Writing on the wall for mines

Industry insiders warn proposed high initial auction rates will drive investors away from mining projects in Vietnam.

According to the draft decree guiding mining project auctions slated to become effective from July 1, 2011 the initial auction rate for ferrous metals mining projects is 6 per cent, 5 per cent for non-ferrous metals, 6 or 7 per cent for non-metal minerals for common building material production and 5 per cent for non-metal minerals for high-grade building material production.

The price of minerals to calculate the auction winning value is regulated by local people’s committees at the date the auction is held.
Ministry of Natural Resources and Environment’s (MoNRE) Legislation Department chief Pham Ngoc Son said holding auctions for mining projects was big step as it would harmoniously balance the interests of the state, businesses and the society and ensure impartiality and transparency in doing business.

Though acknowledging the method’s advantage, director of Ngoc Thao Company Limited in northern Hoa Binh province Nguyen Xuan Lien said current initial auction rates set by the MoNRE were too high.

Lien estimated resuming a mining business which extracts one million cubic metres of gravel soil per year, with the least winning auction rate of 5 per cent it will have to pay VND5 billion ($242,000) per year to the state coffers provided that one cubic metre of gravel soil is set at VND100,000.

With such a high payment level, not many companies dared to partake in mining project auctions, said Lien.
“Unlike other fields, to embrace natural resources exploitation, besides paying corporate income tax and diverse sorts of fees mining companies incur a natural resources tax plus an environmental service fee. With too high auction value and current high lending rate of over 20 per cent per year, legitimate mining firms will surely incur losses,” Lien said.

Vietnam Association for Geochemistry chairman Dang Trung Thuan said most good mining sites were under extraction.
“Appropriate auction rates will encourage businesses to engage in mining, from there realising the target of gradually socialising mining activities to ensure effective exploitation, usage and protection of natural resources as set in 2010 Mineral Law,” said Thuan.
Thuan assumed defining the auction rate based on the percentage of mineral extracted volumes would be unfeasible in case mining activities took place in areas earlier not subject to any concrete deposit surveys.

Thuan said assigning provincial authorities to set the mineral price would be unreasonable due to poor information database as well as staff capacity in localities abounding with minerals

A representative from a foreign-backed mining firm said setting high initial auction rates would incur state coffers losses.
“Suitable financial schemes need to be in place to stimulate capable domestic and foreign firms to jump into mining to put an end to current widespread illegal extraction across the country,” he said. – VIR

Tags: Vietnam mining industry