Serbia mining: Mining concessions, fees and challenges for investors

27. May 2015. / Mining

Energy & Mining Stakeholder Relations - Serbia-energy.eu

Law on Fees for Using Public Goods was being prepared, by which the amounts of charges, i.e. the basis for their calculation, would be defined. The amount of the mining leasing rate will be determined according to the agreement with the Ministry of Mining. Draft law should be finished in six months, after which a public debate and law adoption will ensue.

New law would envisage control and collection mechanisms. Charges are currently defined by various laws and by-laws, whereas the new law will consolidate all charges for using public goods.

The macroeconomic indicators taken from the Study of the International Council on Mining and Metals show that the development of mining in low- and middle-income countries contributes to the increase in the possibilities for attracting foreign direct investments (FDI), so that the investments within the sector represent 60 to 90 percent of the total FDI.

The export of mining products can gain primacy within a short time period, representing 30 to 40 percent of the country’s total export. In addition, the mineral resources fee represents an important source of budget revenue.

The participation of the mining sector in the GDP amounts to three to ten percent on the average. The reason for such low percentage is mostly the lack of capacity of local industry to keep up with new mining technologies. When it comes to employment, the sector has a low impact on the national level – only one to two percent.

When it comes to the participation of the mining production export in the export, Serbia is ranked 40th on the world list, whereas it was ranked 54th in the report for 2010.

There are several important conditions for the growth of mining industry in Serbia: investing in geological explorations, testing the quality of resources and proving their usability; constructing the necessary infrastructure; constructing mines and facilities for mineral resources preparation. Also tax, fiscal and legislative stability is necessary. As an example illustrating the situation in this area is the fact that Law on Mining has been modified four times since 2006, and that the new law is expected to be adopted this year.

The charges for mineral resources represent a small part of the Serbian GDP and, in the previous years, they ranged from 0.04 to 0.16 percent, which was their amount in 2014, when 6.07 billion RSD was paid into the budget as a mining leasing rent. Such large inflow was recorded only due to the fact that, last year, the Mining Basin Kolubara and TPPs and Mines Kostolac paid the amount of outstanding mining leasing rents.

Experts agree that it is necessary to prepare a study on the amount of the mining leasing rent and the manner of its calculation, as well as on the impact on mining companies and the budget, so as to introduce an economically sustainable system. When it comes to the exploitation of metallic mineral resources, the mining leasing rate should be calculated as a percentage of the achieved profit. Other mining companies can pay the mining leasing rate according to the amount of excavated mineral resource, or as a percentage of the overall income i.e. profit.

The provision in the new draft law on mining according to which ”the manner of paying charges and the conditions for deferring the payment of debt… are closer defined by the Government“ puts the mining companies at a disadvantage.

The collected mining leasing rent in Serbia is not in accordance with the real level of exploitation in Serbia. Mineral materials for the strategic civil engineering facilities, Corridor 10 and Corridor 11, are being exploited without mining permits and that the mining leasing rent is not paid for them. In addition, it is estimated that 5 million tons of limestone have been excavated illegally (the charge would have amounted to one million euros) as well as 2 million tons of sand (a charge of 300.000 euros).

Whether the existing level of the mining leasing rate is one of the main generators of Serbia’s budget deficit, experts agree that the mining leasing rate amounts to only two percent of the budget deficit. In the previous three years, the annual level of collection of the mining leasing rate amounted to 3.6 billion RSD per year on the average, whereas the average deficit was 182.7 billion RSD. Even if the mining leasing rate was three times higher, this would not reduce the budget deficit significantly.

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