According to the World Gold Council, Uzbekistan hold 3rd position in the word in terms of explored reserves of this precious metal, while it ranks 8th in terms of gold production. Uzbekistan takes 11th place by explored reserves of uranium and 5th place by its production. In addition, production and use of underground resources is also subject to taxation, this type of tax alone composes 10% of the income of the republican budget of Uzbekistan, in accordance with the Law of the Republic of Uzbekistan “On the state budget of the Republic of Uzbekistan for 2021”. Moreover, the 5 largest taxpayers of the country, who form 38% of total revenues to the state budget, all are related to the sphere of use of underground resources. Taking into consideration all above-mentioned facts, it is hard to underestimate an importance of the Law of the Republic of Uzbekistan “On underground resources”, as this law regulates the relationships arising from the ownership, use and disposition of underground resources.
One of the first articles of this law (art.4), as an art.55 of the Constitution of the Republic of Uzbekistan, states that underground resources are a national treasure and the exclusive property of the state.
This law recognizes 7 types of use of underground resources:
- geological study;
- mining of natural resources;
- artisanal mining;
- use of technogenic mineral formations;
- construction and operation of underground facilities not related to mining;
- collection of samples of geological collection materials;
- formation of protected geological objects.
Use of underground resources is taxed in accordance with the Tax Code of the Republic of Uzbekistan (section 18).
According to article 21 of the Law of the Republic of Uzbekistan “On underground resources “, users of underground resources who have received license for the right to use plots of underground resources pay a signature bonus and a commercial discovery bonus.
Signature bonus is a one-time payment for the right to use underground resources (prospecting and exploration). The minimum amount of a signature bonus depends on the type of natural resource:
- hydrocarbons – 5000 basic estimated values (BEV);
- gold – 1000 BEV;
- precious, rare and noble metals (except gold) – 500 BEV;
- ore natural resources (except above-listed) – 250 BEV;
- non-metallic natural resources – 50 BEV.
The signature bonus must be paid to the tax authorities within 30 days from the date the permit is received.
A commercial discovery bonus is paid for each commercial discovery of natural resources deposits. This payment is set at 0.1% of the value of the volume of extractive natural resources. Payment of this bonus must be made within 90 days from the date license is received.
However, the Decree of the President of the Republic of Uzbekistan “On measures to further stimulate geological prospecting and improve the taxation of users of underground resources” provides for a number of changes. Namely, signature bonus and commercial discovery bonus are to be canceled from 1 January 2022. From October 1, 2021, the excise tax rate is set at 0 percent on the export of natural gas, and in case legal entities are importing natural gas into the territory of the Republic of Uzbekistan, they are exempt from customs duties.
Moreover, this Decree provides for a reduction in the rates of underground resources use tax for private enterprises in the amount of:
- oil and natural gas – 10%;
- uranium – 8%;
- gold and copper – 7%;
- tungsten – 2,7%;
In addition, legal entities of new oil and gas wells are subject to exemption from property tax in the first 2 years and the property tax rate will be reduced by 50% in the next three years.
Article 22 of the Law of the Republic of Uzbekistan “On underground resources ” states that underground resources can be provided for temporary and unlimited use.
The terms of temporary use are:
- geological study – up to 5 years;
- artisanal mining – 3 years;
- collection of samples of geological collection materials – up to 2 years;
- extraction of natural resources – for a period determined by the feasibility study for the exploitation of a natural resources deposit;
- other types of use – unlimited use.
The term of underground resources use may be extended at the request of the user.
Right to use
Right to use underground resources is obtained with a permit (license).
Permits for the construction and operation of underground facilities for the storage and disposal of waste are issued by the State Committee of the Republic of Uzbekistan for Ecology and Environmental Protection based on the results of direct negotiations.
Permits for geological study and extraction of natural resources are issued by the State Committee of the Republic of Uzbekistan for Geology and Mineral Resources to a legal or natural entity based on the results of public tenders (auctions).
Permits for other types of underground resources use are issued by the State Committee of the Republic of Uzbekistan for Geology and Mineral Resources based on the results of direct negotiations.
The procedure for issuing a license for the use of underground resources is determined by the Resolution of the Cabinet of Ministers of the Republic of Uzbekistan “On measures to further improve the procedure for issuing licenses for the right to use underground resources plots”.
Auctions for the sale of the right to use underground resources plots are held only in electronic form, on the electronic trading platform “E-IJRO AUKSION”. Participation in the auction is carried out by submitting electronic applications, confirmed by an electronic digital signature, and paying a deposit. The deposit is set at 5 percent of the initial cost of the auction object.
Direct negotiations are carried out on the principle of “first submitted application”. In order to participate, the applicant submits an application in writing or electronically to the State Committee of the Republic of Uzbekistan for Geology and Mineral Resources, attaches a set of documents and pays a fee of 4 BEV.
However, a permit is not required for landowners when using underground resources for their own economic and domestic needs.
According to article 46 of the Law of the Republic of Uzbekistan “On underground resources”, persons who have discovered a previously unknown deposit of natural resources are recognized as discoverers and are entitled to remuneration.
Obligations of users of underground resources
Article 33 of the Law of the Republic of Uzbekistan “On underground resources” obliges users of underground resources to:
- use the underground resources plot in accordance with the purpose for which it is provided;
- comply with the rules and regulations on the technology of work;
- comply with the requirements of technical projects and plans for the development of mining operations;
- provide data on the status and movement of natural resources reserves to the State Committee of the Republic of Uzbekistan for Geology and Mineral Resources;
- provide data on the volume of extracted natural resources;
- ensure the safety of employees and the public, as well as take measures to protect the environment.
Limitation, suspension and termination of the right to use underground resources
Article 34 of the Law of the Republic of Uzbekistan “On underground resources” prescribes that the right to use underground resources is terminated upon the expiration of the established period, or the user waives the right, or upon liquidation of the enterprise to which these rights were granted.
In addition to the above-listed cases, the right to use underground resources may be limited, suspended or terminated pre-term where:
- threats to the life or health of the population or to the state of the environment occurred;
- rightholder did not commence using the underground resources within one year;
- rightholder systematically does not make payments for the use of underground resources;
- rightholder violates the basic conditions and requirements of the permit.
The decision to suspend, limit or terminate the right to use underground resources is subject to a court review. Losses caused by violation of the rights of a underground resources user are subject to compensation in full, including lost profits.
At the same time, the user is obliged to compensate for the harm caused to the state, the environment, life and health of people as a result of the underground resources use in accordance with the legislation.
State regulation of mining relations
Besides, the Law of the Republic of Uzbekistan “On underground resources” describes the state regulation of mining relations. State management is carried out by the Cabinet of Ministers of the Republic of Uzbekistan, local government bodies, as well as specially authorized government bodies.
Specially authorized state bodies are:
- State Committee of the Republic of Uzbekistan for Ecology and Environmental Protection;
- State Committee of the Republic of Uzbekistan for Geology and Mineral Resources;
- State Committee for Industrial Safety of the Republic of Uzbekistan.
In order to determine the prospects for the exploitation and further development of the mineral-raw resource base of the Republic of Uzbekistan, the State Register of deposits and underground resources plots perspective for the identification of natural resources deposits is maintained. This register must contain information on each existing or prospective deposit: methods and conditions for the exploitation of deposits, the quantity and quality of raw materials and its cost.
Moreover, the State Committee of the Republic of Uzbekistan for Geology and Mineral Resources maintains the State Cadastre of deposits, occurrences of natural resources and technogenic mineral formations. This cadastre contains information on the quantity and quality of natural resources reserves for each deposit in the republic, as well as its geological and economic valuation.
In addition, the State Committee of the Republic of Uzbekistan for Geology and Mineral Resources maintains the State Balance of natural resources reserves, which contains information on the quantity, quality and degree of exploration of the reserves of each type of natural resources by deposits, their location, the degree of industrial exploitation, production and losses.
Production Sharing Agreement
Production Sharing Agreement is a contract in accordance with which the Republic of Uzbekistan grants a foreign investor exclusive rights to extract natural resources in a certain plot, on a reimbursable basis and for a fixed period of time. These relations are governed by the Law of the Republic of Uzbekistan “On Production Sharing Agreements”.
The investor is bound to carry out prospecting, exploration of deposits and directly extraction of natural resources at his own expense and at his own risk.
The Cabinet of Ministers of the Republic of Uzbekistan acts on behalf of the state in such a contract. The Cabinet of Ministers determines the underground resources plots and the procedure for their provision on the basis of auction. If only one investor took part in the auction, he is declared the winner and a contract is concluded with this investor.
After the auction, the State Committee of the Republic of Uzbekistan for Geology and Mineral Resources provides the winner with a permit for the right to use underground resources plots for the period of duration of the contract.
The main requirements for the work under the contract are:
- granting to legal entities of the Republic of Uzbekistan the pre-emptive right to participate in these works as contractors, suppliers, carriers, etc.;
- at least 80% of all involved employees must be citizens of the Republic of Uzbekistan;
- compliance with legislation, including in matters of standards for the safe conduct of work, protection of natural resources, the environment and the health of citizens.
The extracted products are subject to division between the state and the investor in accordance with the contract. The state transfers to the ownership of the investor compensation products and part of the profitable products, which are the investor’s share.
Investors are exempted from paying all types of taxes and other mandatory payments established in the Republic of Uzbekistan related to conducting prospecting and exploration work in underground resources plots. However, other types of taxes are paid in accordance with the legislation of the Republic of Uzbekistan.
The state guarantees the investor protection of property and other rights acquired and exercised by him in accordance with the contract. Disputes between the state and the investor related to the contract are resolved in accordance with the terms of the contract in court, including in the international arbitration court.