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sharing in governance of extractive industries

STRADE report on the Competitiveness of the European Union's Mining Sector

Policy perceptions are often based on the public images created, whether through a concentrated effort by states to promote their mining sectors, or by the sharing of experiences of operating companies. In light of this, the second report in the STRADE project explored the competitiveness of the European Mining Sector.

The analysis in the report on operating costs argues that Member States are not unduly hindered by the cost of wages, electricity, royalty and taxation and other mine-site costs. In fact, for copper, gold and zinc/ lead they are relatively competitive on the global benchmark. However, in the case of mineral regulations, most Member States are rated poorly relative to their competitors.

Within the regulations, one of the fundamental determinants of investment activity is the security of tenure and securing the right to mine. The more complicated the process in securing these rights, the less interest from potential exploration and mining companies. There are a number of Member States where the right to minerals is held by private individuals, rather than the state. This impacts the ability of exploration or mining companies to gain access to land, often involving the risk of such negotiations failing. In terms of licenses, very few Member States clearly state the principle of "first-come, first-served". This is generally accepted, internationally, as best practice when it comes to the granting of exploration and mining licenses. It can be argued, however, that, properly implemented, a focus on the best work programme is preferable. This will be discussed in subsequent STRADE reports.

The report indicates that the comparative performance of the EU13 countries is weak on a number of regulatory fronts, at least from an investor's point of view. It is clear that several EU countries fail to observe two of the most fundamental principles of good mineral governance. First, too many EU countries do not observe the "first-come, first-served" rule. Second, they do not ensure the right to exploit a new deposit provided other regulatory conditions are met. It is likely that these countries fail to apply these basic principles because the allocation of mining rights is seen as an opportunity to practice discretionary industrial policy by specifying particular operators or conditions. This belief, which is often based on the erroneous assumption that mining investors are captive, is mistaken since there are very seldom any alternative operators. It introduces uncertainty, which deters investors by making it difficult for exploration companies to raise finance and commit to investments. Moreover, any conditions, particularly concerns the environment, should be covered by clear legislation that allows investors to anticipate expenditure as far as possible, and not be subject to negotiation at the time of the award of the mining title. Moving regulations toward stronger protection of the right to mine is potentially the most important measure available to strengthen the EU’s competitiveness in mining. It would also remove the most important cause of conflicts and bad compromises between mining and other interests.

The gap between perception and implementation is difficult to bridge in the EU. Member States retain sovereignty over their mineral resources, and an EU-wide directive on this issue would be difficult to pursue in the short to medium term. Nor would this research team recommend such a step as the rights over mineral resources should remain the domain of individual governments. However, this does not preclude the idea of mutual agreements between the EU and its Member States to promote specific mining projects. Nor should it preclude a gradual harmonization of regulatory systems, which would attract exploration interest, as shown by, for instance, the harmonization of regulations among West African countries. This concept will be addressed in later deliverables under the larger STRADE research project.

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