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POBEDITELI — Soldiers of the Great War

MINISTRY OF NATURAL RESOURCES

ÏÑ-65/7247 December 4, 2001

 

Heads of regional offices

MNR Department,

MNR subordinate enterprises and organizations

 

 

Enclosed are draft proposals on improvements to the national nature use policy.

Please provide your comments and proposals within ten days to the Department of Federal Inter-Sectoral and Sectoral Programs and Preparation of Public Reports (Miletenko) of the Ministry of Natural Resources of the Russian Federation.

Telephone for contacts: 254-7665

Email: admin@mnr.gov.ru

 

P.V. Sadovnik

Deputy Minister

Draft

 

FRAMEWORK (CONCEPT PAPER)

 

PUBLIC POLICY OF NATURE USE AND USE OF

MINERAL/RAW MATERIAL SECTOR

 

Contents

Background
I. Nature Use in the Russian Federation, and Its Principles
1.1. Sectoral Principles of Nature Use
2. Priority Areas of the Public Nature Use Policy (Subsoil, Forest, Water Resources)
2.1. Subsoil Areas
2.2. Forests
2.3. Water
2.4. Changes in Respective Areas of the Russian Legislation to be Made Simultaneously with Improvements in Nature Resource Legislation
2.5. Public Policy on Unifying the Licensing System for the Use of Various Natural Resources
2.6. Limits of the Civil and Legal Regulation of Nature Use
2.7. Ownership of Natural Resources. Relations between Executive Authorities of Different Level when Implementing Administrative Functions on Public Nature Resource Management
II. Mineral/Raw Material Sector (MRMS) of Russia
3. Major Problems of the Russian MRMS
4. Priority Areas of the Public Mineral Raw Material Use and Reproduction Policy
5. Foreign Economic Aspects of Strategic and Current Planning of the National MRMS Policy
6. Priority Legal Measures to Implement Public MRM Use and Reproduction Policy

Background

Nature resource sector of the Russian Federation and, respectively, fuel and energy sector (FES) and mining industry, play a special role in the social and economic development of Russia and ensuring its economic and energy security.

Russia remains a major world producer and a leading exporter of mineral raw materials. Despite its enormous potential and higher surviving capacity as compared to other sectors of economy, the Russian mineral/raw material sector (MRMS) appeared to be in a critical state under economic reforms due to the lack of a long-term public strategy of MRMB research and reproduction, and technical retrofit of FES enterprises.

Additional factors contributing to the critical condition of the MRMS include: depleting mineral base of existing enterprises; projected breakdown of production capacities in 2005-2010 given the current slow commercialization of new projects and significant downsizing of geological surveys (inter alia, due to elimination of MRMB (mineral/raw material base) reproduction charges as a source of funding for geological surveys and implementation of regional MRMBR programs).

The above negative factors may in the short term considerably disrupt the performance of the mineral resource sector, and, consequently, slow down the economic development and undermine the national energy security.

The efficient national energy security policy also requires consideration for the MR globalization impacts, and defining the country's role in the future worldwide pattern of mineral resource supply.

Russia dominates in the world in terms of some mineral deposits though their development has been extremely slow within the recent decade. The Russian MRMB may in the near future become part of the world mineral raw material reserve, and the above factors call for the early arrangement of Russia's cooperation with other countries - potential leaders in the future MRM supply with a view to stabilize the international market of mineral raw materials.

In view of the above, under current economic conditions the efficient nature use, forefront MRMB reproduction and restoration of strategic mineral reserves (which include fuel and energy, noble metals, non-ferrous, rare metal and non-metal ores) should become a highest priority in the Russian national policy.

Note:

Consumption of mineral/raw materials and energy resources will continue to grow in the XXI century, and therefore, the mining industry will have to meet this demand, which requires increased number of prospected and operating mineral deposits. The growth of world population is accompanied by increased per capita consumption of mineral raw materials; since 1990, the world population has grown from 1.5 billion to 6 billion people. Livelihood of the growing numbers of people is becoming increasingly dependent on the supply of mineral resources, meaning that the search for new mineral deposits will inevitably continue. According to Western experts, the scales of mining will increase, at least, five-fold in the coming 50 years, mainly at the expense of new deposits involving ore processing based on old technologies, since recycling technologies would fail to fully meet the growing demand.

The concept of sustainable development put forward by the UN in 1992; MNR globalization processes intensively developing in the recent years; national mineral resource interests of numerous countries; and challenges of ensuring adequate supply of mineral resources to meet the mankind's demand under growing life standards both in developed and developing countries - all these require in-depth analysis aimed at achieving reasonable (and acceptable) trade-offs. At the same time, national interests of countries possessing considerable mineral resources, including Russia, should play a decisive role both while implementing the concept of sustainable development, and in defining their own strategic interests on global energy markets.

 

    1. Nature Use in the Russian Federation, and Its Principles

1.1. Sectoral Principles of Nature Use

Sectoral principles regulating the subsoil and nature use, being fundamental to the functioning of Russia's MRMS, and specified in basic sectoral federal laws (the Law of the Russian Federation "On Subsoil Areas", Forest Code of the Russian Federation, Water Code of the Russian Federation, Land Code of the Russian Federation) should apply to relations regulated by other federal laws, including the ones occurring in the investment activities involving special agreements (such as product sharing agreements, concession agreements, other agreements with nature and subsoil users).

Other federal laws regulating relations associated with the subsoil and nature use should be adopted in accordance with fundamental principles of nature and subsoil use, and arrangements of the public system of licenses for the use of mineral and natural resources as set forth by basic federal laws.

Federal regulatory and legal acts, as well as laws and regulations of subnational constituents of the Russian Federation regulating the subsoil and nature use should also comply with basic sector-specific federal laws regulating the use and protection of natural and mineral resources.

2. Priority Areas of the Public Nature Use Policy (Subsoil, Forests, Water Resources)

2.1. Subsoil Areas

2.1.1. Basic Principles of Subsoil Use

Subsoil use in the Russian Federation shall be implemented in compliance with the following basic principles:

    • public ownership of subsoil areas;
    • permit-based granting of rights for subsoil use certified by a government license (except the cases when subsoil areas are used in the framework of product sharing agreements);
    • single list of grounds for granting and terminating the rights for subsoil use;
    • term- and payment-based use of subsoil areas;
    • returnable basis of subsoil use;
    • forced withdrawal of unused subsoil areas;
    • economic sanctions (through the system of administrative penalties or special charges) for intended conservation of mineral resources in violation of approved field development projects;
    • efficient and integrated subsoil use within the limits of allocated areas;
    • technically feasible minimization of environmental impact of subsoil use;
    • integration of economic interests of subsoil users and the state;
    • public monitoring of the geological environment;
    • public geological, environmental and other supervision of subsoil user performance;
    • involvement of subnational executive authorities in the execution of administrative and control functions in the management of state-owned subsoil resources.

At the same time, there is a need to legally approve the list of violations of public ownership rights for subsoil areas, mineral, energy and other resources contained therein, which could include the following (with a simultaneous approval of economic sanctions):

    • granting of rights for subsoil use in addition to cases specified in federal laws;
    • unauthorized use of subsoil areas without a government license;
    • development of mineral resources in an authorized subsoil area in violation of the type of use specified in the license;
    • illegal changing of limits (coordinates) of the licensed subsoil area in terms of square area and depth;
    • unauthorized disposal of extracted mineral resources in violation of the subsoil use license, product sharing agreement or any other agreement made with the user in terms of time and place of transferring the right of ownership for extracted mineral resources.

2.1.2. Priority directions of the subsoil use policy

The following key areas of subsoil use policy should be identified:

    • restore and develop the system of research into the geological structure of Russia's subsoil with a view to ensure faster growth and reproduction of mineral resources at the expense of the state, and subsoil users. To this end, a mechanism should be developed to ensure faster incremental growth of resources in the amount, at least, 1.5 times as great as the annual production volume;
    • of essential importance for Russia is to develop and introduce modern resource-saving technologies covering the whole cycle - from extraction through concentration and process stages to final products, as well as the use of secondary raw materials. Most importantly:
    • improve development of oil and gas deposits up to the modern scientific and technological standards with a view to increase the processed share of originally extracted oil and gas resources (especially high-viscosity oil), use of associated gas;
    • make additions and changes to the rules of mineral deposit development based on modern technologies;
    • improve the systems of ore deposit development with a view to reduce the loss of mineral resources in the subsoil and their dilution (transfer to underground operation technologies involving goaf packing instead of "rock caving");
    • commercialize well-based hydraulic mining of high-grade KMA iron ore and buried placers of titanium, zirconium and other minerals; apply underground leaching techniques for low-grade uranium and copper ores, underground gasification of coal;
    • widely introduce geological and technological mapping of operating ore deposits to ensure planning of current production and ore quality averaging at a pre-concentration stage, which considerably improves the performance of concentrating mills and reduces the loss of mineral components;
    • develop highly productive equipment and brand new technologies of mineral raw material concentration, transfer to deep concentration to improve the quality of concentrates, sinter, pellets, with incremental costs being compensated at subsequent process stages (savings in heat, coke, flux, improved metal quality, etc.);
    • comprehensive use of produced ore materials to ensure cost-efficient extraction of associated valuable components - Cu, Zn, Ni, Co, Se, Cd, Ta, Zr, Au, Ag, Pt, apatite, nephelin, S;
    • ensure that licenses for subsoil use include requirements for waste storage and establishment of technogenous deposits for the government to be able to grant the right to use them in the future when developing technologies of associated component extraction;
    • perform control testing of tailings and dumps for the content of associated valuable components, their revaluation and, given positive results, geological surveys with feasibility studies for recurrent concentration of accumulated tailings and stored rock;
    • ensure wider use of secondary raw materials.

Liquidation and conservation of individual mines, as well as rehabilitation of land areas disturbed as a result of mining still remain a serious problem in the MRMS.

It seems reasonable to develop and enact Regulations on Liquidation Funds to be established for each licensed area as part of production costs, and kept on special enterprise accounts, with relevant changes to be simultaneously made to respective provisions of the civil law.

Authorities granting the right to use subsoil areas, as well as subsoil users should monitor the targeted use of liquidation funds.

Russia's fuel and energy, and mineral/raw material potential requires a well-thought long-term government strategy of MRNB reproduction and FES development to provide a basis for economic growth and strengthen Russia' role on international energy markets.

The lack of a long-term government MRMS strategy and inefficient legal framework at the federal and regional levels, as well as current deficiencies in the government licensing system have been impeding (and for a long time by now) the development of surveyed large oil and gas fields in Eastern Siberia and Far East off-shore areas, diamonds in the Arkhangelsk Oblast, vein gold in Eastern Siberia and Far East, bauxites in the Komi Republic, and many other kinds of mineral raw materials.

The existing system of public licenses for subsoil use (inter alia, for geological prospecting and mining of various mineral resources) needs to be improved to ensure greater importance of public interests both at the stage of granting the right to use subsoil areas and defining user performance conditions in subsoil use licenses, and in fulfillment of license obligations by subsoil users.

Since December 1992 till the present time the Ministry of Natural Resources of the Russian Federation, together with executive authorities of RF subnational constituents have issued 57 700 licenses for geological prospecting and development of various mineral resources, including underground waters. With the exception of licenses related to development of local-scale deposits, operation of water intakes for household drinking water supply, there are 16 550 licenses regulating development of oil and gas (3597), noble metals (8870), non-ferrous metals, coal and other mineral resources (4083), which largely influence the economic situation in Russia and its potential.

Most of the issued licenses do not include provisions defining subsoil user's responsibility for non-fulfillment of license programs, damage to the state caused by inefficient subsoil use or failure to develop mineral deposits within the period specified in the license.

The reason here is that a significant number of 25-year licenses were issued in 1992-1995 when the process of subsoil use licensing lacked proper legal and methodological support.

Subsoil users (mining companies) and executive bodies authorizing access to subsoil areas had no methodological guidance regulating the contents of licenses or agreements with subsoil users.

All the above have had a negative impact on the subsoil use practice as related to timely development of deposits, compliance with estimated periods of commercial operation and generation of estimated (based on feasibility studies) revenues by subsoil users, which ultimately does not allow to replenish the budgets with proceeds from the development and use of Russia's mineral resources.

2.1.3. Improvement of laws of the Russian Federation on subsoil areas

The legal and economic framework of integrated subsoil use and protection is regulated by the Law of the Russian Federation "On Subsoil Areas". The Law sets forth the basic principles of subsoil use in the Russian Federation: public ownership of subsoil areas; public administration of the national subsoil resources based on the Constitutional principle of joint responsibility of the Russian Federation and its subnational constituents over the subsoil ownership and use; a single system of public geological control and mining supervision over comprehensive subsoil use and protection; sustainable, governmentally guaranteed relations within the system of subsoil use; public license-based (permit-based) system of access to subsoil areas; prohibited civil turnover of subsoil areas, and allowed limited turnover of subsoil use rights; protection of subsoil users' rights in court.

Practical implementation of the above principles of subsoil use in the management of national subsoil resources in the recent nine years has ensured relatively equal rights of economic entities in the use of subsoil areas, and helped the federal and subnational executive authorities to implement their powers in managing the national subsoil resources and ensuring public control over the subsoil use as required by the Russian Constitution and federal laws.

At the same time, existing legal gaps in the regulation of commercial subsoil operations, certain trends indicating a shift from public subsoil use regulation towards market self-regulation evolving in the law-making process during the recent 3-4 years, inefficient implementation by some executive authorities of their governance and control functions require amendments to the existing Law of the Russian Federation "On Subsoil Areas", as well as Regulations on Subsoil Licensing (or its adjustment in compliance with the Law "On Subsoil Areas").

The national regulatory MRMS and natural resource policy should be based on strengthening the single state ownership of subsoil areas of the Russian Federation, and improving the government policy of licensing the subsoil use and activities related to subsoil and nature use.

The concept of single state ownership (of the Russian Federation) of subsoil areas should not subject to revision (even in the context of the current tendency to subdivide state ownership into federal, subnational and municipal ownership).

The case in point is to distribute responsibilities between federal and subnational executive authorities for the management of subsoil areas as subjects of exclusively state ownership that represent national resources and form the basis for economic and energy security of the Russian Federation.

The approach follows from recognizing the importance of subsoil and mineral resources in their natural environment, as well as the significance of natural resources as a public (nationwide) potential (usually non-renewable one or requiring long time to recover), which is to be used and managed under state control.

In view of the above, it seems reasonable to bring up a question of changing the contents of Article 214 of the ... of the Russian Federation, as well as respective articles of the Forest and Water Codes of the Russian Federation.

A number of new federal laws should be adopted to improve the forms of public control over subsoil use, and increase the responsibility of individual executive authorities for decisions made within the framework of the existing system of public management of state subsoil resources.

Commercial development of mineral resources also requires legal regulation at the federal level (forms and conditions of monitoring the compliance of subsoil users with licenses and license agreements, control over estimated prices of products, arrangements for products measurement and accounting, coordination between different subsoil users developing neighboring licensed sites and dispute settlement procedures, compliance with national standards for commercial operation of subsoil areas).

The old Soviet regulatory and legal framework (mainly resolutions of the Government of the Soviet Union) governing the rules and conditions of commercial subsoil operations and resource classification has largely become obsolete, some provisions being in conflict with the newly established legal framework of the Russian Federation. However, the new legal framework so far fails to provide clear regulatory guidance in respect of subsoil users' responsibility for non-compliance with licenses, as well as the set of requirements to subsoil use, time limits for design, preparation and development of mineral deposits, and mandatory compliance with approved project documents.

The economic mechanism set forth in the existing system of subsoil use licensing needs to be strongly improved. The revised system of licensing should include ways to estimate the value of mineral resources in the subsoil to be used in calculations of lumpsum and periodic payments, as well as responsibility for resource base maintenance and development, procedures for suspension, limitation and termination of the right of subsoil use.

License requirements (by far, not comprehensive enough), as set forth in Article 12 of the Law of the Russian Federation "On Subsoil Areas", in most cases were not met due to unclear definition of specific deposit development parameters and subsoil users' responsibility, which resulted in numerous and durable legal disputes between the state and subsoil users in cases of attempted early termination of subsoil use for non-compliance with licenses.

It seems that a license for subsoil use with the purpose of extracting mineral resources should necessarily define, inter alia, production scales; ownership rights of extracted mineral resources; amount, terms and types of works to be performed in the subsoil area; terms of mineral resource re-valuation and provision of geological reports; arrangements for acceptance by the subsoil user of production facilities financed from budget funds.

Further improvements to the laws on subsoil areas are needed in respect of license provisions, administrative requirements to subsoil use, selection criteria for bidding (tenders) for subsoil use and the right to sign product sharing agreements, economic responsibility of subsoil users for compliance with investment obligations and project documents for field developments.

The license should specify mandatory requirements to subsoil use attached to bidding documents or established by the government when issuing the license. Subsoil users shall fulfil the binding conditions (specified in the license) throughout the whole license period of subsoil use.

The law should also contain provide for the right of respective executive authorities to revise mandatory conditions of subsoil use as specified in the license in cases listed in the federal law (for example, non-compliance with designed conditions of field development, risk of technogenous accidents or damage caused to the environment as a result of applied development techniques, etc.).

The list of grounds for revising the effective license due to changes in geological and/or economic conditions of subsoil use should also be legally adopted as a federal law.

It seems reasonable that mandatory requirements to subsoil use (production volume, compliance with the scope and schedule of mandatory work program including deadlines of development project commissioning, as well as the size of subsoil use charges) can be revised by agreement between subsoil users and executive authorities, which granted the right of subsoil use, during the license period depending on changes in geological and economic conditions.

Probably, it is reasonable to discuss whether designs of layout and development of mineral deposits should become mandatory with administrative penalties being introduced for non-compliance.

There is a need to urgently revise the system of administrative fines and their sizes, principles of applying penalties for violations of project decisions by subsoil users, selective field development (inefficient subsoil use), subsoil and environmental pollution caused by violations of technological discipline and safety rules, non-fulfillment of tax obligations.

A set of measures is required to ensure administrative regulation of subsoil users' access to in-field oil and gas preparation, storage and transportation infrastructure owned by enterprises recognized in individual regions as natural monopolies in providing respective services (acceptance, preparation and storage of hydrocarbons, their transportation to main pipelines).

2.2. Forests

2.2.1. Overview of Russian forest resources and forest management problems

Russia is a major forest country in the world. Forests covering 69% of the country's territory and representing 24% of the world wood resources are the national priority in Russia, and a source of most valuable renewable resources. All kinds of cutting can annually yield up to 500 million cub. m of wood. Unlike other forest-rich countries with federal system, all forests in Russia are under the federal ownership.

The Russian forestry sector includes the following components: forestry, logging, wood-processing and pulp-and-paper industries, which operate in close coordination. The sector has an enormous potential and can greatly contribute to the economic growth of Russia. The overall potential of the forestry sector is estimated as $140 billion, its contribution to the economy making up Rb 15 billion in taxes, Rb 3 billion in forest revenues, and $3 billion of export proceeds from wood and paper products.

Forest resources in the Russia Federation are to be used in compliance with the following basic principles:

    • federal ownership of I category forests;
    • permit-based granting of rights for the use of forest areas certified by a government license (except the cases when forest areas are granted for long-term use in the framework of leasing agreements or forest concessions);
    • single list of grounds for granting and terminating the rights