Tuesday, April 16, 2013

Mining Law - Possible Value Addition Requirements

The Government of the Sultanate of Oman's emphasis on diversification and increased role of the non- Oil and Gas sectors in the national economy has recently led to a focus on the mining industry in the country.

In this respect, Government officials have recently been quoted by newspapers as saying that mining companies operating in Oman should undertake value addition of the extracted minerals within Oman before exporting such minerals.

The objective behind any value addition policy is clearly to increase industrialization in the country and to create new job opportunities. Nevertheless, if a policy of this nature is formally announced and implemented, it will impact the existing mining license holders and those aspiring to obtain such licenses in the future and therefore mining companies should work closely with their advisors and relevant Government authorities to stay abreast of any such developments.

There is no new law or regulation that currently prevents the export of raw minerals or imposes obligations on mining companies to undertake value addition (to any specified degree) before exporting the extracted minerals. However, given the recent renewed interest of Government stakeholders in this subject, it is possible that Oman might have a new Mining Law during 2013 which could potentially address issues such as the value addition criteria for export of minerals extracted in Oman. It is possible that a draft of this potential new law/regulation will be made available to the stakeholders/private sector for consultation.

It is possible that any value addition requirement could initially be minimal and increase gradually over a period of time, hence giving the existing mining companies the time required to raise the necessary resources and adjust their operations to reflect any new requirements. It is also possible that any value addition requirement would only be effective after a certain grace period from the date of issuance of any new law/regulation in this respect.

Meanwhile, it should be noted that the Ministry of Commerce and Industry (“MOCI”) has recently been taking a conservative approach towards renewal of existing exploration and mining licenses and has been reluctant to renew licenses in respect of which no significant exploration work has been undertaken in the recent past. This approach is in line with the Government’s policy to revitalize the mining industry and means that those license holders who have not made significant investments and committed resources to explore the license area might not be able to renew their licenses (even though they might have been able to obtain such renewals without any difficulty in the past).

In view of the above, the license holders risk losing their licenses if they have failed to undertake sufficient exploration activities (or failed to follow the work programme submitted to the MOCI) during the last license period. In this respect, it is recommended that license holders should submit a proper work programme for the current license year to the MOCI and ensure that steps have been taken to comply with this work programme.

It is also recommended that license holders should assess the nature and extent of value addition that can be done in Oman with respect to the minerals and metals being (or to be) extracted by them and, as key stakeholders of the mining industry in Oman, convey their recommendations and concerns to the relevant Government authorities to ensure that any new law/regulation in respect of value addition requirements serves the intended purpose of further encouraging and developing the mining industry in Oman.