Regulatory

Challenges to the Mining Law Reform in Croatia

The main purpose of the current Croatian Mining Act (Zakon o rudarstvu), in force since 30 July 2009, was to introduce the new licencing and concession regime suitable to exploration and production of mineral resources in line with EU law. But its implementation has proven ineffective and controversial. The amendments made to the Mining Act in April 2011 were incomplete and legal uncertainty continues. Now, in the context of Croatian accession to the EU on 1 July 2013, the pending mining law reform is expected to address comprehensively the many problems of the mining industry in Croatia.

Introduction

Croa­t­ia has a long min­ing tra­di­tion. Accord­ing to some esti­mates, the val­ue of annu­al pro­duc­tion of min­er­al raw mate­ri­als in Croa­t­ia exceeds HRK 6 bln (ca EUR 800 mln), out of which 88% is ener­gy raw mate­ri­als (oil, gas and con­den­sate) and 12% non-ener­gy raw mate­ri­als (tech­ni­cal con­struc­tion stone, dimen­sion stone, car­bon­ate min­er­al raw mate­ri­als for indus­tri­al pro­cess­ing, etc). Despite the fact that min­ing is an impor­tant indus­try for the Croa­t­ian econ­o­my, it still lacks sta­ble and pre­dictable legal and pro­ce­dur­al frame­work as an impor­tant pre­req­ui­site for the devel­op­ment of and invest­ment in the min­ing sec­tor.

The Mining Act 2009

The Min­ing Act 2009 is the prin­ci­pal piece of leg­is­la­tion gov­ern­ing min­ing in Croa­t­ia. The Min­ing Act 2009 applies to the explo­ration and pro­duc­tion of min­er­al resources in gen­er­al. Oil and nat­ur­al gas pro­duc­tion are pre­dom­i­nant in the Croa­t­ian min­ing indus­try, but no sep­a­rate law in the Min­ing Act gov­erns hydro­car­bons explo­ration or exploita­tion activ­i­ties. For the time being, the issu­ing of autho­ri­sa­tions is pri­mar­i­ly con­trolled by the Min­ing Act. This is often crit­i­cised by the oil and gas indus­try pro­fes­sion­als as being inap­pro­pri­ate since it does not take into account the devel­op­ment and par­tic­u­lar needs of the oil and gas sec­tor.

The mining licencing & concession regime

A main rea­son for adopt­ing the Min­ing Act 2009 was to imple­ment the EU Hydro­car­bons Licens­ing Direc­tive 94/22/EC1 (Direc­tive), which aims to ensure com­pet­i­tive, non-dis­crim­i­na­to­ry and trans­par­ent access to the activ­i­ties of prospec­tion, explo­ration and pro­duc­tion of hydro­car­bons. In line with the Direc­tive, the Min­ing Act 2009 intro­duced a pub­lic ten­der­ing pro­ce­dure for grant­i­ng approval for explo­ration (odobren­je za istraži­van­je) and con­ces­sion for pro­duc­tion of min­er­al resources (kon­ce­si­ja za eksploat­aci­ju). At first glance, the pub­lic ten­der­ing pro­ce­dures seem to be open to all inter­est­ed enti­ties, as required by the Direc­tive. How­ev­er, many of the cri­te­ria, con­di­tions and require­ments for grant­i­ng the respec­tive autho­ri­sa­tions set out in the exist­ing law vio­late the main prin­ci­ples set forth in the Direc­tive, such as com­pe­ti­tion, equal treat­ment and non-dis­crim­i­na­tion and thus may not be imple­ment­ed in prac­tice. So it prob­a­bly does not sur­prise that a ten­der for explo­ration of oil and gas with­in 14 explo­ration areas in north­ern Croa­t­ia, launched by the for­mer Croa­t­ian Gov­ern­ment in Decem­ber 2011, was soon annulled due to irreg­u­lar­i­ties in the ten­der. To date, no new ten­der has been re-launched.

Time for comprehensive mining law reform

Many crit­ics have argued that the Min­ing Act’s law­ful imple­men­ta­tion has become impos­si­ble. To remove legal uncer­tain­ties and incon­sis­ten­cies with pro­vi­sions of the Phys­i­cal Plan­ning and Con­struc­tion Act (Zakon o pros­tornom ure­đen­ju i grad­nji), the Envi­ron­men­tal Pro­tec­tion Act (Zakon o zašti­ti okoliša) and the Con­ces­sion Act (Zakon o kon­ce­si­ja­ma), nec­es­sary leg­isla­tive amend­ments of leg­is­la­tion in the min­ing sec­tor are under­way. Accord­ing to the pub­lished Work­ing Draft of the Min­ing Act (Draft Act)2, one of the major amend­ments is the intro­duc­tion of the new cri­te­ria, con­di­tions and require­ments required for grant­i­ng autho­ri­sa­tions for explo­ration and pro­duc­tion of min­er­al resources. But some pro­vi­sions of the Draft Act are unclear and legal­ly prob­lem­at­ic. A main con­cern over the pro­posed autho­ri­sa­tions pro­ce­dures is that the Draft Act, despite the need for sim­pli­fi­ca­tion, actu­al­ly intro­duces a more com­plex pro­ce­dur­al frame­work for grant­i­ng autho­ri­sa­tions.

A sec­ond major amend­ment and pos­i­tive fea­ture of the legal reform is that explo­ration and pro­duc­tion of hydro­car­bons will no longer be reg­u­lat­ed under the Min­ing Act, but under the new Act on Hydro­car­bons. How­ev­er, no draft pro­pos­als are pub­licly avail­able yet. It will thus be inter­est­ing to see whether the intend­ed legal reforms will pro­vide fur­ther guid­ance to the oil and gas industry’s devel­op­ment and invest­ment in Croa­t­ia.

Conclusion

The out­come of a com­pre­hen­sive min­ing law reform is yet to be seen. Con­sid­er­ing the impor­tance of the min­ing indus­try in the Croa­t­ian econ­o­my, the pend­ing law reform should pro­vide appro­pri­ate solu­tions to key omis­sions and short­com­ings in the exist­ing min­ing legal frame­work and ensure full and effec­tive enforce­ment of the new legal frame­work – and so end the cur­rent dis­or­der.

At first glance, the public tendering procedures seem to be open to all interested entities, as required by the Directive. However, many of the criteria, conditions and requirements for granting the respective authorisations violate the main principles set forth in the Directive.

1
Direc­tive 94/22/EC of the Euro­pean Par­lia­ment and of the Coun­cil of 30 May 1994 on the con­di­tions for grant­i­ng and using autho­ri­sa­tions for the prospec­tion, explo­ration and pro­duc­tion of hydro­car­bons.
2
The Croa­t­ian ver­sion of the pub­lished Draft of the Min­ing Act is avail­able on the Min­istry of Economy’s web­site: www.mingo.hr. Last draft con­sul­ta­tions were opened to the pub­lic from 28 August until 28 Sep­tem­ber 2012.