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  • GDP, US$bn: 34.7
  • GDP per capita, US$: 1,099.2
  • Population, mn: 31.1
  • Inflation, CPI ave: 258.2
  • FX, LCY/US$: 492.3
  • Budget Balance, % of GDP: -17.1
  • Mining GVA, US$bn: 3.1
  • Mining Industry Value, US$bn: 1.3
Regulatory Risk Rating
35
0
100
Score: 35
Severe Risk
Under President Chavez (1998 to 2013), Venezuela accelerated state intervention in industry, including within the mining sector. Decree Nos. 8413 (2011), 9368 (2013) and 455 (2013) made manifest the penultimate goal of his political thinking with the expropriation of all gold deposits and certain nickel deposits. Decree No. 8413 begins with the statement that the law is necessary in order to reverse the serious effects of the capitalist mining model, characterized by environmental degradation, disrespect of spatial planning, [and an] attack on the dignity and health of miners and residents of communities near mining areas. Today, one would be foolish to favour Venezuela as a jurisdiction for investment as it is reasonable to assume the economic expropriation of anything of material value.

Corruption Potential Index

Score: 10
Extremely High Corruption Potential

Corruption Risk Index

Score: 30
Very High Corruption Risk

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Mining Overview Commentary plus sign

VENEZUELA – MINING REGULATION

GENERAL

Venezuela, officially called the Bolivarian Republic of Venezuela, rests at the northern-most tip of South America surrounded by Colombia to the west, Brazil to the south, Guyana to the east and the Caribbean Sea to the north. It is a federal republic formed by 23 states, the Capital District (covering Caracas), and Federal Dependencies (covering Venezuela's offshore islands). Its population is similar to Canada (30 million people), but its economy is about 1/3rd the size (US$ 500 billion versus US$1.7 trillion; World Bank, 2014). The country moved to the political left under President Chavez, who was in power from 1998 until his death in 2013. Under his rule, increasing state intervention in industry resulted in a reduction in foreign direct investment (FDI) and a strengthening of ties with China, Russia, Cuba and certain Latin American countries.

Decrees No. 8413 (2011), 9368 (2013) and 455 (2013) are ample evidence of this shift in policy within the mineral sector, as these decrees effectively expropriated all gold deposits and certain nickel deposits. Decree No. 8413 begins with a preamble which states that the passage of the law is necessary in order to “reverse the serious effects of the capitalist mining model, characterized by environmental degradation, disrespect of spatial planning, [and an] attack on the dignity and health of miners and residents of communities near mining areas.” Nevertheless, Venezuela remains a significant global participant in the mineral sector producing substantial quantities of iron and bauxite, as well as gold, nickel, coal, diamonds and manganese.

The country is rated at 109 out of the 109 jurisdictions surveyed in the 2015 Fraser Institute Policy Perceptions Index.

PRINCIPAL LEGISLATION AND REGULATOR

According to Article 12 of the Constitution, all minerals and hydrocarbons belong to the state (see also Art. 2, ML). The 1999 Ley de Minas (Mining Law or ML) (Decree No. 295) is the principal piece of mining legislation and is supported by the 2001 General Regulation of the Mining Law (Decree No. 1234, hereafter “Reg.”) and the Environmental Law of 2006 (Decree No. 5833). The mining industry falls within the Ministry of Popular Power for Oil and Mining (Ministerio del Poder Popular de Petróleo y Minería) and the Ministry of Popular Power for Eco-socialism and Water (Ministerio del Poder Popular para Ecosocialismo y Aguas). The 1945 Ley de Minas continues to apply with respect to certain industrial minerals found on private lands.

GRANTS AND FORM OF MINERAL TITLE

The Mining Law provides for two basic forms of title – concessions and exploitation authorizations. Concessions apply to foreign investments in the mining sector, as exploitation authorizations are reserved for small-scale (local) mining operations (Art. 7, ML). Their characteristics are set out below.

  • Exploitation Authorizations: Small-scale exploitation authorizations can be for up to ten years in duration and can be obtained for gold and diamond minerals only (Art. 64, ML). These authorizations may not be transferred and may be worked by not more than 30 workers (Arts. 64 and 67, ML). The area of land subject to such an authorization may not be larger than 10 hectares (Art. 64, ML). This form of title is not in the nature of a real property interest (Art. 67, ML).

 

  • Concessions: Concessions are in the nature of a real property interest and can be pledged and encumbered, subject to the prior approval of the Ministry (Art. 29, ML). The concession embodies both the exploration and exploitation phases, but the exploration phase is limited to a maximum duration of five years and can be shorter. Within this period the holder must produce a technical, financial and environmental study and, failing its acceptance within this maximum five year period, the concession may be lost (Arts. 49, 52, 53, 59 and 98, ML). The mining phase can be up to 20 years and then extended for subsequent terms of up to 10 years; mining operations cannot be suspended for a period that exceeds one year. An extremely unfortunate feature of the law is that concessions are mineral specific and if other minerals are to be produced for sale an application must be made therefor. The government has the right to claim such minerals and compensation must then be negotiated (Arts, 27 and 62, ML; Arts. 28 and 29, Reg.). Another unfortunate element of the law is the fact that an applicant is required to show evidence of technical, economic and financial capacity (Art. 40, ML; Art. 13, Reg.) and the Ministry can consider 'sweeteners' (or so-called 'Special Benefits') in deciding whether or not to grant the concession (see Art. 35, ).

 

Gold exploration and production is regulated separately from other minerals in Venezuela pursuant to Decree No. 8413. Article 5 of this decree provides that the state must wholly conduct such activities or in joint venture where the state holds not less than 55% of the capital of the relevant company involved in gold exploitation. Gold concessions may last for periods in excess of 20 years and are renewable for a maximum of two further periods of ten years each (Art. 8, Decree No. 8413). The decree further grants the state a 13% (gross) royalty in all gold operations, which can be reduced to 3% where the mine is of “social interest” and there is involvement of local communities (Art. 18, Decree No. 8413).

DEVELOPMENT CONSIDERATIONS

A surface fee payment and an exploitation royalty (generally 3% of the gross revenues) (Art. 90, et seq., ML) apply. Concession holders may ask for temporary occupation over surface land, easements or use of expropriation procedures in order to pursue development and mining activities. When activities are developed within private land, mining operators must reach an agreement with the landowners prior to the occupation of their land. If agreement is not possible, the concession holder may apply to court to compel an estimate of damages (Art. 11, ML). Article 15 of the Mining Law requires that all mining activities be performed in compliance with the Environmental Law of 2006. Article 80 of the Environmental Law states that all activities, that directly or indirectly pollute or deteriorate the surface land or soil are subject to an Environmental Impact Assessment and, as stated above, the Mining Law itself requires an environmental study as a condition to entering into the mining phase.

EIA PROCESS

See Venezuela – Environmental Overview Commentary.

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VENEZUELA – ENVIRONMENTAL REGULATION

GENERAL

Venezuela, officially called the Bolivarian Republic of Venezuela, rests at the northern-most tip of South America surrounded by Colombia to the west, Brazil to the south, Guyana to the east and the Caribbean Sea to the north. Venezuela is among the 17 countries recognised as being ‘mega-diverse’ in acknowledgement of the country’s ecological diversity. Broadly speaking the country can be divided into four distinct regions: the Maracaibo Lowlands in the northwest; the highlands and Andes Mountains in the north; the large central plains; and the Guiana Highlands in the southeast. Due to the differing altitudes the climate of Venezuela is highly variable with cool, alpine temperatures in the highlands and tropical, humid temperatures in the lowlands.

The country is home to several natural attractions including the Angel Falls, which is the world’s highest waterfall, Lake Maracaibo and the Amazon rainforest, which covers a minor area in the south on the Brazilian border.

Venezuela’s flora and fauna are stratified by thermal zones and considerable diversity arises between sea level and its higher heights of up to 5,000 m. Ebony, rosewood, mahogany, lilies and orchids are abundant in the rainforest and the more diversified cloud forest. The “flor de mayo” (Cattleya Mossiae), one of several 3,000 species of Venezuelan orchids, is the national flower while the “araguaney” (Tabebuia Chrysantha), known in England as the "trumpet tree", is the national tree. With respect to fauna, some notable Venezuelan species include giant anteater, capybara (the world’s largest rodent), tapirs, sloths, iguanas, manatees, various species of caiman, rattlesnakes and anaconda.

Environmental challenges in the region include water pollution, caused by various factors such as industry, sewage and oil spills, and deforestation.

PRINCIPAL LEGISLATION AND REGULATOR

In the case of energy, mining and hydrocarbon projects, environmental management rests with the Ministry of Popular Power for Oil and Mining (Ministerio del Poder Popular de Petróleo y Minería) and the Ministry of Popular Power for Eco-socialism and Water (Ministerio del Poder Popular para Ecosocialismo y Aguas). The Organic Law on Environment (Ley Orgánica del Ambiente) and Decree No. 1,257 (Normas sobre Evaluación Ambiental de Actividades Susceptibles de Degradar el Ambiente) are the two key pieces of Venezuela’s regulatory matrix pertaining to the environmental impact assessment (EIA) review process in Venezuela, as well as the country’s constitution.

EIA PROCESS

The Organic Law on Environment came into force in 2006 and contemplates an EIA as part of the environmental approval process for projects that might damage the environment. Articles 80 to 84 indicate that, among other things, any project that might contaminate water, degrade soil, generate waste, alter ecosystems or otherwise harm the environment or adversely affect any biological community is considered a project that might damage the environment and thus is subject to prior control, including an EIA. This is actually mandated by the Constitution of 1999, Article 129, which requires that any activities that would cause environmental damage be preceded by an EIA.

Decree 1,257 (of 1999) is much more specific in its regulation of the environmental impact stemming from exploration and mining projects. It indicates that an EIA is specifically required in respect of projects involving the:

  • Exploitation of metallic minerals and precious stones;
  • Exploitation of asbestos, bauxite, salt and radioactive materials; and
  • Exploitation of coal through opencast operations.

 

It is up to the Ministry to determine whether or not other projects require an EIA (Art. 6) and also the requirements that may apply in respect of exploration activities. The scope and content of the EIA is determined by its terms of reference and includes: the details of the activity; its potential environmental impact; preventive, corrective and mitigating measures; and a monitoring plan (Art. 7).

Decree 1,257 also addresses authorisation for land use and indicates that authorisation can be granted for environmental impacts on the land covered by the mineral concession, as well as adjacent properties. It is a pre-requisite to any such grant that the applicant hold the concession, as well as any surface rights necessary to carry on the planned activity (Art. 15 and 16). The Ministry may also order a public hearing and all EIA reports are required to be made available and notified by way of newspaper publication (Arts. 26 and 27).

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