Economy, Business And Markets

No End In Sight to Mine Royalty Controversy

No End In Sight to  Mine Royalty ControversyNo End In Sight to  Mine Royalty Controversy

A ccording to statistics released by the ministry of industry, mine, and trade, revenues generated from mine royalties during the first 10 months of the current Iranian year (ends March 20) indicate a 6.7% decrease compared to the similar period last year, IRNA reported.

The royalties received by the administration during the 10-month period stood at 4.06 trillion rials ($146.6 million based on official currency exchange rate). The royalties paid by the mining companies during the last month of the period was reported to be 529.47 billion rials ($19.1 million), down 39.3% from the previous month, wherein as much as 872.4 billion rials ($31.5 billion) was collected by the government.

Tehran Province recorded the highest increase in royalties received between the tenth month of Iranian year (December21- January 21) and the previous month, growing by 60% during this period; while Yazd Province, which is home to several major iron ore reserves, registered 2.7% reduction in mine royalties between the ninth and tenth months of the year.

The central province paid 66.3% less royalties during the 10-month period compared with the similar period last year.

Mine royalties have been a subject of dispute over the past few months. The administration, in its budget proposal for the upcoming Iranian year (starting March 21) had called for 30% in royalty to be received from Golgohar and Chadormalu iron ore mines while the parliament decreased this amount to 25% but imposed it on all iron ore mines.

Mining companies and many mining experts have slammed the recent decision by the parliament’s Joint Commission (composed of lawmakers from parliament’s 17 specialized commissions as well as members of Budget and Planning Commission) which requires all mines to pay royalties. They argue that if all mines are to pay royalties next year, more than 70% of small and medium private mining companies will have to close down.

Meanwhile, lawmakers defend the decision, saying the move will help prevent the export of raw minerals by encouraging the mining companies to process the minerals instead of simply extracting and selling them as raw material.

“If the mining companies process iron ore to turn it into iron ore concentrate, the royalty will be reduced to 21.5%”, said the head of parliamentary committee for industries and mines, Dariush Esmae’ili.

Mining royalties will further reduce to 18% if the companies process iron ore to produce pellets and to 15% if the iron ore pellets are further processed and turned into sponge iron (technically known as direct-reduced iron or DRI). The production of DRI is the last step before steel production.

The parliament’s decision to reduce the mine royalties from 30% to 25% has been aimed at protecting the mining companies, especially the private sector companies, said Esmae’ili, emphasizing that the recent decision would “help regulate the mining sector and pave the way for more investments.”

“We have also encouraged mining companies to invest some of their annual profits in the downstream sectors. By doing so, 10% of their investment will be deemed as mine royalty”, the MP added, describing the move as “an initiative to help develop the mining sector and complete the steel production chain.”

Despite the arguments put forward by the parliament members, many mining experts warn that the decision could jeopardize the security of private investors in the mining sector.

The new law requires mines to pay royalties from their sales. If they refuse to do so, Article 48 of Public Audit Act authorizes the ministry of economic affairs and finance to block the companies’ bank accounts and withdraw the royalties. Golgohar and Chadormalu, two major iron ore mines, experienced the same conundrum.

In 2007, the Iranian Mines & Mining Industries Development & Renovation, known as IMIDRO, took over the two mines in response to their resistance to pay the 30% mine royalties. The mines’ shareholders and beneficiaries then sued IMIDRO and after many years, seem to have won the case following the latest verdict issued by the Court of Administrative Justice.