Amendment to the Executive Regulati

On 24 October 2017, the Prime Minister issued an amendment to the Executive Regulations of Mineral Resources Law 198 of 2014 (the “Law”).[1] The amendment mainly streamlined the percentage of royalties paid for quarrying licenses across the different substances, and limited the granting of licenses to quarries that are at least 10,000 square meters in size. It also provided for the dual supervision of the regulating authority and the governorate where the mine, quarry or saltpan is located, where the Law had previously granted that supervisory role to one or the other.

Background

In December 2014, a new law for the regulation of mineral resources was issued in Egypt. The Law was the first in over half a century of the sector being governed by a number of outdated laws, including Law 86 of 1956, which the new Law repealed. The main aim of issuing the new Law and its Executive Regulations that followed in June of 2015 was increasing the financial returns from the sector to the State through amending rental values, royalties and fees for mines and quarries, the amounts of which had stayed in stagnation since the 1950s. The new Law was also devised in hopes that it would attract investments, revive the sector, and satisfy local needs from mineral resources. Of the most prominent aspects of the new legal framework was that it did not only deal with mines and quarries, but rather with the broader concept of mineral resources in general, including saltpans. The Egyptian Mineral Resources Authority (“EMRA”) was named the authority responsible for regulating the exploration and exploitation of mining ores and supervising their extraction, with certain competencies delegated to the jurisdiction of the governorates where the mine, quarry, or saltpan is located. The Law provided for the issuance of licenses on two phases: exploration and exploitation; with separate fees that are determined depending on renting space and type of extracted substance. Finally, the Law required that a license holder submit a quarterly operations report to EMRA or the relevant governorate. It is worth noting that the Minister of Petroleum and Mineral Resources has recently stated that the issuance of the Mineral Resources Law and its Executive Regulations has given a push to the Ministry’s plans of improving the economic exploitation of these resources, and attracting international investments.[2] On the other hand, there have been complaints within the sector following the issuance of the Law and its Executive Regulations. These were mainly related to the increase in royalties and fees that were imposed by the new Law, especially in light of the difficult circumstances that companies have faced following the flotation of the currency and other economic reform measures undertaken by the State. One of the other criticisms directed to the Law was in relation to requiring approvals prior to exportation and the related fees in what was seen as an additional burden to license holders. Finally, a main drawback of the new Law was that it created an overlap between the jurisdiction and supervisory powers of EMRA and the relevant governorates. Specifically, EMRA is stated as the sole authority responsible for regulating the exploration and exploitation of mining ores and supervising their extraction, while it exercises this role in coordination with the relevant governorates when it comes to quarries and saltpans. As highlighted in our coverage of the Mineral Resources Law in the Egypt Legal Update Issue of January 2015, it might have been better if supervision over the entire sector was delegated to EMRA alone so that investors would only have to deal with one supervising entity, even if some of the financial returns were directed to the Governorates.

The Current Amendment to the Executive Regulations

On 24 June 2015, the Prime Minister issued the Executive Regulations of the Mineral Resources Law (the “ER”).[3] The current amendment to the ER was issued by the Prime Minister on 24 October 2017 (the “Amendment”).[4] In addition to making some clarifications in attempts to limit confusion in relation to the text of some provisions, the Amendment mainly streamlined the percentage of royalties paid for quarrying licenses across the different substances, and limited the granting of licenses to quarries that are at least 10,000 square meters in size. Furthermore, it added to the jurisdiction of EMRA, the supervision of quarry field activities on the ground “in order to guarantee the best use of the quarry and the application of proper technical methods respective to the quarried substance, and ensure the implementation of health and safety precautions, as well as environmental standards”. This task was previously left to the jurisdiction of the governorates and is now to be undertaken jointly with EMRA. Article (1) of the ER was amended to state that all rent, royalties and fees would go to the public treasury. It is worth noting that the Law specifies in provisions related to mining and quarrying that both annual rent and royalties be paid to the public treasury, while the social development contribution, valued at 1% of the annual production value, be paid directly to the governorate. While the Amendment now restricts licenses to quarries that are at least 10,000 square meters in size, it states that current licenses remain valid until the quarried substance either perishes, or after the elapse of three years from the date of this Amendment. A distinction that was specific for cement, glass, and gypsum companies stating that they pay rent for only active quarries and 25% of rental value for temporary space was omitted. In contrast, Article (38) now requires that a licenses holder pays the governorate a royalty at a fixed rate of 13% for all extracted raw material. This includes glass, gypsum, and cement companies, who are required to pay the 13% royalty for raw material used as input for production. Furthermore, this royalty percentage will be computed in accordance to the market value of extracted raw material, and determined by a joint committee comprising EMRA, the relevant governorate, the Ministry of Finance, the Mineral Resources Department at the Ministry of Defence, and the Federation of Industries. Prior to this Amendment, the committee was comprised of only EMRA and the relevant governorate. A new article was added to allow the governorate to undertake the activity of exploiting quarry substances and saltpans within its area of jurisdiction, and establish companies under the Companies Law for that purpose (upon obtaining authorization from the Prime Minister). The Amendment states that any said company would have to abide to the payment terms and conditions of the Law, as well as the supervision of EMRA. The Amendment also introduced an exception to the general provision which prohibits a license holder from extracting substance other than that for which they hold a license. For exploitation licenses of sand or pebble that is mixed with another substance, the license holder now has to submit an application to the governorate to request the addition of that substance and pay the relevant fee within 30 days from discovery. If the governorate approves, the license holder must then pay the annual royalty respective to the extracted substance, and any difference in rental value. Article (59) was amended so that it now states that a license holder pays a security deposit equal to rental value, once for every license. The amended article used to state that the deposit is payable prior to obtaining the license. The effect of the amendment is that the deposit will now only be paid following the issuance of the license, and that it will only be levied once with respect to a certain license. Interestingly, the Amendment provides that an application for exportation approval must now be submitted twice a year. The request must contain the amount, price, source of the raw material, and its destination (along with evidencing documentation). Amounts that are exported are to be subtracted periodically from the previously approved amount.

Conclusion

The Amendment seems to deepen the issue of the overlap of powers between EMRA and the governorates rather than resolve it. Indeed, even in areas where it would make sense that the governorates’ supervision be sought, the Amendment places EMRA as a joint regulator. This is apparent in an amended provision which states that the license holder must submit an application, not only to the governorate, but also to EMRA, for space that is required for operating the mine or quarry, such as establishing roads, railway tracks, airports, warehouses, ports, electricity, pipes etc. Finally, an amendment was made to Article (106) of the ER which used to state that no amounts will be levied other than those set out under the Law and its ER. The amendment adds an exception that allows for additional fees for EMRA’s surveying services and geological expert contracts, with an EGP 50, 000 cap. This seems to be in violation of Article (4) of the new Investment Law, which states as one of the guarantees to investors that “no administrative body will be allowed to issue any executive orders or regulations in a manner that increases the financial or procedural burdens of the investor or in relation to the establishment and operation of projects that are subject to the Investment Law, or levy any fees in relation thereto or amend said fees without consulting with the Board of Directors of the General Authority for Investment and Free Zones, and obtaining the approval of the Cabinet, and the Supreme Council of Investment.”   [1] Law No. 198/2014 on Mineral Resources, Official Gazette, Issue No. 49 (bis) (a), 9 December 2014. [2] Al Ahram Newspaper, “During his meeting with the Canadian ambassador, Al Mulla: The new mineral resources law reinforces investments”, Available through this link (Arabic). [3] Prime Minister’s Decree No. 1657/2015 enacting the Executive Regulations of the Mineral Resources Law, Official Gazette, Issue No. 25 (bis) (f), 24 June 2015. [4] Prime Minister’s Decree No. 2292/2017 amending certain provisions of the Executive Regulations of the Mineral Resources Law, Official Gazette, Issue No. 42 (bis) (d), 24 October 2017.