Laos, with its abundant natural resources has often been touted as one of Asia’s final frontiers for miners. Nevertheless, challenges remain in dealing with government in one of the poorest nations in Asia. Below is a brief insight into the industry, regulatory framework, and some political risk considerations for investors.
Key institutions
Nominally, it would appear that the Ministry of Energy and Mines appears to be the main policy development body, and lead agency for energy related matters in Laos, while others such as the Ministry of Agriculture and Forestry has remit over issues such as land clearance related to natural resource exploration and production.
Energy related Projects and Development (‘P&D’) activities, including contract negotiations, lies under the authority of the Ministry of Energy and Mines, although there also exists a line of authority from Ad-hoc Committees established under the auspices of the Prime Minister’s Office, indicating that this office has a direct hand and influence in major decisions.
Regulatory Framework
The regulatory framework of the mining and energy sectors in Laos is rapidly developing, as government policy and regulatory capacity has began catching up with the fast expanding natural resources sector in Laos. This process is slow however, and means that there are still significant gaps in the application of the laws as they stand.
The Laos mining industry is governed by the 1997 Mining Law. The Implementing Decree which was approved in October 2002. The law and the decree cover the Promotion, Management and Development of Mineral Resources, set out requirements for Mineral Development Projects, Conditions for Obtaining a Mining License, Obligations of Mining Licensee, Termination of Mining Activities and Arbitration. Under the 1997 law, oil and gas exploration is also governed by the Laos Mining Law in which section 9 defines coal, natural gas and petroleum as “combustible minerals”.
In January 2007 the Lao government introduced a moratorium on issuing new mining exploration licences due to a rising number of exploration rights holders merely sitting on these rights for speculative and resale purposes and not conducting specified exploration activities. The government also reviewed and canceled existing licenses by those holders who had not carried out proper mining activities. It is thought that up to 30 licenses were affected by this review. By 2008 however, the government lifted its moratorium and began re-issuing exploration licenses.
On 8 December 2008 the Lao National Assembly passed a new Mining Law, however the implementation documents are currently being drafted and it is unclear when these may be completed and approved by the government. It is also unclear as to whether the 2008 law can come into full effect until the implementation documents have been completed.
Legislation passed in 1997 states that investment in mining activities in the Lao PDR shall take place under the following forms:
1. Sole investment by the State;
2. Joint investment between the State and domestic or foreign parties; or
3. Collective or private investment from domestic parties.
Concessions are not granted in excess of 30 years, but may be extended two times, each time for no more than ten years as approved by the Government on a case by case basis.
Foreign Investment climate
Laos has loosened foreign investment restrictions resulting in a marked increase in foreign business. Foreign investment is guided by the Law on the Promotion and Management of Foreign Investment, which sets out the rights and responsibilities of the government and foreign businesses in Laos.
Mining, as one of the two major foreign investments has been a major contributor to Laos’ increased growth of approx 6% per year, and the government appears keen to promote the sector.
Corruption
Laos adopted the Anti-Corruption law in 2006, and is now making attempts at more transparency and working towards reducing corruption in state departments. Transparency in business transactions is low according to Transparency International (rank 151/180 countries).
Political risk and interference in major projects
Having the government as a partner seems to be the accepted way of moderating discretionary government actions. The level of fairness of the regulatory system appears to largely depend on if an investor is willing to allow the Laos government to take an option for, or an initial equity stake in the project, usually 10-20%, as can be witnessed with other mining operations in the country, such as Banpu’s Hong Sa coal mine and coal fired power plant, which is currently due for completion in 2012.
In addition to Joint Ventures between the government and the private party, the Laotian government can be offered what is effectively an exercisable equity option to acquire a portion of a mining business. It has exercised these options with two large mining companies in 2008 (Oxiana and PanAust).
For more detailed analysis
CLC Asia has conducted extensive due diligence, corporate investigation, country and political risk analysis for international funds and investors looking to invest in the Lao mining, telecoms, power and construction sectors. For more information please contact us at enquiries@clc-asia.com
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