Turkey: Recent amendments to mining law

Turkish Parliament enacted Draft Amendment Bill 6592 on February 4, 2015 to introduce amendments to Mining Law 3213. With these amendments, the Ministry of Energy and Natural Resources (MENR) proposed a number of comprehensive changes to the existing mining law. The amendments entered into force on the same day upon its publication in the Official Gazette 29271, dated February 18, 2015.

The amendments bring important changes to the existing mining law and are viewed by the mining sector as a positive development; however, only time will tell whether they will provide much-needed improvements in terms of clarity and certainty.

Accordingly, depending on their implementation, some amendments may introduce additional ambiguities to the law's existing interpretation. The implementation of newly adopted rules and principles will be regulated by secondary legislation.

This article summarises some of the key points in Mining Law 3213, as amended.

Section 2 – Minerals (Classification)

The Classification system as set forth in Section 2 for Group VI minerals including radioactive minerals and other radioactive elements have been moved into Group IV. Accordingly, the minerals formerly listed under Group VI will be subject to the same treatment as minerals listed in Group IV i.e. sodium, calcium, boron, lignite, iron, copper and gold. 

Section 3 – Definitions

Some of the definitions under Section 3 were eliminated while others were modified and new definitions were added. Accordingly, definitions of “Economic Ore”, “Operational Report”, “Sales Information Form”, “Operation Information Form” and “Security Deposit”  were removed; definitions of “Visible Reserve”, “Project”, “Prospecting Operation Report”, “General Exploration Operation Report”, “Detail Exploration Operation Report”, “Ore” are revised or re-defined, and the following definitions were added to Section 3, “Entity Operation Report”, “Reserve”’ “Potential Reserve”, “License Fee”, “Authorized Legal Entities”, “Feasibility Period”, “Feasibility Report”, “Operation Project Implementation Report” and “Permanent Supervisor”.

Authorized Legal Entities are defined as those legal entities that are authorized by the General Directorate of the Mining Affairs (“GDMA”) to prepare technical documents needed to be submitted to the GDMA in connection with mining activities, such as activity reports, certain project materials and to follow up on exploration and development activities. Authorized Legal Entities have to obtain an authorization certificate from GDMA for their mining activities.  The details of the authorization, supervision of the entities and other relevant issues will be determined under yet to be determined implementation regulations. In accordance with Provisional Section 30, the implementation of the requirements for Authorized Entities shall begin one year after the publication of the Amendment Bill, until then previous rules apply with respect to the preparation and submission of activity reports, project materials and other technical documents as required under the amended Law.

Section 5 – Unity of rights, their assignment and succession

In accordance with amended Section 5 of the Mining Law, holders of licenses and discovery rights are required to obtain Ministry approval prior to any transfer of such rights.  Moreover, a transfer fee equal to two annual license fees shall be paid to the Ministry in order to process such approval. 

Section 7 – Permission to conduct mining activities

The amendments in Section 7 of the Mining Law can be classified as clarifications and update the names of the relevant governmental ministries. However, the deletion of last two sentences of the first paragraph of this Section could be read as bringing a more flexible approach to the mining regulator (MENR and specifically GDMA), and yet may be used to put restrictions on mining consents through yet to be enacted executive regulations and orders. The deleted sentences read as follows “Locations where reasons for restriction ceased shall be opened for exploration through a tender process.  All kinds of restrictions to mining activities which are not within the scope of this law can only be made by way of a statutory law”.

In line with the removal of the concept of “Security Deposit” the reference to “confiscation of security deposit” are removed from the Mining Law and monetary amounts between TL 20.000 to TL 50.0000 are set forth as penalty sums for various breaches as described in Section 4 (21), Section 10 (4), (6), (7) and Section 11 (3), 12 (7),  Section 13 (1), Section 14 (17), Section 17 (1), (2), Section 24 (2) (11), (12), Section 29 (1), (4), (5), Section 31 (2).

The penalty amounts in Section 12 (4) for failing to report production/shipment and Section 12 (5) for production without a license or from others licensees’ areas are reduced from ten times and three times of applicable amounts to five and two times, respectively. The reasoning behind these amendments is to bring into line a penalty regime which is punitive but could be paid, versus the previous regime which would essentially bankrupt the violator. 

Section 13 – License fees, penalties and other sanctions

The amendments intend to incorporate various fees collected as security deposit and duties under one single item as the License Fee. License Fees will be calculated annually in accordance with the tables provided as Annex 1 and Annex 2 to the Mining Law and shall be paid in full by the end of January of each year.  According to Section 13 of the Mining Law, the base fee for an exploration license is TL 1.000 and for an operation license is TL 10.000. Depending on the classification group and the size of the licensed area the applicable fees can increase to TL 5.000 for exploration and TL 150.000 for the operation license. The license fees shall be increased annually at the Revaluation Rate determined as per Tax Procedure Law No. 213.

Section 14 – State rights and local administration’s share

Important changes are made to Section 14 of the Mining Law regarding royalty payments to the State. While the main principle remains that the State royalty payment will be collected from the extracted ores mined as determined by the pithead sale price remains the same, the determination of the pithead sale price will no longer be made at peer market value but will be annually determined and announced by GDMA for each type of mineral. GDMA will take regional differences into account when determining the prices. The pithead sales price cannot be lower than the amounts announced by GDMA.

Depending on the classification and current price of the mineral/ore, the State royalty payments range from 1 percent to 16 per cent. Accordingly, the following rates will apply for various mineral groups as follows:

• 4% for minerals classified under Group I paragraph (a) from the market sale prices determined and announced by the local governorship/special provincial administration;
• 4% for minerals classified under Group I paragraph (b);
• 4% for minerals classified under Group II paragraph (a);
• 4% for minerals classified under Group II paragraph (b) from the pithead market sale price determined by market in line with the specifications and the location of the stones;
• 1% for salt mines classified under Group III and 5% for other mines in this group; \
• 8 % for radioactive minerals and other radioactive elements under Group IV, in line with the Annex 3 for gold, silver, platinum, lead, copper, zinc, chrome, aluminum and uranium oxide; 2% from all other minerals in this group.
• 4% for minerals classified under Group V.

Annex 3 creates a royalty matrix to determine the applicable range for gold, silver, platinum, lead, copper, zinc, chrome, and aluminum and uranium oxide. Accordingly, royalty fees start from 2% at the lower price and reach up to 16% in line with the price increase for the specific commodity. For example, 2% royalty applies to gold when the gold price is lower than $800/oz and it reaches to 16 % when the price is $2,251/oz and above. The commodity prices are LME (“London Metal Exchange”) average price for the royalty period. Moreover, regardless of their sales the owners of licenses with operation permits are required to pay a royalty fee at least equal to base annual license fee.

Section 16 – Initial application and Licensing

Major changes are made in Section 16 relating to the licensing system. Under the new system, exploration licenses and operation licenses will be granted by GDMA through a tender process.   Obtaining an exploration license will require initial application and operation permit systems are abolished. However, Group II (b) and Group IV minerals are exempted from this amendment and they will be subject to an initial application process which is unamended.  Proposed amendments offered tender system without exception but it seems Group II (b) and Group IV minerals were rightfully excluded during the discussions at the Parliament and again subject to first-in-line system as it was before. 

Accordingly, an operation license shall be granted to Group I, Group II (a) and (c) mines right away.  Exploration license shall be granted for Group II (b), Group III and Group IV mines. Exploration Certificate shall be granted for Group V mines. The payment of operation license base fee is mandatory for the applications for Group II (b) and Group IV mines and such applications are subject to the “first come first served” principle.

Exploration licenses will be granted to the mines -for which the rights are obtained through a tender process- after the following three conditions are complied with and within two months from the payment of the tender fee:

1. submission of the preliminary survey report;
2. submission of mine exploration project including financial capability required to undertake exploration activities; and
3. payment of the applicable license fee.

In case of failure to pay the license fee or to submit the required documents, the subject matter mine areas shall automatically become tenderable.

Application for the Group II (b) and Group IV mines shall be made directly to GDMA for areas that are limited by determined points based on the coordinates of 1/25.000 scaled topographical maps. The available portion of the requested area shall be notified to the applicant on the date of application and the exploration license shall be granted if the license fee is paid, the preliminary survey report submitted and the mine exploration project including financial capability required to undertake exploration activities is submitted within two months of application. In the event that the fee and guarantee deposit is not paid, these fields will become available to applications without need any other act or formality on the part of GDMA.

After the evaluation of applications for Group II (b) and Group IV mines, if the fields over which the rights are granted come out as separate fields, separate licenses can be issued for each of these fields upon the request of the applicant. The fields whose licenses are not obtained will become available to applications without need to any other transaction.

Under current Turkish Mining Law there are three different ways to obtain a mining license: (i) initial application method, (valid only on Group II (b) and Group IV minerals) by direct application for the exploration license to the GDMA with the exact coordinates of the area, (ii) tender method, the participation into the tenders by GDMA and (iii) transfer of license, the taking over a license from a third party.

Proposed amendments to Section 16 of the Mining Law offered abolishing initial application method entirely and granting all licenses only through a tender process. However, this proposal faced strong opposition from the mining sector and after successful lobbying Group II (b) and Group IV minerals were exempted from the tender requirement.

Section 17 – Exploration activity

References to confiscation of security deposits are replaced with monetary penalties in Section 17 titled Exploration Activity without much change to pre-exploration, general exploration and detailed exploration periods.   

The first year after the issuance of exploration license is “pre-exploration period” and at the end of this period it is mandatory to submit the pre-exploration period activity report regarding the activities in the mine, otherwise 20.000 TL administrative fine shall be imposed. If the reports are inappropriate, GDMA will notify the license owner in writing to correct the deficiencies within a month, if not so 20.000 TL administrative fine shall be imposed. This period grants the license owner with another 2 years of general exploration period for IV. Group mines and 1 year for others.

After these periods, another report shall be submitted regarding the activities in the mine, if not so 20.000 TL administrative fine shall be imposed to the license holder. If the reports are inappropriate, General Directorate shall notify the license owner in writing to correct the deficiencies within a month, otherwise 20.000 TL administrative fine shall be imposed. This period grants the license owner with another 4 years detailed exploration period for IV. Group mines. For II. Group (b), III. And V. mines, operation license application shall be done until the end of general exploration period, otherwise license shall be cancelled. If any of these periods are completed before the legal time, following periods shall begin automatically.

It is mandatory to submit detailed exploration reports for IV. Group mines until the end of detailed exploration period and exploration reports for the other mines at the end of exploration period. If the reports are inappropriate, General Directorate shall notify the license owner in writing to correct the deficiencies within a month, if not so license shall be cancelled. Also, operation license application shall be done until the end of this period, otherwise license shall be cancelled.

Another abolished concept is the General Directorate permission for production and sale of minerals up to 10% of the proven reserve to license holders. Under the new system, license holders may be allowed to take samples and transport minerals that are mandatorily produced as part of exploration activity upon their application during the exploration period by submitting the exploration activity report for executing technological study, development, pilot studies and market research.

Section 24 – Operation license and operating of the mine

Operation license rights shall be granted by GDMA within one month of submission of satisfactory documentation in line with Section 24. Accordingly, licensees are required to submit the following documents to GDMA within two months from the payment of the tender fee for Group I (b), Group II (a) and (c) mines; and until the end of exploration period for other group mines:

1. Operation project prepared by Authorized Legal Entities under the responsibility of mining engineer;
2. documents ensuring the financial capability; and
3. proof of payment of the base license fee.

The technical deficiencies, proof of indebtedness as per section 22/A of the Law no 6183 and operation license fee shall be completed within three months from GDMA’s notification to the applicant. Otherwise 20.000 TL administrative fine shall be imposed and the period will be extended for three months. Failure to provide or complete the listed documents will result in the rejection of the application.

Maximum operation license period cannot exceed 30 years for Group 1 mines, 40 years for Group II mines and 50 years for other groups. Previously the maximum license period was 60 years.  Extensions after the expiry of the maximum period can be granted by the Minister for Group 1 and Group II mines and by the Council of Ministers for other Group minerals.

Provisional Section 28 confirms that the previous license periods granted prior to this Section’s entry into force would be grandfathered.

Operation permit shall be granted after the license owner submits EIA decision, property permits, business licenses and other permits to GDMA within 3 years of the effective date of the operation license. State right will be taken starting from this date. 50.000 TL administrative fine shall be imposed every year to those who fail to do so. At the end of operation license period, license period shall not be extended if the operation permit is not obtained due to the required permits above.

Section 29 – Operation activity

Operation activity shall be conducted according to the Project and the law. If the license owner acts against the Project, 6 months shall be given to the owner to correct the deficiencies. If license owner still acts against the project at the end of this period 50.00 TL administrative fine shall be imposed and the production activity shall be stopped. However, if the actions considered dangerous production activity shall be directly stopped until the danger passes.

In accordance with redrafted Section 29 titled as Operation Activity, the MENR and the Ministry of Labor and Social Security will open their files electronically in order to provide access to each other’s documents related to the operation project and amendments to it as well as actions in relation to the suspension of activities.

The implementation of operation project and activities are monitored by authorized legal entities and accordingly reports are submitted to the Ministry.

The license holder is obliged to submit every year until the end of April (for the Group I (a) license holders until the end of January) the technical documents, the sales information form, the activity information form regarding the operation activities of the previous year, and the information regarding exploration if exploration activities were performed at the operation area to the General Directorate.

Authorized legal entities are responsible within the scope of the Law for the monitoring the compliance of operation activities with the project.

A newly added paragraph to Section 29 regulates the joint operations of the separate projects which are located in the adjacent license areas if the precautionary measures necessitates remedying dangerous circumstances against human life and property as well as efficient utilization of the reserves in the license and production area.  Such decision shall be made upon approval of by GDMA if the subject matter license holders consent to it.  In the absence of such consent the decision shall be made upon approval of the Minister. Accordingly, taking such joint license areas’ termination plans into consideration the operation permit areas can be re-defined.

For I. group mines and II. Group (a) minerals, mine zones can be established with the approval of GDMA and according to the provincial plans. Licensing shall be done by transporting the mine zones. Transportation shall be done by the decision of GDMA, if the license owners approve and by the decision of Commission if the license owners do not approve. Vested rights shall prevail.

Section 30 – Tender

In line with the amended Section 16 abolishing exploration license through initial application, the first two paragraphs of Section 30 have been amended. Accordingly the license areas that are relinquished, abandoned or divided for any reason, will be subject to tender process. Again, Group II (b) and Group IV mines are excluded. According to the amendments in the second paragraph, in the event there are no applications during the period of announcement, the area shall no longer automatically become available for exploration, rather it will become available to tender again. In such case, the tender value shall be set at no less than base license fee.

Tender’s with a production requirement for the end product and intermediate product can be made as long as the type of mine license area, its reserve, location, employment, investment and needs of the country are considered and it is clearly mentioned in the tender specification.

In order to develop basin mining and clarification of the geologic structure, new fields and the fields that were abolished, abandoned or reduced for any reason can be merged and tendered without being subject to limitation as defined in Section 16.

Section 31 – Permanent supervision and technical person

Newly drafted Section 31 makes it mandatory to undertake mining activities under the supervision of minimum one permanent full-time mining engineer.  Employment of other engineers from different branches may be required depending on the size, structural conditions and mining technique to be adopted in the license area. 

Provisional Section 25 requires employing a permanent mining engineer for locations where there is only a technical staff employed within one year from the entry into force of this section.  If the technical staff person resigns or is laid off, a permanent engineer should be hired immediately.  Failure to comply with this provision will be subject to a fine of TL 30.000 and mining activities shall be ceased.

Section 32 – Nullification of the license and measures to be taken in the abandoned area

License owner may apply to abandon the mine area upon providing production map and mine geology map to GDMA and taking necessary precautions in the field.

The license owner shall provide necessary technical documents to GDMA in case of annulment. The necessary precautions shall be taken in one year and area shall be brought to conformity with environment. If the necessary and environmental precautions are not taken, governorate shall be notified, even though responsibility remains on license owner. The cost of necessary and environmental precautions shall be taken from the security deposited. If the amount deposited is not sufficient license owner shall be given a month to fulfill, if not so the amount shall be collected.

Section 37 – Temporary suspension due to force majeure events

Temporary suspension is a special type of force majeure under the previous and amended legislation and it provides the right to the operation license holders to suspend mining activities due to force majeure events, without having their licenses cancelled.  In cases of force majeure and unexpected events, the GDMA is authorized to issue a decision of temporary suspension of the mining operations of the license, upon the application of the license holder.  Force majeure events are described in the Mining Regulation as “floods, fires, earthquakes, firedamp explosion, subsidence and landslide”.  The events included herein are not limited in number, and other cases may also be considered as force majeure or unexpected events. A temporary suspension shall commence on the date of the application of the license holder

Section 46 – Rights of easement, usufruct and expropriation

A new third paragraph is added to Section 46 in order to enable miners to bring required utilities to the mining site.  Accordingly, the miner may request from the Ministry the establishment of an easement and/or usufruct rights for electric, water, telecommunication, and/or natural gas lines that will be used in the facilities that are built in the operation site and/or its vicinity. 

Additional Section 7 – Mining lease agreement

According to the newly added terms to the Provisional Section 7, miners are required to obtain Ministry approval for the mining lease agreements to be signed between miners and third parties.   Failure to obtain such approval will result in the halting of the mining operations carried out in accordance with the mining lease agreement.

Moreover, underground coal miners are prohibited to enter into such mining lease agreements.  The coal mines operated by public entities and their subsidiaries are exempted from this restriction.

Additional Section 11

Newly drafted additional section 11 allows II. Group (a) licenses to be converted to II. Group (b), (c) licenses upon application, however II. group (b) licenses cannot be converted to II. Group (a), (c) licenses.

Provisional Section 21 – Completion of license fee

The License fee payment requirement for the existing licensees shall begin as of 01.01.2016. Failure to pay license fees shall trigger application of Section 13 provisions according to which license holders will be fined with a 20.000 TL penalty and given three months to make the payment.  If no payment is made within this time, the license will be cancelled. Previously paid security deposits will be returned once the license fee is paid. 

Provisional Section 22 – Permissions to be given according to the article 7

30.000 TL administrative fine shall be imposed for the licenses that are lacking permissions according to the article 7 of this law, however licenses shall not be cancelled.

Provisional Section 23 – Existing mining lease agreements

In accordance with newly added Provisional Section 23, existing mining lease agreements are required to be submitted to GDMA within three months from this Section’s entry into force. Otherwise, the mining activities carried out in accordance with the mining lease agreement will be halted. 

Provisional Section 24 – Pending license applications

License applications for which fees are not yet paid and pending at the time of this section’s entry into force shall be finalized in accordance with the applicable provisions valid at the time of the application as long as their license fees are paid within three months from the entry into force of this section.

General commentary

The basis for the amendments to the Mining Law were stated in the government’s reasoning for the amendments as submitted to Parliament. Accordingly, some of those reasons can be listed as the implementation problems faced after Mining Law 3213 was entered into the force, court decisions, necessity to re-evaluate licence fees and royalties, health and environment related matters and the redetermination of the time and conditions for issuing permits.

Delays were one of the biggest problems. These were caused by permitting on government land as a result of ambiguous Prime Ministerial decree of 16 June 2012 that had impacted much of the Turkish mining industry. New amendments give broader autonomy and controlling rights to the Ministry over mining activities, however, time will show if the implementation of the amended Mining Law will provide a solution to the problems and eliminate the piling up of license applications. Moreover, in addition to the licensing and permitting issues, there exists the problem of ambiguity concerning the bureaucratic and judicial procedures related with the operation of mines including the sanctions applied to mining companies as a result of injunctions issued against positive environmental impact analysis reports. 

Although the Turkish government has significantly improved the country’s investment environment through various reforms and new legislation between 2002 and 2012, it seems to have adopted policies in administrating these reforms and legislation which show signs of ignoring the fact that foreign direct investment is desperately needed as the main component of the country’s economic development.

The mining sector is no exception to this unfortunate policy shift.  Despite the fact that it was one of the popular destinations for mineral exploration by both foreign and domestic exploration and mining companies, Turkey has recently started to become a place where mining investors and financiers are extremely cautious and many are considering other jurisdictions to invest their exploration and development budgets. Despite increased private sector activity in Turkish mining operations, investors have experienced a thrilling and traumatic ride – especially over the past 3 years.

When the commodity prices were high, Turkish bureaucrats and politicians developed a logic that mining, especially gold production, was very profitable and the State should have a higher share from this profit. Actions taken in line with this reasoning created many obstacles to the Turkish mining activity and finally formed the basis for the amendments to the Mining Law. The underlying reason for this policy shift can be found in the following statement by the then Turkish Prime Minister Erdogan who states that “Some people have obtained mining licenses via trickery. They obtain it cheaply and then lease it paying very little sums. What they pay to the government is only 5%. They have been earning shed loads of money.  They pay 3 - 5 thousand TL for 4,500 square meters of domain and then pay only one thousand TL monthly. Perhaps some will be agitated, but we have to take this action.”¹

We can see direct reflection of Erdogan’s statements in the Section 14 and Annex 3 to amended Mining Law 3213. However, the damage caused by such a narrow assessment specifically to the mining sector and Turkish economy in general obviously far exceeds the expected gains.  First of all, it is totally ignoring the added benefits of increased mining activity with respect to much needed employment, know-how and technology transfers and capital investments. Furthermore, the mining companies will probably tempted to easier and less costly means of operations instead of high technology and capital intensive investments to mine ore.  Accordingly, the mining operators will operate on the easily recoverable ores and leave sites behind where a resource is no longer economical to recover because of the increased royalty structure. 

It is important to mention that the industry provides much-needed job opportunities for local inhabitants. Considering that mines are usually located in rural areas where employment opportunities are scarce, a large mining operation can provide employment and increased supply chain economy in rural areas. With its current policies, Turkey is also losing a huge opportunity, especially given the high level of unemployment in the country.

The recent approach in many government agencies in Turkey appears to be that of a gate-keeper rather than facilitator of safe and efficient development. This creates opportunities for bureaucrats to become gate-keepers and block major developments over minor technicalities. Turkey needs a general change in mindset across the government to promote development.