The Effect of Legislation on the Development of Coal Mining Industry

1. The Effect of Legislation on the Development of Coal Mining Industry • Kazem Oraee, PhD • Professor, Stirling University, Stirling, UK • Nikzad Oraee-Mirzamani, MSc • Doctoral Researcher, Imperial College, London, UK • ArashGoodarzi, MSc • Research Fellow, Ministry of Labor and Social Affairs, Tehran, Iran SME Annual Meeting 2013

2. Coalreserves in Iran estimated in excess of 5 Billion tons • Annual coal productionmerely 2 Million tons Lack of development of the industry has limited production, despite growingdemand for energy The existences of numerous legislationsare thought to have a detrimental effect on coal mining activities to the extent that some business entities have become uneconomical in many areas

3. Coal is valued for its energy content • Globally, only around 15%of hard coal productionis exported Coal production grew by 55 per cent (1990- 2010)

4. -Electricity generation -steel production -and a variety of processes are depended on coal production in the world Coal provides 30% of global primary energy needs

5. At current production levels

6. Iran produces2 Million tons (average) of coal annually from relatively small underground mines while proven and probable coal reserves are estimated to be in excess of 5 Billion tons Most of the production in Iran is produced from relatively thin, locally steeply-dippingseams, and is destined for the steel industry

7. The energy market in Iran is complex Iran’s Energy policy is completely controlled by the government, leading to a market with many advantages and disadvantages

8. Iran has rich deposits of oil and gas and ranks second in the world in natural gas and third in oilreserves. According to BP Statistical Review Data, Iran owns 15.9% of natural gas and 9.1% of oil reserves in the world. It has the potential to become an energy superpower but the country's energy sector is hindered with countless serious problems .

9. The main export of the country is oil. It has a share of 75% in country’s exports . Iran’s energy consumption is notably higher than international norms. It is 6.5 times that of the global average. Iran is the world's eleventhlargest energy consumer. accounting for 1.9% of the global energy consumption, by just over 1% of the global population.

10. World's 15 largest energy consumers in 2011 Iran is the world's eleventh largest energy consumer Iran GDP: 330 Billion USD UKGDP: 2,200 Billion USD 1.9% of the global energy consumption, by just over 1% of the global population.

11. Compositionof energy by resource is mainly restricted to oil and gas.

12. China consumes around 3% of its coal reserves every year . • In comparison, Iran consumes around 0.0004% of its coal reserves every year. Coal resources not being used to their full potential.

14. Iran is the third largest consumer of natural gas in the world after United States and Russia Produced 150 billion cubic meters of natural gas in 2011 (990 million barrels oil equivalent) nearly all of which was consumed in Iran

16. Iran is rich in coal resources but the availability of cheap oil and natural gas has made coal mining uneconomical. Nevertheless, domestic consumption is increasing and new energy recourses are required. Thus the only way to increasing the utility and efficiency of coal mining operations in a short timeframe is through regulatory reform.

17. History Judicial precedence and history is an essential part of legal studies Mining law does not find its place in Iran’s legal history

18. After the Qajar era: First Mining Act Policy makers have taken a U-turn and changed the regulations in order to attract investment from the private sector The Cycle of Mining Act in Iran • Mineral recourses are the property of the State who had the exclusive rightto exploit resources, unless an official licensewere obtained from the government • First regulatory reform: economic development program, aimed at developing the country’s mineral resources A change in policies towards making new investments and improving infrastructure facilities After the Islamic revolution of 1979: anti-capitalism

19. Mining is a significant contributor to the growth of global global GDP Since 1985 over 100 countries have modernised their respective mining regulations to attract investors

20. Iran’s Greco-Roman legal systembenefitsfroma recently codified constitution Enacted in 1979 Revised in 1989 It is supreme and all affairs of the country are run in accordance with its principles.

21. Private ownership of land does not contain within it proprietary rights of the material beneathits surface

22. Government Monopoly Private Sector A monopoly to exploit all rich deposits Owned & operated by Government

23. Even though liberalization of trade, globalization of the economy and promotion of foreign investment are the founding principles of a modern economy.

24. The Mining Act is based on the Articles 44 and 45 of the constitution It contains 36 Articles in 4 chapters Private sector companies are authorized to operate Only the government is allowed to operate

25. Second Chapter: Exploration Exploration rights are granted on a first come, first servedbasis. • Traditionally, private mining companies were not able to cope with the high costs associated with mine explorations . • Valuable deposits have been discovered by government-owned entitiesexclusively.

26. Second Chapter: Exploration • Article 2: • Ministry of Industry, Mine and Commerce has exclusive authority to manage all activities related to exploration and exploitation of mines. to transfer these rights to investors or private companies through exploration and exploitation LICENCES . • Only “competent authorities” are authorized to discovermines - a few public sector organizations such as the Organization of Geological Survey But the legal scope for a competent authority is limited to - members of Iranian Mining Engineering Organization (who are classified only based on academic expertise).

27. Use It Or Lose It • Article 8: • Holders of discovery license can submit their application for discovery of the mineral to the government within a maximum of one year after the issuance of the discovery license • Iranian mining companies face many technical and financial difficulties • Exacerbated by the short time interval between exploration and exploitation licenses. - Exploration: 30 years Example: Tabas Coal Mine - Equipping with machinery: over 7 years (2000-2006)

28. Tabas is an area in the east of Iran which contains a vast amount of coal reserves Reserve: 1 billion tons Recoverable: 400 million tons Annual production (Concentration Coal): Less than 1 million tons Investment: more than $300 million (USD) by public sector operators The rate of production is so low that with the current rate, these reserves will last for more than 400 years!

29. Article 9: • “Exploitation license is an official and binding document which specifies the period of exploitation according to the mine’s identity card and the approved exploitation plan which and can be extended, transacted or transferred to third parties including a right to benefit from the mine by the license holder and includes a guarantee by the holder to comply with the related requirements.” • Note 1: • Banks are encouraged to gage the exploitation license as a pledge to lend • Reality: banks rarely invested in the mining sector!

30. Article 14: • Imposes a royaltyobligation on mineral interests extracted from public lands But even this royalty is too low in proportion to the relevant corporations’ profits in Iran • Royalty of coal extraction is less than $0.5 (USD) per ton • While the price of coal is more than $60 (USD) per tonne(19 Feb 2013) • Higher rate of royalty will allow more revenues, which the Government can then use for modernizing state-operated mines

31. Investment Policy Framework • Traditionally foreign investment in the Iranian mining industry has been low • Many mines have been left undeveloped across the country due to shortage of capital • Investment regime: • Alarge State-owned fund • Centralised planning

32. NEW Foreign Investment Promotion and Protection Act (Amended 2002) Foreign investors are allowed

33. According to Mining Act: All foreign investments made through a buy-back contract scheme in the mining sector Laws regulating the mining industry must be harmonized with new Foreign Investment Promotion and Protection Act

34. Framework of Labour Regulations • Labour Act was enacted in 1990, with purpose of: • Promoting employment; • Protecting labourrights; AND • Allowing enterprises to grow and compete in the modern economy • In contrast: • Half of annual coal production is mined by un-mechanized methods, while • Wage costs account for over 60% of the total cost

35. Labour Act, Article 5: • Hours of work shall not exceed six hours per day or 36 hours per week in mines (8 hours less than other jobs per week) • Social Security Act, Article 76, Note 2: • Miners aged of 50 or over who have worked at least 20 consecutive years (or 25 non-consecutive years) under difficult working conditions may become retired and earn pension • Employers must pay half of the pension allowance(due to earlyretirement rights) • Impose high costs on mining companies

36. Coal Mining Legal Framework in the US The economic progress of the US has historically been linked to the use of coal fromits abundant coal resources. Coal mining is one of the most extensively regulated industries in the United States Meeting all the requirements is arduous and time-consuming, even for the most efficient and well-managed companies US legal system can be used as model for Iran’s legal reform in mining law

37. Conclusion

38. Thank you for your attention