In a move that could have a significant impact on the mining industry, the Cabinet decided on April 19 that the size of concession royalties paid for extraction of subsoil resources will depend on the profitability of net proceeds from the sale of the resources extracted.
Ministers approved changes to the ordinance on the principles and methods of calculating concession royalties for subsoil resource extraction, as governed by the Subsoil Resources Act.
Until now, companies have paid between 0.2 per cent and six per cent of net sales revenue in fees for mining metal ores. The Cabinet decision means that these fees will range from 0.8 per cent to four per cent of net sales revenue. The four per cent fee will be levied when profitability is 50 per cent or higher.
The background to the decision is a push for some time by Environment and Water Affairs Minister Djevdet Chakurov for the state to get a bigger slice of the proceeds from mining. Last year, controversy attended a call by Chakurov for existing contracts to be revisited to ensure bigger revenue for the state. Mining companies, notably including foreign-owned Bulgarian mining enterprises, have variously said that they would go to court to protect their interests, have sought successfully to recruit diplomatic support and in the case of Dundee Precious Metals, have said that they would reconsider continued investment in Bulgaria.
On April 20, Bulgarian news agency BTA reported that Chakurov had written to Interior Minister Roumen Petkov asking the ministry and the Economic Police for an opinion on the protection of national interests in the annexes to the concession agreement for the Chelopech gold mine. Chelopech Mining is a Dundee subsidiary.
Chakurov alleged in an interview with Bulgarian National Radio (BNR) that the state had suffered serious economic and legal prejudice because of annexes to the concession agreement dating from the years 2000 and 2004. The annexes had been reviewed by his ministry, the Economy and Energy Ministry and independent teams, he said.
We want to offer a good investment climate and a good environment for doing business in Bulgaria, but a balanced decision is needed to protect the states interests as well, Chakurov told BNR.
According to calculations by Bulgarian-language financial daily Pari, the new concession fees will mean the companies operating Bulgarias biggest metal ore mines, Elatsite, Chelopech and Asarel Medet, will increase by two- to fourfold.
Mining exploration firm Martern wanted to study the Cabinet decision before deciding on comment.
At the Cabinet meeting, the proposals were put forward by Deputy Prime Minister and Foreign Minister Ivailo Kalfin and Deputy Prime Minister Emel Etem. Kalfin presided over a working group appointed by Prime Minister Sergei Stanishev in September 2006 to prepare changes to the ordinance.
A Cabinet statement said that the had been co-ordinated with the Bulgarian Chamber of Mining and Geology and with the Confederation of Employers and Industrialists in Bulgaria.
Economy and Energy Minister Roumen Ovcharov said that the new methodology would not apply to already signed contracts.
Asked for a comment, Fidanka Bacheva-McGrath of Cyanide-free Rhodope (CFR) coalition told The Sofia Echo that in spite of their insistence, the Kalfin working group had not allowed a CFR representative to attend their meetings and had not informed them about the fee system being discussed. As the process was closed to all non-governmental environmental organisations, Bacheva-McGrath said: The decision by Minister Chakurov regarding DPMs (Dundee Precious Metals) project in Chelopech must be based first and foremost on environmental arguments and must reflect concerns about risks to human health. The possible economic benefits for the state budget cannot compensate for the flaws in the Chelopech project Environmental Impact Assessment of 2005 and the limited process of public information and participation.
The CFR said that they were worried that once the economic question was settled, sight would be lost of the environmental issues.
