Vietnam is rich in mineral resources but only a fraction of these have been discovered to date due to lack of modern technologies and methods. With the increasing flow of FDI under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) and the EU-Vietnam Free Trade Agreement (EVFTA), Vietnam can enjoy many advantages to modernize the mining sector. However, some challenges hinder Vietnam from seeking the benefits under the two agreements, such as lack of coordination and communication among Vietnamese authorities, shortcomings in the Vietnam Mineral Law itself and excessively high taxes and royalties compared to other countries.
- VIETNAM’S COMMITMENTS IN THE MINING SECTOR UNDER CPTPP AND EVFTA
Vietnam has opened its mining investment regime under both CPTPP and EVFTA. The CPTPP outlines several conditions for foreign investment in the mining sector in Vietnam. In particular, approval for foreign investment will only be granted if the investment project is proved to bring net benefits to Vietnam. In making this evaluation, the competent authority may take into account various factors, including the project’s impact on economic activity, job creation, equipment and services made in and exported from Vietnam, competition, and the compatibility of the project with other national policies, etc. Meanwhile, the EVFTA offers a great opportunity for market access in the mining sector as it allows for the establishment of joint ventures with maximum 51% of foreign capital contribution or 100% foreign-owned enterprises.
With regard to tariff, the CPTPP targets to remove custom duties for all mining-related goods imported from member states and the EVFTA shall reduce almost all tariffs by up to 99%, which can attract the FDI flows to the mining industry in Vietnam, especially mining equipment services and technologies and oilfield service providers.
The EVFTA, which adopts core labor standard of the International Labor Organization, also provides better working conditions for workers, which is a key aspect for laborers working on mining projects.
With the above commitments of Vietnam under the CPTPP and EVFTA, it is expected that new mining methods and better technologies will be introduced to the mining sector in Vietnam, which will later bring benefits in the exploration, mining, and processing of minerals.
- BENEFITS OF TECHNOLOGICALLY MODERN EXPLORATION AND MINING IN VIETNAM
By using modern technology, Vietnam can discover and develop many minerals in deeper surface deposits. Having these metals sourced and available instead of importing them can help Vietnam develop downstream high-tech manufacturing industries and establish itself as a dominant regional and global hub. This is in line with the MPI Foreign Investment Agency’s emphasis on capacity building of manufacturing and supporting industries in Vietnam and partnership with Vietnamese enterprises where possible.
Modern technological exploration and mining can also help Vietnam meet the Vietnamese Government’s commitments under COP26, aiming for environmental sustainability in the mining sector, as state-of-the-art technologies in process, cycling, and refining base metal resources will reduce carbon dioxide emissions. It also contributes to meeting the challenges of the Government’s strategy for its Socio-Economic Development Goals (SDGs), particularly in mountainous areas with dominantly ethnic minorities, where the mining projects are mostly located. Responsible mining can help alleviate poverty in these remote areas by creating strong employment opportunities and enhancing local goods and services. In addition, it can also improve physical infrastructure since mining has long been recognized to be one of the most effective drivers of physical infrastructure improvement around the world.
Modern sustainable mining in Vietnam would therefore also meet two of the World Bank’s stated key objectives of its Country Partnership Framework in Vietnam, which are to (a) deliver infrastructure and (b) broaden the economic participation of ethnic minorities.
- CHALLENGES AND ISSUES
- Consultation and clarification
Foreign investors require Vietnamese authorities seek detailed industry consultation on the key components of the draft amended Vietnam Mineral Law, together with its guiding documents. For example, key mining taxes require transparency on how minerals are valued. Since mineral grade is not an acceptable methodology, a revenue-based system is recommended. In addition, since the last annual VBF in February 2022, the MOIT has issued a draft nickel sulfide concentrate standard. However, consultation before the draft standard was limited to Vietnamese nickel producers only, which led to limited exposure to the international commercial realities, input from international experts, and evaluation of other countries regulating nickel mining and processing. Foreign investors have also been confused about the purpose of the adopted standard, i.e., whether the standard is used to restrict import or export, to be a part of a review of royalties or duties, related to future approval, or any other specific purposes.
- Mining industry long term investment and risk
Investment in the mining sector takes time and significant upfront investment in exploration and development. Therefore, in order to attract quality direct foreign investment in the sector, the Government should: (i) benchmark Vietnam’s fiscal regime against peer countries and provide a competitive fiscal regime with those offered by other jurisdictions; (ii) simplify the current fiscal regime for ease of explanation to investors; (iii) provide fiscal stability and reduce frequency of policy changes; and (iv) continue improving internal standards and consider recognizing and adopting international mineral resource standards (e.g. JORC).
Because there are many risks in mining exploration, the Government must ensure that exploration and mine planning, the formulation of investment projects, and the development of mechanisms and policies will encourage exploitation rationally and with best efficacy. Companies that have a proven track record of conducting technically advanced and environmentally responsible exploration programs should be granted with priority in their future applications.
- Scientific research and technological development
In October 2021 at a series of ASEAN Ministerial Meetings on Minerals, it was suggested that the minerals industry must take the lead in digital transformation, scientific research, technology development, and investment in all stages of the mineral value chain.
However, foreign investors and foreign-invested mining companies have been hindered from testing and applying new technologies due to restrictions on temporary import into Vietnam of research piloting equipment. Furthermore, detailed studies of various ores at world-class research facilities are limited due to the inability to export samples out of Vietnam for study purposes.
To address this issue, the Government should increase funding for Vietnam research facilities and ease the import-export restrictions.
- Amending the Vietnam Mineral Law and reducing mineral taxes
High natural resource tax and the fee for granting mining rights prevent large mining companies from operating in Vietnam. Therefore, Vietnam needs to introduce a more competitive fiscal regime.
The review and revision of Vietnam’s 2010 Mineral Law must be open and consultative, allowing the opportunity for input from Vietnamese and FDI mining companies and experts. This is to ensure a clean and environmentally sustainable mining and to take advantage of the EVFTA as well as the CPTPP, and to further contribute to Vietnam’s impressive economic growth in the upcoming years.
Please do not hesitate to contact Dr. Oliver Massmann at firstname.lastname@example.org if you have any questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.