2005, July. Contributor to “Mining Regulation of exploration and exrtaction in 28 Jurisdictions worldwide” (published by
Law Business Research Ltd) Victor Kipiani, Partner, Irakli Mgaloblishvili, Partner, David Archvadze, Senior
Lawyer, Mariam Antia Associate
1. What is the nature and importance of the mining industry?
It has to be noted that mining has been one of the leading spheres of industry in Georgia for decades, due to the existence of a wide range of high-quality mines. Georgia mainly produces manganum, as well as copper concentrate and gold doré. There is an important coal mine in Tkibuli in western Georgia.
Nowadays, manganese concentrate is produced by the JSC Chiaturmanganumi, which was included on the list of the entities subject to privatisation.
The Russian company Eurasholding was announced as the winner of the privatisation process and will be considered the owner of JSC Chiaturmanganumi after it fully covers the US$132 million price. At the time of writing, Eurasholding has refused to purchase Chiaturmanganumi.
The largest producers of metallic minerals are JSC Madneuli and Quartzite LLC. JSC Madneuli is a 98 per cent state-owned joint stock company, producing copper concentrates. Quartzite LLC is 50 per cent state-owned, the other 50 per cent of its shares is owned by the Australian company Cropwood.
Madneuli and Quartzite are due to be privatised. International competition has been announced, foreign investors have expressed their interest in participation and the process will finish in approximately one month.
Legal and regulatory structure
2. Is the legal system civil or common law-based?
The legal system in Georgia is civil law based.
3.How is the mining industry regulated?
The mining industry is regulated solely on state level and is mainly regulated by primary and secondary legislation.
4 What are the principal laws that regulate the mining industry? What are the principal regulatory bodies that administer those laws?
The following laws regulate the issues related to the mining industry in Georgia:
- The Law of Georgia on the Subsurface—setting out the main principles of licensing the usage of minerals, the main rights and respective duties of the producer, as well as main regulatory bodies in the field of mining
- The Law of Georgia on Environmental Permits—which sets out the principles for issuing environmental permits, including those for the mining industry
- The Law of Georgia on the Grounds for issuing Licences and Permits for Enterprise—regulating the issuance of permits and licences for enterprises in various fields, including the mining industry
- The Law of Georgia on Licence and Permit Fees—which establishes fees for certain permits and licences
- The Law of Georgia on Safety of Hazardous Industrial Objects—establishing the status and safety requirements of hazardous industrial objects.
5.What classification system does the mining industry use for reporting mineral resources and mineral reserves?
According to the Law of Georgia on the Subsurface, Article 4, the mineral reserves are divided into two groups: minerals of state significance and those of local significance. The list of state, as well as of local types of minerals, is approved by the minister of environmental protection and natural resources.
Mining rights and title
6.Who has title to metallic minerals in the ground?
According to the Law of Georgia on the Subsurface, the owner of the the subsurface of Georgia is the state itself. Any action which directly or indirectly infringes upon the state’s right of ownership of the the subsurface is prohibited and such a contract is considered to be void. However, certain plots of the depth can be allocated for usage by the state.
7. What information/data is publicly available to private parties who wish to engage in mining activities?
The Law of Georgia on the Subsurface sets out that geological or any other type of information regarding minerals can be subject to sale/purchase. According to the provisions of this law, issuance of information on natural/legal persons from the State Financial Funds, without prior approval from the owner of the information, is prohibited.
8.What mining rights may private parties acquire? How are these rights acquired? What obligations does the holder of these rights have?
Parties may be granted the right to research the minerals, to conduct mining activities, to explore and produce minerals, to recycle and use the waste product of mines. All the aforementioned activities are subject to licensing by the Ministry of Environmental Protection and Natural Resources of Georgia.
The licence for the usage of minerals is issued as a result of competition or an auction. The applicant seeking the licence has to submit the following information in the application:
- The type and parameters of the usage of the subsurface
- The address of the applicant, and its business relations with production and financial partners
- Information regarding the manager/owner of the applicant, representing the company in the process of acquiring the licence
- Financial capacity of the applicant Technical and technological capacities of the applicant, and those of the contractor companies
- Information on past activities of the applicant, including the list of the countries where it has been working for the past five years
- Proposals of the applicant regarding the conditions of the licence for the usage of the subsurface
- Legal aspects with respect to the information on the minerals
- General data on the territory of the usage of the subsurface (geographical-administrative-territorial location, area, etc)
- Prior approval of the owner of the land on usage of the land for mining operations
The applicant, who fully complies with the tender requirements and presents economically and technically developed application, will be deemed the winner.
The licence-holder has the duties to:
- Use the minerals solely for the purposes as defined by the licence, ensure rational and complex usage of the minerals, protection of the environment and the subsurface
- Fully comply with the safety requirements
- Ensure the protection of the subsurface, air, water, forests, protected territories, historical and cultural monuments, etc from the negative effects of production
- Conduct comprehensive research of the subsurface and keep the relevant records/documentation
- Provide the Georgian Ministry of Environmental Protection and Natural Resources with all relevant documentation with respect to the entities carrying out mining activities.
- Ensure the maintenance of the mountain tunnels and drilling stations in a way, that makes their future destruction possible
- Protect the lands
- Provide the information with respect to the subsurface waters to the Ministry in a prescribed form
- Comply with the Ministry’s safety instructions.
9.Is there any distinction between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties?
No such statutory requirement is envisaged in Georgian legislation.
10.How are mining rights protected?
According to the Article 51 of the Georgian Law on the Subsurface, any dispute regarding the usage of the minerals is resolved by the court, in compliance with the rules, established in Georgian legislation.
11.How do the rights of aboriginal, indigenous or currently or previously disadvantaged peoples affect the acquisition or exercise of mining rights?
There is no statutory regulation with this respect, due to the fact that no groups of indigenous/aboriginal peoples are subject to special protection in Georgia.
12.What surface rights may private parties acquire? How are these rights acquired?
See 8 above.
Duties, royalties and taxes
13.What duties, royalties and taxes are payable by private parties carrying on mining activities? Are these duties, royalties and taxes revenue-based or profits-based?
According to the Georgian Law on the Royalties for the Usage of Natural Resources, the royalties for metals are the following: iron, GEL0.008 per ton, with 1 per cent concentration; manganum, GEL 0.12 per ton, with 1 per cent concentration; copper, GEL136 per ton; lead, GEL37 per ton; zinc, GEL90 per ton; antimonite, GEL0.09 per ton; cadmium, GEL800,000 per ton; Aluminium, GEL104 per ton; strontium, GEL0.8 per ton; gold, GEL0.9 per gram; platinoids, GEL1.3 per gram; silver, GEL0.015 per gram.
It should be also pointed out that excise-duty established by the Georgian Tax Code should be paid for export of ferrous and non-ferrous metals and its rate amounts to GEL25 per weight unit.
Also, VAT should be paid for import of goods to Georgia, including the import of metal goods. At the time of publication the rate amounted 18 per cent, having been lowered from 20 per cent on 1 July 2005.
Apart from this, the customs duties for import of metal goods established by the Law of Georgia on Customs Tariff and Tax are mentionworthy. Such tax is calculated in percentage terms and rates fluctuate from 0 to 12 per cent.
Rates for metal goods represent are either fixed or percentage rates. Fixed rates are calculated on the basis of unit tons and the percentage rate is calculated based on the price of goods.
14.What tax advantages/incentives are available to private parties carrying on mining activities?
There are no distinctive tax rates and regimes with respect to mining of metallic minerals.
15.Is there any distinction between the duties, royalties and taxes payable by domestic parties and those payable by foreign parties?
There are no any special distinctions established by Georgian legislation for domestic parties and foreign parties.
16.What are the principal business structures used by private parties carrying on mining activities?
The most widely spread forms of business structures carrying out mining activities in Georgia are joint stock companies.
17.What are the principal sources of financing available to private parties carrying on mining activities? What role, if any, does the domestic public securities market play in financing the mining industry?
It should be noted that financing from public securities markets is very insignificant in Georgia. The main source of financing is investments (indirect, bank loans, etc.)
Restrictions and limitations
18.What restrictions and limitations are imposed on the import of machinery and equipment or services required in connection with mining activities?
The Law of Georgia on the Subsurface does not provide for any limitations or restrictions with respect to the import of machinery or any other equipment related to the mining industry.
19.What restrictions and limitations are imposed on the use of domestic and foreign employees in connection with mining activities?
No statutory regulation exists in this respect.
20.What restrictions or limitations are imposed on the processing, export or sale of metallic minerals?
According to the Georgian Law on Export and Re-export of Scrap and Waste of Base and Precious Metals, export and reexport can be conducted only based on the relevant permit, issued by the Georgian Ministry of Economic Development. Information
regarding export/re-export is subject to registration according to Georgian law.
21.What restrictions or limitations are imposed on the import of funds for mining activities or the use of the proceeds from the export or sale of metallic minerals?
The law does not set forth specific provisions in this respect.
Environment, health and safety
22.What are the principal environmental, health and safety laws applicable to the mining industry? What are the principal regulatory bodies that administer those laws?
The Law of Georgia on the Subsurface specifically provides a set of requirements aimed at the protection of the minerals and the safe usage of the subsurface. The principal requirements include prevention of uncontrolled usage of the minerals, protection of scientific and cultural sites, rational usage of resources and utilisation of the remains of mining industry, prevention of the negative effects of the industry, complying with the rules of conservation of mining objects, taking necessary measures for ensuring safety of the population and the environment, etc.
The principal regulatory body in this respect is the Department of Supervision of the Georgian Ministry of Environmental Protection and Natural Resources.
23. What is the environmental review and permitting process for a mining project? How long does it normally take to obtain the necessary permits?
The Law of Georgia on the Subsurface states that mining activities have to be carried out in accordance with the mining projects, mine development proposals and technological schemes, which are
approved by the relevant permanent commission of the Ministry.
24.What is the closure and remediation process for a mining project? What performance bonds/guarantees and other financial assurances are required?
Closure of the mining project can be caused by the expiration of the licence, by the licence-holder’s refusal to carry out mining activities, and in cases of violation of licence terms and conditions,as well as in case of violation of environmental, safety requirements, etc.
In the event of the closure of a mining project, immediate conservation (full or partial) of the mining enterprise is required. Any documentation in this respect has to be submitted to the state Informational Fund on Minerals.
The remediation of a mining project is possible upon the elimination of the causes that led to the closure of the mentioned project.
25.What international treaties apply to the mining industry or an investment in the mining industry?
According to the notice from the Georgian Ministry of International Affairs, Georgia is not party to any multilateral or bilateral international treaty in the field of mining. However, according to the Article 53 of the Law of Georgia on the Subsurface, if any international treaty or agreement sets out rules different from the given Law, the former is used, provided it does not contradict the Georgian Constitution.