Mining rights and title in Uzbekistan

Mining rights and title

To what extent does the state control mining rights in your jurisdiction? Can those rights be granted to private parties and to what extent will they have title to minerals in the ground? Are there large areas where the mining rights are held privately or which belong to the owner of the surface rights? Is there a separate legal regime or process for third parties to obtain mining rights in those areas?

Under the Subsoil Law, all subsoil resources are owned by the state. Title to minerals passes from the state to the subsoil user on extraction from the ground, pursuant to the terms of the subsoil-use licence. Any transfer of subsoil ownership rights (including the right of use) to a non-state party is subject to approval by the Uzbek cabinet of ministers.

Uzbekistan differs from many other countries, where there is private ownership of minerals in the ground and where landlords have title to all mineral resources located under their plots of land. All subsoil resources in the ground, until extracted, are owned by the state. Surface rights do not grant rights to natural resources in the ground and, in this way, are clearly distinct from mineral rights.

What information and data are publicly available to private parties that wish to engage in exploration and other mining activities? Is there an agency which collects mineral assessment reports from private parties? Must private parties file mineral assessment reports? Does the agency or the government conduct geoscience surveys, which become part of the database? Is the database available online?

Usually, geological data held by the Geology Committee is treated as state secret and the Geology Committee makes high-level information publicly available, such as the names of given deposits, their location and respective mineral reserves, as recognised by the state. Usually, this information is publicly available through the websites of government agencies such as the Geology Committee, the Agency on Information Support and Foreign Investments Promotion and the annual geological conference, Uzgeoinvest.

Sufficient basic geological data to prepare an aggregated feasibility study (for exploration activities) or a preliminary feasibility study (for mining activities) is provided by the Geology Committee in the course of conducting tenders or direct negotiations for the right to develop a particular deposit or exploration area. This information may be disclosed to investors subject to their signing a confidentiality agreement. A more detailed package of geological information regarding a certain deposit or subsoil area is made available to the licensee after the relevant licence for subsoil-use rights has been granted.

What mining rights may private parties acquire? How are these acquired? What obligations does the rights holder have? If exploration or reconnaissance licences are granted, does such tenure give the holder an automatic or preferential right to acquire a mining licence? What are the requirements to convert to a mining licence?

Uzbekistan uses a licensing system for the granting of exploration and mining rights. Therefore, subsoil-use rights are granted on the basis of a subsoil-use licence awarded to the subsoil user on behalf of the cabinet of ministers by the Geology Committee. Such licences are usually awarded either through tenders or direct negotiations.

The primary obligations of the mineral rights holder include obligations to:

• use the allotment only for the purposes stipulated in the licence;
• comply with standards and rules on technology of conducting subsoil-use operations;
• comply with the work programmes on development of operations;
• draw up geological, survey and other documents in the process of the development of mineral deposits, the use of subsoil for other purposes not connected with the mining of minerals and to protect their safety;
• keep records of the volume and quality of extracted and reserved principal and other jointly deposited mineral resources;
• preserve extracted but temporarily unused associated subsoil resources;
• ensure compliance with standards of loss when mining minerals and processing mineral raw materials;
• not exercise selective extraction of rich blocks within the licensed area;
• update the Geology Committee on the status of, and changes in reserves of, the principal and other jointly deposited subsoil resources;
• provide information on the volume of extracted subsoil resources to the Geology Committee;
• ensure the safety of human life, health and the natural environment;
• ensure safe execution of work connected with the use of subsoil and taking of measures for the prevention of extraordinary situations, and elaboration of plans to eliminate accidents;
• observe the established procedure for closure and conservation of enterprises for mining of minerals and underground structures not associated with mining of minerals;
• ensure execution of works connected with planning or terracing of dump slopes and pit edges, as well as erosion preventive measures; and
• restore land plots and other natural features that have been disturbed as a result of subsoil-use operations to a condition suitable for further use.

Depending on the type of the subsoil use, the licence may include other obligations.

The Subsoil Law and Regulation PP-649 grant the exploration licence holder a right to progress from exploration to mining activity and states that a party or parties that financed the exploration activities on a given deposit shall have an exclusive right to obtain a licence for mining activities on the same deposit. The exploration licence holder is usually treated as the financier of exploration activities and has the exclusive right to progress to mining activities. There is no automatic transfer from exploration to mining licence. The Subsoil Law and Regulation PP-649 provide that the mining licence must be granted upon the application of the party that financed the exploration activities. The application must be supported by:

• documents proving that exploration activities on a given deposit were financed by an applicant and disclosing the source of financing;
• notarised copies of a certificate of incorporation and constitutive documents of the applicant;
• information on the executive management and shareholders of the applicant; and
• information on technical and technological capacities of the applicant demonstrating that the applicant is capable of performing the intended activity on development of the deposit and ensuring production, and also information on contractors to be involved in performance of the intended activity.

In addition, the Geology Committee may request submission of copies of an applicant’s or its contractors’ licences and permits for carrying out certain types of activities connected with the subsoil use.

What is the regime for the renewal and transfer of mineral licences?

The term of a licence may be extended provided that a subsoil user applies to the Geology Committee not less than six months before expiry of the validity period of a licence. Pursuant to the Subsoil Law, the Geology Committee must take a decision on whether to grant the extension within 30 days of the submission of the extension application. Usually, this decision is closely coordinated with the government. The extension is subject to the subsoil user’s compliance with the terms and conditions of the licence and the subsoil user demonstrating that it requires an extension to complete exploration or mining activities on a given deposit.

The Subsoil Law and Regulation PP-649 are silent on the transfer of licences with respect to exploration activities and only provide these rights with respect to licences for mining mineral resources and licences for use of technogenic mineral generations. These licences can be transferred (partially or in full) to another party provided that this party undertakes all obligations under the licence. Transfer of licences is carried out by a licence holder submitting an application to the Geology Committee with an indication of the reasons for the transfer. The application shall be supported by the documents confirming that the party to whom the rights under the licence are being transferred meets the licence requirements. The Geology Committee prepares the information related to the licence transfer and coordinates it with the relevant ministries and state agencies. Recommendations of the ministries and state agencies are further submitted to the government regarding the decision whether to approve or reject the transfer of the licence.

What is the typical duration of mining rights?

Generally, mining rights are granted for the following:

• exploration activities - for a term of five years with the possibility of renewal for the new term; and
• mining activities - for the duration of the mining activities in accordance with the project’s feasibility study.

Mining rights under PSAs are granted for the period of duration of a particular PSA. Renewal of mining rights is carried out through filing a licence application with the licensing authority and requesting to issue a licence for the new term.

Mining rights may be suspended, restricted or prematurely terminated in the circumstances specified by the Subsoil Law, such as:

• failure to commence use of a subsoil plot within one year from the date of subsoil plot allotment;
• repetitive failure to make subsoil use payments; and
• breach of main terms and conditions of a licence, etc.

Is there any distinction in law or practice between the mining rights that may be acquired by domestic parties and those that may be acquired by foreign parties?

Generally, there is no distinction, and foreign individuals and legal entities can directly hold mining rights in Uzbekistan. Uzbekistan has managed to build a powerful mining industry over the past 40 years, thanks to rich uranium and gold deposits. Most of the subsoil deposits are being developed by two major state-owned mining companies or by joint ventures with these companies (Navoi Mining Metallurgical Combine SE (NMMC) and Almalyk Mining Metallurgical Combine JSC (AMMC)). Thus, in practice, priority in providing mining rights with respect to large deposits of strategic minerals, such as gold, silver, copper and uranium are given to these companies. At the same time, the government continues to seek and attract foreign investors employing innovative technologies and best practices, and there are examples of successful cooperation with large Western and Asian companies.

How are mining rights protected? Are foreign arbitration awards in respect of domestic mining disputes freely enforceable in your jurisdiction?

Mining rights may be suspended, restricted or prematurely terminated in the circumstances specified by the Subsoil Law. Subsoil users are free to choose a judicial body for protection of the rights and they may refer their disputes either to the Uzbek economic courts or foreign arbitrations. Unlike foreign court judgments, foreign arbitral awards shall be recognised in Uzbekistan without retrial on the merits because Uzbekistan is party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention). Accordingly, a foreign arbitral award obtained in a state that is party to the New York Convention should be recognised and enforced by an Uzbek economic court, subject to the qualifications in the New York Convention and compliance with Uzbek civil procedure and the procedures established by the Uzbek law on commercial arbitration for the enforcement of arbitration decisions.

What types of surface rights may mining rights holders request and acquire? How are these rights acquired? Can surface rights holders oppose these requests?

For mining purposes, and in order to secure mining rights, private parties must acquire the surface rights to relevant land plots. Surface rights as such are usually acquired after the mineral licence has been granted, and at the stage of construction or development of the project to the extent that the surface rights are required. Although the Land Code provides for other types of land rights such as the right of permanent or temporary use, in practice, foreign companies or joint ventures engaged in mining activities are granted a lease-right to land. All land rights must be registered with the local state cadastre authority. In addition, Regulation PP-649 provides that subsoil-use rights become effective upon registration of such rights by the Geology Committee in the state register of the subsoil-use rights. Further, the terms of a licence for mineral extracting activities will provide that the mine allotment must be granted by the Industrial Safety Inspectorate. The right to the use of a land plot is linked to the subsoil-use rights, such that any changes in the title of the subsoil-use rights (transfer or termination) will lead to corresponding changes in the rights to use the land plot.

Theoretically, surface rights holders can oppose requests for the surface rights. However, since the land belongs to the state and is provided to surface rights holders for temporary or permanent use only, the government is entitled to transfer the land from one to another holder for higher priority needs.

Does the government or do state agencies have the right to participate in mining projects? Is there a local listing requirement for the project company?

Yes. through its state agencies, committees or wholly owned state companies the government participates in mining projects. Currently, most of the subsoil deposits are being developed by the two major state-owned mining companies, NMMC and AMMC. Also, the Geology Committee has established a number of joint ventures with foreign investors for prospecting and exploring potential fields in Uzbekistan.

Generally, there is no local listing requirement for the mining project companies in Uzbekistan.

In 2018, the state transferred management in leading state-owned metallurgical companies, including AMMC and Uzmetcombinat JSC (UMC), to the professional international trustee management companies. In addition, the Uzbek President passed a Resolution on Further Improvement of Activities of the Companies in the Mining Industry No. PP-4124, dated 17 January 2019, which introduced several important objectives for the largest state-owned companies of the industry, including:

• Implementing international standards of financial reporting and audits (starting from 2019-year results);
• Implementing minimum requirements for economic efficiency of sale of assets, their turnover and obligations in accordance with the requirements of international stock exchanges and financial institutions; and
• Implementing Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting and Global Reporting Initiative standards of reporting (beginning from 2020-year results), etc.

Further, by 1 July 2019, the government is to develop a concept of reforming and development of the large companies of the mining industry, which shall include attracting the investors for local sourcing process outsourcing and international initial public offering listing for the following companies:

• UMC - during 2022;
• AMMC - during 2023; and
• NMMC - during 2023.

NMMC is required to complete the process of transformation from the state enterprise into joint-stock company by 1 December 2019 and management in the NMMC is to be transferred to the professional international trustee management companies based on a tender.

Are there provisions in law dealing with government expropriation of licences? What are the compensation provisions?

The Subsoil Law is silent on expropriations of licences by the government. However, the Law on Guarantees and Measures for Protection of Foreign Investors’ Rights dated 30 April 1998 (Law on Protection of Foreign Investors’ Rights) provides that foreign investments and any other assets of foreign investors located in Uzbekistan cannot be nationalised or confiscated, except in the instance of natural disasters, accidents, epidemics and epizootics. In the event of nationalisation in the said circumstances, the government is obliged to provide the affected foreign investor with compensation of an amount equal to the damage caused as a result of the nationalisation. The law further provides that the state shall be a guarantor of timely payment of compensation to the foreign investor.

Are any areas designated as protected areas within your jurisdiction and which are off-limits or specially regulated?

Some areas hold a special status where mining works may be either prohibited (eg, in natural parks) or restricted (eg, in frontier zones and certain types of agricultural land).