New Requirements For Mining Tenders Are On The Government’s Agenda

On 15 October 2018, the Minister of Energy and Natural Resources Fatih Dönmez announced that the Government is working on a new model for mining tenders. The announcement indicates that investors may be obliged to carry out research and development activities and construct manufacturing plants for intermediate and final goods as part of future mining tenders.

Background

The mining sector has always been an important element of the Government’s economic agenda, as illustrated in the Ministry of Energy and Natural Resources’ (the “Ministry”) Strategic Plan for the Period of 2015-2019 (the “Strategic Plan”) which puts particular focus on the use of “indigenous energy”.

Last year, with a view to establishing a more investor-friendly landscape in the sector, the Government had introduced new mining regulations which allowed the separation of mining rights and mining licences. The ability to divide licences allowed partial operation of large mining sites which would otherwise difficult to operate efficiently by a single licensee.

Now, as a further step in boosting resource utilisation and added-value generation, the Government is planning to introduce new requirements in future mining tenders.

Outline of the planned tender model

In his statements, the Minister of Energy and Natural Resources Fatih Dönmez highlighted that Turkey has not been sufficiently benefiting from its mines so far due to technological constraint, suffering from an added-value gap between the export of raw materials and their subsequent import in the form of processed final goods at several multiples of the cost of raw material. To tackle this dependency, the Government is now planning to tender future mining sites with the pre-requisite of: (i) establishing manufacturing plants capable of producing intermediate and final goods; and (ii) carrying out research and development (“R&D”) activities.

First pre-requisite: R&D Activities

In accordance with the goals set out in the Strategic Plan, utilisation of advanced technology will be encouraged in order to increase the production of added value goods from extracted mines.

According to information received from the Ministry, R&D activities to be carried are expected include (i) the determination of the existence of mineral reserves; (ii) the determination of the processing capability of minerals; (iii) the determination of the site’s proved reserves; (iv) chemical and technological analysis; and (v) the determination of the standards of the electricity generation facility to be built on the site, among others.

According to the planned model, institutions such as the General Directorate of Mineral Research and Exploration will be exploring potential mining sites. These potential sites will then be available for R&D activities to be carried out by the private sector in accordance with international standards.

The detailed terms and conditions for R&D activities will be determined in tender specifications.

Second pre-requisite: Construction of a Factory 

The second step will be the construction of a factory which will manufacture intermediate and final goods from raw materials extracted from the relevant mining sites.

According to Minister Dönmez’s statements, the Government is planning to take the first steps to implement this by commissioning a boron processing plant in Bandırma pursuant to a joint project with Chinese investors to produce boron carbide that will subsequently be used in intermediate and final goods.

Current Tenders

Pending legislative amendments to transition into this new model, tenders will continue to be carried out in accordance with current practices.

One such current tender relates to the mining site with the licence numbered ER:3360209 S:85839 located in Alpu, Eskişehir. Readers should note that the Privatisation Administration has set the bidding deadline for 7 February 2019. The successful bidder under this tender will sign an electricity sales agreement with EÜAŞ for the sale of the electricity to be generated in the coal power plant which will use the coal extracted from such site.

The purchase price will be the lowest bid submitted in the tender and the successful bidder will receive the bid price as the electricity purchase price.

According to the final Environmental Impact Assessment Report for the Alpu Thermal Power Plant, the installed power capacity of the power plant was raised from 3 x 360 MW to 2 x 550 MW. Further, such units will have a mechanical power capacity of 561 MWm and a thermal power capacity of 1,247 MWt.

Interested entities can obtain tender specifications from the Privatisation Administration in consideration for a documentation fee of TL 25,000 and must submit a bid bond in the amount of USD 25 million in order to participate in the tender.  

Conclusion

Please note that this Legal Briefing aims to give an advance look at potential changes to the tender regime in the mining sector in light of official statements of the Ministry and further information received from the Ministry.

Market participants should note that these changes will require legislative changes and should keep an open eye for further developments, which can be expected to be revealed in the near future.

Key contacts

For more information, please contact us:

Aykut Bakırcı, Senior Partner | [email protected] | +90 (212) 366 6805

Zekican Samlı, Avukat | [email protected] | +90 (212) 366 6817

Duru İyem, Avukat | [email protected] | +90 (212) 366 6811

Disclaimer

This material is for general information purposes only. It does not constitute legal advice and should not be relied upon as such. You should always seek specific legal advice about your specific legal circumstances before taking any action based on the contents of this material. While we make all reasonable efforts to ensure that all factual information set out in this material is obtained from external sources which we reasonably believe are reliable, we do not guarantee their accuracy or completeness.

© Bezen & Partners 2018