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Mining Business: At the Mercy of Local Municipalities?

Mining Business: At the Mercy of Local Municipalities?

Hungary
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Starting or continuing a mining project has always been subject to various licensing requirements. However, an amendment to spatial planning laws that became effective on March 15, 2019 increases the regulatory challenges faced by investors by introducing a completely new condition for obtaining the local municipality’s blessing, even for operations that are already underway. Therefore, the aftermath of the most recent regulatory changes should not be underestimated, as the number of mining sites exceeds 800 in Hungary.

Licensing and Concession Requirements: 

Save for a handful of exceptions, the exploration, appraisal, and exploitation of hydrocarbons, coal, and methane bound in coal seams and ores is subject to a concession agreement, as is any mining activity related to geothermal waters more than 2,500 meters below the surface. Any other mining activity (e.g., clay or sand mining in open pits) may be carried out subject to a license issued by the mining authority. 

If explorations are successful, the mining entrepreneur may request that the mining authority designate the exact boundaries of the mining site within which appraisal and exploitation may be performed.   

In addition, to actually perform exploration, appraisal, or exploitation, the mining entrepreneur is obliged to prepare a technical operation plan and have it approved by the mining authority in advance. Technical operation plans for exploitation are limited in time (up to five years for underground mines and hydrocarbon and oil mining, and up to 15 years for open pit mines). The mining entrepreneur must revise the technical operation plan annually and amend it, if necessary. All amendments to the technical operation plan must again be approved by the mining authority.

These requirements for establishing a mining site and for preparing and periodically reviewing or amending the technical operation plans are particularly important in light of the following changes made to the local spatial planning rules: First, as of March 15, 2019, the mining authority may only establish a mining site upon the request of a mining entrepreneur if the local municipality has designated the site as a mining area in the respective local spatial planning code. If the municipality has not done so, the entrepreneur needs to prove that the local municipality passed a resolution in which it agrees with the new mining project and intends to prepare or amend the applicable local spatial planning code. 

Second, the March 15 amendment also prescribes that the mining authority may approve a technical operation plan only if the proposed mining area is formally designated as a mining area in the relevant local spatial planning code. 

Therefore, new mining projects will be subject to local municipal approval, because in the absence of a properly amended local spatial planning code, the mining authority may not establish a mining site and thus no appraisal or exploitation works may be started. 

Even already running exploration, appraisal, and exploitation projects will be subject to the discretion of the local municipalities, because the approval of the new or amended technical operation plans of those projects will also depend on the local spatial planning codes. In addition, the amended spatial planning laws may be interpreted as applying solely to the technical operation plans of open pit mines. However, pursuant to a strict interpretation of the amended laws, the above requirement applies to all kinds of technical operation plans, including underground mines. 

Although local municipalities are required by law to prepare and update their local spatial planning codes, several municipalities in Hungary have outdated local spatial planning codes – or no code at all. In the case of new investments, this risk may be evaluated before the investment decision is made and may be managed when preparing the project. For already running projects, however, the absence of a properly updated local spatial planning code could result in the forced suspension of the project if the effective technical operation plan cannot be amended or renewed in due course. 

Due to these risks, mining entrepreneurs are advised to check the conformity of the local spatial planning code with the legislative changes that took place on March 15, 2019 in order to make sure that a mining site may be established or an ongoing project may be continued without any spatial-planning-related concern. 

By Kinga Hetenyi, Partner, and Daniel Varga, Attorney at Law, Schoenherr Budapest 

This Article was originally published in Issue 6.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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