30 May

A Snapshot of the Industry

Turkey’s ever growing energy needs relocates the mining industry to the center stage in Turkey’s energy policy. However as the Turkish mining industry still commands the center stage for the satisfaction of Turkey’s energy needs, its problems still linger and beg for solutions.

The past decade has seen an enormous growth of the mining industry in parallel with the impressive growth of the national economy. In 2002, the overall size of the Turkish mining industry stood at USD$ 1.9 billion which had corresponded to a mere 1.1% share of the overall GDP. Precisely a decade later in 2012 the industry had managed to reach a significant size to register an overall size of USD$ 11.7 billion. The took off is no surprise since the national economy had boomed to demonstrate an immense rate of growth bordering on double digit numbers during the same period. The economic growth, inevitably fuelled by energy consumption, spilled over to the mining sector.

The Problems and the Proposed Solutions

It is the conventional wisdom that the mining industry in Turkey is a labor intensive one and the industry seek to transform itself in to a technology intensive one. However even more crucial from the perspective of initial investment costs is the risks associated with the exploration phase where only very few cases of mining exploration result with an economically viable and operable mines. In order to address the problem of adequate capital for the exploration stage, the mining companies should issue professional and well documented reports about the mines to access the financial resources required. Especially well documented and high quality reports about the reserves have long been exploited by the mining companies as collaterals to seek financial resources through banks and the stock exchanges in countries like Canada and Australia. The betterment of the quality of the financial reporting by the mining companies in Turkey would improve their chances for access to the financial resources.

Given substantial volumes of financial resources that the initial phase of exploration requires and the serious risks that it involves, a dire need for incentives specifically designed to promote the exploration stage is quite apparent in the Turkish case. As the mines usually are located in rural areas where the employment opportunities are scarce, the industry provides job opportunities for the local inhabitants. In exchange such an important industry should benefit from incentives to sustain its role of job generation for the rural population and contribution to the energy needs of the country. Especially given the high costs related with other types of energy resources like natural gas and oil, the mining industry should be given the necessary support with an incentive scheme.

Legal Framework for the Licensing Processes

Moreover there exists the problem of ambiguity concerning the bureaucratic procedures related with the licensing processes. Turkish Mining Law 3213 includes three different ways to apply for mining licenses. The interested party should either apply directly to the Ministry of Energy and Natural Resources General Directorate of Mining Affairs by providing the exact coordinates or should participate in to the procurements carried out by the General Directorate of Mining Affairs or the State Economic Enterprises. It can also approach to a legal entity or a private person to take over their licenses. However the bureaucratic processes are taking too long and in some cases the license issuing may take more than a year to a year and a half. Hence as would be investors will be looking for predictability and for precise timelines, this issue of ambiguity surrounding the licensing process, especially the timeline should be addressed. A possible solution for the lackluster bureaucratic processes might be to amalgamate different kinds of required licenses and authorizations such as authorizations related with environment, property rights, infrastructure and water usage and work permits in to a single one. Such a simplification would definitely reduce the time spent for the licensing efforts and would be welcomed by the investors.

Conclusion

The recent mining disaster in the Aegean town of Soma, which has cost more than 300 lives manifested an urgent need for the improvement of safety measures to be taken for the workers serving for the industry. The attainment of safe and secure working conditions should be accompanied by an incentive that would ease the financial burden imposed on the shoulders of the employers due to the need for substantial amounts of initial capital for the exploration processes. Once this is achieved it would provide more financial leverage for the employers to better the working conditions of the miners in the industry. However the companies operating in the industry should also invest more on improving their own reporting capabilities which would enable them to access global capital ready to finance such projects.


Herdem Law Firm, Istanbul Turkey

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