ministry of
                                                           Foreign Affairs
San San Thein              Deputy Director                 ASEAN Affairs Department, Ministry of
                                                           Foreign Affairs
Doug Trappett              First Secretary                 Australian Embassy
Amanda Jewell              Second Secretary                Australian Embassy
-                          -                               Central Statistical Organisation
U Win Oo                   Managing Director               Delco Limited
U Soe Thi Ha               Deputy Director General         Department of Geological Survey and
                                                           Mineral Exploration, Ministry of Mines
U Myint Lwin               Deputy Director                 Department of Mines, Ministry of Mines
U Tin Lin                  Managing Director               Explorers Consulting Ltd.
U Kyaw Zaw                 Director                        Explorers Consulting Ltd.
U Zaw Htun Aung            General Manager                 Geo Seventy Co. Ltd.
U Kyaw Thein               Manager                         Geo Seventy Co. Ltd.
U Tin Kyaw Than            Chairman                        Golden Land Myanmar Mineral Resources
                                                           Trading & Geological Services Co-op Ltd.
U Ko Ko Than               Senior Advisor                  Ivanhoe Myanmar Holdings, Ltd.
                                                           (Exploration)
Gerry Nugawela             Commercial Manager              Myanmar Ivanhoe Copper Company Ltd.
Professor U Myat Thein     Chairman and Chief Economist    Myat and Associates
U Sai Than Aung            Managing Director               Thit Thant Sin Co. Ltd.
Professor U Maw Than       Rector (Retired)                Yangon Institute of Economics




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                                                   Enhancing ASEAN Minerals Trade and Investment



J. REFERENCES
ASEAN Secretariat. 2004. Guide Book for Investing in ASEAN: Update 2004. Jakarta.
Business Tank. 2005. ‘Mining survey undertaken in Tanintharyee Division’, News in Brief.
      July 16. http://www.myanmar.com/Business_Tank/.
Central Statistical Organisation. 2002. Statistical Yearbook 2002. Ministry of National
       Planning and Economic Development. Yangon.
Fong-Sam, Y. 2002. ‘The Mineral Industry of Burma’, U.S. Geological Survey Minerals
      Yearbook – 2002. U.S. Geological Survey.
Gwartney, J, and Lawson, R. 2004. Economic Freedom of the World: 2004 Annual Report.
      Fraser Institute. Vancouver.
Ivanhoe Mines Ltd. 2002. Fact File: The Monywa Copper Project. http://www.ivanhoe-
      mines.com/i/pdf/Monywa-Fact-File.pdf.
Ivanhoe Mines Ltd. 2001. Background to Ivanhoe Mines’ Investment in the Monywa Copper
      Project in Myanmar. http://www.ivanhoe-mines.com/s/MonywaCopper.asp.
Ministry of Mines. 2004. Facts About the Ministry of Mines. Yangon.
Moody, R. 1999. Grave Diggers: A Report on Mining in Burma. Canada Asia Pacific
      Resource Network. Vancouver.
Mra, S. 2002. ‘Status and current issues of mining regulatory regime in Myanmar’, Policies,
       Regulatory Regimes and Management Practices for Investment Promotion and
       Sustainable Development of Mineral Resources Sector in Economies in Transition
       and Developing Countries of East and Southeast Asia. United Nations Economic and
       Social Commission for Asia and the Pacific. New York.
Myanmar Inter Safe Co., Ltd. 2005. Business Opportunities in Myanmar (Burma).
     http://www.forest-treasure.com/business_opp/
MICCL (Myanmar Ivanhoe Copper Company Limited). 2002. Safety, Health and Environment
     Report. Yangon.
SGV & Co. 1998. Doing Business in Myanmar. Yangon.
Thein, M. 2004. Economic Development of Myanmar. Institute of South East Asian Studies.
       Singapore.
United Nations. 2002. Strategic Programme Framework: UN Drug Control Activities in
       Myanmar. www.unodc.org/pdf/myanmar/ myanmar_country_profile_spf_2002.pdf
United Nations. 1997. ‘Geology and Mineral Resources of Myanmar’, Atlas of Mineral
       Resources of the ESCAP Region Volume 12. United Nations Economic and Social
       Commission for Asia and the Pacific. New York.
United Nations. 1996. Myanmar: Trade and Investment Potential in Asia. United Nations
       Economic and Social Commission for Asia and the Pacific. New York.
Win, Kyaw Thu. 1996. Investment Opportunities in the Mining Sector in Myanmar.
      http://www.myanmar.gov.mm/Perspective/persp1996/12-96/inv.htm
World Bank. 2005. World Development Indicators. http://publications.worldbank.org/WDI/
Wu, J.C. 1999. ‘The Mineral Industry of Burma (Myanmar)’. U.S. Geological Survey Minerals
      Yearbook – 1999. U.S. Geological Survey. Virginia.




12                                          REPSF Project 04/009b: Final Country Report – Myanmar
Enhancing ASEAN Minerals Trade and Investment
– The Philippines

REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                           CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
LIST OF FIGURES................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 1
     C.   Minerals production .................................................................................................. 2
     D.   Minerals trade ............................................................................................................ 3
     E.   Investment in the minerals sector............................................................................ 4
     F.   Policy framework ....................................................................................................... 5
     G.   Key issues .................................................................................................................. 7
     H.   The way forward ........................................................................................................ 9
     I.   Consultation program ............................................................................................. 11
     J.   References ............................................................................................................... 12


                                                      LIST OF TABLES


     Table 8.1: Metallic Mineral Reserves of the Philippines, 2003 .................................... 1
     Table 8.2: Production of Key Minerals in the Philippines, 2004.................................. 3
     Table 8.3: Exports of Key Minerals from the Philippines, 2004................................... 3
     Table 8.4: Net FDI Flows to the Philippines Mining Sector.......................................... 4
     Table 8.5: Major Types of Mining Tenements in the Philippines ................................ 6
     Table 8.6: Consultation Program – the Philippines.................................................... 11


                                                     LIST OF FIGURES


     Figure 8.1: Key Minerals Production Trends by Volume, 1994–2004 ......................... 2
     Figure 8.2: Investment in the Mining and Quarrying Sector, the Philippines, 1980–
        2002............................................................................................................................. 4




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                            Enhancing ASEAN Minerals Trade and Investment




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ii             REPSF Project 04/009b: Final Country Report – The Philippines
Enhancing ASEAN Minerals Trade and Investment



A. INTRODUCTION
   The Republic of the Philippines (Philippines) is one of the most highly mineralised
countries in the world, with total mineral wealth estimated at more than US$840 billion
(National Economic and Development Authority 2003). To date, this potential remains largely
unrealised, primarily as a result of a range of domestic factors including legal, political and
constitutional impediments.
     Despite the high prospectivity of the country, the contribution of the mining sector to gross
domestic product (GDP) has declined and stagnated over the past two decades. From a
peak of 2.1% in the mid-1980s, the economic contribution of the mining sector has fallen to
1.6% of GDP in 2004, with the successive closures and suspensions of several local
operations. In line with the relatively small contribution to GDP, the mining and quarrying
industry accounts for only around 0.3% of total employment in the Philippines. Nonetheless,
the sector formally provides employment to 118,000 persons, primarily in relatively
depressed rural areas. It also supports a large number of self-employed informal sector
miners operating small scale gold mines. In 2004, mining activities generated around US$39
million in government revenues through national and local taxes (Mines and Geosciences
Bureau 2005a).
     Recent developments could represent a turning point for the mining sector in the
Philippines. In particular, in December 2004, the Philippine Supreme Court made a landmark
ruling upholding the constitutionality of the Philippine Mining Act of 1995, including its
provision for foreign investment in mining projects. Following this decision, the Government
has embarked on a major program to revitalise the mining industry and enhance its
contribution to economic development in the Philippines.


B. MINERAL RESOURCE BASE
    The Philippines is highly prospective in mineral resources, with metallic minerals such as
copper and nickel dominating the resource base (Table 8.1). As of 2003, the mineral
reserves of the Philippines included 12.4 billion tonnes of metallic minerals and 83.97 billion
tonnes of non-metallic minerals (Mines and Geosciences Bureau 2004). Copper and nickel
are the main metallic minerals, accounting for 50% and 26% of established metallic reserves
respectively. The Philippines also has significant gold deposits, with estimated reserves
ranked fifth in the world. Limestone and marble account for close to 84% of non-metallic
mineral reserves.
    It is estimated that highly prospective mineral deposits of copper, gold, nickel chromite
and other minerals cover approximately 9 million hectares or 30% of the total land area of the
Philippines. Currently, mining permits cover only around 1.4% of this high-potential land.
Additional mineral reserves of gold, chromite, magnetite and silica are located off-shore
within the Philippines’ exclusive economic zone.


                Table 8.1: Metallic Mineral Reserves of the Philippines, 2003
             Commoditya                                         Unit        Volume
             Chromite (all types)                                mt              40
             Copper                                              mt           6,473
             Gold (primary)                                      mt           2,163
             Nickel                                              mt           3,385
             Other metallic                                      mt             882
             Total                                               mt          12,943
            a: Figures are for ore bodies not metal content.
            mt = million tonnes
            Source: Mines and Geosciences Bureau 2004.




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C. MINERALS PRODUCTION
    The mining industry in the Philippines is dominated by mines producing gold, copper,
nickel and chromite. There are currently 17 medium to large scale mines in operation in the
metallic minerals sector. The ownership structure of the industry is mixed with a number of
mines operating as joint ventures between domestic and foreign partners and others
operating as private companies incorporated in the Philippines. In addition, the sector
comprises a large number of privately-owned small-scale mines operating primarily in the
gold sub-sector and in the non-metallic minerals sector.
    Since the mid-1980s, total minerals production in the Philippines has declined steadily as
a reflection of factors such as political instability, restrictive mineral policies and low foreign
direct investment (FDI), and external factors including sluggish commodity prices and natural
disasters. However, the past two decades also saw significant changes in production
patterns across different minerals (Figure 8.1). In particular, copper output fell by more than
90% between 1984 and 2004 as a result of the closure of several major mines. Several
factors led to the closure of these mines, including operational and financial difficulties in the
case of the Atlas and Maricalum mines, and significant environmental problems in the case of
the Marcopper mine.
    In comparison with copper, gold has assumed a growing share of minerals output over
time, both in terms of volume and value. Continued interest by foreign investors in the gold
mining sector, combined with the increased contribution of small scale mines, raised
production from 27 million tonnes in 1994 to 35.5 million tonnes in 2004. The production of
nickel fluctuated widely over the past 10 years, with an upward trend evident over parts of the
decade. This increase in production in these periods is partly attributed to the long dry
season, enabling more operating days for nickel producers in Surigao, and partly to the entry
of Cagdiano Mining Corporation in 2000 (Mines and Geosciences Bureau 2005b).
    In 2004, the value of gross production in the mining sector was close to US$770 million
(P43 billion), with the metallic mineral sub-sector accounting for 68% of total gross production
value (Table 8.2). To a large extent, rising world market prices for key metallic minerals have
underpinned the increase in the value of minerals production since 2002. The largest
contributor to production in value terms was gold, followed by copper.

              Figure 8.1: Key Minerals Production Trends by Volume, 1994–2004




a: Includes all types of chromite.
Sources: Lyday 2003; Mines and Geosciences Bureau 2005c.



    Small-scale gold mining operations undertaken in an informal setting primarily by
indigenous communities accounted for more than 70% of the total value of gold production in



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2004. The small-scale mining sector in the Philippines is typified primarily by individuals and
family units undertaking subsistence mining with limited investment capital and traditional
pick-and-shovel technologies. Nonetheless, around 10% of the small-scale mining sector is
represented by established commercial mining firms with a maximum investment of P10
million (around US$200,000) and having access to technologies similar to those used in large
scale mining operations (Bugnosen 2001).
   The Philippines does not have an established minerals processing sector. The Philippine
Associated Smelting and Refining Corporation is the only firm involved in the processing of
copper concentrates for export.

               Table 8.2: Production of Key Minerals in the Philippines, 2004
                                                 Volume                 Value         Number of
                                                                                Operating Minesa
                                                       kt      US$ million
             Copper                                 15.9             39.2                         1
             Gold and silverb                       44.8            457.0                         7
             Nickel                                 17.0             25.5                         4
             Chromite (all types)                   42.1               2.7                        4
             Iron ore                                3.4            0.007                         1
             Total metallic minerals                                524.3                        17
             Total non-metallic                                     248.1                     2,329
             minerals
            a: Excludes small-scale gold mines; b: Volume for gold and silver is in tonnes.
            kt = thousand tonnes
            Source: Mines and Geosciences Bureau 2005c.


D. MINERALS TRADE
   The bulk of metallic minerals produced in the Philippines is destined for export markets.
The overall contribution of the mining industry to total exports has decreased steadily from
around 20% in the early 1980s to 2.1% in 2004, with a value of US$817 million in that year
(Table 8.3).
   Copper concentrates, copper metal and gold have traditionally contributed most to
minerals exports. However, with the significant decline in copper production, exports of
copper concentrates have also fallen substantially over the past decades.

                Table 8.3: Exports of Key Minerals from the Philippines, 2004
                                                             Volume              Valuea
                                                                   kt       US$ million
                          Copper concentrate                      27                  14
                          Copper metal                           159                 411
                          Goldb                                  319                  69
                          Chromium ore                            79                    6
                          Iron ore agglomerates                4,556                  83
                          Otherc                                                     234
                          Total minerals exports                                     817
               a: Fob value; b: In tonnes; c: Includes nickel ores and concentrates, ferrous waste and scrap, non-
               ferrous base metal waste and scrap; ores and concentrates of precious metals (silver obtained
               from copper ore and concentrates; waste and scrap of precious metals).
               kt = thousand tonnes.
               Source: Bangko Sentral ng Pilipinas 2005.


    Japan continues to be the primary market for copper and nickel ores and concentrates
from the Philippines. Philippine Associated Smelting and Refining Corporation, the only
current copper producer, is involved in smelting the remaining copper concentrates into



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copper cathodes for export, again principally to Japan. Other export markets for minerals
include North America, Europe and China.


E. INVESTMENT IN THE MINERALS SECTOR
    The mining sector share of the value of total approved investments has fluctuated widely
over the past two decades. Between 2000 and 2003, mining generated around 3.5% of the
value of investment approvals in the Philippines, compared with more than 6% in the second
half of the 1980s and with less than 2% between 1991 and 1994 (Philippine Institute for
Development Studies 2005).

Figure 8.2: Investment in the Mining and Quarrying Sector, the Philippines, 1980–2002




Source: Securities & Exchange Commission 2003.


    The fluctuation in investment patterns in the mining sector is also evident when other
indicators of investment, such as realised investment, are considered (Figure 8.2). In the
period between 1996 and 1998 there was a major influx of investment flows from both
domestic and foreign sources in response to the passing of the Mining Act in 1995. However,
the legal challenge to the constitutionality of the Mining Act raised in 1997 and the approval
of the Indigenous Peoples’ Act in the same year had a negative impact on investment flows,
with many foreign investors turning to other countries with more stable regulatory regimes.
Consequently, actual net FDI flows to the mining and quarrying sectors in the Philippines
have declined substantially in recent years (Table 8.4).

                   Table 8.4: Net FDI Flows to the Philippines Mining Sector
Sectors                                  Unit         2000             2001           2002             2003
Mining and quarrying             US$ million           80.9               0            21.5            (7.2)
Total net FDI flow               US$ million          1,345             989           1,792             347
Share of mining and quarrying              %              6               0               1              (2)
Note: negative numbers are enclosed in parentheses.
Source: Bangko Sentral ng Pilipinas 2005.



    Political instability and weak governance, restrictive investment policies and local
opposition to large scale mining projects are some of the key factors that have undermined
the country’s ability to attract foreign investors in the mining sector. Based on the Fraser
Institute’s survey of 259 participating mining companies worldwide undertaken in 2004-2005,
the Philippines was ranked 58th out of the 64 jurisdictions surveyed in terms of the policy
potential index, which measures the effects of a wide range of government policies on



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exploration (Fraser Institute 2005). The Philippines was also a low scorer in terms of the
mineral potential index (ranked 54th) which assesses the extent to which a jurisdiction’s
mineral potential under the current policy environment encourages exploration. Overall, the
Philippines was the 6th highest jurisdiction in terms of the gap between current and best
practice mineral policies.
    Legal restrictions on foreign participation in mining have been an important impediment to
the growth of the industry over the past decade. In particular, uncertainty over the legal status
of the Mining Act of 1995 has been a key issue inhibiting the attractiveness of the Philippines
as an investment destination over the past eight years. A petition was filed before the
Supreme Court by non-government organisations in 1997 asserting that the Mining Act and
its provision for foreign investment in the mining sector were unconstitutional. This
constitutional challenge was only resolved in December 2004 with a landmark ruling by the
Supreme Court upholding the constitutionality of the Mining Act and the associated Financial
and Technical Assistance Agreements (FTAAs). An FTAA is an agreement between the
government and a contractor for the large-scale exploration, development and utilisation of
mineral resources with a minimum investment commitment of US$50 million. Under the
Philippine Mining Act, the contractor in an FTAA may be a mining company that is 100%
foreign-owned.
    This recent decision of the Supreme Court has provided a springboard for the
Government of the Philippines to embark on a major program to revitalise the industry and,
consequently, provides an opportunity to reverse past trends in FDI in the mining sector. In
particular, the President’s Mineral Action Plan (MAP), issued as an Executive Order in
January 2004, provides a set of guiding principles supporting responsible mining, as well as a
wide range of specific strategies designed to give new impetus to the mining sector and to
enhance its contribution to economic development in the Philippines.
    The implementation of the MAP began in late 2004 under the Department of Environment
and Natural Resources. The Department has identified 23 priority medium to large-scale
metallic mining projects for potential development by 2010 (Chamber of Mines of the
Philippines 2004). These projects, if undertaken, are expected to generate substantial
benefits for the Philippine economy, including around US$6.5 billion in FDI (Defensor 2005).
The strong political commitment at the national Government level to revitalise the mining
sector is a positive development for the mining sector. However, the realisation of these high
expectations will depend critically on a number of factors, as discussed in section G.


F. POLICY FRAMEWORK
    The Philippine Constitution of 1987 and the Philippine Mining Act of 1995 govern the
exploration, development, processing and utilisation of minerals in the Philippines
(Quisumbing Torres 2005). The mining sector is also subject to other Philippine laws,
including the Indigenous Peoples Rights Act of 1997 and various environmental laws.
    1. The 1987 Philippine Constitution
           Under the Constitution, all natural resources are owned by the State and the
       exploration, development and utilisation of these resources are also under State
       jurisdiction. However, the Constitution also has provisions for the State to enter into
       co-production, joint venture or production sharing arrangements with Philippine
       citizens, corporations and associations. As an exception to this nationality
       requirement, the Constitution allows the President of the Philippines to enter into
       agreements with foreign-owned corporations involving either financial or technical
       assistance, for the large-scale exploration, development and utilisation of minerals
       (restricted to gold, copper, nickel, chromite, lead and zinc), petroleum and other
       mineral oils. A decision of the Philippine Supreme Court, issued on 1 December 2004,
       upheld the constitutionality of the FTAA. As discussed above, in its ruling, the Court


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        rejected the claim put forward by non-government organisations in 1997 that FTAA
        allows foreign contractors to manage mining operations, in violation of the
        Constitutional principle that the State owns and controls all natural resources.
    2. The 1995 Mining Act
            The Mining Act governs the exploration, development, utilisation and processing of
        all mineral resources, and provides the legal framework for the acquisition of mineral
        rights. The Act provides for a variety of mining tenements designed to cover the whole
        supply chain from mineral exploration to processing (Table 8.5). The Mining Act also
        provides contractors under mineral agreements with a range of investment guarantees
        and incentives. These include:
         o repatriation of investments;
         o remittance of earnings;
         o remittance of interest and principal on foreign loans;
         o freedom from expropriation and requisition of investment; and
         o confidentiality of information.
            Mining companies in the Philippines can benefit from a range of fiscal and non-
        fiscal incentives granted under the Omnibus Investment Code of 1987. These
        incentives, granted by the Board of Investments of the Philippines under the
        Department of Trade and Industry, are designed to encourage investment in ‘priority’
        sectors. These include the minerals sector, as mandated in the Mining Act. Generally,
        the incentives under the Omnibus Investment Code are available only to domestic
        corporations owned and controlled by Philippine nationals. However, the national
        requirement is waived if the applicant will export at least 70% of total production or
        engage in a pioneer project. A pioneer project is one that involves the production of
        new products or the use of technologies and production processes that have not
        previously been applied in the Philippines.
           Some of the key fiscal incentives granted to the mining sector include corporate
        income tax exemption (currently set at 32%) for a period of 6 years for pioneer firms
        and 4 years for non-pioneer firms; exemption from taxes and duties on imported spare
        parts; and exemption from wharfage duties. Non-fiscal incentives include simplified
        customs procedures for importation of equipment and exportation of processed goods,
        and employment of foreign nationals.

              Table 8.5: Major Types of Mining Tenements in the Philippines
      Stage           Mining tenements                  Provisions                         Terms
Mineral           Exploration Permit           Exclusive right to conduct        Valid for 2 years and
Exploration                                    exploration within specified      renewable for up to 6
                                               area                              years. Allows 100% foreign
                                                                                 participation.
Mineral           Mineral Agreements           Exclusive right to extract        Valid for 25 years and
Development       including:                   minerals within specified area.   renewable for another 25
                                                                                 years. Allows for up to 40%
                  Mineral Production Sharing   Contractor provides financing,    foreign participation.
                  Agreement                    technology, management and
                                               personnel. The Government of
                                               the Philippines takes a share
                                               of gross output.
                  Co-Production Agreement      The Government of the
                                               Philippines provides inputs
                                               other    than  the  mineral
                  Joint Venture Agreement      resource.
                                               Both the Government of the
                                               Philippines and contractor
                                               have equity. The Government



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                                                  takes a share from equity
                                                  earnings as well as from gross
                                                  output.
Mineral             Financial and Technical       Applies to large-scale mining      Valid for 25 years and
Development         Assistance Agreement          operations     with    minimum     renewable for another 25
                                                  committed      investment     of   years. Allows 100% foreign
                                                  US$50          million       for   participation.
                                                  infrastructure     and     mine
                                                  development.
Mineral             Mineral Processing Permit     Covers        the      milling,    Valid for 5 years and
Processing                                        beneficiation and upgrading of     renewable for up to 25
                                                  ores and minerals                  years. Allows 100% foreign
                                                                                     participation.



    3. The Indigenous Peoples’ Rights Act of 1997
           Indigenous peoples in the Philippines are estimated to account for around 18% of
       the total national population (Cabalda, Banaag, Tidalgo and Garces 2002). The
       Indigenous Peoples’ Rights Act recognises ‘native title’ control and ownership by
       these peoples of ancestral domains, including mineral and other natural resources
       within these domains. The law provides for the free and prior informed consent of the
       National Commission on Indigenous Peoples before the approval of any mineral
       agreement overlapping an ancestral domain. It also provides for rights of ownership
       over natural resources and the right to develop these resources. Importantly, under
       this law, indigenous communities have the right to benefit from the utilisation,
       extraction, use and development of natural resources within their ancestral lands and
       to be compensated for any social and/or environmental costs of such activities.
    4. Environmental laws
          The Philippines promotes a balanced approach to mining, with environmental
       responsibility a core element of its mining development agenda. The Mining Act
       contains significant environmental protection provisions. Responsibilities for mining
       companies include:
        o undertaking an environmental work program during the exploration phase; and
        o prior to developing a mining area, preparing an environmental impact assessment
           and securing an environmental clearance certificate from the Department of
           Environment and Natural Resources that contains specific measures to be
           undertaken by the project proponent to address a wide range of issues expanding
           over all stages of the project.
         In addition to the provisions of the Mining Act, the mining sector is also subject to a
       number of other environmental regulations such as those incorporated in the
       Ecological Solid Waste Management Act and the Clear Water Act (Quisumbing Torres
       2005).


G. KEY ISSUES
     The recent positive development in terms of the Philippine Supreme Court ruling of
December 2004 has generated significant momentum in the mining sector. The Supreme
Court decision, in upholding the constitutionality of foreign participation in the mining sector,
is a major step in removing the uncertainty that has crippled investment flows in the sector
over the past decade. Further, the development of the MAP also provides a clear signal that
the Government of the Philippines is fully supportive of the development of the mining
industry as part of a broader agenda to enhance the economic performance of the country.
The key question is whether this momentum will be sustained and whether the policy
initiatives incorporated in the MAP will be implemented in a way that restores investor


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confidence in the Philippine mining sector. Key issues that have to be addressed in order to
deliver these expected outcomes are discussed below.
    1. Governance
         Governance is broadly defined as the sound exercise of political, economic and
      administrative authority to manage a country’s resources for development (ADB
      1995). The importance of good governance in the public and private sectors and civil
      society generally to strengthen and sustain capacities to deliver programs, projects
      and basic services is well recognised.
         While there are numerous efforts at various levels being pursued to achieve good
      governance in the Philippines, there remain areas of concern, such as public financial
      management and local governance (ADB 2005). Based on a report by the World
      Bank, in 2004 the Philippines fell below the East Asian regional average in all the
      indicators of governance, except in the area of government effectiveness where it
      ranked marginally above the regional average (Kaufmann, Kraay and Mastruzzi 2005).
      Key problem areas include weak rule of law, lack of transparency and accountability
      and lack of partnership between non-government organisations and the government.
         The mining sector, by its nature, is particularly sensitive to governance issues at
      the local level. One of the key challenges facing the mining industry in its revitalisation
      program is the ability to translate national policy at the local level. This is particularly
      important given that the approval of permits and the regulation of small scale mining
      have been devolved to local government units over the past decade. Inconsistencies
      in the approach to governance that have resulted from this decentralisation,
      unmatched by adequate capacity building, are potential barriers to the effective
      implementation of policies at the local level. These issues, if not addressed, have the
      potential to undermine the effectiveness of any policy reform initiative associated with
      the mining sector.
    2. Political and economic stability and security issues
          The large investments and long payback periods required by mining projects
      increase their sensitivity to risk. The lack of political and economic stability has
      adversely affected the investment climate in the Philippines in the past. Despite some
      progress in restoring macroeconomic stability in recent years, the Philippine economy
      continues to be highly vulnerable to severe external and domestic shocks because of
      the current high level of government debt, the emerging risks imposed by contingent
      liabilities, rising oil prices and poor tax collection performance.
          Further, concerns about law and order have emerged in recent years, raising
      security issues in parts of the country that have vast mineral resources. The remote
      areas in which mines often operate make the poor law and order situation a
      particularly strong constraint. These factors can be expected to have a negative
      influence on decisions to invest in the Philippines.
    3. Stakeholder engagement
         The Mining Act provides for consultation and agreement with other government
      agencies, local government units and representatives of indigenous people affected
      by proposed mining activities before the approval of all mining tenements. Further,
      The Indigenous Peoples’ Rights Act stipulates that indigenous communities have the
      right to benefit from the natural resources within their ancestral lands.
         In the past, obtaining consent for land clearance has been complex and time
      consuming, obstructing the approval of tenement applications. In addition, the process
      of identifying and negotiating with all indigenous groups affected has been
      problematic. Many indigenous have no formal organisational structures of traditional
      representation that can be recognised for purposes of negotiation and consent. Local



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       people tend to have no existing structures or experience enabling them to own or
       improve facilities or receive fiscal payment. Further, a wide range of non-government
       organisations, many with a strong anti-mining voice, claim to represent or influence
       indigenous people.
    4. Environmental concerns
           Over the past decade, investment in the mining sector in the Philippines has been
       adversely affected by the negative public perception and acceptance of mining, largely
       influenced by the environmental issues associated with the Marcopper spillage. The
       tailing dam system at the Marcopper mine on Marinduque Island failed in March 1996,
       releasing several million cubic metres of waste into the Boac River and severely
       affecting the livelihood of fisherfolk and others downstream. While the design,
       construction, operation and regulation of the mine, that had 40% foreign ownership,
       were under the old mining code, the incident focused intense opposition to mining.
       Even though the Mining Act of 1995 was reviewed to enhance the environmental
       protection provisions and address community concerns arising from irresponsible
       operations in the past, public confidence in the sustainability of potential mine
       development remains low.
    5. Small-scale mining
           The small-scale mining sector produces the majority of gold in the Philippines. The
       People’s Small-Scale Mining Act was approved in 1991 with the objective of
       rationalising viable small-scale activities to generate more employment opportunities.
       As part of this Act, the management of small mining operations was devolved to local
       government units under the supervision of the Department of Environment and Natural
       Resources. The sector is acknowledged to have contributed significantly to the
       economic wellbeing of many rural inhabitants. However, to date, the sector remains
       largely unregulated, raising a number of economic, social and environmental issues
       (Cabalda et al 2002). These include conflicts in the mining rights, tax evasion, poor
       mining safety, and, importantly, environmental degradation.
           A key concern is the adverse environmental impacts of small-scale mining in terms
       of soil erosion, mismanagement of mine waste and mill tailings, air pollution and the
       lack of mine site rehabilitation. Given the remote, transient and subsistence nature of
       small scale mining, the environmental performance of this sub-sector is inherently
       difficult to regulate. In a country where the sustainability of mining is being questioned
       by a large number of non-government organisations, environmental problems created
       by small scale miners can be sufficient to cast a shadow on the environmental
       performance of the mining sector generally.


H. THE WAY FORWARD
    1. Implement recommendations of the Minerals Action Plan
          In recognition of this potential and the need to ensure strong policy and community
       support for the development of the sector, the MAP prepared by the Department of
       Environment and Natural Resources in collaboration with other government agencies
       and stakeholders, highlight 12 guiding principles for the development of the minerals
       sector in the Philippines. These include:
       o recognition of the critical role of investments in the minerals sector;
       o provision of clear, stable and predictable investment and regulatory regimes;
       o development of downstream industries;
       o support to, and rationalisation of, small scale mining activities;
       o adoption of efficient technologies;
       o protection of the environment at all stages of mining operations;



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        o   safeguarding the ecological integrity of areas affected by mining;
        o   pursuing mining within the framework of multiple land use;
        o   rehabilitation of abandoned mines;
        o   ensuring the equitable sharing of benefits among direct stakeholders;
        o   sustained information, education and communication programs and respect for
            the rights of the indigenous people and communities; and
        o   continuous and meaningful consultations with stakeholders.
           Given the comprehensive list of recommendations included in the MAP, the issue
       for the Philippines is therefore not one of developing policy reform initiatives but one of
       implementation. In this context, continuing efforts to improve governance in the
       Philippines will be critical in allowing the effective implementation of policies, with a
       focus on delivering accountable, participative and results oriented outcomes. The
       Asian Development Bank is committed to supporting reform for improving governance
       in the Philippines. A wide range of policy reform initiatives are already in place to
       achieve this objective (ADB 2005). The challenge is to pursue an integrated and
       sustainable reform agenda, backed by strong political will and financial resources.
          It is encouraging to note that, to date, the Government has delivered on some
       specific reforms affecting the mining sector. These include:
       o the reduction in processing time for mining applications and related environmental
            permits;
       o the issuance of new mining permits and contracts according to streamlined
            procedures; and
       o the cancellation of non-performing mining tenements to free up areas for genuine
            investors.
          Further reform efforts are also being pursued in order to provide for the direct
       remittance of excise tax on mining to local government units, and resolve overlapping
       land uses.
     2. Improve governance and invest in capacity building
          Of particular importance to the minerals sector are the issues associated with local
       governance and decentralisation. These issues highlight the critical role of capacity
       building at the local government level in terms of personnel, financial resource
       management, and intra- and intergovernmental relationships.
          The pursuit of good governance is also critical in supporting the restoration of
       political and economic stability in the Philippines. In particular, policy instabilities have
       adversely affected economic growth and the general investment climate in the
       Philippines in the past and these issues continue to raise concerns from the
       perspective of potential investors.
     3. Foster improved dialogue between the mining industry and community
        stakeholders
           In addition to effective policy implementation, the revitalisation of the minerals
       sector in the Philippines is equally highly contingent on mobilising community support
       for the development of mineral resources. This will ultimately depend on the ability of
       mining companies to establish an ongoing dialogue with affected stakeholders at the
       local level and develop effective strategies to address social and community issues. It
       will also be important for development initiatives to be implemented and pursued in
       partnership with local government agencies and the community. These development
       initiatives need to incorporate capacity building aimed at empowering local
       communities, comprehensive and targeted education programs, and, importantly,
       transparent and continuous consultation with the direct beneficiaries of the project to
       ensure that the actual distribution of earnings is as intended.




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     4. Improve the regulation of small scale mines
            Further, restoring public confidence in the sustainability of mining in the Philippines
        will depend on the extent to which mining companies adopt environmentally sound
        mining practices, from exploration to mine site rehabilitation. While the Mining Act sets
        high standards for the environmental performance of medium and large scale mining
        companies, the effective regulation of small scale mining operations remains an issue.
        As part of the Executive Order 270, the Government of the Philippines is pursuing the
        legitimisation of small-scale mining and its co-existence with large-scale mining.
        Notwithstanding the tighter issuance of the Environmental Compliance Certificate by
        the Department of Energy and Natural Resources, it will be important to ensure that
        an appropriate framework is developed to encourage responsible mining by small
        scale miners.


I.   CONSULTATION PROGRAM
   The consultation program in the Philippines was conducted by ABARE from 13-17 June
2005. Organisations and individuals consulted in the Philippines are listed in Table 8.6.

                        Table 8.6: Consultation Program – the Philippines
Name                        Position                              Organisation
Johnny Co                   Country Head and General Manager      ANZ Banking Group
Jimmy Wu                    Country Portfolio Manager,            Asian Development Bank
                            Philippines Country Office
Jose Leviste                Chairman                              Australasian Philippines Mining – Climax
                                                                  Mining
Miles Armitage              Counsellor and Deputy Head of         Australian Embassy
                            Mission
Alan Morrell                Senior Trade Commissioner             Australian Embassy
Angus Macdonald             Counsellor, AusAID                    Australian Embassy
Guillermo Laquindanum       Director for Mining, Marine and       Board of Investments
                            Natural Resources-based Products
                            Department
Nelia Halcon                Executive Vice President              Chamber of Mines of the Philippines
Atty. Deinrado Simon        Undersecretary for Mining and Legal   Department of Environment and Natural
Dimalibot                   Affairs                               Resources
Rod Watt                    Philippine Country Manager            Lafayette Mining
Jeremias Dolino             Director                              Mines and Geosciences Bureau
Leo Jasareno                Regional Director and Chief, Mining   Mines and Geosciences Bureau
                            Tenements Management Division
Teresa Manalac              Chief, Mineral Economics Section      Mines and Geosciences Bureau
Dr. Michael Clancy          President and CEO                     Philippine Business Leaders Forum
Malcolm Boyd                Exploration Manager                   QNI Philippines
Atty. Dennis Quintero       -                                     Quisumbing Torres
Roy Antonio                 Manager for Corporate Affairs         Sagittarius Mines




REPSF Project 04/009b: Final Country Report – The Philippines                                            11
                                                      Enhancing ASEAN Minerals Trade and Investment



J. REFERENCES
ADB (Asian Development Bank). 2005. Country Governance Assessment: Philippines.
     Manila.
ADB. 1995. Governance: Sound Development Management. Manila.
Bangko Sentral ng Pilipinas. 2005. Exports by Major Commodity Groups.
      www.bsp.gov.ph/statistics/spei/tab1.1a.htm.
Bugnosen, E. 2001. Country Case Study on Artisanal and Small-scale Mining: Philippines.
      Report to the International Institute for Environment and Development. London.
Cabalda, M., Banaag, M, Tidalgo, P. and Garces. R. 2002. Sustainable Development in the
      Philippine Minerals Industry: A Baseline Study. Report to the International Institute for
      Environment and Development. no. 184.
Chamber of Mines of the Philippines. 2004. Philippine Mining Investment Opportunities.
     Manila.
Defensor, M.T. 2005. Revitalising the Philippine Mining Industry - What Can Mining
      Companies Expect in 2005 and Beyond? Paper presented at the Asia Mining
      Congress 2005. 12-14 March. Singapore.
Fraser Institute. 2005. Annual Survey of Mining Companies 2004/2005. Vancouver.
      www.fraserinstitute.ca.
Kaufmann, D. Kraay, A. and Mastruzzi, M. 2005. Governance Matters IV: Governance
      Indicators         for            1996-2004.            World        Bank.
      www.worldbank.org/wbi/governance/pubs/govmatters3.html.
Lyday, T.Q. 2003. ‘The Mineral Industry of the Philippines”. U.S. Geological Survey Minerals
       Yearbook – 2003 and previous editions. U.S. Geological Survey. Virginia.
Mines and Geosciences Bureau. 2005a. Mining Industry Statistics. May.
Mines and Geosciences Bureau. 2005b. Industry Profile. www.mgb.gov.ph/indprofile.htm.
Mines and Geosciences Bureau. 2005c. Philippines Metallic Mineral Production. 15 March.
Mines and Geosciences Bureau. 2004. Mineral Resource/Resource Inventory.
National Economic and Development Authority. 2003. Gov’t to Revive Mining, Tourism –
       Neri.    Press   release.   9   September.     Pasig    City, the  Philippines.
       http://www.neda.gov.ph/ads/press_releases/pr.asp?ID=350
Philippine Institute for Development       Studies.    2005.    Economic      Database      System.
        www.dirp.pids.gov.ph.
Quisumbing Torres. 2005. Primer on the Philippine Minerals Industry. Manila.
Ramos, H. and Jasareno, L. 1996. ‘Mining Opportunities in the Philippines’, Asia Pacific
     Mining Yearbook and Suppliers Source, 8th edition. AJM Resources Publishing.
Securities and Exchange Commission. 2003. Paid-Up Investment in the Mining and
        Quarrying Sector with Total Foreign and Local Equity. Manila.




12                                      REPSF Project 04/009b: Final Country Report – The Philippines
Enhancing ASEAN Minerals Trade and Investment
– Singapore

REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                          CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 1
     C.   Minerals production .................................................................................................. 1
     D.   Minerals trade ............................................................................................................ 2
     E.   Investment in the minerals sector............................................................................ 3
     F.   Policy framework ....................................................................................................... 3
     G.   Key issues .................................................................................................................. 4
     H.   Consultation program ............................................................................................... 4
     I.   References ................................................................................................................. 5


                                                     LIST OF TABLES


     Table 9.1: Singapore’s Steel Production, Consumption and Trade............................ 1
     Table 9.2: Singapore’s Refined Metals Consumption and Trade................................ 2
     Table 9.3: Value of Singapore’s Metals Trade .............................................................. 2
     Table 9.4: Consultation Program – Singapore.............................................................. 4




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ii                  REPSF Project 04/009b: Final Country Report – Singapore
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A. INTRODUCTION
    The Republic of Singapore (Singapore) is a thriving city-state that has overcome its
dearth of natural resources to become one of the most advanced economies in the Asia
Pacific region. Singapore consists of a main island and 63 smaller islands. It has a total land
area of 699 square kilometres and a population of 4.2 million people. Located at the entrance
to the Strait of Malacca, one of the world’s most important shipping routes, Singapore’s port
is the world's busiest in terms of tonnage handled. Singapore’s main economic activities
include the manufacture and export of electronics, as well as expanding services, chemical,
petrochemical and biotechnology sectors.
   The domestic minerals industry plays only a small role in Singapore’s economy.
Singapore has a small domestic steel industry, producing crude steel and steel products.
However, among ASEAN Member Countries, Singapore is a significant consumer of
imported refined metals. Singapore is also an important port and warehousing facility for
many mineral and metal products. The Government is also actively pursuing trading
companies, including in minerals sectors, to base their operations in Singapore. While
Singapore is a large source of foreign direct investment (FDI) in ASEAN, this investment
does not appear to be targeted at the minerals sector.


B. MINERAL RESOURCE BASE
   No information is currently available on Singapore’s mineral resource base, however, any
mineral resources that may exist are unlikely to be significant.


C. MINERALS PRODUCTION
    Singapore produces some steel and steel products domestically. In 2003, Singapore
produced 561,000 tonnes of crude steel, compared with 460,000 tonnes in 2002 (Table 9.1).
NatSteel Ltd, Singapore’s steel producer, has a design output capacity of 600,000 tonnes of
crude steel (Tse 2004). Steel in Singapore is produced from scrap using the electric arc
furnace method.
    Increasing production costs in Singapore resulted in NatSteel reducing output by one
third in 2001 and it has since been expanding its steelmaking operations in China and other
southeast Asian countries (Tse 2004). More recently, NatSteel was acquired by Tata Steel of
India. It is likely that the recent rise in steel production in Singapore was driven by high steel
prices.
             Table 9.1: Singapore’s Steel Production, Consumption and Trade
                                                           1995       2000      2003
                                                              kt         kt        kt
              Production
              Crude steel                                   521        603       561
              Hot rolled steel products                     742        833       599
              Exports
              Semi-finished and finished steel products    1,018       666       687
              Scrap                                            -       516       372
              Imports
              Semi-finished and finished steel products    4,398     3,035     2,971
              Scrap                                            -       233       239
              Consumption
              Crude steel                                  4,993     3,730     3,645
              Finished steel                               4,053     2,980     2,896
                 kt = thousand tonnes
                 Source: IISI 2004.




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                                                              Enhancing ASEAN Minerals Trade and Investment



    Cement production in Singapore ceased in early 2002, reflecting low prices available
from regional imports and government policies to close grinding operations as a result of
environmental concerns. All cement supplies in Singapore are now imported (Tse 2004;
2001).


D. MINERALS TRADE
     Singapore is a highly trade dependent economy –– its merchandise trade is three times
its gross domestic product, S$580 billion (US$343 billion) and S$180.5 billion (US$107
billion) respectively in 2004. Electronic products accounted for more than 45% of Singapore’s
trade in 2004. Around S$137 billion (US$81 billion) of Singapore’s trade in 2004 consisted of
re-exports (IE Singapore 2005a).
   The main metal product consumed and traded in Singapore is steel. Singapore
consumed around 3.6 million tonnes and 2.9 million tonnes of crude and finished steel
respectively in 2003. Around 0.7 million tonnes of semi-finished and finished steel products
were exported in 2003, while 3.0 million tonnes of these products were imported (Table 9.1).
    While notably less than steel, aluminium use in Singapore is also significant, with around
64,000 tonnes consumed in 2004. Singapore’s trade in aluminium is significantly higher than
its consumption, with imports of around 189,000 tonnes, and exports of 103,000 tonnes
(Table 9.2). Singapore has large warehousing facilities and can house significant stockpiles
of metals, which explains its sometimes unbalanced trade statistics. This reflects Singapore’s
large port and its strategic location in the region.

               Table 9.2: Singapore’s Refined Metals Consumption and Trade
                                      1994                                         2004
                      Consumption       Imports     Exports         Consumption      Imports     Exports
                                 kt          kt          kt                   kt          kt          kt
       Aluminium               30.1       120.5       90.1                62.7         188.7      102.6
       Copper                  20.0        93.5       97.7                10.0          48.1       39.1
       Lead                    10.0           -           -               11.5          22.1        18.8
       Nickel                   0.3         0.4           -                 3.2          3.5           -
       Tin                      2.0        3.0a        31.9                 2.0         12.1        62.3
       Zinc slab               15.0       167.1           -               15.0           9.3      128.5
    a: Excludes imports from Indonesia.
    kt = thousand tonnes.
    Source: WBMS 2005.

                           Table 9.3: Value of Singapore’s Metals Trade
                                                     Imports                   Exports
                                                    US$ million               US$ million
                                                    1993         2003        1993         2003
              Iron and steel                       1,530        1,304         424          509
              Articles of iron or steel            1,375        1,304         567          723
              Copper                                 697          460         412          373
              Nickel                                  42           95          29          158
              Aluminium                              479          807         229          456
              Lead                                    27           21          70           41
              Zinc                                   140           73          22           53
              Tin                                     37           48         169          283
              Other base metals                       14           55          10           36
              Total metals                         4,341        4,166       1,932        2,632
              Total trade                         86,388      130,245      74,001      144,126
        Source: AFTA 2005.


    Other metals consumed and traded in Singapore include zinc slab, refined copper,
refined lead, and tin (Table 9.2). In value terms, steel, aluminium and copper were



2                                                  REPSF Project 04/009b: Final Country Report – Singapore
Enhancing ASEAN Minerals Trade and Investment



Singapore’s main metals trade. However, metals accounted for only 3% of Singapore’s total
imports in 2003, and less than 2% of total exports (Table 9.3).


E. INVESTMENT IN THE MINERALS SECTOR
    Foreign investment has traditionally been welcomed in Singapore, and accounts for a
significant share of total investment in the economy. Considered to be a politically stable and
well-regulated place to do business, Singapore is consistently rated as having one of the best
environments for investment in the world. Singapore has evolved into a base for multinational
companies to engage in high-end manufacturing and product development, and coordinate
regional procurement, production, marketing, and distribution operations.
    Total FDI in Singapore was US$11.4 billion in 2003, compared with US$17.2 billion in
2000. FDI in Singapore accounted for 56% of total FDI in ASEAN in 2003, compared with
74% in 2000. In 2003, 21% of FDI in Singapore was from the United States, around 14% was
from the Netherlands, and 9% was from the United Kingdom. ASEAN accounted for nearly
4% of FDI in Singapore in 2003, or around US$420 million, almost all of which came from
Indonesia and Malaysia. The share of FDI in the mining and quarrying sector was negligible
in 2003 (ASEAN Secretariat 2004).
    Singapore is an important source of FDI in ASEAN. It invested US$1.3 billion in other
ASEAN Member Countries in 2003, which was more than half of total intra-ASEAN
investment flows. Close to half of this volume went to Thailand. A further 24% went to
Indonesia, while Malaysia and the Philippines accounted for much of the remainder. The
majority of Singapore’s FDI in ASEAN was in the financial intermediation and services
sectors and the trade and commerce sectors. Smaller volumes also went into mining and
quarrying (ASEAN Secretariat 2004).


F. POLICY FRAMEWORK
    Singapore has successfully pursued a strategy of export oriented industrialisation and
strategic trade positioning. Foreign investment is actively promoted and multinational
companies have played a key role in Singapore's development. Reflecting the important
contribution of foreign investment to the development of the economy, there are few
restrictions on inward foreign investment. The sectors/areas that have proven attractive to
foreign investors include electronics, logistics, chemicals, communications and
pharmaceuticals. Singapore has relatively low tax rates compared with other countries in the
region, making it an attractive base for companies. The personal income tax rate in
Singapore is 22%, while the corporate tax rate is 20% (IE Singapore 2005a).
   Singapore also offers a range of investment incentives, including fixed-term tax holidays,
designed to attract foreign investors into selected industry areas and encourage exports. For
example, International Enterprise Singapore, formerly known as the Singapore Trade
Development Board, launched the Global Trader Program (GTP) in June 2001, a merger of
previous Approved Oil Trader and the Approved International Trader programs. The GTP
encourages global trading companies to use Singapore as their regional or global base to
conduct activities along the total trade value-add chain from procurement to distribution, in
order to expand into the region and beyond (IE Singapore 2005b).
    Companies that qualify for the GTP enjoy a concessionary tax rate of not more than 10%
on offshore trading income from qualifying commodities and products. Companies which are
well-established international players in their industry and responsible for international
trading, procurement, distribution and transportation of qualifying commodities and products
may be considered for the GTP. The applicant is expected to use Singapore as the centre of
its principal offshore trading activities in the region, and a range of business activities and
support functions. Companies approved so far under the GTP have included key players in


REPSF Project 04/009b: Final Country Report – Singapore                                      3
                                                      Enhancing ASEAN Minerals Trade and Investment



the industries of oil trading, petrochemicals, agricultural commodities and metals (IE
Singapore 2005b).
    The list of qualifying commodities and products for the GTP currently includes:
       o energy commodities and products;
       o agricultural commodities and bulk edible products;
       o building and industrial materials;
       o consumer products;
       o industrial products;
       o machinery components;
       o minerals; and
       o electronic and electrical products (IE Singapore 2005b).


G. KEY ISSUES
    The Government is looking to expand the number of trading companies based in
Singapore, including those in the minerals sector. This increasing focus on minerals trading
seeks to capitalise on Singapore’s strategic location close to both mineral resources and
processing operations in nearby countries, and to markets for these products, as well as
Singapore’s excellent port facilities. It would also take advantage of Singapore’s relatively
favourable and stable investment climate compared with nearby countries where the minerals
and/or minerals processing operations may be based.


H. CONSULTATION PROGRAM
   The consultation program in Singapore was conducted by ABARE from 20-23 June 2005.
Organisations and individuals consulted in Singapore are listed in Table 9.4.

                       Table 9.4: Consultation Program – Singapore
Name                     Position                            Organisation
Avryl Lattin             Third Secretary                     Australian High Commission
Kathy Klugman            Acting High Commissioner            Australian High Commission
Jun Yen Teo              Account Manager, Corporate Group    International Enterprise Singapore
                         (International Trading)
Andrew Offen             Marketing Director, Carbon Steel    BHP Billiton
                         Materials
Phillip Crowley          Managing Partner Singapore          Deacons
                         CEO ASEAN Offices
Greg Conlon              General Manager                     Worley Parsons
Michael Dwyer            Economics Editor                    Bloomberg
Adam Grant               Senior Commodity and Trade          ANZ Bank
                         Finance Manager




4                                             REPSF Project 04/009b: Final Country Report – Singapore
Enhancing ASEAN Minerals Trade and Investment



I.   REFERENCES
AFTA (ASEAN Free Trade Area). 2005. ASEAN Trade Data.
      202.154.12.33/trade/publicview.asp
ASEAN Secretariat. 2004. Statistics of Foreign Direct Investment in ASEAN - Sixth Edition.
     Jakarta.
IE    (International Enterprise)          Singapore.      2005a.   Singapore   at       a   Glance.
        www.iesingapore.gov.sg
IE Singapore. 2005b. Global Trader Programme. www.iesingapore.gov.sg
IISI (International Iron and Steel Institute). 2004. Steel Statistical Yearbook 2004.
Tse, P-K. 2004. ‘The Mineral Industry of Singapore’. U.S. Geological Survey Minerals
      Yearbook – 2003. U.S. Geological Survey. Virginia.
Tse, P-K. 2001. ‘The Mineral Industry of Singapore’. U.S. Geological Survey Minerals
      Yearbook – 2001. U.S. Geological Survey. Virginia.
WBMS (World Bureau of Metal Statistics). 2005. World Metal Statistics. April and previous
    editions. Herts.




REPSF Project 04/009b: Final Country Report – Singapore                                          5
Enhancing ASEAN Minerals Trade and Investment
– Thailand
REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                          CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 1
     C.   Minerals production .................................................................................................. 2
     D.   Minerals trade ............................................................................................................ 4
     E.   Investment in the minerals sector............................................................................ 5
     F.   Policy framework ....................................................................................................... 6
     G.   Key issues .................................................................................................................. 8
     H.   The way forward ........................................................................................................ 9
     K.   Consultation program ............................................................................................. 10
     L.   References ............................................................................................................... 11


                                                     LIST OF TABLES


     Table 10.1: Estimated Metallic Mineral Reserves in Thailand ..................................... 1
     Table 10.2: Production of Key Minerals in Thailand..................................................... 2
     Table 10.3: Exports of Key Minerals from Thailand, 2004 ........................................... 4
     Table 10.4: Approved Investment in Thailand’s Minerals Sector................................ 5
     Table 10.5: Major Types of Mining Tenements in Thailand ......................................... 6
     Table 10.6: Consultation Program – Thailand ............................................................ 10


                                                     LIST OF FIGURES


     Figure 10.1: Key Metallic Minerals Production, Thailand, by Volume, 1993–2004 .... 3
     Figure 10.2: Key Minerals Production Trends, Thailand, by Value, 1996–2004......... 4
     Figure 10.3: Key Metallic Minerals Exports, Thailand, by Volume, 1997–2004.......... 5




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ii                   REPSF Project 04/009b: Final Country Report – Thailand
Enhancing ASEAN Minerals Trade and Investment



A. INTRODUCTION
    The Kingdom of Thailand (Thailand) is rich in certain mineral resources, particularly non-
metallic minerals, but also metallic minerals, including copper, lead, iron and gold. Thailand’s
minerals sector is dominated by the production of non-metallic minerals, including limestone,
gypsum, basalt and feldspar, which are largely used domestically to supply the nation’s
industrial sector (Wu 2003). Significant opportunities remain to develop Thailand’s minerals
sector. The sector has, to date, been held back by restrictive investment and minerals
policies and land access issues.
    The minerals sector is a relatively small contributor to Thailand’s economy. In 2004, the
value of non-energy minerals production was equivalent to only 0.3% of Thailand’s gross
domestic product (GDP), equal to its share in 1996. The number of persons employed in the
mining sector in Thailand in 2003 was 13,846. This figure was down from 24,944 in 1996,
and equal to only 0.04% of total employment in Thailand (United Nations 2001; Department
of Primary Industries and Mines 2004a). The bulk of the employment and wealth generation
derived from Thailand’s minerals sector is in non-metallic minerals.
    Land use and environmental issues are particularly sensitive in Thailand. Adequate
consultation between private companies, local communities and the Government is important
to ensure that mining outcomes bring benefits to all. There remains significant potential to tap
the value of Thailand’s mineral resources, particularly non-metallic minerals, but also gold,
copper and other metallic minerals. Recent developments, including the opening of the
Chatree gold mine, herald the potential of the minerals sector to expand and make a greater
contribution to Thailand’s economy.


B. MINERAL RESOURCE BASE
    Thailand is prospective in a number of minerals, particularly non-metallic minerals, but
also certain metallic minerals. The country has an estimated 155 million tonnes of metallic
mineral reserves, including large reserves of copper, iron, lead and gold (Table 10.1).
Thailand has even more significant reserves of non-metallic minerals, including estimated
reserves of 407 billion tonnes of potash and 300 billion tonnes of limestone (United Nations
2001). Thailand’s potash reserves are regionally significant and remain underdeveloped.
Thailand’s gemstones reserves, compared with its neighbours, are estimated to be relatively
insignificant.

                 Table 10.1: Estimated Metallic Mineral Reserves in Thailand
                         Mineral                               Reservesa
                                                                       kt
                          Antinomy                                   422
                          Copper                                  96,518
                          Gold                                     2,746
                          Iron                                    49,850
                          Lead                                     1,000
                          Lead and zinc                            3,000
                          Manganese                                  790
                          Tin                                        337
                          Zinc                                       300
                          Total metallic minerals                154,963
                       a: In-ground ores.
                       kt = thousand tonnes.
                       Source: United Nations 2001.



  Geological maps at the scale of 1:250,000 exist for Thailand, and detailed geological
mapping at the scale of 1:50,000 has been carried out in areas of high potential. However,



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                                                           Enhancing ASEAN Minerals Trade and Investment



scope remains for further discoveries of mineral resources in Thailand. Thailand has a
geological and mineral resources database, and geological information is available from the
Department of Minerals Resources, the body responsible for geosciences in Thailand
(Department of Mineral Resources 2005; United Nations 2001).


C. MINERALS PRODUCTION
   Commercial production of around 40 minerals is currently undertaken in Thailand.
Metallic minerals produced in Thailand include zinc, tin, gold and antimony (Table 10.2).
However, in 2004, 82% of the value of minerals production in Thailand was from non-metallic
minerals, including limestone, gypsum, basalt and feldspar (Department of Primary Industries
and Mines 2005).
   Thailand’s metallic minerals sector has historically been dominated by tin extraction in the
country’s south. A major advance in mining was the introduction of the world’s first offshore
dredging boat in 1907, followed by ongoing tin discoveries. A tin refinery in Phuket was
opened in 1965, and annual production of tin continued to rise, reaching a peak of 46,000
tonnes in 1980. As many as 737 tin mines operated in Thailand during that time, and tin
production contributed up to 90% of the value of minerals production (Tabtieng, Nontaso,
Otarawanna, Yingmahisaranon and Adulyapichit 2002; United Nations 2001).
    In 1985, the International Tin Council imposed export controls on tin and the world tin
price collapsed. Tin production and the number of operating tin mines in Thailand declined
significantly in the following year. Because of this collapse in tin production, the value of
production of non-metallic minerals surpassed that of metallic minerals in 1986 (AllRefer
1987). The situation has not been reversed since.

                    Table 10.2: Production of Key Minerals in Thailand
                                              Volume                   Value            Number of
                                                                                        Operating
                                                                                           Mines
                                            1994             2004          2004             2003
                                               kt               kt    US$ million
       Gold (tonnes)                         0.0              4.5          58.8              2
       Iron ore                            139.8            135.6             1.3            5
       Lead ore                             18.7              0.0             0.0            1
       Tin concentrates                      3.9              0.7             4.4          20a
       Zinc ore                            349.6            199.5          40.9              3
       Total metallic minerals                                            108.6             36
       Total non-metallic minerals                                        487.3            661
        a: Includes tin-tungsten.
        kt = thousand tonnes.
        Sources: Department of Primary Industries and Mines 2005; Bank of Thailand 2005; Department of
        Primary Industries and Mines 2004a.


    Increasing production of non-metallic minerals to feed Thailand’s rapidly growing
industrial sector, including construction, cement, ceramics and glass, has occurred over the
past two decades. Mineral development policy has aimed to “strengthen the foundation of the
national economy and to promote sustainable development”, and has involved a shift from
export-oriented metallic minerals production to domestic-oriented non-metallic minerals
production (United Nations 2001).
    Production of most metallic minerals in Thailand, including tin, has declined since the
early 1990s (Figure 10.1). Lead production ceased as a result of lead contamination in a
creek in Kanchanaburi Province in 2000. Zinc production, which commenced in 1984,
remains important, contributing 38% of the value of metallic minerals production in 2004.
However, the volume of zinc ore in 2004 was less than half that produced in 1993. Gold



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Enhancing ASEAN Minerals Trade and Investment



production, which was revived in 2001 with the opening of the Chatree gold mine, has
become the most important contributor (54%) to the value of metallic minerals output in 2004.
The Chatree mine is the country’s first modern gold mine and one of the lowest cost gold
mining operations in the world (Wu 2003).


     Figure 10.1: Key Metallic Minerals Production, Thailand, by Volume, 1993–2004




          Source: Bank of Thailand 2005.



    The Asian financial downturn had a significant short-term impact on the production of
minerals in Thailand. In 1998, the value of production of non-metallic minerals was 32% less
than in 1997, reflecting the significant slowdown in industrial activity. The value of production
of metallic minerals fell by almost half in 1997, but had recovered by 1998.
     Strong world market prices for key metallic minerals, a recovery in minerals production
following the Asian financial downturn, and gold production from the Chatree gold mine, have
seen the value of metallic minerals production in Thailand increase in recent years (Figure
10.2). The value of production of metallic minerals in Thailand has increased at an average
rate of 14% a year since 1996, outstripping growth in the value of non-metallic minerals
production (6%).
     Key processed mineral products in Thailand include cement, fluorite, refined lead, refined
tin, refined zinc and processed gold. Thailand’s first copper smelter, the construction of which
was delayed by financial problems at the time of the Asian financial downturn, commenced
production in 2004. Thailand also produces significant amounts of iron and steel, primarily
from imported steel scrap.
    Thailand has a major gemstone processing sector, with a strong reputation for the cutting
and treating of gemstones, and the manufacture of jewellery. Minerals to feed Thailand’s
minerals processing sector are supplied from both domestic sources and imports. Despite
being a relatively new industry (Thailand only started polishing diamonds on a large scale in
the 1980s), the diamond polishing industry has grown strongly, producing small, high quality
gemstones to a high standard of cut. There are an estimated 9,000 persons employed in the
industry, currently producing US$500 million in polished diamonds annually (Diamond Facts
2004). Around 180 kilograms of gemstones were produced in Thailand in 2004.




REPSF Project 04/009b: Final Country Report – Thailand                                         3
                                                            Enhancing ASEAN Minerals Trade and Investment



     Figure 10.2: Key Minerals Production Trends, Thailand, by Value, 1996–2004




       Note: Calculated using value in baht.
       Sources: Department of Primary Industries and Mines 2005; United Nations 2001; Department of
       Primary Industries and Mines 2004a.


D. MINERALS TRADE
    Thailand is a net importer of minerals. In 2004, Thailand’s trade deficit in minerals
equalled US$59 million. Major minerals imports include copper, tin ore, tantalite and zinc ore.
The overall contribution of the mining industry to total exports in Thailand was small in 2004
(0.4%), up slightly over the 1996 share (0.3%), largely driven by strong gold exports. The
main mineral commodities exported from Thailand are metallic minerals, including tin, gold,
tantalum and zinc, but also gypsum (Table 10.3). The production of metallic minerals in
Thailand is more export oriented than non-metallic minerals production.

                 Table 10.3: Exports of Key Minerals from Thailand, 2004
                                                            Volume               Value
                                                                 kt         US$ million
                    Gold (tonnes)                               4.5                58.8
                    Iron ore                                   65.2                  2.8
                    Tina                                       14.9               126.9
                    Zinc                                       17.1                19.0
                    Other minerals                                                137.9
                    Total minerals exports                                        345.4
                    Share of total exports (%)                                       0.4
                    a: Includes exports of tin final slag, hard head, metal and tin-lead alloy.
                    kt = thousand tonnes.
                    Source: Department of Primary Industries and Mines 2005.


    Thailand was, during the 1970s, the third largest exporter of tin in the world. Thailand is
now a less important producer of tin concentrates, but exports of tin metal from Thailand
remain significant and have increased in recent years (Figure 10.3). The major importers of
Thai tin metal include Japan, the European Union and the Republic of Korea. Thai zinc
exports have declined in recent years, from 24,000 tonnes in 1997 to 17,000 tonnes in 2004,
and are now largely directed to Viet Nam, Bangladesh and other Asian countries. Significant
gold exports commenced in 2001 and now account for 17% of the value of total minerals
exports from Thailand. Gold from the Chatree mine is currently exported to Hong Kong,
China, for refining. Thailand is one of the world’s leading exporters of cement, feldspar and
gypsum (Wu 2003).




4                                                   REPSF Project 04/009b: Final Country Report – Thailand
Enhancing ASEAN Minerals Trade and Investment



       Figure 10.3: Key Metallic Minerals Exports, Thailand, by Volume, 1997–2004




Sources: Department of Primary Industries and Mines 2005; United Nations 2001; Department of Primary
Industries and Mines 2004a.


    Thailand also undertakes significant trade in iron and steel, with iron and steel exports in
2004 valued at US$2.5 billion in 2004 and iron and steel imports valued at US$5.8 billion
(Board of Investment 2005a). Thailand’s demand for other metals, including refined copper,
lead and primary aluminium, is largely met by imports.
    Jewellery is also an important export from Thailand. In 2004, the gemstones and
jewellery sector was Thailand’s ninth largest export earner, with a value of US$2.6 billion, a
5% increase relative to 2003. Thailand’s gemstone cutting sector is increasingly turning to
inputs from neighbouring countries, Africa and elsewhere in the face of declining domestic
reserves of gemstones. The sector is supported by a liberal import regime (Board of
Investment 2005a).


E. INVESTMENT IN THE MINERALS SECTOR
    Investment in the minerals sector accounts for only a small share of total investment in
Thailand. Since 2001, the value of minerals sector approved investment projects has
accounted for 11% or less of the total number of investment projects in Thailand. This figure
includes energy minerals (Table 10.4).
               Table 10.4: Approved Investment in Thailand’s Minerals Sector
                                                 Unit      2001           2002   2003          2004
Number of minerals investment projects                       18             10     20            35
Share of number of total investment                %          2              1      2             3
projects
Value of minerals investment              US$ million       135             49    412          1,591
Share of value of total investment                 %          2              1      6             11
projects
Note: Approved investment figures include energy minerals and ceramics.
Source: Board of Investment 2005b.


    There have been significant inflows of foreign direct investment (FDI) to Thailand in the
past two decades. Nonetheless, foreign investment in the minerals sector remains below
potential, reflecting restrictions on foreign investment in Thailand’s minerals sector and
licensing issues. In 2003, net FDI to Thailand’s minerals sector was negative (ASEAN
Secretariat 2004a). Only a very small number of foreign investment projects in the minerals
sector have been approved in Thailand, including Kingsgate Consolidated Limited’s
investment in the Chatree gold mine.



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                                                              Enhancing ASEAN Minerals Trade and Investment



    Significant opportunities exist in Thailand’s minerals sector, and there is the potential for
increased investment in the sector over the medium term. Several foreign and local
companies are currently carrying out exploration or feasibility studies in Thailand or awaiting
the results of license applications to carry out mining in copper, potash, gold and other
minerals.


F. POLICY FRAMEWORK
   The minerals sector in Thailand is governed by the Mineral Royalty Rates Act No. 4 of
1966, the Minerals Act of 1967, the Tin Control Act of 1977, the Foreign Business Act of
1999, the Investment Promotion Act (Revision 3) of 2001 and other legislation, including the
Enhancement and Conservation of National Environmental Quality Act of 1992. Mineral
resources in Thailand are owned by the State. The Constitution of Thailand (1997)
recognises the right of local communities to manage natural resources (Adulyapichit 2004).
    1. 1967 Minerals Act
          The Minerals Act, implemented in 1967 and amended a number of times since,
       controls onshore and offshore exploration, minerals production and trading, ore
       dressing, and the transport of minerals in Thailand. There is currently some
       consideration in Thailand being given to reform of the Minerals Act.
          The Department of Primary Industries and Mines, under the Ministry of Industry, is
       the government body responsible for supervision and promotion of the mining industry
       in compliance with the Minerals Act. According to the Minerals Act, applications for
       permissions concerning minerals are divided into several stages (Table 10.5).
       Applications for mining licenses in Thailand are required to be submitted to the
       Ministry of Industry at the provincial level.
                    Table 10.5: Major Types of Mining Tenements in Thailand
     Stage               Mining tenements                    Provisions                         Terms
Mineral              Prospecting Atchayabat         Unexclusive right to conduct     Valid for 1 year.
Prospecting   and                                   prospecting and exploration
Exploration                                         within a specified area of an
                                                    administrative    district or
                                                    province.
                     Exclusive      Prospecting     Exclusive right to conduct       Valid for 1 year. Maximum
                     Atchayabat                     prospecting and exploration      area of 400 hectares
                                                    within a specified area.         (inland).
                     Special Atchayabat             Exclusive right to conduct       Valid for 5 years. Maximum
                                                    prospecting and exploration      area of 1,600 hectares.
                                                    within a specified area.
Mineral              Prathanabata         (Mining   Exclusive right to extract       Valid for up to 25 years.
Development          License)                       minerals with a specified area   Maximum area of 48
                                                                                     hectares (surface mining).
                                                                                     Transferable        upon
                                                                                     approval.
Mineral              Mineral Processing License     Covers the     processing   of   Valid for 3 years and
Processing                                          minerals                         renewable for up to 3
                                                                                     years.
a: A Provisional Prathanabat, valid for 1 year, can also be granted.
Note: Other relevant licenses include Mineral Purchase License, Mineral Storage License, Mineral Possession
License, Mineral Transport License, Mineral Import License, and Mineral Export License.

    2. 2001 Investment Promotion Act (Revision 3)
          The Investment Promotion Act sets forth tax and non-tax incentives for local and
       foreign investors in areas promoted by the Government. The Act lists mining and the



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       manufacture of metals as activities eligible for promotion, and as such companies
       investing in the minerals sector can receive certain privileges (ASEAN Secretariat
       2004b; United Nations 2001). The Board of Investment is empowered to grant a wide
       range of fiscal and non-fiscal incentives, which can include:
        o exemption or reduction of import duties on imported machinery;
        o exemption of import duties on imported raw or essential materials used in the
           manufacturing of export products;
        o exemption of corporate income taxes; and
        o other concessions.
           While mining is included on the list of activities eligible for promotion by the Board
       of Investment, it is not a priority activity. In general, the Board of Investment promotes
       projects that strengthen Thailand’s industrial and technical capability, make use of
       domestic resources, develop basic and support industries, earn foreign exchange,
       contribute to the economic growth of regions outside Bangkok and develop
       infrastructure, which would appear to encompass the mining sector (Board of
       Investment 2004). Concessions are potentially higher for more remote provinces
       (Department of Primary Industries and Mines 2004b). The Investment Promotion Act
       guarantees against nationalization.
    3. 1999 Foreign Business Act
          The 1972 Alien Business Law was replaced by the more liberal Foreign Business
       Act in 1999, and this law came into enforcement in 2000. Under the Foreign Business
       Act, mining is included in ‘List 2’, for which businesses are not permitted for foreigners
       except with permission from the Ministry of Commerce and Cabinet. Foreigners may
       operate a mining business only if Thai ownership of shares is not less than 40% of
       total capital. It is possible for the Ministry of Commerce, with the approval of Cabinet,
       to reduce this requirement, but Thai capital should not be less than 25% and the
       number of Thai directors must be at least 40% of the total number of directors
       (Department of Primary Industries and Mines 2004b). These terms are affected by
       various bilateral trade agreements entered into by Thailand. Under the Thailand-
       Australia Free Trade Agreement, Australian companies can own up to 60% of mining
       ventures in Thailand (Kingsgate Consolidated Limited 2004).
    4. 1966 Mineral Royalty Rates Act No. 4
          Royalty rates in Thailand are determined under the Ministry Royalty Rates Act of
       1966 and subsequent amendments, and generally range from 2% to 10% for the main
       minerals. For lead, zinc, tin and tungsten, there are progressively increasing royalty
       rates, dependent on minerals prices (Department of Primary Industries and Mines
       2004b). Revisions to mineral royalty rates are currently being considered. As of 2001,
       60% of mineral royalties collected in Thailand flowed to local and provincial
       governments (United Nations 2001).
    5. Environmental laws
          The Enhancement and Conservation of National Environmental Quality Act of 1992
       covers a number of issues related to mining, including:
       o   mining projects of any size must submit an environmental impact assessment;
       o   environmental standards, which all mining activities must comply with;
       o   the Office of Environmental Policy and Planning has the authority to designate any
           area as an environmentally protected area in order to control its use; and
       o   the Act established an environmental fund from which miners can borrow for
           environmental mitigation activities (United Nations 2001).
          The Forestry Act of 1941 designates forest and watershed areas as either open to
       or prohibited to mining, and empowers the Royal Forestry Department to permit the
       use of protected land for mining. Prohibited areas include national parks, wildlife



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                                                    Enhancing ASEAN Minerals Trade and Investment



      sanctuaries, watersheds and areas considered as national heritage areas. A
      government resolution for watershed classification in May 1985 prescribed that,
      without exception, all development activity would be prohibited in watershed 1A areas.
      Mining in watershed 1B areas is subject to Cabinet approval (Chandler and Thong-ek
      Law Offices Limited 2001; Department of Primary Industries and Mines 2004b).


G. KEY ISSUES
  A number of issues continue to restrain the growth of Thailand’s minerals sector. The
most important of these issues are discussed below.
    1. Land use
         The most significant issue facing mining companies operating in Thailand at the
      present time is access to land. Difficulty in gaining access to land for mining in
      Thailand reflects a number of underlying factors, including:
      o   a relatively dispersed population;
      o   sensitivity to environmental and social issues related to mining; and
      o   issues associated with consultations with local communities over natural resource
          management.
          The factors above, particularly environmental concerns (discussed further below),
      have resulted in the prioritisation of other sectors (tourism, manufacturing, agriculture
      and services) over the minerals sector in Thailand. Thailand’s development successes
      in recent decades have been built primarily on growth in other sectors. Many sense
      that, because of this growth and the potential of non-minerals sectors to deliver further
      growth in Thailand, the country places little priority on developing a healthy minerals
      sector. Significant development of the minerals sector in Thailand may be dependent
      on a levelling of the playing field across all sectors by the Government of Thailand.
         The ability of communities and local groups to participate in resource management
      decisions in Thailand is strong. Local communities and environmental non-
      governmental organisations in Thailand are well organised and vocal, and have at
      times strongly opposed the development of mineral resources. In some cases, it can
      be difficult for mining companies to successfully consult with local communities, gain
      their approval and secure land access.
         Formal land access restrictions for environmental reasons also constitute a
      significant impediment to mining investment in Thailand. In addition to national parks
      and forests, the classification of certain areas as watersheds has led to many
      prospective areas being made inaccessible for minerals investors.
    2. Environmental concerns
         As discussed above, environmental concerns increase the difficulty of securing
      access to land for mining purposes in Thailand. The reputation of mining in Thailand
      has been seriously damaged by previous environmental abuses by tin, lead and other
      miners in the country. Community distrust of mining operators remains. Despite
      improvements in environmental standards in mining in Thailand, and efforts toward
      community relations and consultations by mining companies, public confidence in the
      sustainability of potential mine development remains low.
    3. Licensing and minerals policies
         The minerals licensing process in Thailand can be protracted and uncertain. The
      absence of any guarantees that a company investing in mineral exploration will be
      given the first right of refusal to mine any economic deposits found increases the risks
      faced by mining companies, and reduces the incentive for private companies to carry
      out exploration activities in the country. This is particularly so when they may be


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Enhancing ASEAN Minerals Trade and Investment



       exposed to significant land access issues after the exploration phase. Restrictions on
       100% foreign investment in Thailand’s minerals sector also reduce the attractiveness
       of investing in the sector. Given that many other countries in the region are more
       prospective in minerals than Thailand, restrictions on investment and licensing
       uncertainties in Thailand are enough to dissuade many investors from investing in the
       country’s minerals sector.
    4. Looking outward
          Given the difficulties faced by the minerals sector in Thailand and the relatively
       underdeveloped mineral resources of several of Thailand’s neighbours, increasing
       attention is being paid to Thai involvement in mining in neighbouring countries.
       Increasing ties between the minerals sectors of Thailand and its neighbours are
       expected to be seen in coming years to the mutual benefit of all. Thailand has already
       benefited significantly from Thai-invested projects in neighbouring countries, for
       example, through the provision of skilled labour and other inputs to Sepon mine in the
       Lao PDR. The move toward increasing Thai participation in the minerals sectors of
       neighbouring countries is a positive step and in line with regional integration and the
       ASEAN Vision 2020. It would be unfortunate, however, if this process reduced focus
       on reforms to improve the investment environment for minerals within Thailand.


H. THE WAY FORWARD
    1. Foster improved dialogue between the mining industry and community
       stakeholders
          Increasing and competing demands for both the utilisation and conservation of
       natural resources provide a challenge for Thailand. Community support for the
       development of mining in Thailand will ultimately depend on the ability of mining
       companies to establish an ongoing dialogue with affected stakeholders and develop
       effective strategies to address environmental, social and community issues. It will also
       be important for development initiatives to be implemented and pursued in partnership
       with local government agencies and communities. Current community resentment of
       the mining sector in Thailand will not dissipate quickly, but will require the mining
       sector to demonstrate that minerals development can be undertaken in a sustainable
       way and that the sector can provide significant benefits to local communities and the
       national economy.
    2. Improve the efficiency of the minerals licensing system
          The investment environment for minerals in Thailand could be greatly enhanced
       through reforms to the licensing system to make it clearer and more efficient, and
       relaxation of restrictions on foreign investment in mining. The establishment of clear
       consultative processes and an efficient, fair and transparent mechanism through
       which to resolve disputes is also required. Reform requires political will. Without this
       political will, it is likely that the minerals sector will remain a relatively small contributor
       to Thailand’s economy.
          Recent developments, including the opening of the foreign-invested Chatree gold
       mine, indicate that Thailand is perhaps on the way to becoming a more welcoming
       and attractive destination for foreign investment in the minerals sector. Consultative
       and efficient management of the sector, and the development of an investment regime
       more attractive to foreign investors, could potentially allow local communities and the
       nation as a whole to share further in the benefits of the sustainable development of
       Thailand’s mineral resources.




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                                                            Enhancing ASEAN Minerals Trade and Investment



K. CONSULTATION PROGRAM
   The consultation program in Thailand was undertaken by Mekong Economics Ltd. from
12-17 June 2005. Organisations and individuals consulted in Thailand are listed in Table
10.6.

                          Table 10.6: Consultation Program – Thailand
Name                       Position                               Organisation
Surapol Udompornwirat      Executive Vice President               Akara Mining Limited
Pieter Bakker              Executive Vice President               Amanta Resources Ltd.
Kieng Mekvasedpun          Managing Director                      Appropriate Technology Consultant Co. Ltd
Germain Bergeron           Business Development Manager           Appropriate Technology Consultant Co. Ltd

Mark Williams              Vice President, Operations             Asia Pacific Potash Corporation
Nadia Krivetz              First Secretary                        Australian Embassy
Nirachara Samanphand       Senior Research Officer                Australian Embassy
Ian Davey                  Counsellor (Commercial) and Trade      Australian Embassy
                           Commissioner, Austrade
Martin Kyle                Executive Director                     Australian-Thai Chamber of Commerce
Chen Shick Pei             Director                               Coordinating Committee for Geoscience
                                                                  Programmes in East and Southeast Asia
                                                                  (CCOP)
Samai Chiamchindaratana    Deputy Director General                Department of Mineral Resources, Ministry
                                                                  of Natural Resources and Environment
Tawsaporn Nuchanong        Director, Geological Resource          Department of Mineral Resources, Ministry
                           Conservation and Management            of Natural Resources and Environment
                           Division
Jittima Utha-aroon         Chief, Economics Section, Geological   Department of Mineral Resources, Ministry
                           Resource Conservation and              of Natural Resources and Environment
                           Management Division
Satien Sukontapongpow      Director, Mineral Resources Bureau     Department of Mineral Resources, Ministry
                                                                  of Natural Resources and Environment
Suraphol Phuvichit         Head                                   Department of Mining and Petroleum
                                                                  Engineering, Faculty of Engineering,
                                                                  Chulalongkorn University
Pinyo Meechumna            Assistant Professor                    Department of Mining and Petroleum
                                                                  Engineering, Faculty of Engineering,
                                                                  Chulalongkorn University
Wichian Plodpradista       Secretary                              Department of Primary Industries and
                                                                  Mines, Ministry of Industry
Nakorn Srimongkol          Mining Engineer                        Department of Primary Industries and
                                                                  Mines, Ministry of Industry
Wisanu Tabtieng            Chief, Mining Enterprise Promotion     Department of Primary Industries and
                                                                  Mines, Ministry of Industry
Douglas Kirwin             Executive Vice President               Ivanhoe Mines Limited
Yongyoth Petchsuwan        Chairman                               Mining Industry Council
Punya Adulyapachit         Former Secretary-General               Mining Industry Council
Chitchai Thaveepanich      Vice President, Human Resources        Padaeng Industry Co., Ltd.
                           and Corporate Administrations
Supavadee Khemacheva       Manager – Trade Administration         Rio Tinto
Ganokpot Angkaew           Geologist                              Santhad Group Co., Ltd.
Marianne Debefve           Officer-in-Charge, Trade Efficiency    United Nations Economic and Social
                           and Facilitation Section, Trade and    Commission for Asia and the Pacific
                           Investment Division
Anatoly Kadushkin          Scientific Affairs Officer, Water      United Nations Economic and Social
                           Resources Section, Environment and     Commission for Asia and the Pacific
                           Sustainable Development Division
                           (formerly Acting Chief, Mineral
                           Resources Section, Environment and
                           Natural Resources Management
                           Division)




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Enhancing ASEAN Minerals Trade and Investment



L. REFERENCES


Adulyapichit, P. 2004. Mining Industry in Thailand, Mining Industry Council. Bangkok.
AllRefer. 1987. ‘Mining’, Country Study and Guide: Thailand.
       http://reference.allrefer.com/country-guide-study/thailand/thailand105.html.
ASEAN Secretariat. 2004a. Statistics of Foreign Direct Investment in ASEAN - Sixth Edition.
     Jakarta.
ASEAN Secretariat. 2004b. Guide Book for Investing in ASEAN: Update 2004. Jakarta.
Bank of Thailand. 2005. Economic Data.
      http://www.bot.or.th/bothomepage/databank/EconData/EconData_e.htm.
Board of Investment. 2005a. Thailand Investment Review, Volume 15, No. 5. May. Bangkok.
Board of Investment. 2005b. Statistics. http://www.boi.go.th/english/about/statistics.asp.
Board of Investment. 2004. A Guide to the Board of Investment, November. Bangkok.
Chandler and Thong-ek Law Offices                    Limited.   2001.   Thai   Mining   Legislation.
      http://www.ctlo.com/tml.htm.
Department of Mineral Resources. 2005. Department of Mineral Resources. January.
      Bangkok.
Department of Primary Industries and Mines. 2005. 2003-2004 Statistics. Bangkok.
Department of Primary Industries and Mines. 2004a. Mineral Statistics of Thailand 1999-
      2003. First Edition. September. Bangkok.
Department of Primary Industries and Mines. 2004b. Mining in Thailand: An Investment
      Guide. August. Bangkok.
Diamond Facts. 2004. Diamond Industry Report. Canada: Northwest Territories Department
      of Industry, Tourism and Investment. http://www.iti.gov.nt.ca/diamond/industry.htm
Kingsgate Consolidated Limited. 2004. Sustainability Report. Sydney.
Tabtieng, W., Nontaso, M., Otarawanna, P., Yingmahisaranon, N. and Adulyapichit, P. 2002.
       ‘Challenges and current status of the mining industry and regulatory regime of
       Thailand’, Policies, Regulatory Regimes and Management Practices for Investment
       Promotion and Sustainable Development of Mineral Resources Sector in Economies
       in Transition and Developing Countries of East and Southeast Asia. United Nations
       Economic and Social Commission for Asia and the Pacific. New York.
United Nations. 2001. Mineral Resources of Thailand. Economic and Social Commission for
       Asia and the Pacific. New York.
Wu, J.C. 2003. ‘The Minerals Industry of Thailand’. U.S. Geological Survey Minerals
      Yearbook – 2003. U.S. Geological Survey. Virginia.




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Enhancing ASEAN Minerals Trade and Investment
– Viet Nam

REPSF Project No. 04/009b




Final Country Report
December 2005




The views expressed in this report are those of the authors, and not necessarily those of the ASEAN Secretariat
                                       and/or the Australian Government.
Enhancing ASEAN Minerals Trade and Investment



                                                          CONTENTS


CONTENTS.............................................................................................................................. I
LIST OF TABLES .................................................................................................................... I
LIST OF FIGURES................................................................................................................... I
     A.   Introduction................................................................................................................ 1
     B.   Mineral resource base............................................................................................... 1
     C.   Minerals production .................................................................................................. 2
     D.   Minerals trade ............................................................................................................ 3
     E.   Investment in the minerals sector............................................................................ 4
     F.   Policy framework ....................................................................................................... 5
     G.   Key issues .................................................................................................................. 7
     H.   The way forward ........................................................................................................ 8
     I.   Consultation program ............................................................................................... 9
     J.   References ............................................................................................................... 10


                                                     LIST OF TABLES


     Table 11.1: Estimated Metallic Mineral Resources in Viet Nam .................................. 1
     Table 11.2: Production of Key Minerals in Viet Nam, 2004 .......................................... 2
     Table 11.3: Exports of Key Minerals and Metals from Viet Nam ................................. 3
     Table 11.4: Investment in Viet Nam’s Minerals Sector, 2000–2004............................. 4
     Table 11.5: Major Types of Mining Tenements in Viet Nam......................................... 5
     Table 11.6: Consultation program – Viet Nam .............................................................. 9


                                                    LIST OF FIGURES

     Figure 11.1: Key Minerals Production, Viet Nam, by Volume, 2000–2004.................. 3




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                               Enhancing ASEAN Minerals Trade and Investment




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ii                      REPSF Project 04/009b: Final Country Report – Viet Nam
Enhancing ASEAN Minerals Trade and Investment



A. INTRODUCTION
    The Socialist Republic of Viet Nam (Viet Nam), a country rich in mineral resources, has a
relatively underdeveloped minerals sector. Viet Nam has opened its doors to foreign
investment since doi moi in 1986, but the door for minerals sector investment has opened
much more slowly than those for other sectors. Foreign direct investment (FDI) in Viet Nam’s
minerals sector has been curtailed largely by the Department of Geology and Minerals
through their delays in issuing licenses.
    As a result of the negligible level of foreign investment in the minerals sector in Viet Nam,
and a lack of resources and access to technology, Viet Nam’s potential mineral resources
remain largely unrealised. While the production of a number of metallic minerals, including
bauxite, copper, gold, lead, tin, titanium ore, iron ore and zinc, is carried out in the country,
the industry is dominated by small-scale mining operations.
    In 2003, the minerals sector contributed 1% of Viet Nam’s gross domestic product (GDP),
up from 0.5% in 2000. A large share of the value of minerals production was in non-metallic
minerals, notably construction materials. The minerals sector is also a small contributor to
total employment in Viet Nam. In 2003, the sector employed around 77,000 persons,
equivalent to 0.2% of total employment, a share unchanged since 2000 (General Statistics
Office 2005a; 2005b).
    Recent developments, including the granting of a mining license to a Canadian-invested
joint venture, indicate that the outlook for Viet Nam’s minerals sector may be improving.
There are several significant mineral projects in Viet Nam currently at the pre-development
stage. These projects have the potential to generate significant wealth and other benefits for
Viet Nam and, in particular, in the nation’s remote provinces that have limited employment
opportunities.


B. MINERAL RESOURCE BASE
    Available data suggest that the potential mineral resources of Viet Nam include an
estimated 5 billion tonnes of metallic minerals. Significant bauxite resources in the south of
the country contribute 84% of Viet Nam’s estimated metallic mineral resources, by volume.
Other metallic minerals located in Viet Nam include chromite, copper, gold, iron ore, zinc,
nickel and tin (Table 11.1). However, data on mineral reserves in Viet Nam are weak and
should be treated with caution.

               Table 11.1: Estimated Metallic Mineral Resources in Viet Nam
                         Commodity                                      Resourcesa
                                                                                    mt
                           Bauxiteb                                          4,175.0
                           Chromite                                              20.8
                           Copper                                                  0.8
                           Gold (tonnes)                                          400
                           Iron orec                                           758.7
                           Nickel                                                  0.1
                           Manganese ore                                           4.7
                           Tin                                                     0.1
                           Zinc and lead                                           0.7
                           Total metallic minerals                           4,993.4
                a: In-ground ores. Does not include ‘possible resources’; b: Washing would concentrate the ore
                to 2.5 billion tonnes of grading at 48-50% alumina equivalent; c: In-ground ores grading greater
                than 50% iron. The largest deposit (Thach Khe) contains 544 million tonnes at 61% iron but has
                elevated zinc levels which present metallurgical problems.
                mt = million tonnes.
                Source: Trinh Xuan Ben and Pham Ngoc Son 2002.



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                                                          Enhancing ASEAN Minerals Trade and Investment



    Geological maps exist for Viet Nam at the 1:500,000 scale, and at the 1:50,000 scale for
some areas of the country. Many of the mineral deposits in Viet Nam have not been
evaluated beyond the geological exploration stage and much of the geological information in
Viet Nam is not available to potential investors.
   Viet Nam’s potential bauxite deposits are estimated to be among the largest in the world.
Aside from bauxite, most mineral reserves in Viet Nam occur in the north of the country. Viet
Nam has sizeable reserves of non-metallic minerals, including one of the world’s largest
reserves of phosphate, as well as pyrophyllite, gemstones, silica sand, cement and
construction materials (Le Van De and Nguyen Van Quy 1999). The deposits with the
greatest geological potential in Viet Nam are the phosphate deposits in the north of the
country and the bauxite deposits in the country’s south.


C. MINERALS PRODUCTION
    Production of metallic minerals in Viet Nam includes bauxite, copper, lead, tin, titanium
ore, iron ore, gold and zinc (Table 11.2). In 2004, 1,137 enterprises were active in the
minerals sector, the vast majority of these engaged in the extraction of non-metallic minerals.
Around 55% of the total value of minerals production came from non-metallic minerals,
including phosphate rock and small-scale quarrying of stone, sand and clay for use in
construction. The production of metallic minerals in Viet Nam is dominated by state-owned
enterprises, with no large-scale mine currently in operation. Viet Nam is one of the region’s
leading producers of ilmenite, phosphate rock and zinc ores and concentrates (Wu 2004).

                Table 11.2: Production of Key Minerals in Viet Nam, 2004
                                                   Volume         Valuea      Number of
                                                                             Enterprises
                                                         kt   US$ million
               Bauxite                                 86.2        24.1                2
               Chromite                                95.0           4.8              3
               Copper                                   5.3           2.4              2
               Iron                                   760.0        46.0               34
               Lead                                    15.2           2.6              9
               Tin                                      7.5        14.2                4
               Titanium                               370.0       122.0               28
               Zinc                                    80.5        13.3                7
               Total metallic minerals                            269.5              116
               Total non-metallic minerals                        327.3             1021
             a: Value of minerals sales.
             Note: Figures are for ores.
             kt = thousand tonnes.
             Source: General Statistics Office 2005b.


    The value of metallic minerals production in Viet Nam has increased in recent years, from
US$70 million in 2000 to US$270 million in 2004. This has been underpinned to a large
extent by the strong growth in production of titanium ore, and rising minerals prices (Figure
11.1). The value of production of metallic minerals has increased at a faster rate than that for
non-metallic minerals since 2000.
    Production of processed minerals in Viet Nam includes steel and limited processing of tin,
gold and other minerals. Iron ore mines in the country’s north supply iron ore to the country’s
steel plants, including those of the state-owned Thai Nguyen Steel Company. Viet Nam’s
steel sector is constrained by the relatively small-scale iron ore production in the country
(Stat.USA 2001). In 2003, steel production in Viet Nam was 2.7 billion tonnes, 34% of which
was produced by the State sector (General Statistics Office 2005a). The state-owned




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VIMICO is currently planning several new processing projects in the country, including a
copper smelter in Sin Quyen, Lao Cai province.


         Figure 11.1: Key Minerals Production, Viet Nam, by Volume, 2000–2004




            Source: General Statistics Office 2005b



D. MINERALS TRADE
    The bulk of the minerals produced in Viet Nam is for domestic use. In 2003, Viet Nam
exported US$48 million of metallic ores and concentrates (Table 11.3). Titanium, chromite
and zinc are the main ores and concentrates exported from Viet Nam. In 2003, Viet Nam also
exported US$272 million of metals and articles thereof, dominated by iron, steel and
aluminium, but also including zinc and tin metal exports. Minerals input to metals production
in Viet Nam was supplied both domestically and imported.
     Exports of minerals ores and concentrates accounted for 0.2% of the total value of
exports from Viet Nam in 2003, with metals exports contributing a further 1.3%. China is the
major market for Viet Nam’s minerals exports (General Statistics Office 2005b). Ilmenite
(titanium) is exported mainly to Japan (Wu 2001).

               Table 11.3: Exports of Key Minerals and Metals from Viet Nam
          Commodity                                        2001          2002          2003
                                                      US$ million   US$ million   US$ million
          Ores and Concentrates                            45.6          37.5          48.3
          Chromite                                            3.4           2.9           8.1
          Titanium                                         13.4          12.3          19.5
          Lead                                                0.1           0.5           0.8
          Manganese                                           0.2           0.6           2.3
          Zinc                                                5.4           6.9           6.9
          Metals (including articles of)                  158.7         204.3         271.9
          Aluminium                                        14.2          23.7          41.4
          Iron and steel                                  118.7         148.3         200.1
          Tin                                              12.2          10.8          14.1
          Zinc                                                2.9        11.3             7.2
          Total minerals and metals exports               204.3         241.7         320.2
          Share of total exports (%)                          1.4           1.4           1.6
          Source: General Statistics Office 2005b.


    Viet Nam remains a net importer of metals. In 2003, Viet Nam imported US$1.8 billion of
iron and steel, primarily from China, Japan, the Russian Federation and Chinese Taipei
(General Department of Customs 2005). In the same year, and despite Viet Nam’s significant


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                                                                Enhancing ASEAN Minerals Trade and Investment



bauxite resources, Viet Nam imported US$271 million of aluminium and articles thereof.
Other important metals imports include copper, zinc, lead and gold (General Statistics Office
2005b; Wu 2003).


E. INVESTMENT IN THE MINERALS SECTOR
    Only a small fraction of total investment in Viet Nam flows to the minerals sector. In 2004,
enterprises operating in the minerals sector invested US$81.7 million, the majority of this
investment directed to non-metallic minerals (Table 11.4). This figure does not include
exploration expenditure by enterprises not involved in production. Investment in the minerals
sector has increased in recent years on the back of strong economic growth and strong
demand for raw materials to feed into Viet Nam’s expanding construction sector and,
significantly, in response to China’s growing demand for minerals. Nonetheless, relative to
Viet Nam’s high mineral prospectivity, investment in Viet Nam’s minerals sector remains
small.
    During the central planning period in Viet Nam, only state-owned enterprises were
involved in mining and mineral processing activities (Trinh Xuan Ben and Pham Ngoc Son
2002). While ownership has been diversified, the sector continues to be dominated by state-
owned enterprises. The Government’s policy-oriented Development Assistance Fund,
domestic banks and external sources, including the Export-Import Bank of China, have been
the main sources of finance to the minerals sector in Viet Nam (Wu 2003).
     While foreign investment to other sectors, such as manufacturing and services, has
increased rapidly in the past decade, foreign investment in Viet Nam’s minerals sector has
remained insignificant. Only a small number of foreign-invested enterprises currently operate
in the sector, accounting for less than 4% of minerals sector investment in 2004 (Table 11.4).
The majority of this investment is in non-metallic minerals, excluding ongoing exploration
investments of mining companies that are not yet involved in production. Foreign interest in
investing in the development of Viet Nam’s minerals sector has been strong, but many
foreign companies have been deterred by a number of weaknesses in the current regulatory
regime and the difficulties associated with obtaining mining licenses in Viet Nam.

                Table 11.4: Investment in Viet Nam’s Minerals Sector, 2000–2004
    Sectors                                     2000            2001          2002          2003          2004
                                           US$ million     US$ million   US$ million   US$ million   US$ million
    Metallic minerals                              2.8             1.8           9.7           6.1         11.1
    Non-metallic minerals                       20.0            33.2          56.5          60.8          70.6
    Total minerals sector                       22.8            35.0           66.2          66.9          81.7
    Of which: foreign invested                     0.3             2.2           0.9           3.8           3.4
    Share of minerals sector
    investment in total investment (%)                0.2         0.3           0.5           0.4           0.5
    Note: Figures refer to investment by enterprises currently involved in production. Exploration expenditure by
    companies not involved in production is not included.
    Source: General Statistics Office 2005b.


    In mid-2005, the Canadian company Tiberon Minerals Limited, in joint venture with two
Vietnamese partners, joined the few foreign companies to hold a mining license in Viet Nam.
The company is positioned to become the world’s largest primary tungsten producer (Tiberon
Minerals Limited 2005).
     There are significant opportunities for investment in Viet Nam’s minerals sector. The
Government is encouraging foreign investment in several projects, such as the development
of the Thach Khe iron ore deposit and the vast bauxite deposits in southern Viet Nam. BHP
Billiton is among those currently interested in developing Viet Nam’s southern bauxite
deposits and an alumina refinery, an investment that could total more than US$1 billion.



4                                                        REPSF Project 04/009b: Final Country Report – Viet Nam
Enhancing ASEAN Minerals Trade and Investment



F. POLICY FRAMEWORK
   Viet Nam’s minerals sector is governed by the 1996 Minerals Law, the 1996 Law on
Foreign Investment, the 1994 Law on Environmental Protection and other relevant
regulations. Article 17 of the 1992 Constitution stipulates that mineral resources are State
property and belong to all people (Trinh Xuan Ben and Pham Ngoc Son 2002). Foreigners
cannot own land in Viet Nam.
    1. 1996 Mineral Law
            A new Mineral Law was enacted in 1996, replacing the Ordinance on Mineral
        Resources of 1989. During the same year, the Geological Survey of Viet Nam and the
        State Department for Management of Mineral Resources were merged to form the
        Department of Geology and Minerals of Viet Nam (DGMV). The DGMV was moved
        from the Ministry of Industry to the Ministry of Natural Resources and Environment in
        2002. The DGMV is responsible for registering, monitoring and reviewing all
        geological and mining activities within the country. The Ministry of Industry remains
        responsible for the activities of state-owned mining companies. The Mineral Law has
        been supplemented by a variety of subsequent decisions, circulars and Decrees
        covering aspects such as royalties, environmental rehabilitation and payment for use
        of state-owned data.
            Decree No. 76/2000-ND-CP in December 2000 resulted in a change in some of the
        licensing conditions for mining tenements in Viet Nam. Current conditions are
        presented in Table 11.5. The Decree also reduced the number of days for examining
        license applications from 60 to 45, and from 90 to 60 for foreign enterprises (Trinh
        Xuan Ben and Pham Ngoc Son 2002).

                  Table 11.5: Major Types of Mining Tenements in Viet Nam
      Stage             Mining tenements                   Provisions                            Terms
Mineral             Mineral Prospecting License   Non-exclusive right to conduct      Valid for 1 year, renewable
Prospecting                                       prospecting within a specified      up an additional year for
                                                  area.                               prospecting areas larger
                                                                                      than 100km2. Maximum
                                                                                                        2
                                                                                      area of 2,000 km .
Mineral             Mineral Exploration License   Exclusive right to conduct          Valid    for    2      years,
Exploration                                       exploration activities within a     renewable by 2 years.
                                                                                                                  2
                                                  specified area. A ‘special’ right   Maximum area 100 km
                                                  to apply for a Mineral Mining       (precious     metals)    and
                                                  License.                            200km2       (metals).     A
                                                                                      maximum of 5 licenses
                                                                                      may be held.
Mineral             Mineral Mining License        Exclusive right to extract          Valid  for    30    years,
Development                                       minerals with a specified area      renewable by 20 years.
Mineral             Mineral Processing License    Covers the processing of            -
Processing                                        minerals when not covered by
                                                  a Mineral Mining License
  Note: Based on Decree No. 76/2000/ND-CP dated 15 December 2000. This Decree was active at the time of
  writing. A new Decree may be introduced during late 2005.
  Sources: Trinh Xuan Ben and Pham Ngoc Son 2002, Le Van De and Nguyen Van Quy 1999.


           In June 2005, Viet Nam’s National Assembly passed a revised Mineral Law with
        the aim of strengthening the effectiveness of the law and improving its suitability in
        practice. The revised law came into effect in October 2005. The revisions are minor
        and include some decentralisation of responsibilities from central to provincial
        authorities, particularly for construction materials. The implementing decree of the
        revised law may include some changes to existing licensing conditions, including a



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                                                    Enhancing ASEAN Minerals Trade and Investment



      possible reduction in the size of area limits for minerals prospecting and exploration
      licenses. Existing minerals license terms are presented in Table 11.5.
         The Ordinance on Royalty Tax 1998 set royalty rates which range from 1-5%, and
      3-8% for gemstones (Trinh Xuan Ben and Pham Ngoc Son 2002). The export of
      minerals is at the discretion of the Government (Freehills 2004).
    2. 1996 Law on Foreign Investment
          The first Law on Foreign Investment in Viet Nam was promulgated by Viet Nam’s
      National Assembly in December 1987. After being amended twice, the law was
      rescinded and replaced by a new law in November 1996. The new law was amended
      again in May 2000, with the objective of improving the attractiveness of the investment
      environment in order to counter the decline in levels of FDI following the Asian
      financial downturn. The Law and its amendments and supplements are detailed in
      government Decree Number 24/2000/ND-CP issued on 31 July 2000. Key
      amendments included:
       o   reducing risks related to land rights by shifting responsibility for compensation and
           land clearance from foreign to Vietnamese partners;
       o   allowing FDI enterprises to mortgage their Vietnamese land assets to raise
           capital;
       o   providing greater freedom to investors to change their forms of investment,
           reorganise enterprises, and transfer capital;
       o   reductions in profit remittance tax rates; and
       o   allowing 100% foreign-owned enterprises and foreign partners involved in joint
           ventures to carry forward losses for tax purposes.
        In March 2003, a new Decree (No. 27/ND-CP) was promulgated which provided
      some enhancement to the year 2000 Decree, including:
      o  allowing the creation of new joint ventures between existing 100% foreign-owned
         enterprises and Vietnamese enterprises;
      o  enabling existing wholly foreign-owned companies to cooperate with other foreign
         investors to create new enterprises; and
      o  simplifying investment approval procedures.
         Investment licenses for enterprises in the minerals sector are only granted after the
      exploration stage, and are based on the feasibility study completed prior to an
      application for a mining license. These licenses are issued by the Ministry of Planning
      and Investment. Prospective investors in the extraction or processing of rare and
      precious metals are required to operate with a Vietnamese partner through a business
      cooperation contract or a joint venture (Freehills 2004; ASEAN Secretariat 2004).
          Viet Nam lists certain mining projects as priority investments under Decision 62-
      2002-QD-TTg of 2002. Exploration, mining and processing of minerals are included on
      the list of ‘encouraged’ investment projects in Viet Nam, but are not covered on the list
      of ‘specially encouraged’ projects (ASEAN Secretariat 2004). Projects in mountainous
      areas in Viet Nam are also prioritised; these areas also coincide with the most
      prospective mineral deposits. As a result, foreign-invested mining firms can enjoy
      incentives such as reduced corporate income tax and tax holidays.
         The revised Law on Corporate Income Tax adopted in July 2003 was a move to
      create a more level playing field for domestic and foreign-invested enterprises by
      applying a common corporate income tax rate and eliminating remittance tax for
      foreign-invested enterprises (ASEAN Secretariat 2004).




6                                            REPSF Project 04/009b: Final Country Report – Viet Nam
Enhancing ASEAN Minerals Trade and Investment



G. KEY ISSUES
    In comparison with the active petroleum sector, Viet Nam has had limited success in
attracting foreign investment in the minerals sector. This is primarily because of the
reluctance to move forward in creating a legal and operating framework conducive to large-
scale mining activities. This reluctance reflects a lingering concern about foreign involvement
in the utilisation of scarce natural resources in Viet Nam, and a lack of experience in, and
understanding of, the benefits of developing a healthy mining sector. A number of issues
need to be addressed if Viet Nam is to see significant developments in the sector. The most
important of these are discussed here.
    1. 1996 Mineral Law
           The 1996 Mineral Law is considered vague, ineffective, and lagging behind
       international standards by many potential investors, even after the recent revision.
       Consequently, the Law does not provide adequate protection to foster large capital
       commitments on their part. The International Finance Corporation and World Bank
       worked to develop and propose a new Mineral Law for Viet Nam in 2000. The work of
       donors has not translated into tangible improvements in Viet Nam’s Mineral Law,
       however.
           Under the Mineral Law, exploration licenses are only valid for 2 years (extendable
       to 4), which is short by international standards, and in many cases does not allow
       sufficient time for effective mineral exploration activities and feasibility studies to be
       carried out. The maximum area for exploration (100 square kilometres for precious
       metals and 200 square kilometres for other metals) is also small relative to countries
       with large and buoyant mining sectors, particularly given the relatively weak geological
       information available in Viet Nam. These area and temporal limitations act as
       significant constraints on exploration, and increase the already high risks associated
       with mineral exploration. The non-exclusive nature of prospecting licenses also
       reduces the security of minerals investments in Viet Nam. Restrictions on exports of
       certain mineral products in Viet Nam, aimed at encouraging domestic processing, also
       impede the development of the sector. Some areas of overlap also exist in the division
       of responsibilities between the Ministry of Industry and the Ministry of Natural
       Resources and Environment. The Mineral Law also does not provide an automatic
       right to convert from an exploration license to a mining license in the event of a
       commercial mineral discovery.
    2. Investment licensing
          Currently, investment licenses are not granted at the same time as exploration
       permits. Investors must wait until the mining phase to secure an investment license.
       The effect of this is that exploration investors do not have the legal rights and
       protection afforded under the Foreign Investment Law. Similarly, financial obligations
       remain unclear until an investment license is granted, exposing investors to
       uncertainty in relation to tax and other legal liabilities. Such issues underpin the view
       that Viet Nam is a relatively risky destination for minerals sector investment.
    3. Minerals licensing
          The process for obtaining exploration and mining licenses in Viet Nam is extremely
       slow. While exploration license applications are officially required to be processed in,
       at most, 60 days, there have been cases of mining companies waiting 10 years or
       more for license approvals in Viet Nam. The Department of Geology and Minerals’
       approach to granting licenses is a strong deterrent to investment in the minerals sector
       in Viet Nam. This issue needs to be addressed if further development of the sector is
       to be seen in the future.




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                                                      Enhancing ASEAN Minerals Trade and Investment



    4. Infrastructure
           Viet Nam has made significant improvements in the supply of infrastructure in
       recent years, which has facilitated rapid GDP and export growth in the country.
       Transport infrastructure, including roads and ports, has improved significantly, and
       work is ongoing. The Greater Mekong Sub-region East West corridor will include Viet
       Nam as the eastern seas link of the network. Despite progress in infrastructure
       development in Viet Nam, many areas remain poorly connected to transport networks.
       Given that the majority of Viet Nam’s mineral resources are located in remote
       provinces, infrastructure is a particularly important issue. Electricity services are also
       unreliable, which can pose a problem for the operation of mining projects.
    5. Financial system and human resources
          Viet Nam lacks access to venture capital to fund exploration and development in
       the minerals sector, and the financial system is not yet geared toward mobilising
       investments of the scale required for mining operations. This domestic capital
       constraint implies that foreign injections of funds to the sector are particularly vital.
          Viet Nam has a well-developed service industry for minerals exploration in terms of
       geologists and related services, although the quality of training in geology and other
       related fields could be improved, together with exposure to more advanced
       technologies.
    6. State-owned enterprises
           State-owned enterprises maintain a privileged position in Viet Nam’s minerals
       sector. The development of certain minerals, including gemstones and gold, is limited
       to state-owned enterprises. Many minerals sector state-owned enterprises in Viet Nam
       are unprofitable, capital-constrained and use outdated technologies.
    7. Risks
           The Westralian Sands pull-out from a joint venture in ilmenite mining in 1996, after
       a high-profile dispute, illustrates the difficulties faced by investors in securing licenses
       and other factors in Viet Nam, which have meant that Viet Nam is often considered a
       risky destination for minerals sector investment. On the other hand, political risk in Viet
       Nam is low. Business Monitor International (2005) ranks Viet Nam second of all
       ASEAN Member Countries in its short-term political rating.
    8. Other issues
          Reliable geological data are difficult to access for potential investors in Viet Nam.
       Other information, including basic data on the minerals sector, is also not available in
       a user-friendly form.
          Illegal mining has been reported to have caused significant environmental damage
       in certain cases in Viet Nam. Such unregulated activities have also had several
       negative social effects (Nguyen Tien Phuong 1997; Kuo 1996; 1997).


H. THE WAY FORWARD
    1. Increase regulatory certainty
           Improvements in the regulatory and administrative regimes affecting the minerals
       sector could create the conditions to foster expansions in minerals investment, similar
       to those that have occurred in the petroleum, gas and manufacturing sectors in Viet
       Nam. Reforms to reduce risks associated with mineral exploration, by increasing the
       size and duration of exploration licenses, allowing for automatic extensions of licenses
       and providing an investment license to cover exploration activities, would be
       welcomed by minerals sector investors. The removal of uncertainties surrounding the



8                                              REPSF Project 04/009b: Final Country Report – Viet Nam
Enhancing ASEAN Minerals Trade and Investment



        granting of mining licenses and the ability to convert from exploration licenses to
        mining licenses would also be beneficial. Such moves would not require an overhaul
        of current minerals legislation, but reforms targeted to specific areas of the regulatory
        framework.
     2. Increase the provision and reliability of geoscientific data
            In order for the Government of Viet Nam to attract more minerals sector
        investment, more attention should be given to providing basic geological and other
        information to potential investors, ideally in electronic form. Further work is also
        required to ensure that the assessment and reporting of reserves are compatible with
        international standards.
     3. Provide an environment conducive to foreign investment
           The effect of any improvements in the regulatory environment concerning minerals
        in Viet Nam needs to be reinforced by renewed commitment to minerals development
        and the role of foreign investment in Viet Nam’s economic growth strategy. To ensure
        an efficient minerals sector, it is also important for Viet Nam to continue on the path of
        equitising state-owned enterprises and ensuring a level playing field for all investors.
        Potential benefits for Viet Nam from such a renewed commitment, particularly to
        remote and economically disadvantaged communities in Viet Nam’s mountainous
        areas, are considerable.
            The Government should also ensure that appropriate conditions are in place for
        private investors to invest in infrastructure in the country, including roads, railroads,
        waterways and sea ports.


I.   CONSULTATION PROGRAM
    The consultation program in Viet Nam was undertaken by Mekong Economics Ltd. from
4-8 July 2005. Organisations and individuals consulted in Viet Nam are listed in Table 11.6.

                         Table 11.6: Consultation program – Viet Nam
Name                       Position                           Organisation
David Woodhouse            Chief Executive Officer            Asian Minerals Resources
Michael Growder            First Secretary (Economics and     Australian Embassy
                           Trade)
Hung Dinh                  Senior Business Development        Australian Embassy
                           Manager, Austrade
Rick Smith                 Country Chief Representative and   BHP Billiton Aluminium Vietnam
                           Project Director
James Merrillees           Exploration Director               BHP Billiton Aluminium Vietnam

Trinh Minh Cuong           Chief, Mineral Title Division      Department of Geology and Minerals
Nguyen Xuan Hop            Deputy Director, International     Department of Geology and Minerals
                           Cooperation Division

Bui Thi Huyen              Officer In Charge, International   Department of Geology and Minerals
                           Cooperation Division
-                          -                                  General Statistics Office
Christopher Roberts        Visiting Associate                 Institute of Defence and Strategic Studies,
                                                              Singapore
Nigel Tamlyn               General Director                   Nui Phao Mining Joint Venture Company
-                          -                                  Vietnam Development Information Centre
Le Tri Hung                General Manager, International     Vietnam National Coal Corporation
                           Relations                          (VINACOAL)
Steven Harnish             Exploration Manager                Vietnam Resources Corporation
-                          -                                  Zedex Minerals Limited
Robert McLean              Independent Consultant             -



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                                                     Enhancing ASEAN Minerals Trade and Investment



J. REFERENCES
ASEAN Secretariat. 2004. Guide Book for Investing in ASEAN: Update 2004. Jakarta.
Business Monitor International. 2005. The Vietnam Business Forecast Report. Q3. London.
Freehills. 2004. Vietnam Legal Update. February/March.
        http://www.freehills.com.au/print/publications_2194.html.
General Department of Customs. 2005. ‘Trade Statistics’, Vietnam Economic News. No. 27,
      Vol. 5, July 5. Ministry of Trade. Ha Noi.
General Statistics Office. 2005a. Socio-Economic Statistical Data of 64 Provinces and Cities.
      Statistical Publishing House. Ha Noi.
General Statistics Office. 2005b. Requested Data. Ha Noi.
Kuo, C.S. 1997. ‘The Mineral Industry of Vietnam’. U.S. Geological Survey Minerals
      Yearbook – 1997. U.S. Geological Survey. Virginia.
Kuo, C.S. 1996. ‘The Minerals Industry of Vietnam’. U.S. Geological Survey Minerals
      Yearbook – 1996. U.S. Geological Survey. Virginia.
Le Van De and Nguyen Van Quy.1999. ‘Current status of mineral resources assessment and
      development in Viet Nam’. Integrated Assessment and Development of Mineral
      Resources in the Greater Mekong Subregion. United Nations Economic and Social
      Commission for Asia and the Pacific. New York.
Nguyen Tien Phuong. 1997. ‘Environment policies and regulations for mining in Viet Nam’,
      Environmental Policies, Regulations and Management Practices in Mineral
      Resources Development in Asia and the Pacific. United Nations Economic and Social
      Commission for Asia and the Pacific. New York.
Stat.USA. 2001. Overview Of The Steel Industry (Vietnam).
Tiberon Minerals Limited. 2005. http://www.tiberon.com/.
Trinh Xuan Ben and Pham Ngoc Son. 2002. ‘Current status of the mining industry and legal
       and regulatory regime on minerals in Viet Nam’, Policies, Regulatory Regimes and
       Management Practices for Investment Promotion and Sustainable Development of
       Mineral Resources Sector in Economies in Transition and Developing Countries of
       East and Southeast Asia. United Nations Economic and Social Commission for Asia
       and the Pacific. New York.
Wu, J.C. 2004. ‘The Mineral Industry of Vietnam’. U.S. Geological Survey Minerals Yearbook
       – 2004. U.S. Geological Survey. Virginia.
Wu, J.C. 2003. ‘The Mineral Industry of Vietnam’. U.S. Geological Survey Minerals Yearbook
       – 2003. U.S. Geological Survey. Virginia.
Wu, J.C. 2001. ‘The Mineral Industry of Vietnam’. U.S. Geological Survey Minerals Yearbook
       – 2001. U.S. Geological Survey. Virginia.




10                                            REPSF Project 04/009b: Final Country Report – Viet Nam

				
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Description: Inorganic minerals is the general term for the human body. Is a compound naturally found in the crust or natural elements. Minerals and vitamins, is essential element of the human body, minerals are not self-generated, synthetic, daily intake of minerals is essential to determine, but age, sex, physical condition, environment, working conditions and other factors are different.