Where to next for the Laos mining sector?

The past three years have been a period of relative uncertainty in the Laos mining sector.

In 2008, the Lao National Assembly passed a new version of its mining legislation, though remained quiet on necessary implementation decrees needed to bring the new legislative regime into effect. A subsequent December 2009 moratorium – which halted the issuance of mineral exploration licences – also raised the eyebrows of international miners.

This lack of clarity in the legislative regime and moratorium meant that, initially at least, rumours abounded as to the motives of the government. The exploration moratorium was initially interpreted as the Lao government favouring Chinese and Vietnamese miners, blocking western investment by those looking to follow in the footsteps of Pan Aust and Oxiana’s Seppon operation (now owned by MMG), while the lack of implementation decrees for the Mining Law update left some investors scratching their heads.

These fears and concerns have largely passed. Though the implementation decrees needed to bring the 2008 law into life remain ‘in development’, recent signals indicate that there may be some hope that the implementation decrees may be approved at some stage in 2011. This approval should pave the way for lifting the moratorium. On a recent trip to Laos by CLC Asia, government officials indicated that they are “80% of the way” to getting final approval.

What will the decrees look like?

While the final form has yet to be made public, recent consultations between the industry and the government offer some clues.

A review and consultation process took place in late 2010, where the Lao government asked mining companies to make submissions on the development of implementation decrees. Based on these discussions, those interviewed by CLC Asia have indicated that they expect the new decrees to contain the following elements:

• Providing a bigger focus on sustainability;
• Outline changes to exploration timeframes and terms to speed up development;
• Promote reasonable levels of downstream processing within the country; and
• Discontinuation of bilateral Mineral Exploration and Production Agreements (MEPA’s) with the Government of Laos, to be replaced by standardised mining concessions and taxation frameworks.

These new frameworks are expected to be applicable for all new projects and operations in Laos, with existing MEPA’s grandfathered.

Other developments…

The current, albeit slow, reform process appears to be part of a larger plan to speed up investment in Laos.
The 2009 moratorium was implemented, according to one government source, to allow ‘breathing space’, so as to allow understaffed government agencies to sort through, review and assess non-performing exploration licences which had built up over the past decade. Concern had grown in government over the adequacy of the license approval process, where exploration licenses were awarded to those not equipped, or qualified to meet their obligations. In some cases, the licensees essentially had acquired the exploration licenses for speculative purposes rather than for any genuine exploration activity.

According to the same source, the government has essentially put under-performing exploration license holders on notice – and it is likely that the exploration rights of these holders will not be renewed under the new framework unless they can prove that there are firm plans to undertake credible exploration activities.

Outstanding issues – TLL Arbitration

Still, there are some outstanding issues which do concern industry observers. Primary amongst this is the ongoing case between Thai-Lao Lignite (TLL) and the Lao government.

TLL was a Thai company which had entered into an agreement with Laos in 1992 to develop the Hongsa Project lignite project, which was designed for the purpose of generating electricity for domestic consumption in Laos and for export sale to Thailand. According to court submissions, in 2006, after what TLL claims to have been substantial investments, the government repudiated its agreement, and have since re-awarded the project to different parties.

A 2007 arbitration between TLL and the Lao Government was conducted in Malaysia, where the arbitrators ruled in favour of TLL, awarding the company US$57.2m in damages. At the time of publication however, the Lao government is defending its position in the courts. The issue does appear to have some way to run, and how it plays out will be critical in determining Lao’s political risk ranking in terms of protecting foreign investment, especially in mining, which is a major source of FDI into the country.

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, power, telecoms and construction sectors. For more information please contact us at enquiries@clc-asia.com

About CLC Asia

CLC Asia is a political and market intelligence advisory firm. We specialise in:
• political risk analysis
• market intelligence
• corporate investigations
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