UNPACKING SAUDI ARABIA’S COMPREHENSIVE NEW MINERAL REGULATORY REGIME – PART 2 of 3

INTRODUCTION 

As explained in part one of this series, the Kingdom of Saudi Arabia (the Kingdom) is implementing a number of structural reforms to the mining sector. Among other things, the measures seek to stimulate private sector investment by intensifying exploration, building a comprehensive database of the Kingdom’s resources, reviewing the licensing procedures for mineral extraction, investing in infrastructure, developing funding methods, and establishing Saudi centres of excellence.

Key among these reforms is the Kingdom’s new Mining Investment Law, issued under Royal Decree No. (M/140), dated (19/10/1441 AH) (the Law), which came into effect on 1 January 2021. As mentioned in our previous brief, the Law sits at the apex of a detailed pyramid of mineral law reforms, supported by the Implementation Regulation of the Mining Investment Law (Regulation) (a comprehensive set of executive Regulations) and Guidelines, which, likewise, came into force on 1 January 2021.

Collectively, the Law, Regulation and Guidelines aim to support Vision 2030’s objective of diversifying the Saudi economy (historically reliant on hydrocarbons) by encouraging and facilitating investment in the mining sector.

In our three part series of legal briefings on these developments, this part two deals with sustainability, which includes matters related to environmental protection, occupational health and safety, and mine community management.

ENVIRONMENTAL PROTECTION

All licence applicants and holders are bound by the Kingdom’s General Environmental Law, in addition to the specific requirements imposed by the Law and the Regulation.¹

An applicant for a mining licence, small mine licence or general purpose licence (explained in part one) must:

• submit an environmental impact study (EIS), which includes an environmental management plan (EMP);²
• provide an undertaking by the applicant’s executive officer that, amongst others, the information submitted is accurate and that the applicant will abide by the EMP;³
• submit a rehabilitation and closure programme, including a comprehensive risk assessment and a cost estimate;⁴ and
• provide a financial guarantee for rehabilitation and closure.⁵

A holder of a mining licence, small mine licence or general purpose licence must:

• review its EIS and EMP at least every three years or whenever: the licence is renewed or amended; an environmental accident occurs; or the Ministry of Industry and Mineral Resources (Ministry) or environmental authority requests it;⁶
• report any environmental accidents to the Ministry, and take all necessary measures to prevent their recurrence;⁷
• report annually on its compliance with the EMP;⁸
• review its rehabilitation and closure programme every five years (and eighteen months prior to the scheduled date of closure), or whenever: the licence is renewed, extended, modified or transferred; the work plan undergoes a major change; there is a sudden closure or licence termination; the licence site is placed under care and maintenance; or the Ministry requires it;⁹
• review the financial guarantee upon the same events, as well as if there is a material impact on the financial capacity of any guarantor company;¹⁰
• report annually on the status of implementation of the rehabilitation and closure programme;¹¹ and
• submit annual financial statements showing provisions allocated to rehabilitation and closure.

An applicant for an exploration licence or building materials quarry licence must submit an environmental impact management plan (EIMP), with an undertaking by its executive officer to abide by the plan.¹² 

• review its EIMP whenever: the licence is renewed, amended or transferred; an environmental accident occurs; or the Ministry or environmental authority requests it;¹³
• report any environmental accidents to the Ministry, and take all necessary measures to prevent their recurrence;¹⁴
• report annually on its compliance with the EIMP;¹⁵ and
• in the case of a building materials quarry licence, provide a financial guarantee for rehabilitation and closure.¹⁶

The holder of a mining licence, small mine licence or general purpose licence may request the Ministry’s approval to place the licence site under care and maintenance for a period of up to two years. The request must include a comprehensive care and maintenance plan, compliance with which must be independently audited.¹⁷

Rehabilitation and closure works must be carried out in accordance with strict technical and operational standards.¹⁸ After a final performance assessment, the licensee may apply for a certificate of rehabilitation and closure.¹⁹

OCCUPATIONAL HEALTH AND SAFETY (OHS)

All licence holders are bound by the Kingdom’s general laws on OHS and fire protection, in addition to the specific requirements imposed by the Law and the Regulation.²⁰

All licence holders must, among other obligations:

• ensure that OHS management standards are met, OHS plans are implemented, work hazards are effectively identified, and the identified risks are appropriately monitored;²¹
• appoint a responsible person to oversee and manage OHS compliance;²²
• before engaging in any activity that may put someone at risk, conduct a risk assessment and keep records of the results;²³
• ensure that all workers are appropriately experienced, trained, qualified and equipped to perform the tasks assigned to them;²⁴
• ensure that workers are not exposed to hazards beyond the occupational exposure limits published by the American Conference of Governmental Industrial Hygienists;²⁵
• conduct medical examinations on workers at least annually;²⁶
• ensure that all visitors undergo safety induction training and wear personal protective equipment;²⁷ and
• investigate and report all work injuries and occupational accidents to the Ministry.²⁸

COMMUNITY MANAGEMENT

An applicant for a mining licence, small mine licence or general purpose licence must submit a social impact study (identifying the main needs of local communities residing within 100 kilometres of the licence site, as well as the potential direct social impacts of the proposed project), which must include a social impact management plan.²⁹

An applicant for an exploration licence or a building materials quarry licence only need submit a social impact management plan.³⁰

A social impact management plan must include:³¹

• information on the communities’ expectations of the project, and how the applicant intends to manage those expectations, as well as to enhance the positive impacts of the project;
• a description of how the applicant will address the communities’ needs, and avoid, mitigate or reduce the project’s negative impacts;
• a community engagement plan and grievance management plan;
• a plan for the employment and skills development of community members; and
• a plan for the procurement of goods and services from community members.

A prospective applicant for an exploration or exploitation licence must first engage in a comprehensive community engagement process, including public meetings.³²

The measures that an applicant proposes to implement to address the negative impacts or enhance the positive impacts of a project should be sustainable and aim to:

• have long term benefits, lasting from generation to generation;
• be based on the actual needs of community members;
• be affordable for the applicant;
• be well planned, monitored and evaluated;
• prepare communities for the closure of the mine;
• complement but not replace the government’s plans and services; and
• recognise and incorporate traditional knowledge.³³

A licence applicant must identify landowners or land users whose use or enjoyment of land will be adversely affected by the proposed project, with a view to agreeing upon fair compensation (which may be determined by the Ministry in the absence of agreement).³⁴

In respect of employment, the holder of a mining licence or small mine licence must:

• give preference in recruitment to members of local communities;³⁵ and
• employ sufficient community members of appropriate seniority that account for at least a certain percentage of both the number of total employees and the total amount spent by the licensee on employees’ remuneration and benefits by the end of each year (or contribute any shortfall to a skills development fund).³⁶

In respect of procurement, the holder of any licence must spend at least a certain percentage of its total annual expenditure on goods and services, on those supplied by community members (or contribute any shortfall to a local business development fund).37

The holder of an exploration or exploitation licence must also contribute one per cent of its gross annual profits each year to a social development fund.³⁸

CONCLUSION 

The Kingdom’s new legal regime for environmental, occupational and social sustainability draws deeply from international best practice, and represents an important step forward for the country and indeed the region. Implementation of this sustainability regime should foster investor confidence in the Kingdom’s developing mining sector, as it sets clear and predictable performance standards for mining companies, while laying a foundation for a strong social licence to operate.

1 Article 70 of the Regulation.
2 Article 71 of the Regulation.
3 Article 72 of the Regulation.
4 Articles 80 and 81 of the Regulation.
5 Article 85 of the Regulation.
6 Article 73 of the Regulation.
7 Article 76 of the Regulation.
8 Article 77.1 of the Regulation.
9 Article 82 of the Regulation.
10 Article 90 of the Regulation.
11 Article 83 of the Regulation.
12 Article 74 of the Regulation.
13 Article 75 of the Regulation.
14 Article 76 of the Regulation.
15 Article 77.2 of the Regulation.
16 Article 86 of the Regulation.
17 Article 94 of the Regulation.
18 Article 79 of the Regulation.
19 Article 95 of the Regulation.
20 Article 98 of the Regulation.
21 Article 99 of the Regulation.
22 Guideline 3 of the OHS Guidelines.
23 Article 100 of the Regulation; Guideline 7 of the OHS Guidelines.
24 Guideline 4 of the OHS Guidelines.
25 Guideline 10 of the OHS Guidelines.
26 Guideline 8 of the OHS Guidelines.
27 Guideline 5 of the OHS Guidelines.
28 Article 101 of the Regulation; Guideline 9 of the OHS Guidelines.
29 Articles 102.2 and 102.3 of the Regulation.
30 Article 102.1 of the Regulation.
31 Article 102.4 of the Regulation.
32 Guideline 3 of the Community Management Guidelines.
33 Guideline 7(4) of the Community Management Guidelines.
34 Article 32 of the Law; Article 15 of the Regulation; Part 3 of the Community Management Guidelines.
35 Guideline 13 of the Community Management Guidelines.
36 Article 104 of the Regulation; Guideline 14 of the Community Management Guidelines.
37 Article 105 of the Regulation; Guideline 16 of the Community Management Guidelines.
38 Guideline 17 of the Community Management Guidelines.

For more information, please contact Peter Leon, Justine Sweet, Amanda Hattingh and Ernst Muller or your usual Herbert Smith Freehills contact: