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Serbia - Amendments to Mining Legislation

Serbia - Amendments to Mining Legislation

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The Serbian Ministry for Mining and Energy started 2021 in a busy fashion, initiating simultaneous public debates on draft amendments to key legislation in the energy and mining sectors. In the mining sector, the Ministry has offered draft amendments to the Mining Act for public hearing. The official reasons given for the reform are said to be the need to create better conditions for the development of mines, simplify administrative procedures, ensure environmental protection, and increase fiscal revenues.

The most controversial proposed amendment was to Article 4 of the Mining Act, introducing the competitive award of mining concessions for strategic resources (inter alia: copper, gold, boron, and lithium ores). Existing holders of exploration rights over strategic resources were supposed to be protected by the right of first refusal to negotiate a concession agreement with the Government of Serbia.

However, the solution proposed in the draft created legal uncertainty for the existing holders of exploration licenses, as it did not ensure the protection of their acquired rights. According to the draft, if an investor having a right of first refusal and the state fail to agree on the terms of the concession agreement, the investor would lose its exploration rights without even being compensated for the investment made in the exploration phase. 

Ironically, it was the mining investors who asked to have the investment security and creation of a solid contractual relationship with the State bolstered. An investment agreement between the mining investor and the host state is standard in many less-developed mining jurisdictions. A contractual relationship between the investor and the host state is usually an important element of the project’s bankability, as it enables the investor to have international arbitration in case of dispute, obtain protection from adverse changes in law, and oblige the host state to develop or – at least assist in developing – the infrastructure needed for the operation of the mining project. Equally, the state may use an investment agreement to impose additional commitments on the investor, such as making investments into the local community, meeting environmental protection standards, and creating additional domestic value chains from the mineral resources being mined.

The industry has unanimously rejected the initial version of the draft. Mining companies that have exploration rights and/or reserve certificates acquired under the existing legislation requested that this concept be either deleted from the draft or amended to enable them to choose whether to proceed with the development of their projects on the basis of an administrative exploitation approval under the existing legislation or to enter into a concession agreement with the Government. The new version of the draft published following the public debate shows that the Ministry has completely changed its approach on this issue. The procedure of awarding mining concessions is now limited to those mining projects where the Republic of Serbia owns the results of the exploration works.

In all other cases, the Ministry has envisaged an investment agreement which may be concluded between the Republic of Serbia and the investor in the mining project. Under the current draft, the investment agreement is supposed to cover points such as the development of missing infrastructure, environmental protection, pre-emption rights over the mining product in favor of a domestic producer, fiscal and legal benefits in relation to the project, and so on.

Most interesting here is the possible introduction of a contractual pre-emption right over raw materials in favor of domestic producers – an obvious push by the Government to build the local manufacturing ecosystem around the extraction of lithium from Rio Tinto’s Jadar project.

The readiness to entertain the requests of mining investors does not come free of charge – the mining tax will, most likely, be significantly increased to ensure that the Government will get its share of the profits from the lithium, gold, and copper projects under development.

The Government has not yet adopted the final draft and it remains to be seen what the final position on these points will be – the future of investments worth billions of euros may very well depend on it.

By Dragoljub Cibulic, Senior Partner, BDK Advokati

This Article was originally published in Issue 8.3 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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Establishing permanent cooperation with Kinstellar is part of realising SOG's long-term development strategy to be the leading provider of legal services in the Western Balkans market.

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