THE SUDANESE MINERAL LAW REGIME AND POTENTIAL LAW REFORM RECOMMENDATIONS

INTRODUCTION

Sudan as a potential mining jurisdiction

On 6 October 2017, the United States permanently lifted a twenty year-long raft of sanctions on Sudan. The decision was made in response to the African nation’s attempts to address concerns relating to terrorism, as well as human rights abuses against civilians in the country’s Darfur region.

By lifting the sanctions and bringing an end to the economic embargo, the US reinstated Sudan’s ability to market itself as an attractive mining investment hub.

While Sudan already ranks as the third largest gold producer in Africa, its mineral resources and oil reserves remain largely under-explored and untapped. The country currently has over 160 concession blocks which are available for investment:

• 119 of the concession blocks contain identified mineral resources; and
• 64 of the concession blocks contain gold.

The country’s mineral wealth (which includes gold, silver, platinum, and iron) therefore may present exciting opportunities to international mining companies if the right investment climate is established.

Ease of doing business in Sudan

From an investment point of view, notwithstanding the removal of the embargo, Sudan remains a challenging jurisdiction.

According to the World Bank’s 2020 Doing Business Report, Sudan ranked 171 out of 190 countries surveyed and obtained an economic score of 44.8 out of 100.¹ Performance indicators, such as those scoring access to electricity and an investor’s ability to obtain credit, scored particularly poorly.

In light of this, the government would need to address a variety of issues before the mining sector will attract any meaningful foreign investment.

MINERAL REGULATORY FRAMEWORK IN SUDAN

The Sudanese mining sector is governed under two Acts of Parliament:

• The Mineral Wealth and Mining Development Act of 2015 (2015 Act); and
• The Mineral Resources and Mining Development Act of 2007 (2007 Act).

The 2015 Act is Sudan’s principal mining code and repealed and replaced the 2007 Act. The rights granted under the 2007 Act, however, are grandfathered under the 2015 Act. Regulations, rules and orders issued under the 2007 Act likewise remain in force until they are repealed or replaced.

Ownership of Minerals

Like many African mining jurisdictions, the State is the custodian of all mineral resources in Sudan.² Owing to this, it has the exclusive right to explore for, prospect, mine and dispose of Sudan’s mineral resources.

Government bodies and sub-bodies:

The Ministry of Minerals (Ministry), established in 2010, is the government authority responsible for matters related to the country’s metals and mineral resources.

The Ministry is supported by various administrative bodies including:

• the Technical Committee for Mining (Technical Committee)³ which must:
  • receive and evaluate applications for licences and mining contracts;
  • submit recommendations to the Minister in respect of these applications; and
  • supervise and regulate the exploitation and exploration of Sudan’s mineral resources; and
• the Geological Research Authority of Sudan (GRAS) which is empowered to:
  • supervise the marketing, production and disposal of mineral resources that are mined;⁴
  • organise, promote and develop the mining sector in Sudan; and
  • maintain an inventory of Sudan’s mineral resources which have been identified through geological mapping, and geophysical as well as geochemical exploration programs.

Exploration and exploitation of minerals:

Any person may undertake exploration, prospecting or mining activities for minerals and mining materials, provided that s/he/it holds a licence or has concluded a mining contract with the Ministry which empowers it to do so.⁵

The Minister of Minerals (Minister), on recommendation of the Technical Committee, may conclude mining or small mine contracts with any company under which that company will be granted a licence on the basis of a partnership or division of production.⁶

Licensing:

The 2015 Act lists five types of mining licences or mining contracts:

• a general licence for prospecting, which entitles a licensee to enter the area identified in the licence, or with respect to which a mining contract has been concluded, and search for minerals and mining materials;
• an absolute or exclusive exploration licence, which grants the licensee the exclusive right to explore in the area identified in the licence;⁷
  
• a mining contract and a small mining contract, which grants the contractor the exclusive right to mine the mineral resources regulated under the contract and which are located within the licensed area;⁸
• a traditional mining contract, which grants the contractor the right to extract specific minerals by traditional means in the area identified in the contract; and
• a contract for the extraction of minerals and industrial rocks.

To obtain any of the licences or conclude any of the contracts, an applicant must satisfy the minimum requirements imposed under the 2015 Act.⁹ These, among other things, include that an applicant must:

• show that it has the technical competence to conduct the proposed activities;
• have “ample experience” in the mining sector;
• show that is has the financial capability to fulfil its contractual obligations;
• submit a certificate of registration, where the applicant is a company;¹⁰
  
• provide a tax clearance certificate and Zakat;
• provide a certificate from the competent authority which confirms that the proposed licence area is clear of conflicts; and
• pledge that it will pay the prescribed fees, rents and meet its other financial obligations.

Applications for licences or contracts must be submitted to the Technical Committee. The Technical Committee must, in turn, consider the applications and make a recommendation to the Minister on whether the application should be granted. After the recommendation is provided, the Minister must issue the licence or conclude the contract.

Licensees’ and contractors’ statutory duties

The holder of an exploration or prospecting licence, or who is a party to a mining contract, shall pay all the fees and rents associated with the licence in question.¹¹

All licensees and contractors have an obligation to protect and preserve the environment.¹² As part of this duty, they must protect the environment from any pollution or damage which their operations may cause. Where the prospecting, exploration or mining activities cause damage to the environment, the licensee or contractor will be liable for “the whole” damage as well as the costs that result from the damage.

All licensees and contractors have an obligation to notify the Minister in writing of any sites of archaeological importance which are found within the licence site. Once the notice is provided, the licensee or contractor must suspend all operations which could cause damage to these sites. Operations can only recommence once the Archaeological Public Corporation confirms that the prospecting, exploration or mining activities may proceed.¹³

Financial provisions¹⁴

Production companies which hold licences or are party to mining contracts are required to:

• pay five to seven per cent royalty rates on metallic and precious minerals;
• offer a thirty per cent free carried interest in the company to the Government;
• pay fifteen per cent business profit tax; and
• pay surface rental fees which are calculated with reference to the surface volument of the licence site.¹⁵
  

Offences and Penalties

The Minister, upon the recommendations of the Technical Committee, may revoke mining contracts, suspend licences or terminate certain mining activities, if, among other things, the licensee or contractor breached the terms of the licence or mining contract.

In addition, the 2015 Act provides that a person commits an offence if s/he/it:

• conducts prospecting or exploration activities without a valid licence;¹⁶
  
• conducts mineral extraction operations without being party to a mining contract;¹⁷
  
• refuses to provide the GRAS with information relating to the actual produced quantities or minerals;¹⁸ and
• submits an application to the Technical Committee which contains false or misleading statements.¹⁹
  

Strategic Minerals

The 2015 Act provides that the Minister may identify certain minerals or mineral materials as being of special importance to the national economy. Once these minerals are identified, the Minister may submit a recommendation to the Prime Minister of the Republic of Sudan (Prime Minister) that all licences in respect of such minerals be revoked. If the Prime Minister agrees, these licences may be revoked on condition that the licensees receive fair compensation.

Where a licensee is not in agreement with the compensation that has been offered, a domestic arbitration tribunal will be established. The decision of the arbitral tribunal decision will be final and binding.²⁰

Dispute resolution

The 2015 Act does not provide for access to international arbitration. Arbitration in Sudan is, however, available in circumstances where the government expropriates a licence or contract. Ordinary disputes under the Act must likewise be referred to the Sudanese courts.

An exception to this rule may be the mechanism provided under the National Investment Encouragement Act, 2013. Section 39(1) of this Act provides that any legal dispute in respect of an investment must be presented to the competent court, unless the parties agree to refer it to arbitration or reconciliation.

Sudan is, however, party to thirty-four Bilateral Investment Treaties (BITs) of which fifteen have entered into force (including those with Germany, the Netherlands, Switzerland, France, China, India, Jordan and Oman). A number of these BITs provide for recourse to international arbitration (such as Germany, India, Switzerland, and the Netherlands).

Other regulatory issues

Neither the 2007 Act nor the 2015 Act provide for an effective environmental law or regulation which properly governs matters related to the environment, rehabilitation, mine closure, mine affected communities, or mine occupational health and safety.

Owing to the growing trend in the global mining industry, the Sudanese government needs to develop and implement a comprehensive Environment, Social and Governance framework (ESG) to address this lacuna.

INTERNATIONAL BEST PRACTICE

Administration

Mining jurisdictions attract international investors when their mineral law regimes follow international best practice and general principles which promote investment by foreign investors.

According to the Fraser Institute²¹, factors which may have a direct impact on a mining companies’ view of the country’s investment attractiveness include:

• uncertainty about the administration, interpretation, or enforcement of existing regulations;
• regulatory duplication and inconsistencies;
• whether legal processes are fair, transparent, non-corrupt, expeditious and efficiently administered; and
• the quality of the geological database (including the quality and scale of maps, and the ease of access to information).²²

According to the OECD²³ the principal elements of good governance are accountability, transparency, efficiency, effectiveness, responsiveness and the rule of law. Achieving an appropriate balance between limited administrative discretion (which promotes efficient and effective governance) and oversight of that discretion (to ensure that officials act lawfully) is a critical element in any mineral regulatory regime.

Mineral regulatory regimes promote certainty when they comprehensively regulate the different steps which comprise the entire mining lifecycle. In the context of Sudan, the lifecycle would generally commence when an applicant submits an application for a “general licence for prospecting” and would cover all the different processes including applying for the different licences and contracts as the project develops. The lifecycle of a mine will end after all mining activities cease and the licence site is rehabilitated.

A further means to promote certainty in mineral regulation is by enacting legislation which clearly identifies the subject matter of the provision, sets out which government official is mandated to perform a specific activity relating to the subject matter, and stipulates the powers that are afforded to that official. This essentially follows the approach adopted by leading African mining jurisdictions such as Ghana and Botswana.

To follow international best practice, a mining code should clearly stipulate the requirements which applications for the various licences and contracts must comply with. The code must also identify the rights which vest in and obligations which are imposed on the licensees once an application is granted and a specific licence is issued.

The provisions of the 2015 Act fall short of these standards for various reasons:

• First, the 2015 Act does not provide a comprehensive list of requirements which applications for licences or contracts must satisfy before licences are granted or the contracts concluded. Section 12 of the 2015 Act simply provides a generic list of six requirements which apply to all applications, irrespective of the licence being applied for;
• Second, the 2015 Act likewise does not stipulate the process which the Technical Committee must follow when it considers an application or the substantive requirements that it must comply with during this process. It is therefore unclear whether an application will be granted if the objective requirements stipulated in the 2015 Act are met, or if the Technical Committee may take further considerations into account;
• Third, the 2015 Act does not prescribe the time periods within which the applications must be processed; and
• Finally, it does not indicate which rights vest in, or which obligations are imposed on the holders of specific licences or parties to contracts once licences are issued or contracts are concluded. Section 19 of the 2015 Act simply indicates that a licensee will be responsible for “the whole damage caused by his works” to the environment.

The regulatory framework created by the 2015 Act accordingly does not establish a comprehensive set of rights and obligations. Uncertainty concerning the administration, interpretation, or enforcement of the 2015 Act is not conducive to investment.

To address this, the 2015 Act should be amended to:

• clearly stipulate the substantive requirements which applicants for licences must satisfy, as well as the procedures which they must follow when submitting applications. The 2015 Act should also clearly indicate what process the Technical Committee should follow when it considers applications and makes recommendations to the Minister. Finally, the 2015 Act should also stipulate the time periods within which decisions must be made;
• clearly stipulate the thresholds which an applicant for a licence or mining contract must satisfy, in particular how much experience an applicant is required to have in the mining field and what financial records are required before an applicant is deemed to have ‘sufficient’ financial capability to be a holder of a licence or a party to a mining contract;
• limit administrative discretion in the decision-making process; and
• clearly identify the rights which vest in licensees and the obligations which are imposed on them once licences are issued or contracts are concluded.

Public governance

Public governance is important for investors and their businesses. It helps build trust and provides the rules and stability needed for planning investment in the medium and long term. It also facilitates a smooth and productive interaction between the State and the general public. Ultimately, if implemented correctly, there are clear links between good public governance, investment and development.²⁴

Predictability, as a component of certainty, is particularly important as it promotes investor confidence. It is established where investors recognise that rules are implemented in a specific way and that they can achieve their objectives in a foreseeable manner.²⁵

Sustainability

The Sudanese mineral law regime also falls short of the standards imposed under international best practice by failing to regulate matters related to the environment, mine affected communities, mine closure and rehabilitation, and mine health and safety. These could each be regulated under specific Acts or included as chapters under the mining code itself. Ideally, the sustainability provisions should be supplemented by a comprehensive suite of regulations.

Mining cadastre

Security of tenure is a key factor that investors consider before investing in a mining jurisdiction. Establishing and maintaining easily accessible, open and online electronic mining cadastres is an important means through which this may be achieved. As these systems reduce human inputs by incorporating automated processes, they increase fairness and the transparency of the regulatory system.

By creating a system that applies to the entire mining lifecycle, mining cadastres provide a tool through which governments may enforce mining laws as well as monitor and regulate their implementation by incorporating a system consisting of checks, balances and record keeping.

At an international level, the World Bank is one of the strongest proponents of open online mining cadastre systems. It has also been instrumental in funding projects aimed at reforming Africa’s mineral rights management by supporting projects which seek to consolidate mineral geological data coverage across Africa, through the use of electronic mineral right cadastral systems.

To date, approximately sixty per cent of countries in Africa make use of land management software to automate mineral title workflows, improve compliance and expedite the overall mineral right application process. Key examples include Namibia, Ghana, Zambia, Uganda, Togo, Tanzania, South Sudan, Malawi, Mauritania, Liberia, Kenya, Guinea, Ethiopia, the Democratic Republic of Congo, Côte d’Ivoire, Cameroon and Mozambique.

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¹ A country’s economic score is ranked on a scale from 0 to 100, 0 representing the worst and 100 representing the best regulatory performance.

² Section 8 of the 2015 Act

³ Established under section 21 of the 2015 Act.

⁴ Established under section 3 of the 2015 Act.

⁵ Section 11 of the 2015 Act.

⁶ Section 12 of the 2015 Act.

⁷ The exploration activities are supervised by GRAS.

⁸ The mining activities are supervised by GRAS.

⁹ Section 12 of the 2015 Act.

¹⁰ The certificate must confirm the applicant’s business name as well as whether it is a local branch of a foreign company.

¹¹ The fees are provided in the schedule to the 2007 Act, and may be updated by the Minister from time to time.

¹² Section 26 of the 2015 Act.

¹³ Section 29 of the 2015 Act.

¹⁴ Ministry Of Petroleum & Minerals and Geological Research Authority of Sudan (GRAS) “Overview of the mineral potential of Sudan & investment opportunities” last accessed from http://mineafrica.com/documents/Sudan.pdf on 27 May 2021.

¹⁵ Section 20 of the 2015 Act.

¹⁶ Persons convicted of this offence shall be imprisoned for a term not exceeding two years, a fine, or both a fine and imprisonment.

¹⁷ Persons convicted of this offence shall be imprisoned for a term not exceeding three years, a fine, or both.

¹⁸ Persons convicted of this offence shall be imprisoned for a term not exceeding five years, a fine, or both.

¹⁹ Persons convicted of this offence shall be fined not less than one hundred thousand Sudanese pounds.

²⁰ Section 8(b) of the 2015 Act.

²¹ The Fraser Institute in Canada annually ranks the investment attractiveness of mining jurisdictions by considering the responses to a set of fifteen policy factors which it believes influences mining companies’ investment decisions.

²² Fraser Institute Annual Survey of Mining Companies 2019 available online at https://www.fraserinstitute.org/sites/default/files/annual-survey-of-mining-companies-2019.pdf.

²³ Investment Division of the OECD Directorate for Financial and Enterprise Affairs (2011) Policy Framework For Investment User’s Toolkit Chapter 10. Public Governance available online at http://www.oecd.org/investment/toolkit/policyareas/publicgovernance/41890394.pdf.

²⁴ OECD op cit at 4.

²⁵ Ibid.