U Htun Lynn Shein, Chairman, Myanma Precious Resources Group: Interview

Interview: U Htun Lynn Shein

How, in your opinion, do production agreements in the mining sector in Myanmar differ in comparison to international norms?

U HTUN LYNN SHEIN: There is a lack of standardisation in the mining sector internationally, unlike in the oil and gas sector. There should be a set of standards applied to mining law, mineral policy and tax policy. In terms of production agreements, each and every country has their own set of mineral and taxation norms. Some countries choose to go into joint ventures with equity interest in the project, and some countries choose to take profits from royalties alone, while others prefer to glean profits from tax options such as sale taxes.

Production-sharing contracts (PSCs) were first introduced in Bolivia in the late 1950s and were not very successful, so they did not become a common international practice. However, this has not been the case in Myanmar. Prior to the adoption of PSCs, the country’s mineral policy was based on equity sharing. Looking back at the Letpadaung copper mine project, a joint venture undertaken with Canadian mining company Ivanhoe Mines, it is clear that the Myanmar government experienced many challenges in the management of this joint venture. At the root of the problem was the project’s coincidence with a period of low commodity prices, resulting in a lack of revenue for the duration of the project, in addition to administration and management difficulties. This is one of the reasons that PSCs are now employed by the mining sector in Myanmar, even though contracts of this type reduce mining profits significantly, rendering them unpopular in most developed mining countries. Simply put, they are too expensive.

The mining industry in Myanmar is different from those in other countries because the vast majority of our mines operate on a smaller, more localised scale and produce less in terms of commodities. PSCs work well for both the mining companies and the government, but less so for foreign companies that wish to conduct large-scale mining. The government must therefore find a balance between the two and implement a new policy that reflects this. Personally, I do not think that we should go back to equity-based contracts because, as countries like Mongolia have shown, they do not work. We should stick to royalties and taxes only. Once the new mining law is passed. it will become clear if there should be two separate policies – one for mining undertaken on a large scale and one for small-scale projects.

What impact does small-scale mining have on the environment compared to large-scale mining?

SHEIN: The nature of small-scale mining makes it difficult for the government to monitor, control and scrutinise operations, since mining projects are very small and only operate in any given area for a maximum of three years. Large-scale mining projects run for a much longer term – 15-30 years – making it easier for the government to monitor their activities. Another major issue for small-scale mining companies is limited capital, which translates into limited development expenditure, making them unable to prevent, say, deforestation. Often, people make a living from supplying the mine with trees they have cut down. In large-scale mining activity, however, we must let the ministry know of anything that will harm the environment, and before we start the project we need approval from the Ministry of Forestry and Environmental Conservation. We also have to carry out an Initial Environmental Impact Assessment, as well as undertake scoping studies, and subject ourselves to all sorts of measures that are put in place to monitor mining projects. Small-scale mining activity is often done illegally and it has a detrimental impact on the environment. This poses a huge problem for the country, but there are plans in place to contain it and to limit its impact on the environment.