Lawyer in Vietnam Oliver Massmann Mining Challenges for Investors

1. Lawyer in Vietnam Oliver Massmann Mining Challenges for Investors
The Prime Minister's Directive No.2/CT-TTg of January 2012 recognized that Vietnam's mineral
wealth is an important element for national industrialization and modernization and that the
country's minerals need "to be mined and processed by advanced and environmentally friendly
technology”.
The commitment to back investment in mining by modern, high technology which can be a key
contributor to Vietnam's economic growth and infrastructure development is welcomed by the
Mining Working Group. Unfortunately, major foreign and strong local investment is unlikely to
be forthcoming while Vietnam maintains one of the most investor-unfriendly mining legislations
in the world, including the highest royalty rates and other taxes and fees which make even
advanced and high technology mining not economically viable in the country.
EMERGING ISSUE - PROPOSAL TO INCREASE MINERAL ROYALTY TARIFFS EVEN
HIGHER
Resolution No.712/2013/UBTV-QH13 dated 16 December 2013 of the Standing Committee of
the National Assembly promulgating the royalty tariff on minerals raised the royalty rates of a
number of minerals by 1-5%. The new royalty rates applied to minerals such as wolfram
(tungsten) 18%, antimony 18%, titanium 16%, copper 13%, iron 12%, manganese 11%, and
nickel, cobalt, molybdenum, mercury, magnesium, vanadium and other metallic minerals at
10%. Minerals for which the royalty rates were not increased, but were already in the range of
10-15% were platinum, gold, silver, alumina and bauxite, tin, lead and zinc. These are the
highest royalty rates in the world and are the single greatest disincentive for potential major
investors wishing to come to Vietnam with advanced, high technology exploration and mining
methods. For example, the royalty rate on gold averages 1-5% world-wide on the sales value of
the metal produced compared with 15% applied in Vietnam.
Unfortunately, a new proposal has been made since the last Forum in June 2015 which appears
to make the situation worse. The MOF has requested opinions on a Draft Resolution to the
National Assembly Standing Committee proposing to replace Resolution No.712/2013/UBTV-
QH13 by substantially increasing royalty tariffs once again by the order of 2-7%. If this proposal
goes ahead, it will potentially, and in most cases almost certainly, effectively make any modern
mining operations in Vietnam unprofitable, lead to mine closures; result in the termination of a
valuable source of tax revenue for the Government; and condemn Vietnam to ongoing
environmental damage and safety issues associated with the outdated mining methods and
practices currently used by most Vietnamese companies.
COMPARISON WITH SIMILAR MINERAL-RICH COUNTRIES

2. It is to be hoped that when considering the proposal to increase mineral royalty tariffs again, the
Government will take into account the mining legislation and regulatory environment of other
countries which have attracted significant investment in developing their mineral resources. One
example is Peru which will take the chair of APEC in 2016, before Vietnam does so in 2017.
Peru encourages foreign investment in its minerals industry and since 2004 has applied a 1-3%
royalty on the commercial value of sales (recently changed to 1-12% of operating income for
new projects). This approach has led to mining (excluding oil and gas) comprising 55% of all
exports, has allowed Peru to maintain a fiscal surplus when many countries have high debt
problems and there is nearly US$60 billion of planned future exploration and mine development
investment in the pipe-line (Ernst & Young, 2015).
Other factors that the Government should consider are:
IMF EXPERT OPINION
It is worth referring to the words of the International Monetary Fund in its IMF Country Report
No.12/219 of August 2012 requested by the Government of the Philippines. The IMF recognizes
that a royalty rate of any higher than the 5%, as currently applied in the Philippines, would
"particularly when combined with other production-based levies, make the fiscal regime
uncompetitive”. For any contemplated royalty rate higher than 5%, the IMF recommended that
"mining companies be allowed a tax credit against their income tax for the amount of royalty in
excess of 5%”.
The IMF recommended that " the Philippines should adopt a fiscal regime for the mining sector
that is simple, predictable and transparent. This fiscal regime should ensure a fair distribution
between mining companies and the government of the economic benefits from mining with fiscal
regulations that are complemented by an efficient and transparent tax administration".
The IMF further commented that " there is a market test for any mining fiscal regime - can the
country attract investment in its mining sector? If not, the fiscal regime may be inappropriate for
the country, given its exploration, development and production costs; the size and quality of its
mineral deposits; and investor perception of commercial and political risk’.
Vietnam can learn from the IMF's words, because at present the country cannot answer IMF's
market test in the positive. It cannot attract investment into its mining sector, as evidenced by the
lack of any major mining companies coming to Vietnam to carry out modern mineral exploration
and mining.
APEC MINING TASK FORCE AND APEC MEETINGS OF MINISTERS
RESPONSIBLE FOR MINING
On 25-26 August 2015 in Cebu, Philippines, Head of the VBF Foreign Investor Groupwas
invited by the APEC Mining Advisory Board to attend the APEC Mining Task Force (MTF)

3. Workshop and Public-Private Dialogue, as well as the main session of the MTF9 meeting of all
21 APEC members.
Other attendees from Vietnam were the Ministry of Foreign Affairs Deputy Director-General in
her role of preparing Vietnam to be National Secretariat of APEC Vietnam 2017, plus two
representatives from MOIT. MOIT was present because at the meeting in Beijing in June 2014 of
APEC Ministers Responsible for Mining (MRM), Vietnam was represented by MOIT as the
designated mining ministry.
The Ministers' joint statement recognized "the significance of sustainable development in
mining, and believe this could be achieved through regional integration, fostering sustainable
investment, increasing social responsibility, and innovation and environmental advances in
mining and metallurgy" and the Ministers encouraged APEC economies to "improve their
mining investment environments, administration and services" and stressed "the importance of
promoting open, transparent and well-operating markets in the mining sector, as well as
investment and financing cooperation for win-win development".
It is to be hoped that Vietnam will be keen to improve its mining status by following the
objectives of the APEC Ministers' joint statement, to which Vietnam was a signatory, before it
chairs APEC in 2017.
CONCLUSION AND RECOMMENDATIONS
Although minerals are a non-renewable resource, most of the country's mineral wealth has yet to
be discovered. Only a fraction of Vietnam has been explored using advanced, internationally
accepted technology, which will almost certainly lead to the discovery of new, major deeper ore
bodies than have been found so far at or near surface. As a result, very little mining is being
carried out using advanced and high technology methods.
As long as Vietnam's royalties, fees and taxes are significantly higher than world averages,
international best-practice methods and investment in Vietnam's mining industry will continue to
be discouraged and will go to countries with preferable investment conditions. This in turn will
encourage the continuation of inefficient and wasteful mining practices and degradation of
Vietnam's existing known mineral resources and its environment, and also encourage increased
illegal mining and export of minerals on which little or no tax is paid.
To achieve the objectives of the Prime Minister's Directive No.2/2012/CT-TTg, we respectfully
urge the Government to improve investment confidence in Vietnam's minerals industry by:
• Re-examining existing legislation and Introducing more investor-friendly, competitive
mining legislation which includes an equitable tax system that is fair to both the Government and
the investor, and legislation that provides for consistent policies for long-term commitment; and
• Establishing a task-force to investigate the incorporation of the best elements of other
successful mining legislation around the world where a balance has been achieved between

4. attracting modern, high technology in exploration, mining and processing of mineral resources
while at the same time returning equitable revenue to the host nation whose resources are
extracted.
This means, as an essential step, reducing royalty tariffs to be competitive with other countries.
These steps will help to:
• Encourage exploration to increase Vietnam's mineral inventory by new, deeper
discoveries using modern technological methods;
• Allow sustainable mining and processing of the country's mineral wealth by advanced
high technology practices in an environmentally responsible, efficient and safe way;
• Increase revenue to government and communities;
• Accelerate development of infrastructure and service industries in the more remote and
often mountainous parts of Vietnam with poor socio-economic conditions, where mineral
deposits tend to be found;
• Enable the mining sector in Vietnam, which is currently almost isolated, to benefit from
global integration within APEC, the TPP and other free trade agreements.
• The Foreign Investor Group sincerely hopes that the main ministries concerned, namely
MONRE, MOIT and MOF, with the help of MPI can cooperate to recommend to the Prime
Minister the necessary steps which will lead to mining legislation and regulations that will
provide the incentives to deliver on the objectives listed above.
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you
have any questions or want to know more details on the above. Mr. Oliver Massmann is the
General Director of Duane Morris Vietnam LLC.
THANK YOU !