Mining and petroleum legislation in Latin America


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Mining and petroleum legislation in Latin America
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Pan American Union -- General Legal Division
General Legal Division, Dept. of Legal Affairs, Pan American Union
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Mining law -- Latin America   ( lcsh )
Petroleum law and legislation -- Latin America   ( lcsh )
Mines -- Droit -- Amérique latine   ( ram )
Pétrole -- Droit -- Amérique latine   ( ram )
international intergovernmental publication   ( marcgt )
legislation   ( marcgt )
non-fiction   ( marcgt )


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Volume II

Pan American Union
General Secretariat
Organization of American States

Washington, D. C.

6&'I 5(or_6, C/ y

General Legal Division
Department of Legal Affairs
Pan American Union, Washington, D. C.


SCopyright 1960 by
Washington, D.C.


This volume presents a summary, with commentary, of the significant provi-
sions and principles governing the various aspects of the mineral industries. The
organization of the material, as in Volume I, is by country, with separate sections
on Mining and Petroleum Legislation, each section covering topics pertinent to
that particular country. Volume II covers Panama, the Central American repub-
lics, Mexico, Cuba, Haiti and the Dominican Republic. Volume I dealt with the
ten republics of South America.

The text is based in great part on the corresponding chapters of the Statements
of the Laws in Matters Affecting Business, which is a series of volumes, by coun-
try, of general scope. An effort has been made to amplify and to bring up to date
the information originally presented in the Statements, but the work does not pre-
tend to be complete, nor is there positive assurance that all provisions are appli-
cable at the time of publication, because of the possibility of recent modifications
that may not have come to our attention.

The advice and assistance of members of the staff of the United States Bureau
of Mines are gratefully acknowledged.

Information concerning general legislation on matters such as the formation of
companies, labor, and taxation is not included but is available in the respective
volumes of the Statements of the Laws series.

Paul A. Colborn
Chief, General Legal Division

August 1960



Mining Legislation
Petroleum Legislation

Mining Legislation
Petroleum Legislation

Mining Legislation
Petroleum Legislation

Mining Legislation
Petroleum Legislation

Mining Legislation
Petroleum Legislation

Mining Legislation
Petroleum Legislation

Mining Legislation
Petroleum Legislation

Mining Legislation
Petroleum Legislation

Exploitation of Natural Resources ...........
Mining Legislation ...........
Petroleum Legislation ...........

Mining Legislation ...........
Petroleum Legislation ...........






1. Legislation

The Mining Code of Costa Rica was promulgated as Law No. 1551 of April 20,
1953. Under this Code, the Ministry of Agriculture and Industries, through its
Department of Geology, Mines and Petroleum, is entrusted with matters and pro-
cedure pertaining to the discovery of mines, exclusive exploration permits, de-
nouncements and permits for the exploitation of minerals, as well as enforcement
of obligations imposed by law.

2. Ownership of Mines

The subsoil belongs to the State. However, any inhabitant of the Republic,
whether a national or alien, has the right to excavate and explore in search of min-
eral deposits, provided no damage is done to private property. The prospector
does not have the right to extract minerals from deposits that he discovers or to
utilize them for himself or for others. However, he may denounce the deposits
and obtain authorization to exploit them under procedure provided for in the Mining

The following persons may not acquire mining rights or participate in mining
enterprises, while in office: a) the President of the Republic; b) the Minister of
Agriculture and Industries; c) the chief of the Department of Geology, Mines and
Petroleum and officials or employees of that Department; d) Governors and other
political officials, in the territory within their jurisdiction; e) all officials and em-
ployees in general whose duties include matters pertaining to mining rights or the
operation or supervision of mining enterprises in the territory within their juris-
diction. This prohibition includes the wife and minor children of any of the officials

Employees of a mining enterprise likewise may not acquire mining rights if
their discoveries are located within ten kilometers of the mining claims on which
they are employed. This prohibition remains in force for two years after they have
left their employment. Rights acquired in violation of these prohibitions shall be
null and void, even if an exploitation permit has been obtained.

3. Eligible Mineral Deposits

Any mineral deposit may be denounced and exploited except those which may
not be withdrawn from the public domain. Stone for construction or ornamentation,
deposits of sand containing no metals, ochres, clays, kaolin, diatomous earth,

tripoli rottenstonene"), mineral thermal springs and deposits of other materials
which may be utilized by chemical or physico-mechanical means in the manufac-
ture of glass, porcelain, hydraulic cement, paints and other industrial products
may also be denounced by natural or juridical persons who offer sufficient guaran-
tee that they intend to use such substances in plants or factories. However, in
such cases, a denouncement is not approved if the deposits are being exploited or
if the owner of the lands in which they are located decides to exploit them person-
ally or through a third party. In this event the Department of Geology must fix a
period within which exploitation is to begin following approval of a technical and
financial plan of operations. For such purposes, if any person indicates to the
Department that he intends to denounce any deposit referred to above, a hearing
is granted to the owner, within one month, to determine his wishes. If a month
elapses without a statement from the owner, the denouncement is approved; if the
owner decides to exploit the deposit personally or through another party, the De-
partment grants him a reasonable period in which to submit a technical and fi-
nancial plan.

4. Exploration Permits

The Ministry of Agriculture and Industries may grant to any applicant an ex-
clusive permit of exploration in public lands in specified areas, either innewzones
or those already explored. Use of the permit is subject to prompt payment of the
corresponding taxes. Exclusive exploration permits do not include the right to
fell trees on public lands; this requires a special permit from the Ministry of Ag-
riculture and Industries. Exclusive exploration permits for areas of from 10 to
400 hectares are granted for a period of one year; for larger areas the permit is
valid for three years. At the close of each year the concession holder must sur-
render one third of the area covered by the permit.

In both cases, denouncements may be made immediately upon the discovery
of mineral deposits. If the Department of Geology, Mines and Petroleum so rec-
ommends, extension of the concession may be granted for a period of not over one
year, except for the portions previously surrendered, as mentioned above.

Any holder of an exclusive exploration permit has a one-month option privi-
lege in which to initiate proceedings for the denouncement of mineral deposits dis-
covered in a zone covered by permit. If an exclusive permit expires, another per-
mit covering the same area may not be granted to the same natural or juridical
person until one year after the date of expiration of the permit, and provided that
a permit has not been granted to some other person during the interval.

Applications for exclusive exploration permits should be submitted to the De-
partment of Geology, Mines and Petroleum on 50-c6ntimos stamped paper to
which tax stamps of 20 colones for each square kilometer or fraction thereof and
for each year applied for are to be affixed.

The application must contain the following information: a) name and complete
details on the applicant, with the number of his identity card, and residence per-
mit if an alien; b) description of the area to be explored, with an indication of
natural boundaries wherever possible, such as rivers, hills, roads or natural
water divisions and with the name of the locality, district, canton and province;
c) name of the owners, tenants, concession holders or occupants of the surface
2 lands in which the area is located, if any; d) the approximate measurement of

the land; e) period of time for which the permit is requested; f) complete address
and domicile of the applicant; g) date and place of application and signature of the

If all details are in order, the Department records the application in the ap-
propriate register and publishes notices in the Diario Oficial for three alternate
days, at the expense of the applicant. The notice contains the significant details of
the application and after the last publication a period of thirty days is granted in
which parties alleging injury by the permit may present their objections.

An exclusive exploration permit is a real right which may be sold or alien-
ated in any form. However, any transfer is valid only after it is duly recorded in
the Department's register.

Grantees of exclusive exploration permits must pay an annual tax (canon) of
2.50 colones per hectare, in advance, to the National Revenues Administration.
The corresponding receipt must be presented within ten days thereafter for re-
cording by the Department. If a concession holder fails to pay the annual canon
when due, he will be notified by the Department and given fifteen days in which to
comply. If payment is not made by the end of this period, the permit is can-

5. Discovery of Minerals

Any person who believes he has discovered a mineral deposit may record this
in the Registry of Discoveries. This registration gives him the right to initiate a
denouncement and to present objections if within three months following the date of
registration, another person undertakes to denounce the same deposit. The regis-
tration does not confer any right to the deposit, but the registrant has priority for
three months to make a denouncement so as to obtain an exploitation permit.

The registration in the Registry of Discoveries is obtained by application to
the Department on 50-c6ntimos stamped paper bearing a tax stamp of 5 colones.
The application must contain the following information: a) name and description of
the applicant and number of his identity card, or residence certificate (if a foreign-
er); b) name of the mineral believed to have been discovered, and if known, the
kind of deposit; c) the most precise location possible of the place of discovery, with
any special features by which the exact place can be recognized, giving approximate
directions and distances from and to one or more readily identifiable fixed points;
name of the locality, district, canton and province; name of the owner, tenant, con-
cessionaire or occupant of the land, if known, where the deposit is located; a map
or sketch of the place of discovery should also be included; d) approximate area
covered by the deposit; e) signature of the discoverer and the date and place at which
application is made.

The application must be accompanied by a sample of notlessthanonekilogram
of the mineral.

6. Denouncements and Exploitation Permits

Procedure. Any natural or juridical person interested in the exploitation of
a mineral deposit must present a denouncement to the Department of Geology, Mines

and Petroleum in order to initiate the procedure for obtaining an exploitation per-
mit. To do so, previous registration in the Registry cfDiscoveriesisnotnecessary.

The document showing denouncement for the purpose of obtaining an exploita-
tion permit is to be submitted to the Department on 50-c6ntimos stamped paper
bearing a tax stamp of 10 colones for each mining claim (pertenencia). By defini-
tion, a mining claim or pertenencia is a vertical prism of indefinite depth, the sur-
face section of which is a square with an area of four hectares; it is limited as to
depth by four vertical planes passing through the surface boundaries. There is an
additional tax of 5 colones for each supporting claim (pertenencia de amparo), defined
as a surface square having an area of four hectares, one side of which is common
to that of the mining claim.

Acceptance of a denouncement to obtain an exploitation permit merely confers
on the applicant a right of priority to obtain the claims for which application is made,
provided that any objections submitted are decided in the applicant's favor. The de-
nouncement must contain the following data:

a) Name, full description and number of identity card or residence permit of
the denouncer(s);
b) A statement that application for registration in the Registry of Discoveries
has been made, if such is the case, and if so full details, including the
c) Name of the minerals or substances in the deposit being denounced, and
the type of deposit in which they are found; or if such is the case, a state-
ment that it is an abandoned mine or mining accessory;
d) The most precise possible indication of the location of the denouncement,
with readily recognizable fixed points of identification; name of the local-
ity, district, canton and province; name of the owner, tenant, or occupant
of the land in which the deposit is located, if known;
e) Total number of claims applied for and their type, including the support-
ing claims if included in the application;
f) Description of adjoining mining claims, if any;
g) Address for receiving notices and the name of the person so authorized;
h) Date and place of application and signature of the applicant.

The application should be accompanied by samples of the mineral, unless
these have been submitted previously. If the denouncement is in order and no ob-
jections are filed, the Department issues an order granting the right of exploitation.

Inherent rights and obligations. A permit of exploitation involves the follow-
ing inherent obligations: a) to maintain the claim with proper boundary markings;
b) to pay the corresponding taxes in advance annually to the National Revenues Ad-
ministration; c) to exploit the deposit covered by the permit within two years from
the date it was granted. During the period of effective exploitation there may notbe
interruptions for more than two years, except for justifiable reason approved by the
Department; d) to submit a report every six months on the work performed, so as
to facilitate inspections by the Department; e) to furnish to inspectors or other De-
partment officials any assistance necessary in the event of local difficulties as to
lodging,transportation and meals; f) to comply with the provisions of labor and so-
cial legislation in force or enacted in the future and to respect government regula-
tions for the safety of workers; g) to compensate surface owners for loss or dam-
age; h) any other obligations specifically mentioned in the Mining Code.

The holder of an exploitation permit has the following rights, subject to the
limitations and obligations in the Mining Code: a) to exploit any mineral which is
permitted, when found in his mining claims, as long as the permit is not annulled
or forfeited for reasons specified by law; b) to construct works for access, drain-
age and ventilation passing through adjoining claims or through private property;
c) to enjoy any necessary easements acquired for proper conduct of work and ex-
ploitation of the deposit; d) to lease a sufficient surface area of adjacent public
lands, for adequate exploitation; e) to utilize, for exploitation purposes, any tim-
ber and construction materials found on neighboring public lands, even if such lands
are leased to other persons. The felling of trees must be previously reported to the
Ministry of Agriculture and Industries and its regulations must be respected, as
well as any other laws and regulations on the subject; f) to use for any necessary
purposes any waters located on the claim.

Mining companies. No distinction is made in mining legislation between nat-
ural persons and companies. All mining enterprises holding an exploitation permit
are required to keep up to date a detailed map of the surface area included in their
work and accessories, and showing thereon all entrances to mines. They must al-
so keep up-to-date plans of the actual mining work in the various phases. Copies
of these, together with a detailed progress report, must be submitted every six

Taxes. Holders of exploitation permits must pay annually in advance the fol-
lowing taxes, to the National Revenues Administration:

a) 50 colones for each mining claim;
b) 25 colones for each supporting claim, protecting mines;
c) 200 colones for each placer claim;
(A placer claim is defined as a vertical prism whose surface area is a
square of four hectares, with a depth equal to the thickness of the placer.
It is limited in depth by four vertical planes passing through the surface
d) 100 colones for each supporting claim, protecting a placer.

The rates indicated in items a) and c) are to be paid for the first two years,
but only until the work of exploitation has been started in regular and continuous
form. When the work has been started and as long as it is not interrupted, the hold-
er pays only 25 percent of the rates indicated.

If effective exploitation is interrupted for reasons not acceptable to the De-
partment, during the period of interruption the holder must pay an additional 50 per-
cent over the above-mentioned rates.

All receipts for taxes must be submitted to the Department for stamping and
recording in the appropriate registers.

Discoverers of mineral deposits, except players, are exempt for two years
from payment of taxes on two mining claims, if the discovery is located in a new
mining zone, and on one claim, if in a zone already known. Claims exempt from
payment are known as premium claims (pertenencias de premio).


The Constitution of Costa Rica, Article 121, item 14, provides that the Legis-
lative Assembly may decree the alienation and application to public use of property
belonging to the nation, but contains the additional statement that the following may
not be removed from ownership by the State:

a) Power that may be obtained from waters of the public domain within the
national territory;
b) Beds of coal, wells, and deposits of petroleum, and any other hydrocar-
bons, as well as any radioactive minerals existing in the country;
c) Wireless services.

Property mentioned in paragraphs a), b), and c) may be exploited only under
public administration or by private parties, in accordance with the law or by a spe-
cial concession granted for a limited time and on the basis of conditions and stipu-
lations established by the Legislative A assembly.

There is no special law governing the conditions under which concessions may
be granted for the exploration and exploitation of petroleum.

The only concession that has been granted to date is a contract with a Costa
Rican company, backed by an American company, approved by Law No. 1382 of
November 9, 1951. The most important provisions of this contract are:

a) The State grants an exclusive right of exploration for the purpose of dis-
covering, locating, and exploiting deposits of petroleum, gas, and other hydrocar-
bons, whether liquid, gaseous, solid, or semi-solid, as well as the right to exploit,
transport, and export any such substances that may be discovered in the provinces
of Guanacaste and Lim6n.

b) The exploration period is fixed at four years, during which the company
will pay the sum of 100, 000 colones annually. If at the end of this period no areas
of exploitation have been located, the period may be extended for an additional two
years by payment of 200, 000 colones in the first year and 300, 000 colones in the

c) Within six months after completing the work of exploration, the company
may select up to 150, 000 hectares, in plots of not less than 6, 000 nor more than
12, 000 hectares, which may include the territorial waters of the two provinces.
The right of exploitation is limited to these plots and is granted for a period of for-
ty years, after which the concession reverts to the State, free of any encumbrance,
and including the lands, wells, machinery and permanent installations.

d) The company shall pay the government a royalty or participation based on
gross production, as follows: 10 percent of production of from 1 to 5, 000 barrels

a day; 12 1/2 percent on the excess over 5, 000 up to 10, 000 barrels a day; 15 per-
cent on the excess over 10, 000 up to 15, 000 barrels; and 16 2/3 percent on the ex-
cess over 15, 000 barrels a day.

On gaseous, compressed, or liquified hydrocarbons the royalty is 12 percent
of the gross production, and on asphalt and other solid or semi-solid hydrocarbons,
16 2/3 percent.

For purposes of computing royalties the petroleum is to be measured at the
mouth of a well and for gaseous hydrocarbons, according to commercial production,
that is, the amount sold.

The royalties are payable in kind although the government is authorized to re-
quest all or a part of the payment in money.

e) During the first ten years following the beginning of commercially exploit-
able petroleum or gas, the company shall be exempt from all national or municipal
taxes. Thereafter, taxes must be paid at the rates in effect at the time, but which
may not be more than double those imposed at present.

The contract also contains stipulations relating to control of operations,
establishment of refineries, expenses of transportation, prices of products for lo-
cal consumption, forfeiture, and renunciation of the contract.



1. Principal Legislation in Force

Law of Mines of July 6, 1859, ratified by Military Order 53 of February 8, 1900.

Basic Decree-law (Decreto-Ley de Bases) of December 29, 1868.

Military Order 78 of March 15, 1902 and Decree 593 of May 16, 1913, regulating
compulsory expropriation of mines.

Decree 1076 of September 28, 1914, promulgating the Organic Regulations for Cu-
ban mining, amended by Decree 55 of January 18, 1915; Decree 716 of May 31, 1915;
Decree 447 of April 5, 1916; Decree 869 of May 21, 1918; Decree 147 of February
5, 1921; Decree 1370 of August 15, 1928; Decree 470 of April 12, 1932.

Law of July 1, 1920 on payment of the surface canon.

Decree 768 of June 7, 1930, concerning petroleum concessions.

Decree 717 of May 26, 1931, on denouncements of petroleum deposits.

Decree 676 of May 19, 1932, relating to the Special Mining Fund.

Decree-law 824 of April 4, 1936, the Organic Law of the Ministry of Agriculture.

Law on Combustible Minerals of May 9, 1938.

Decree 2501 of September 28, 1939, on payment of the canon on concessions.

Decree 2625 of October 16, 1939, the regulations of the preceding law.

Law 7 of April 5, 1943, regulating research in and development of combustible

Decree 2423 of August 23, 1943, governing strategic minerals.

Law-decree 1758 of November 2, 1954, regulating the construction and expansion of
petroleum refineries.

Law-decree 1939 of January 22, 1955, creating the National Association of Distri-
butors of Combustibles.

Decree 1996 of July 15, 1955, concerning radioactive minerals.

Decree 2462 of September 5, 1956, regulating the exploitation and exportation of gold.

Law 617 of October 27, 1959, governing mining concessions.

Law 635 of November 20, 1959, providing new petroleum legislation.

2. General Principles

Ownership of mines. The surface of the ground is subject to individual owner-
ship but the subsoil is originally under the domain of the State, which may turn it
over to common use, grant it free of charge to the surface owner, or alienate it to
private persons through payment of a canon.

But in granting titles of ownership, in supervising the terms of exploitation,
and in cancelling concessions that were granted, the State continuously intervenes
either through the public administration or through the courts of justice, as the
case may be.

The form in which a mining undertaking is operated and the legal acts govern-
ing the enterprise must be adjusted to certain rules enacted for the purpose of pro-
tecting both the general and private interests, with penalties for non-compliance in
many instances.

By definition the surface (suelo) consists of the actual surface itself together
with the depth to which the work of the owner has reached for cultivation, a building
foundation, or purpose other than mining. The subsoil is regarded as extending in-
definitely in depth from where the surface ends.

A mining unit or claim (pertenencia) in a concession is a solid with a square
base of 100 meters on each side, measured horizontally but to an indefinite depth
(Art. 11, Basic Decree-law)

Private persons may obtain any number of claims more than four for a single
concession. These must be grouped together so as to form a continuous whole, con-
tiguous along the full length of one of its sides.

Classification of minerals. Minerals are classified by law into four categories,
each of which is subject to special provisions:

First section. This comprises mineral substances of earthy nature, silicious
rocks, shales, sandstones, granite, basalt, calcareous earths and rocks, gypsum,
sands, marls, and in general all construction materials found in quarries; also de-
posits of excrements and other organic remains found in natural caverns, caves and
crevices (Basic Decree-law and Organic Regulations, Art. 1 of each).

Second section. Comprising players, ore-bearing alluvial sands, ferrous min-
erals of swamps, emery, ochres, red ochre (ruddle), waste heaps and ore-bearing
lands remaining from former ore processing, peat beds, pyritic earths, aluminous
earths, magnesian earths, fullers' earth, nitrates, calcareous phosphates, barytes,
fluorspar, steatite, kaolin, clays, asbestos, pumice stone, and guano (Basic Decree-
law, Art. 3; Organic Regulations, Art. 5).

Third section. Comprising deposits of metallic substances, anthracite, coal,
lig;ite, saline substances in solid state, copperas, precious stones (Basic Decree-
law, Art. 4).

Fourth section. Comprising uranium, thorium in its different forms: pitch-
blende, torbonite, autinite, thorianite, etc., and other varieties of both metals
(first and second paragraphs of Decree 1996 of July 15, 1955).

Mining exploration. Any Cuban or foreigner may undertake exploratory re-
search for the discovery of minerals, making excavations or trial pits not to ex-
ceed ten meters in length or depth and holding to distances indicated by law (Arts.
13, 14, 15, Organic Regulations). The form may vary according to the nature of
the land and property.

Research is free of restriction, no license being required, although notice
must be given to the local authorities. The use of cultivated lands under private
ownership used for orchards, gardens, irrigation, sugar cane, coffee, cotton or
other major crop in the country's resources requires prior permission from the
owner, without recourse or appeal. Permission of the owner is likewise required
in unused lands but in this case a refusal may be voided by authority of the Govern-
ment if it is shown that the lands are not used for two months. The exploring par-
ty must furnish a bond sufficient to cover damage occasioned by excavation, as
agreed upon between the owner and explorer or by appraisers. The explorer is
likewise liable for any further damages caused to the property.

Permission to search for minerals does not give any priority for obtaining a
mining concession (Art. 31, Regulations).

System of ownership. The form of ownership depends on the nature of the
mineral involved as well as whether the lands in which it is found is under public
or private ownership.

Substances comprising the first and second categories, when found in public
lands, are free for common use and may be exploited by any persons; intervention
of administrative authorities is limited to safety measures.

When the aforementioned substances are found in private property, the State
grants them to the surface owner who may regard them as his exclusive mining
claim and he is not subject to any administrative intervention.

However, substances included in the second category located in privately-
owned lands may be granted by the State, if the owner himself does not exploit
them, to enterprises declared to be of public utility, upon payment of compensa-
tion for damages to the owner of the surface expropriated.

Substances comprising the third and fourth categories may be exploited only
by virtue of a concession granted by the President of the Republic, which is to be
established as property separate from the surface, although if the exploitation is
declared to be of public utility the surface land may be expropriated upon payment
of due compensation.

3. Concessions

Mining concessions constitute a special form of property ownership, hence the
legal system governing them is subject to certain rules. As in the case of any
other property, a mine owner may freely dispose of any rights granted him by a
10 concession, hence it may be encumbered or alienated (Art. 57, Law of 1859).

Indivisibility. A mining claim (pertenencia) is indivisible initspurchase, sale,
exchange, or other similar transaction between mine owners. However, conces-
sions which cover sufficient surface area may be divided, provided that each sec-
tion into which they are divided comprises at least four hectares, in the form in-
dicated, and the division is authorized by the President of the Republic (Art. 131,

The sale or exchange of one or more claims may be made, likewise authorized
by the President of the Republic, if as a result of the transaction the concession
will still meet the requirements as to area. The separation must be accomplished
according to a plan approved by the Jefatura de Minas.

Acquisition. Any individual or company may freely acquire by purchase or
other legal means any number of mining claims, before or after issuance of the
title of ownership, but they will have no more rights than the previous holder. The
provincial authorities must be notified of the transaction, the notice to be accom-
panied by a copy of the public instrument evidencing the transfer, and the transfer
is then recognized by a decree of the President of the Republic. If the claims had
not as yet been granted, the acquiring party may apply for issuance of title in his
name by the administrative authorities.

Renunciation. The owner of a mining concession may at any time renounce a
part of the claims making up the concession, provided that the number retained is
not less than four and payment of the canon is not in arrears. This is likewise
subject to notification to the provincial authorities, resurvey, and approval by the
President of the Republic (Art. 130, Regulations).

Forfeiture. A concession is forfeited if the holder fails to pay the canon for
one year and after legal action has been found insolvent. It is also forfeited by re-
nunciation in writing. In the former case, the concession is declared void by the
President of the Republic and it will be sold at public auction, the State retaining
the amount due plus five percent and the balance going to the former owner. If the
concession is not sold at three successive auctions, the land is declared open (Bas-
ic Decree-law, Art. 23; Regulations, Arts. 175-176).

A concession holder may liberate a concession forfeited for non-payment of the
canon up to the amount of acceptance of a bid or termination of a third auction.
Any person may intervene in the auction of a forfeited concession by offering a bid.
If this is accepted and approved, he will be awarded the concession upon payment
of the amount within the period indicated in the auction and a new title will be
issued (Regulations, Arts. 177-178).

Perpetuity. The exploitation of non-combustible mineral substances is granted
in perpetuity, provided it is not renounced and the corresponding canon is paid in
due course (Basic Decree-law, Art. 19).

Canon. Mining concessions are granted on the basis of payment of an annual
canon or surface tax, payable from the date the concession is granted. In accordance
with previous legislation the annual canon or tax was at the rate of 20 centavos per
hectare of the surface realized. Law 617 of 1959 provides for: a) the payment of an an-
nual canon of 20 pesos per hectare for mines which are not under adequate exploitation,
in the judgment of the Department of Mines and Petroleum of the Ministry of Agri-
culture; or b) payment of an annual canon of 10 pesos per hectare for mines which
are being adequately exploited in the judgment of that Department (Article 5).

Registration. Titles to concessions are recorded in the Property Register of
the appropriate municipality in which the concession is located. The first regis-
tration must contain all information permitting adequate identification of the min-
ing concession, its title holders, and terms. A mine must be recorded under a
different number than the registration of the surface land, even if both belong to
the same person. All acts relating to a mining concession must be similarly re-
corded or annotated, including transfer, encumbrance, forfeiture, renunciation,
or cancellation (Regulations, Arts. 139-148).

In accordance with Law 617 of 1959, applicants for mining concessions, as
well as the title-holding beneficiaries of concessions relating to minerals included
in the second and third sections of the classification contained in the Basic Decree-
law of December 29, 1868, are obligated as follows: in the case of applicants, to
renew their applications, and in the case of title holders of concessions, to re-
register their titles, within a period of 120 calendar days, in the Registry which
is to be kept for this purpose by the Department of Mines and Petroleum in the
Ministry of Agriculture. This Department was created by Law 617.

Non-compliance with this obligation will be understood as a tacit relinquish-
ment of the rights deriving from an application and to the benefits which were en-
joyed by a concession. In the first case, the area referred to in an application
will be declared free and registerable, and in the second case the benefits of the
concession will be lost. The concession will become a reserve of the State, and
the Ministry of Agriculture will order the cancellation of the concession in the cor-
responding Property Register.

Article 5 of Law 617 calls for payment of a fee of 100 pesos for the re-regis-
tration of each mining concession. This is presumably in addition to fees that have
been paid for applications already pending, which by this Law must now be renewed.

If an application is found to be in order, with all pertinent information, it is
subject to several stages of procedure:

Publication. A definitive acceptance is to be published in the Gaceta Oficial,
together with notice to the municipalities where the concession is recorded. The
application may be modified by a new instrument, the date of the latter being taken
into account for purposes of priority.

Opposition. Within sixty days following publication any interested party may
oppose the proposed concession by submitting an instrument to that effect. The
applicant must be notified of any objection in order that he may contest it within
twenty days.

Recognition and demarcation. If no opposition was submitted in the period in-
dicated or it was rejected, recognition is granted and a survey made to establish
the boundaries of the land applied for, within a period of six months, the applicant
to be notified in due time. All interested parties may participate in the proceedings.
The applicant must furnish bond for damages to cultivated and irrigated lands.
When approved the application is transmitted to the Department of Mines and Pe-
troleum in the Ministry of Agriculture for final examination.

Granting of the concession. Based on a favorable recommendation of the De-
partment, the Minister of Agriculture forwards the application to the President of
12 the Republic for issuance of the appropriate decree granting the concession. The

title of ownership contains the general conditions prescribed by law and any spe-
cial conditions applicable to the nature of the mineral in question. An application
may be cancelled on certain technical grounds (Regulations, Arts. 167 to 169).

If by any circumstances a concession is granted covering a part of lands in-
cluded in a previous concession, that portion is cancelled and the area of the new
concession is corrected in due course by a new decree.

Priority. Priority in the submission of an application gives a preferential
right to obtain the concession of lands applied for, and all formalities are carried
out in the order of priority.

Concessions to enterprises of public utility. This governs concessions for
minerals in the second category. The procedure is different by virtue of the right
of priority recognized for the surface owner.

An application is submitted by the same formalities as for a regular conces-
sion. But the surface owner is granted a period of thirty days in which to present
opposition and indicate whether he intends to exploit the property himself. He is
given a period of not more than six months in which to begin operations.

At the end of the periods indicated, or if after beginning operations the owner
abandons them for one year, the land is declared open for the granting of a con-
cession. Prior recognition may be granted for the purpose of proving existence
of the mineral in question by examination of the deposit and its natural conditions
and obtaining samples of the mineral. Articles 92 to 95 of the Regulations govern
the proceedings for issuance of a declaration of public utility, as the basis of these
concessions. Demarcation of boundaries and the granting of the concession follow
the same rules as for a regular concession.

Simultaneous exploitation. Whenever mineral substances of the second cate-
gory are found in the same terrain together with minerals of the third and fourth
category, the possibility of simultaneous exploitation is examined. If this is found
to be impossible, the holders of a concession for minerals in the third and fourth
category will have the right to extend their operations to include substances in the
second category; but the holder of a concession for the second category must ob-
tain a new concession in order to exploit substances in the third and fourth cate-
gory (Regulations, Arts. 99 to 101).

Special concessions. There are also certain special concessions based on the
particular circumstances involved:

"Left-overs" (demasfas), comprising the free spaces included between two or
more concessions, which may or may not be completely enclosed, with an area of
less than four caballerfas or, if larger, not suitable for division into claims (per-
tenencias), according to Article 106 of the Regulations. One caballerfa in Cuba is
equal to 83. 2 acres.

Such a concession is granted by the President of the Republic, in accordance
with the procedure prescribed for a regular concession. Priority is given to the
owners of adjacent mines, next to owners of the "left-overs", and lastly to outside
private individuals or companies who apply for them. Adjacent mine owners are

given a period of sixty days in which to apply, after notice of the "left-overs" has
been published in the Gaceta Oficial. If their existence is unknown to the authori-
ties, there must first be application for their recognition (Regulations, Arts. 107
to 116)

Residues and mine dumps. Land formed by deposits of metal-bearing residues,
constituting alluvion, does not belong to the owner of the mine from which it origi-
nated nor to the owner of the mine in which the alluvion is deposited but it belongs
to the surface owner and the substances are considered as being in the second

Lands and dumps of mines in operation belong to the owner thereof. If they
have been abandoned, they belong to the surface owner, if any. The same is true
in case of a forfeited concession. In all cases a concession may be granted to the
surface owner or to an enterprise declared to be of public utility, as described
above, for second category substances.

General galleries. This applies to general galleries used for exploration,
drainage, or transportation. An application must be submitted, indicating the
number of claims required for the undertaking, and the procedure is the same as
for a regular concession.

If the gallery runs through an authorized mining concession, a written agree-
ment must be signed between the applicant and the owners of the concession. If
there is no such agreement, forced expropriation may be instituted, with due com-
pensation, in accordance with Decree 593 of May 16, 1913.

The holder of a concession for a general gallery may obtain a reserve of a
specified number of free claims in the vicinity of his operations and which may be
made use of as the operations progress, with option to abandon those not suitable.
Periodic inspections are made of the situation. Operations must be confined to
th6se requested in the application.

4. Rules for Exploitation

The exploitation of mines must follow certain specified conditions prescribed
by law, which also recognizes certain rights therein. Preservation of boundary
markers fixed at the time of demarcation is obligatory, as well as the point of de-
parture in measurements. Any changes must be reported. Any operations may
be begun freely if there is no opposition. Otherwise permission of the surface
owner must be obtained and a bond posted for damages.

Under Article 3 of Law 617, the Minister of Agriculture is authorized to order
that adequate commercial exploitation be started in mines which may be considered
necessary to the national interest. Concessionaires who do not start adequate com-
mercial exploitation within sixty days after being so ordered shall lose the right to
the concession, which will be cancelled in the Property Register, useful ownership
(dominio fitil) reverting to the State.

Once a mining concession is cancelled, the Minister of Agriculture shall order
its occupation with a view to initiating exploitation thereof, together with occupancy
of all equipment, the value of which is to be appraised by appointed technicians (Ar-
14 ticle 4).

Adjoining mines are subject to easements for ventilation and general drainage.
Owners of concessions must pay compensation to adjoining mines for damages pro-
duced by accumulation of water or any other detriments inside or outside the mine.
They must also pay compensation for the value of surface land needed for ware-
houses, shops, waste deposits, processing plants, etc. In all cases, the compen-
sation should be arrived at by private agreement; if not, the provisions of Decree
593 of May 16, 1913 will apply.

All health regulations issued by the local Health Office must be complied with,
in accordance with section two of Decree 244 of January 25, 1949. Concession
holders must at all times permit any inspections required by the Government, as
established in Articles 157 to 159 of the Regulations.

Rights granted to concession holders include: a) the ownership of waters found
during operations, subject to provisions of the current water law, but they may not
cut off or deviate the flow of waters being utilized; b) a concession may be disposed
of freely like any other property, as well as other rights granted by current mining
legislation; c) in a regular mining concession for substances of the third and fourth
category, all substances included therein may be freely exploited; d) concession
holders are considered as residents of the town in which the mine is located and as
such are entitled to local rights as to use of water, woods, pasturage, etc., com-
mon to industry.

5. Royalties

Article 6 of Law 617 provides that concessionaires are obligated to pay to the
State a royalty or share (participaci6n) of 5 percent in cash or in kind, at the op-
tion of the State, on the value of all minerals extracted in their concessions, com-
puted in accordance with the highest average yearly quotation in the world markets.

If exported, the share of the State in the minerals or concentrates of minerals
shall be 25 percent of the value thereof, computed in the same manner as indicated

6. Expropriation

Whenever it is necessary to occupy a specific surface area for the exploitation
of a mine, if the mine owner is unable to reach an agreement with the owner of the
land, this may be obtained by the procedure of forced expropriation. This is gov-
erned by Decree 593 of May 16, 1913.

Declaration of public utility. The concession must first be declared to be of
public utility for which the mine owner applies to the Provincial Governor accom-
panying his application by the title to the concession, a certificate of registration
of the property, a map of the surface area deemed necessary, a memorandum of
the reasons for expropriation, an estimate of fair value, and a deposit of 10 per-
cent of this value.

A declaration of public utility and consequent expropriation will be in order if
the surface owner does not agree to its alienation at a fair price, if he does not
have legal capacity to sell, if the owner is unknown or his title is void or defective,

or if the surface land is attached or under judicial administration or has been
mortgaged, leased, or subject to any other encumbrance.

Notice of the application must be published in the Gaceta Oficial, stating the
area affected and giving a period of thirty days for the presentation of objections
by parties who will be injured, who are granted ten more days to answer. The
District Engineer and the Provincial Board of Agriculture must study the case on
the basis of need for expropriation and the relative advantages of the mine exploi-
tation and surface cultivation.

In the event of favorable action, the Ministry recommends to the President of
the Republic issuance of the declaration of public utility.

Appraisal and occupation. As soon as a mine has been declared to be of public
utility the applicant should request an appraisal of the property to be expropriated,
followed by payment of the corresponding compensation and the permanent taking
possession of the area in question, in accordance with rules set forth in chapter
VII of Military Order 34 of February 7, 1902 and Decree 595 of May 22, 1907, reg-
ulating forced expropriation in general.

7, Provisions Governing Specific Minerals

Radioactive minerals. The production and consumption of radioactive miner-
als are governed by Decree 1996 of July 15, 1955. The Cuban Government has a
prior right to purchase the entire production of radioactive minerals obtained with-
in the national territory. A concession holder must notify the Ministry of Agricul-
ture of offers and conditions received, the State being required to make use of its
priority within thirty days. After this period has elapsed, the concessionaire may
sell his production but if the purchaser is a foreign person or government the prior
approval of the Ministry of Defense must be obtained.

The Ministry of Defense likewise controls the exploitation and supervision of
a concession for radioactive minerals, which must be recorded in a special register.

Strategic minerals. During the Second World War a special regimen was estab-
lished governing strategic minerals, in Decree 2423 of August 23, 1943. This in-
cludes manganese, zinc, chromium, nickel, and any other so designated by the
Ministry of Agriculture. The restrictions imposed operate during a state of inter-
national emergency.

Gold. The exploitation and exportation of gold are subject to rules contained in
Presidential Decree 2462 of September 5, 1956. The rules include possible opera-
tions directly by the State if the production is intended to cover or increase the
monetary reserves of the Nation. A permit from the National Bank of Cuba is nec-
essary in order to export gold.

8. Mining Authorities

As indicated, Law 617 created the Department of Mines and Petroleum under
the Ministry of Agriculture, and this becomes the principal authority in matters re-
lating to mining. The courts of justice have jurisdiction over all questions relating
16 to ownership, participation, debts, offenses, expenses of exploitation, distribution

of proceeds, and fraud. Judicial proceedings shall at no time hinder operations.
Appeals against administrative decisions may be taken to the Civil Contentious-
Administrative Section of the Audiencia in Havana. Appeal from decisions of this
court may be taken to the Supreme Court.

Law 617 also established a Fund for the Development of Mining (Fondo de
Desarrollo de Minerfa) in charge of the Ministry of Agriculture. The assets of
this Fund are to come from the fees of 100 pesos collected for re-registrations
and from the canon or surface tax mentioned elsewhere in this chapter.


1. General Principles

Legislation. The basic laws governing combustible minerals are the Law of
May 9, 1938 and its Regulations contained in Decree 2625 of October 16, 1939, and
Law 635 of November 20, 1959. There is great similarity between the legislation
governing ordinary mining and that of hydrocarbons, or combustible minerals as
they are termed in Cuban legislation, particularly with respect to application pro-
cedure. The most noteworthy difference is the principle of a stronger domain or
ownership by the State. A list of all legislation in force is contained in the preced-
ing chapter on mining.

Ownership. The Nation has inalienable and imprescriptible ownership of all
combustible minerals or any mixture of hydrocarbons found in such deposits, re-
gardless of their physical state. Private persons may be granted the right to ex-
plore and exploit them (Art. 4, Law of 1938). As original owner, the State has
rights of intervention and restriction.

Dimensions. For combustible minerals, a claim (pertenencia) is a surface unit
of 40, 000 square meters in area. A concession may not contain less than four claims,
to be grouped in the form of a continuous right-angled polygon whose sides are mul-
tiples of 200 meters. If in the form of a rectangle, the ratio of the sides shall not
exceed ten to one, with the same proportions preserved for any other figure.

A concession for exploration may not exceed eight thousand claims and a con-
cession for exploitation may not exceed two thousand. No person may be the con-
cession holder, directly or accumulatively, of an area greater than 75, 000 claims.
A concession is limited underground by the vertical planes of the sides of the perim-
eter of the area covered.

Concessionaires. Any natural or juridical person of Cuban nationality or a for-
eigner legally domiciled in Cuba, having legal capacity to make contracts, may
acquire a concession for combustible minerals. Such a concession may in no case
be granted to a foreign government, state, or public official.

Free lands. These comprise all lands not granted as a concession or for which
no application is in process, as well as all lands reserved by the State (Art. 18, De-
cree 2625).

Classification of minerals. Combustible minerals include petroleum deposits
and deposits of all other hydrocarbons found on the surface or underground, whether
solid, liquid, or gaseous. They are divided into three Groups:

Group One: petroleum and its natural associates, liquid and gaseous, such as
naphtha, natural kerosene, hydrocarbon gases, and helium.

Group Two: asphalt in any state, bitumen, tar, elaterite, resins, and simi-
lar minerals.

Group Three: fossil coals, with the exception of peat.

Concessions for the first group also protect the exploration and exploitation
of substances included in groups two and three, but a'concession for either of the
two latter groups does not authorize the exploration or exploitation of substances
included in the first group (Arts. 2 and 3, Law of 1938).

2. Concessions

General principles. The legal provisions governing these concessions follow
the basic principle of inalienable and imprescriptible ownership by the State. A
concession confers only the right to explore and exploit a deposit for a specified
time under specified conditions. It is granted at the risk and venture of the ap-
plicant with no guarantee by the State of the existence of minerals or any obliga-
tion of warranty.

The rights acquired by a concession for combustible minerals may be sold,
assigned, encumbered, or subjected to any transfer or alienation, provided the
transaction is recorded in the Register of Mines in the Ministry of Agriculture
within the year following the date thereof. Any transfer, total or in part, in fa-
vor of a foreign government or State shall be null and void (Arts. 8 and 13, Law
of 1938; Arts. 17, 43, 46, 167, 200, and 204 of Decree 2625).

As in the case of non-combustible minerals, a claim (pertenencia) cannot be
divided, and similar rules apply to the division of concessions, adjacent mines,
and applications.

Any person having the legal capacity of a concessionaire may acquire a con-
cession, either originally or through alienation by a private person. Any conces-
sion holder has the right to renounce his concession, but must take due steps to
prevent danger to the public from abandoned wells, excavations or tunnels, and
must duly notify the provincial government.

Different from concessions for non-combustible minerals, a concession for
combustible minerals is limited to a fixed time, varying according to the class
of concession, and the lands covered thereafter revert to the State in full (Arts.
20, 21, 39, 40, 42, Law of 1938).

State reserves. The Executive Power shall establish in each mineral basin,
according to its size, one or more plots selected from free lands or from can-
celled or forfeited registrations; from one eighth of the total surface area of a -
concession in exploitation; from lands released by the beneficiary of a concession
of exploration, set aside as a reserve within six months; and from the free lands
area of a .concession that has been refused.

Classes of concessions. The Law on Combustible Minerals recognizes three
classes of concessions:

Concessions of exploration (Art. 20)
Concessions of exploitation (Art. 21)
Concessions for pipelines (Arts. 38 to 43)

Payments. Concessions are subject to the following payments:

a) Canon. The holder of an exploration concession must pay an annual surface
canon of 5 centavos per hectare. The holder of an exploitation concession must pay
an annual canon of $5 per hectare during the first ten years; $15 per hectare during
the second ten years; and $20 per hectare during the last ten years. See also Article
8 of Law 635.

Payments of the canon must be made yearly in advance, during the first ninety
days of each year, beginning with the date the concession was granted.

b) Royalty to the State. See text of Article 9 of Law 635, below.

c) Royalty to the surface owner. Without prejudice to compensation that may
be paid for expropriation, the holder of a concession for exploitation of petroleum
and naphtha must pay the surface owner 1 percent in money of the gross production
of wells in existence, the amount and price to be computed in the same manner as
the royalty paid to the State. This payment is regarded as compensation for loss
and damage and easements, separate from that for the material value of the surface
that is occupied.

d) Export charges. With the exception of petroleum and naphtha, combustible
minerals exported in their natural state must pay an export customs duty of 1 1/2
percent of the f. o. b. value, without deductions for expenses of any kind.

e) Royalty on indemnities. If a petroleum, naphtha or natural gas well is in-
sured against any risks, the State shall receive 10 percent of any indemnity paid to
the beneficiary in the event of a disaster.

f) Other charges. In addition, concession holders must pay the advance deposit
and the fees for issuance of title to the concession.

The foregoing charges and payments are governed by Article 23 of the Law of
1938 and by Articles 138 to 150 of the regulations contained in Decree 2625.

Exploration concessions. An exploration concession gives the holder the right
to carry out work for the purpose of discovering combustible minerals. It is grant-
ed for a period of three years. Within this period only the concession holder has
the right to apply for an exploitation concession for the area covered. He may apply
for one or more concessions in a plot or plots desired within that area.

For exploration purposes, the concession holder must obtain the consent of the
surface owner for occupation of the lands needed. If no agreement is reached both
parties may agree to submit their differences to the Ministry of Agriculture acting
as arbitrator, but if this does not achieve results, the concession holder may occupy
the lands through forced expropriation.

The procedure for applications basically follows the rules established for regu-
lar concessions for non-combustible minerals of the third and fourth category but

with a special feature that the application is accepted provisionally by the Ministry
of Agriculture and only recognition, without demarcation, is required.

Exploitation concessions. Such a concession confers on the holder the right to
exploit deposits and acquire ownership of the products collected or extracted. An
exploitation concession is granted for a period of thirty years and all rights of the
holder in the parcels of land granted cease at the end of such period.

Thereafter the Nation becomes the owner of all permanent works such as build-
ings, wells, warehouses, storage tanks, etc., constructed on the concession, with-
out payment of indemnity of any kind.

The State has the right to exploit an expired concession directly or may grant
it as a new concession. In the latter case it will be offered at public auction, ac-
cording to specifications drawn up by the Department of Mines and Petroleum. The
former concession holder has the right of preemption (tanteo) which he may use
within sixty days following the holding of the auction.

Upon recommendation of the Ministry of Agriculture, a concession holder is
entitled to establish inside or outside the concession such installations as may be
required for the extraction, conduction, storage and exportationof combustible min-
erals, with the right to expropriate surface land needed if an agreement is not made
with the surface owner.

Free lands may be granted for exploitation without the necessity of having pre-
viously been granted as exploration concessions. In such cases priority of a legally
drawn up application gives preference over any subsequent applications.

In general terms applications for an exploitation concession follow the same
procedure as for regular concessions for non-combustible substances of the third
and fourth categories. However, a provisional approval is given by the Ministry of
Agriculture, followed by issuance of the permanent title. There is also a difference
in the amount of advance deposit required.

Concessions for pipelines. The law has established three classes of pipelines:

Public service pipelines, first class. Such a concession is granted to any per-
son meeting the requirements of a concessionaire, with the obligation to transport
petroleum for any person applying therefore and in addition the quantity pertaining
to the national Government, up to 20 percent of the capacity of the pipeline. The
State will pay the regular approved rates for this service.

The concession is granted for a period of thirty years, after which all permanent
works revert to the State, and if the Government decides not to operate the pipeline
directly a new concession will be granted by public auction. The former concession
holder has the right of pre-emption within sixty days.

The holder of such a concession has the usual rights to occupy and expropriate
surfaces areas needed for installations, with payment of due compensation for dam-
ages, breaks, leakage, etc.

Public service pipelines, second class. This is granted for thirty years exclu-
sively to beneficiaries of an exploitation concession, all works reverting to the State
thereafter as in the foregoing category. The holder of such a concession has the 21

obligation of transporting up to 20 percent of capacity of the pipeline for other pri-
vate operators not having such facilities. The quantities are to be divided pro rata
among such persons.

The concession holder must likewise transport the petroleum received by the
State as royalty from all parties served by the pipeline, atthe approved officialrates.

In concessions for public service pipelines of both classes the pipelines may
cross each other in any direction and may transport petroleum directly to vessels
in the open sea.

Every two years, following a hearing with interested parties, the Ministry of
Agriculture shall fix the rates to be charged, based on size of the investment, amor-
tization, and costs of maintenance, plus a reasonable profit.

Owners of petroleum transported must defray the cost of storage tanks for ac-
cumulation of stocks, the concession holder being required to transport the petrole-
um when the shipper has accumulated 10, 000 barrels.

Private pipelines. Such concessions are granted only to the holder of an ex-
ploitation concession, with the obligation to transport petroleum belonging to the
State up to 11 percent of capacity. If petroleum belonging to private persons is
transported, this is subject to the approved rates. The same procedure is followed
for obtaining a concession as in the case of public pipelines.

Royalties. Holders of pipeline concessions must pay a royalty of 2 1/2 percent
of the gross receipts obtained from the service. Excepted from this requirement
are public concessions second class or private concessions which transport exclu-
sively petroleum obtained from their own concessions, in which case there is no
special tax.

3. Operations

Test excavations. Test excavations or pits (calicatas) may be made without
previously obtaining a concession of any kind, but if this is to be done in privately
owned land the owner's permission must be obtained. The work is regulated in
the same manner as for non-combustible minerals, based on Articles 126 to 137
of Decree 2625 of 1939.

Compulsory work. The holder of a concession of exploitation of petroleum,
naphtha, or natural gas must drill at least one well every fiveyears on the conces-
sion regardless of its area. If there are less than 2, 000 claims (pertenencias)
concessions may be grouped together for purposes of drilling the one well in five
years provided the concessions belong to the same field and the total surface area
is not more than 2, 000 claims.

Drilling-should continue without interruption until commercial production is ob-
tained or at least a depth of 4, 000 feet has been reached unless a hypogenic rock
formation is encountered.

In the case of minerals in the second and third groups, work must be started
within two years, under penalty of a payment of $0. 50 per hectare for each three
22 months' delay. This period is waived if the concession is located more than five

kilometers from a means of public transportation. Work of exploitation may not be
suspended for more than one year except in case of force majeure or permission
from the Ministry of Agriculture. A mine is considered to be in exploitation if the
concessionaire shows that he is making an investment commensurate with its size.
This matter is governed by Articles 30, 33, and 35 of the Law of 1938 and Articles
92 to 127 of Decree 2625.

Forfeiture. Exploration concessions may be forfeited by renunciation in writ-
ing by the holder; if he fails to make payment of the surface canon for more than
one year; if he fails to notify the Ministry of Agriculture of any transfer or assign-
ment within one year; or if the concession is transferred or assigned to a foreign
State or government.

Exploitation concessions are forfeited by failure to pay the surface canon within
the first 90 days of the current year; for failure to pay the royalty on production, the
amount of which is payable to the State if it elects to receive the amount in money;
for failure to notify the Ministry of Agriculture of a transfer, or transfer to a for-
eign State or government; for failure to carry out compulsory work; or by renuncia-
tion by the concessionaire, provided he is not in arrears with the Treasury. These
grounds are covered in Articles 201 to 223 of Decree 2625.

Rights and obligations of concession holders. The production, transportation,
and exportation of petroleum and other combustible minerals may not be taxed di-
rectly or indirectly by the State, a province, or a municipality by any specific tax
other than those of a general nature or those discussed herein.

The State may regulate the production of wells whenever this is deemed advan-
tageous to the general interest, but the sealing of a well in commercial production
is not permitted unless this is prescribed by a provision of general legislation.
Otherwise the concession holders have full ownership of their production by right of
exploiting the concession, by payment of $1 per hectare.

A concessionaire may enter rural properties to make geological and geographic
studies with authorization to use instruments needed for such purposes, by payment
of indemnity to the owner of the land. Permits are granted by the provincial govern-
ment upon recommendation of the Ministry of Agriculture and the posting of suitable

The holder of any concession is required to comply with all provisions governing
labor that are applicable to mining operations and compatible with its nature. Vari-
ous important positions connected with the drilling of wells are classed as technical
for purposes of the Law on Nationalization of Labor.

Any infraction of the law or regulations governing combustible minerals is pun-
ishable by administrative fines, without prejudice to other liability that may be in-
curred by the party concerned or by forfeiture of the concession.

The foregoing rights and obligations are covered in detail in Articles 26 to 41,
151 to 172, and 244 to 255 of Decree 2625.

4. Law 635

The Law of May 9, 1938 and its Regulations contained in Decree 2625 are still
in effect in large part and are the basis of the foregoing information. Law 635 was
enacted on November 20, 1959 and makes certain changes or adds certain require-
ments to the operation of petroleum concessions. Of greatest significance is the
cancellation of all pending applications, with the fact that no new applications will
be accepted. The complete text of the law, in English translation, is given below.

Whereas: Article 88 of the Fundamental Law of the Republic provides that the
subsoil belongs to the State, which may grant concessions for its exploitation in ac-
cordance with provisions of law, and which must be exploited in a manner that will
promote the social well-being.

Whereas: It is the purpose and the definitive determination of the Revolutionary
Government to accelerate the economic development of the country and to significant-
ly improve the standard of living of the people of Cuba.

Whereas: The development and control of energy, particularly of the petroleum
industry, is an indispensable basic condition and a determining factor in stimulating
the industrialization and the harmonious and independent development of the national
economy, as well as to improve the well-being of the people.

Whereas: The free initiative and activity of private enterprise has not succeed-
ed in raising the level of petroleum production to meet the needs of the country, in
spite of having been granted concessions of extensive areas of lands, under excep-
tionally advantageous conditions, which has converted the importation of fuel into
a growing and burdensome charge on the available foreign exchange of the nation
and limited its economic development.

Whereas: Under the protection of legislation enacted for the development of the
national petroleum industry, concessions and credits from semi-public agencies
were granted during the tyranny for the sole purpose of providing benefits to its
most notorious servants in contravention of the national interests.

Whereas: It would be harmful to the economic interest of the nation to maintain
petroleum concessions that have not been explored by geological and geophysical
methods and which have not even been tested by wells intended to discover their oil-
bearing possibilities and which consequently have not promoted the development of
the petroleum industry.

Whereas: In use of the powers invested in it, the Council of Ministers hereby
enacts the following Law N 635

Article 1: Law-decree N 1526 of July 8, 1954, maintained in effect by Decree-
law N 40 of July 8, 1958, is hereby repealed.

Article 2: Upon the promulgation of the present Law, no registration applica-
tions will be accepted for the exploration or exploitation of combustible minerals in-
cluded in section one of Article 3 of the Law of May 9, 1938, with the exception of
those cases in which a registration of exploration was extended in accordance with
Article 3 and all requirements of this Law have been met, and is therefore to be
converted into a registration of exploitation.

Also to be cancelled are all applications for registrations of exploration or ex-
ploitation regardless of the procedural stage reached at the time this Law is pro-
mulgated, and any amounts received for any reason accordingto lawwillbe refunded.

Article 3: Holders of concessions for the exploration of combustible minerals
included in section one of Article 3 of the Law of May 9, 1938, in effect on the date
of promulgation of this Law, may apply to the Ministry of Agriculture for an exten-
sion for two years counting from the date indicated, in order to continue the explo-
ration they are undertaking.

Applicants must show the following particulars:

a) The work of exploration that has been undertaken on any date included be-
tween January 1, 1956 and the date of this Law; and

b) That they are currently operating a continuous work center, engaged spe-
cifically in investigation and exploration.

In all cases, the extension may not cover more than eight thousand hectares,
and if the exploration concession in operation is larger, the applicant shall freely
select an uninterrupted area which the extension is to cover.

The Ministry of Agriculture shall always have the discretionary power to grant
or refuse the extension applied for. If the extension is granted, the concessionaire
must, within ten days following notification, pay the amount of the annual canon for
one year in advance.

Article 4: If the extension of a concession for exploration is granted, in accord-
ance with Article 3 of this Law, it shall remain in effect on condition that the con-
cessionaire undertakes drilling work amounting to not less than one foot per hectare
during the first year, proof of which must be submitted within thirty days following
the end of the year, to the Ministry of Agriculture. If this is not done, the conces-
sion will be forfeited.

Article 5: Every concession of exploration shall be maintained as such for the
period granted by law, as long as a productive well is not found, determined accord-
ing to the following scale:

For productive wells at levels up to 1500 feet depth .. 4 barrels a day
For productive wells at levels from 1500 to 2000
feet in depth .................... .. 5 barrels a day
For productive wells at levels from 2000 to 3000
feet in depth .................. .. ..10 barrels a day
For productive wells at levels from 3000 to 4000
feet in depth ...................... 15 barrels a day
For productive wells at levels of over 4000 feet. 20 barrels a day

One barrel consists of 42 gallons.

In order to determine the production capacity of a well, its continuous produc-
tion for thirty consecutive days is taken as the basis. This production shall be cal-
culated annually, and the royalty to be paid will be adjusted to the results of the re-

Article 6: Whenever any well "comes in" that is considered productive accord-
ing to the foregoing scale, the exploration concession shall be automatically convert-
ed into a concession of exploitation, and in order to retain it the holder becomes
obligated to undertake drilling each year at the rate of two feet per hectare included
in the concession, and each well that is drilled must have a minimum depth of 2000

In concessions of one thousand hectares or less, the concessionaire must drill
at least one well a year to a minimum depth of 2000 feet.

The drilling obligation shall cease only when the maximum productivity has been
attained that is advisable to prevent rapid exhaustion of the deposit.

Noncompliance with the obligations imposed by this article shall result in the
automatic cancellation of the concession.

Article 7: All holders of concessions of exploration who accept the benefits of
this law must accompany their application by a map showing the boundaries made
when initiating the proceedings, indicating the relationship between the point of de-
parture and the locations of the polygon with two unquestionable points shown on the
map of the Cuban Institute of Cartography and Assessment (Instituto Cubano de Car-
tograffa y Catastro) which will be designated by that agency upon request of the ap-

Within a period of six months following submission of the map, the holder of a
concession of exploration must undertake to mark the boundaries of the land at his
own expense, according to the map with the State reserving the right to verify this.
In the event that substantial errors are found by which the surface area differs by
more than 2 percent, the concession is automatically cancelled.

Article 8: Natural or juridical persons who are concession holders, under any
title, of several concessions of exploitation may select four of them, taking into ac-
count that their nearest boundaries must be not less than twenty kilometers distant
from each other, and on the concessions selected they shall pay the annual canon
(tax) established by Article 22 of the Law of May 9, 1938. On the remaining con-
cessions of which they are holders the annual canon to be paid will be one hundred
pesos per hectare.

Article 9: Every natural or juridical person who under any title is commercial-
ly exploiting a deposit of combustible minerals included in section one of Article 3
of the Law of May 9, 1938 shall be obligated to pay the State a royalty (participaci6n)
of 60 percent, in cash or in kind, at the option of the State, of the total mineral found
and extracted on the concession. This tax shall be based on the commercial value
at the mouth of the well and shall be payable monthly at the appropriate Fiscal Dis-
trict (Zona Fiscal) within thirty days after the end of each month.

The royalty fixed in the foregoing paragraph will be reduced to 55 percent in the
event that the petroleum obtained is refined within the national territory and after
being refined is destined for export. The Regulations shall specify the requirements
necessary to enjoy this benefit.

The State reserves the right to acquire all or a part of the petroleum that is
produced within the national territory at the world market price. The Regulations
26 shall determine the manner in which this price shall be fixed.

Article 10: Holders of concessions for exploitation of combustible minerals in-
cluded in section one of Article 3 of the Law of May 9, 1938, located in zones in
which naphtha has been found, shall be exempt from the other conditions imposed
by this Law with respect to petroleum, provided that within a period of thirty days
counted from the date of taking effect, they renounce in favor of the State their right
to drill deep wells to obtain petroleum or gas.

Article 11: If subsequent to the renunciation referred to in the preceding ar-
ticle and for the purpose of obtaining naphtha concessionaires for this product find
petroleum, the wells shall revert to the State, which will compensate the conces-
sionaires for the expenses incurred in drilling and will pay them a royalty of 5 per-
cent of all petroleum obtained from such wells.

Article 12: Within the meaning of this Law and that of May 9, 1938, on Com-
bustible Minerals, naphtha shall be considered as any natural liquid hydrocarbon
showing a density greater than 50 degrees A. P. I. taken at a temperature of 15 de-
grees centigrade. Petroleum is considered to be any natural liquid hydrocarbon
showing a density of less than 50 degrees A. P. I. taken at a temperature of 15 de-
grees centigrade.

Article 13: After the promulgation of this Law no transfer may be made of a
concession of exploration or exploitation of combustible minerals included in sec-
tion one of Article 3 of the Law of May 9, 1938, without the prior authorization of
the Ministry of Agriculture.

Transfers made before this Law took effect which have not been registered in
the Ministry of Agriculture must be so registered within fifteen days from the date
(of the Law) or the concession will otherwise be considered forfeited. The trans-
fers must be made by public instrument and the corresponding fiscal charges must
be paid before presentation to the aforementioned Ministry.

Article 14: All natural or juridical persons who are holders of concessions for
the exploration or exploitation included in section one of Article 3 of the Law of May
9, 1938 shall be required to make available to the Cuban Institute of Petroleum,
which is created by Article 16 of this Law, all geological, geophysical, and geodes-
ical information or any other kind of information obtained from studies and explora-
tion undertaken on their concessions.

The concealment of such information shall result in forfeiture of the concession.

Article 15: The Ministry of Agriculture, through the Department of Mines and
Petroleum is hereby empowered to fix annual production quotas for the refineries
existing in the country.

Article 16: There is created the Cuban Institute of Petroleum under the Depart-
ment of Industrialization of the National Institute of Agrarian Reform,which shall
have the following aims:

a) The exploration, exploitation, refining, transportation, distribution, pur-
chase and sale of petroleum,its derivatives, and domestic fuels.

b) The development of the petrochemical industry and the undertaking of any
other type of commercial or manufacturing operations that will stimulate the domes-
tic petroleum industry.

c) Administration of all enterprises taken over by any agency of the State, the
provinces, the municipalities, and the autonomous and semi-autonomous agencies,
that are engaged in the exploration, exploitation, refining, transportation, distribu-
tion, purchase and sale of petroleum and its derivatives.

d) To advise the agencies of the Government in all activities connected with
petroleum policy and domestic fuels.

Article 17: The following shall form a part of the assets of the National Insti-
tute of Agrarian Reform and shall be administered by the Cuban Institute of Petrole-

a) The reserves of combustible minerals as established by this Law and by the
Law of May 9, 1938.

b) All installations, equipment, studies, information, and other assets that
are property of agencies of the State, the provinces, municipalities, and autonomous
and semi-autonomous entities that may be used in the promotion of the national pe-
troleum industry, as well as any rights these entities possess in petroleum enterprises.

c) All properties and claims (pertenencias) of companies engaged in the explora-
tion, exploitation, refining, transportation, purchase and sale of petroleum and its
derivatives and domestic fuels that have been or that may be confiscated by the
Ministry for the Recovery of Misappropriated Property.

d) All bonds and shares which have been or which may be confiscated by the
Ministry for the Recovery of Misappropriated Property which represent a participa-
tion in domestic or foreign companies engaged in the exploitation of petroleum and
its derivatives.

Article 18: The National Institute of Agrarian Reform is empowered to organize
the Cuban Institute of Petroleum, specifying its structure and functions and prepar-
ing its budget, reporting thereon to the Council of Ministers.

Article 19: All legal provisions and regulations are repealed if contrary to the
present Law, which shall take effect upon publication in the Gaceta Oficial.

5. Petroleum Refineries

In addition to the general provisions on mining, there are special provisions
governing the investment of domestic or foreign capital in petroleum refineries, con-
tained in Law-decree 1758 of November 2, 1954, regulated by Decree 3862 of Novem-
ber 30, 1955.

Establishment. The establishment of refineries is subject to laws governing
health, safety, and police, for the protection of the lives and health of workers. A
refinery must be located in a suitable place, away from fire hazards to a town and
by agreement with the Government must refine petroleum belonging to the State, the
amount to be prorated so as not to exceed the cost of production.

Application for the construction of a refinery is to be submitted through the
Ministry of Agriculture for authorization by the President of the Republic.

Fiscal regime. The special treatment extends for twenty years, counting from
November 1954, and may be applied for through the Ministry of Finance by natural
persons or companies that propose to construct or expand installations for the re-
fining of petroleum.

Customs duties on the importation of certain derivatives such as tractorine,
kerosene, etc. are reduced. Consular fees on imports of crude petroleum for re-
fining are waived but not customs duties and the tax on gross receipts for estimated
production of fuel oil, gas, asphalt and derivatives, the actual production of which
is to be declared quarterly in sworn statements to the Tax Administration.

For income tax purposes and the excess profits tax deductible expenses may in-
clude premiums paid or due for advance payments on loans for the erection or ex-
pansion of petroleum refineries, provided the amount is equal to or more than half
the value of all assets of the enterprise and that the interest rates or premiums are
not higher than the current market rate for capital. Such deductions may be made
for a period of fifteen years after cancellation of the loan.

Refining enterprises are also entitled to exemption from import duties on im-
ports of machinery, equipment, materiel, and accessories intended for construction
of a refinery. They are also exempt from payment of the export tax on funds for
technical services, remittances abroad in connection with investments and for the
importation of crude petroleum if the derivatives are exported.

A system has been established for the reimbursement of duties and taxes on the
products of petroleum refineries operating in Cuba which are exported or used by
vessels operating on the high seas. This includes all fiscal charges expended for the
importation of raw materials used in processing the products exported which had to
be paid at the time of importation.

There is also reimbursement of charges paid for the sale of petroleum and its
derivatives to the State, the provinces, municipalities, autonomous agencies and oth-
er government entities.

The foregoing system of benefits may not be altered to the detriment of any
natural or juridical person entitled to it. Any increase in municipal taxes on the
refining industry or the establishment of specific taxes or excises relating thereto
is prohibited.

The benefits now granted do not exclude others that may be established by law
in the future, applicable to petroleum refineries.

Economic advantages. Beneficiaries may transport their petroleum products
by the most suitable means with no other restrictions thanthe conservation and safe-
ty of the highways. They may utilize pipelines, or tankers flying the Cuban or a
foreign flag, for overseas or coastwise trade.

Prices of petroleum and its derivatives may not be controlled or limited and
will be determined by free competition, except that they may not exceed ceilings
fixed by the Ministry of Commerce.

Refineries may increase the prices of their products whenever importation costs
increase, including freight rates, consular fees, exchange differences, and shipping
costs or other charges affecting the product in question and any other expenses 29

relating to costs. Articles 23 to 25 of Law-decree 1758 authorize the procedure to
be followed. An authorized increase is not compulsory on other importers or re-
fineries and any formation or intention of forming a cartel is prohibited.

There will be no discrimination between refineries by reason of the nationality
of their owners or workers or of investors in shares issued by these enterprises.

Refineries shall have the right to acquire crude petroleum obtained from Cuban
subsoil at fair prices prevailing in the market.

As to rights of permanence, the provisions and procedure of Law-decree 1550
of August 4, 1954 govern this matter.



1. General Principles and Legislation

Dominican legislation does not expressly state whether mining activities are
governed by civil or commercial law. As such activities are not listed in Articles
632 and 633 of the Commercial Code, they are consequently regarded as governed
by civil law. However, it is evident from the wording of these articles that the
manufacture of mineral products constitutes a commercial operation. Likewise,
a mining enterprise organized in the form of a corporation or stock-issuing part-
nership is governed by commercial law regardless of its purpose, under Law No.
262 of February 21, 1919.

Article 96 of the Constitution states that mineral deposits belong to the State
and may be exploited by private persons only through concessions or contracts that
are granted under such conditions as the law may specify.

Law N 4550, the Mining Law, of September 23, 1956 (published in Gaceta
Official No 8037 of October 13, 1956) replaces previous legislation on the subject.
This law covers the reconnaissance (reconocimiento), exploration (exploraci6n),
prospecting (cateo), exploitation (explotaci6n), and processing (beneficio) of all
natural mineral substances regardless of their physical state, origin, or form
of deposit, with the exception of petroleum and other hydrocarbons or their

2. Reconnaissance and Exploration

Any physical or juridical person has the right to undertake surface reconnais-
sance in search of minerals, except in areas covered by an exploration permit or
exploitation concession, subject to the limitation that such reconnaissance does not
authorize anyone to violate private property; in such cases, permission of the sur-
face owner is a necessary prerequisite. In the event of damages to such property
the owner must receive due compensation.

During reconnaissance, if indication of the presence of minerals is found the
discoverer should establish a denouncement, which gives a priority right to obtain
an exploration permit or a mining concession. Application for an exploration per-
mit should be made within ninety days after a denouncement, the latter to be re-
corded free of charge by the Mining Administration (Direcci6n de Minerfa). Three
small samples are to be submitted with the denouncement, one to be filed, the oth-
er two for analysis.

A permit of exploration is an authorization to undertake geological and miner-
alogical investigations in a specified area, for the purpose of locating possible

mineral deposits. A permit may not be granted for more than two years. Permits
may not be granted to cover lands included in a previous permit or in a concession,
lands for which applications are pending, lands for which a permit or concession
has been cancelled unless a statement that the lands are free has been published,
nor for lands in public use or in military zones without special authorization.

A permit of exploration cannot be transferred except by authorization of the
Mining Administration, the fee for which is RD$100.

Holders of exploration permits may not undertake work of exploitation; they
i, y utilize extracted mineral substances only by special authorization.

The holder of a permit may renounce it at any time, or any part of the area

A permit may be declared forfeited by the Mining Administration on the follow-
ing grounds: a) if work is not begun within three months after the permit was grant-
ed; b) if work is suspended for more than three months; c) if without justifiable
cause, the work program indicated in the application is not carried out; d) if perti-
nent legal provisions are not complied with; e) if the required fee (RD$50) is not

The holder of a permit is in no case entitled to indemnity or compensation from
the State or from subsequent holders.

3. Concessions

General provisions. Prospecting, exploitation and processing of mineral sub-
stances as governed by the mining law are regarded as a public benefit and as such have
priority over any other use of the land. These rights are acquired by a concession
granted by the Executive Power through the Secretary of State for Development (Pur-
suant to Executive Decree No 2347 of December 26, 1956; mining was previously
under the Secretary of State for Agriculture).

Concessions are of three classes:

a) Prospecting concessions, authorizing and protecting work in connection with
the discovery of mineral deposits susceptible of exploitation.
b) Exploitation concessions authorizing the utilization of mineral substances
extracted from lands included in the concession.
c) Concessions for processing plants.

Exploitation rights and other rights derived from concessions may not be trans-
ferred in whole or in part to foreign governments or rulers and the concession hold-
er may not admit them as partners, associates or nominative shareholders. Any
such act is void ipso jure.

Prospecting or exploitation concessions may not be granted for lands already
covered by a mining concession, for lands on which such an application is pending,
or for lands not yet freed after cancellation of a concession, nor for lands in public
use or in military zones without special permission.

The unit of a concession, the mining hectare (hectarea minera) is a solid of in-
definite depth, bounded by four vertical planes forming a square of 100 meters on
each side. Fractional areas due to topographical conditions are counted as one ad-
ditional hectare. Divisions, accessions, reductions, etc. are governed by rules
contained in the law.

Concessions may be granted to cover waste materials from a processing plant
deposited in the beds of watercourses, but the concessionaire of the processing
plant has priority in obtaining such a concession.

Mining concessions may be transferred only to persons or enterprises who h e
legal capacity to obtain them, and must be recorded in the Public Mining Register.

Prospecting concessions. A prospecting concession consists of 16 mining hec-
tares, included within a 400 x 400 meter square, measured north to south and east
to west, with certain exceptions allowed due to position or topography. Concession
holders may dispose of the products obtained and install processing plants. There
is no special surface tax. These concessions are granted for two years and give
the beneficiary exclusive right to apply for an exploitation concession. The benefi-
ciary is not entitled to a new prospecting concession covering the same land after a
previous concession has expired and no person or company may hold more than one
such concession at the same time.

Exploitation concessions. An exploitation concession is granted for an unlimi-
ted time and covering the area desired by the applicant. It authorizes the holder to
dispose of the mineral products obtained and to install and operate processing, ore
treatment, or refining plants for such minerals without the necessity of application
for specific concessions for such plants, but subject to articles 45 and 46 governing
such plants. Exploitation concessions are subject to special taxes discussed below.

While a concession is in force, the holder may construct means of transporta-
tion, storage facilities, water supply and pumping stations, power plant and power
lines, processing plants, etc., inside or outside the area of the concession. A con-
cession is considered forfeited by failure to pay the required taxes.

Processing concession. Concessions for processing are granted for a single
plant but this may consist of several sections for different metallurgical procedures.
They are granted for an indefinite period. The concession must specify a minimum
plant capacity; a budget of expenditures; location of the plant; and time limits for
beginning and concluding construction or installation and commencing operations.
Processing plants are obligated to receive up to 20 percent of capacity from outsid-
ers, but only if they have the suitable facilities. There are various rules in effect
for prevention of harm or damages to outsiders.

A processing concession may be forfeited by failure to begin construction and
subsequently operations within specified periods, except in cases of acts of God or
force majeure or if circumstances render operations unprofitable, and also through
refusal to receive ores from outsiders or by violation of provisions of Article 47.

Accessory rights. The holder of an exploration permit or a prospecting or ex-
ploitation concession has the right to any lands covered thereby but must pay com-
pensation to a surface owner or occupant for damages incurred. The holder of any
concession has the right to apply for expropriation, with due compensation in ac-
cordance with the constitution and the law, of any lands deemed necessary for

installations, plants, offices, housing for workers, dumps and waste heaps, or the
exercise of other rights included in a concession, as well as construction of tunnels,
ventilation, and drainage systems crossing into free lands. Surface easements may
be established after payment of compensation and with due authorization. Water
rights and easements are covered in detail in the law.

4. Application Procedure

Applications for exploration permits or for prospecting or exploitation conces-
sions must be submitted to the Secretary of State for Development, through the Di-
reccion de Minerfa, in two originals and four copies, by the applicant himself or a
lawyer accredited with power of attorney by public instrument or special power ex-
ecuted before a notary. One attorney may not represent more than one applicant.

Priority in submitting an application gives priority over subsequent applications,
except in case of quarries, etc. (Article 61). The application must be recorded by
the Mining Administration at the time of presentation, but without prejudice to sub-
sequent rejection.

If two or more applications covering the same area are submitted simultaneous-
ly they are all provisionally recorded bearing the same serial number, preference
being given in the following order: a) to applications submitted by Dominicans or
Dominican companies; b) to applications for concessions over applications for ex-
ploration permits; c) to an application for exploitation over one for prospecting,
but the latter may be changed to an application for exploitation; d) if all applications
fall in the same classification, one will be selected by lot unless an agreement as to
priority is reached between the applicants; e) the accepted application will be duly

An application for an exploration permit is subject to a stamp tax fee of two
pesos. and must contain the following information:

a) The name, domicile, residence, identification card number, nationality of
the applicant;
b) The firm name if the applicant is an industrial, commercial or similar en-
c) Specifications of the minerals to be explored;
d) Indication of the province, municipality, and section or place where the area
is located;
e) Description of the boundaries and size of the area.

The application must be submitted in six copies, together with a receipt showing
payment of the required fee of RD$50 (returnable if the application is rejected); a
small copy of an official geographical map of the Dominican Republic showing loca-
tion of the site; five copies of a map of the area applied for in a maximum scale of
1:10, 000 showing various topographical details, boundaries, etc.

An application for a prospecting or exploitation concession is subject to a stamp
tax of two pesos and must contain the information listed above. In addition, it must
be accompanied by a recept for payment of RD$75, for prospecting, or RD$50 for
exploitation, a technical and economic report on the characteristics of the deposit,
the work done and proposed, a copy of the by-laws of the company if organized as

such, a certificate giving the names of technical personnel entrusted with opera-
tions, and a copy of the exploration permit if the applicant held such previously.

Applications for concessions for processing plants are subject to similar re-
quir events.

All applications are to be acted upon in sixty days, during which time the fol-
lowing requisites must be met: a) publication of the application in notices issued by
the Mining Administration as a summons to anyone opposed thereto; b) publication
of an extract in the "Boletfn de Concesiones Mineras" or in the Gaceta Oficial, and
c) presentation by the applicant of any pertinent technical studies. Articles 74 to
85 prescribe various rules governing the action taken on applications prior to issu-
ance of title to the applicant.

A concession may be transferred to any person qualified under provisions of
the law; the fee for such a transfer is RD$200. A concession may be renounced by
notice to that effect, fulfilling certain requirements and with no conditions attached.

Articles 87 to 91 govern opposition that may be submitted by interested parties
on various grounds, within the time limit of sixty days.

A Public Register of Mining is kept for recording the following: a) contracts
for the organization of mining companies for exploration, exploitation, etc.; b) con-
tracts for the organization of companies for other purposes which hold permits or
concessions; c) permits and concessions issued under the provisions of the Mining
Law; d) partial or total transfers of permits or concessions, or of mortgages or
other encumbrances; e) leases or similar contracts for purposes of exploration or
exploitation; f) conventional easements; g) expropriations. Articles 94 to 105 con-
tain various rules governing registration requirements and procedure.

5. Mining Taxes, Fees, and Royalties

A concession for the exploitation of metallic minerals is subject to an annual
surface tax of 10 centavos per hectare for three years; after the third year the tax
is 30 centavos; after the sixth year, 50 centavos, and after the tenth year, one pe-
so per hectare per year. The concessionaire is exempted from these increases if
he can show investment of ten times the value of the increase in the fourth year.
The ratio of investment is raised progressively in subsequent years to 35 times the
tax in the tenth year. If it is shown that the investment is 50 times the tax computed
at 30 centavos per hectare the tax obligation is kept at 10 centavos per hectare and
continues for the duration of the concession.

Concessions for non-metallic minerals, coal, and graphite are taxed at the
rate of 75 percent of the foregoing taxes.

The tax is payable by the mere fact that a concession is in force regardless of
whether it is-in operation or is in the hands of the concessionaire.

The following fees are payable for mining rights, some of which have already
been mentioned in the preceding text:

Issuance of an exploration permit. . RD$ 50
Issuance of a prospecting concession. . 75
Issuance of a concession for exploitation,
processing or refining. ................. 500
Publication of an application for exploitation,
division, unification, reduction, or expansion 10
For a certificate of identification of land 25
Recording in the Public Mining Register 10
If recording is made later than the 60 days
required, the fee is doubled ...... 20
Certificates issued by the Public Mining Register,
per page. ............... .. .... 2

As taxes the Dominican State shall receive from all exploitation of minerals
requiring processing, not less than the following precentages:

5 percent of net profits during the first five years of a concession
10 percent of net profits from the 6th year to the last day of the 10th year
15 percent from the 11th year to the last day of the 15th year
20 percent from the 16th year to the last day of the 20th year
25 percent from the 21st year to the last day of the 25th year
30 percent thereafter

In the case of minerals exported in their natural state without processing, the
royalty to be paid to the State will be determined by individual contract.

Holders of concessions may be granted exemptions or reductions in taxes, fees,
and duties specified in the pertinent contracts.

Article 132 of the law states that only Dominicans and Dominican companies
have the right to obtain permits for reconnaissance or exploration, or concessions
for prospecting, exploitation, and processing plants, but the same rights may be
granted to foreign physical or juridical persons if they state in the application that
for all purposes they will be expressly and exclusively subject to the jurisdiction of
Dominican courts and to Dominican legislation. Foreign governments or rulers may
not obtain a concession under any condition.

By Article 133 the following are considered commercial acts and as such sub-
ject to the provisions of the Commercial Code, if not otherwise provided for in the
Mining Law: a) acts performed by mining companies, for the direct purpose of ac-
quiring, doing business in or profiting from a mining concession or rights inherent
therein; b) contracts executed for the purpose of exploring, exploiting, or alienat-
ing mining lands; c) contracts relating to the treatment or processing of mineral

Holders of exploitation or processing concessions are required to submit statis-
tical reports each year, containing such information as may be requested by the
Direcci6n de Minerfa relating to the progress of operations.

Every holder of a permit or concession must maintain a permanent representa-
tive in the Dominican Republic with full powers to fulfill any requirements of the
Secretary of State for Development or settle any questions that arise.

Concessions andcontracts in effect prior to enactment of the Mining Law shall
continue in effect, but may be put under its provisions within a period of 180 days.

6. Gold Washing

The washing and extraction of gold from river beds and surface deposits are
governed by Law NO 4759 of September 1, 1957. The general purport of the law is
that the extraction of gold is free of any restrictions but all gold obtained must be
sold to the Reserve Bank or the Agricultural and Industrial Credit Bank. However,
private persons may obtain special permits to purchase gold from thelactual ex-
tractors, but the holders of such permits must sell all such gold to the banks men-
tioned. This law also permits purchase of gold by private persons for industrial
and artistic purposes. Exports of gold to which this law refers must be made
through the Central Bank. Gold prices are fixed by the Monetary Board.


Law No 4532 of August 30, 1956 governs petroleum activities, inasmuch as pe-
troleum and other hydrocarbons are excluded from the provisions of the Mining Law,
N 4445.

In accordance with Article 1, deposits of petroleum and its derivatives, hydro-
carbons, and similar combustible minerals belong to the State and may be explored,
exploited, and processed by private persons only by virtue of a contract extended
by the Executive Power in the form and under conditions deemed suitable to the na-
tional interest. Rights of exploitation will be granted for an unlimited period and
covering whatever area may be agreed upon. All matters relating to petroleum ac-
tivities, as enumerated in Article 2 are declared to be of public benefit.

Within the meaning of this law hydrocarbons include all substances included in
the terms petroleum, asphalt, naphtha, bitumen, tar, ozocerite, and any other si-
milar combustible minerals, fossil resins, and gases obtained in such deposits.

Contracts extended by the Executive Power for the exploration, exploitation, or
processing of hydrocarbons must be submitted for approval by the National Congress,
and if approved, may not be revoked, altered, or amended without the consent of
both contracting parties. A new contract may not be granted relative to all or a
part of an area already covered by a previous contract.

Article 4 states that only Dominicans or Dominican companies may obtain the
right to explore, exploit, or process petroleum deposits, as defined herein. But as
in the case of mines, a foreign physical or juridical person may obtain such rights
if he undertakes in the contract to accept the exclusive jurisdiction of Dominican
courts and legislation in all matters relating to these rights. Likewise, foreign
governments or rulers may in no case obtain the right to explore, exploit, or proc-
ess petroleum and other hydrocarbons, nor may they be accepted as partners, as-
sociates, or shareholders with any person or entity enjoying suchrights. Any agree-
ment to the contrary is null and void ipso jure.

Unless prohibited by the terms of the contract, the beneficiary of such contract
may assign it to some other person or entity who shall assume all obligations and
liabilities derived from the contract, or may sign a sub-contract with other persons
or entities with respect to any part of the work of exploration, exploitation, or pro-
cessing, or may encumber his interest in the contract as security for financial
transactions, subject to the limitations concerning foreigners and foreign govern-

Private persons with whom contracts are made shallbe entitled to whatever exemp-
tions or reductions in taxes, fees, duties, etc., may be specified in the contract.

The Mining Administration (Direcci6n de Minerfa), now in the Secretariat for
Development, shall keep a Public Petroleum Register for recording all contracts,
sub-contracts, assignments, encumbrances, etc., relating to petroleum activities.

In accordance with Law No. 4833 of January 17, 1958, amending Law NO 4532,
the Executive Power must be notified of any assignment, transfer, or encumbrance
relating to a contract before it becomes effective.

The registrations mentioned above must be applied for within sixty days from
the date of the act or contract concerned.

The new law also provides that any contract or concession will be cancelled
whenever the concession holder, beneficiary, or assignee commits a serious viola-
tion (falta grave) or one contrary to the national economic interest in complying with
the law or a contract or concession granted under its provisions. The cancellation
shall include the original contract or concession as well as any assignment, trans-
fer, or encumbrance. Failure to comply with the requirement of notifying the Ex-
ecutive Power or the registration time limit is regarded as such a violation.



1. General Principles and Current Legislation

Although El Salvador is not a country that could be considered rich in miner-
als, it has had a Mining Code since May 1922 and a Complementary Mining Law
dating from 1953. There are also a number of other legislative decrees which in
one way or another govern certain aspects of mining activities, such as:

Decree No. 106 of July 23, 1937, providing certain exemptions for mining

Decree No. 52 of September 10, 1940, establishing control over outgoing
gold and silver.

Decree No. 65 of September 30, 1940, granting certain other exemptions for
mining activities.

Decree No. 78 of November 15, 1940, relating to control over exports of gold
and silver from national mines.

Decree No. 100 of December 20, 1941, relating to loans of work materials
between mines.

Decree No. 109 of March 31, 1949, which includes gold, silver, and other
precious metals, and gold and silver articles in the list subject to the requirement
of export permits from the Ministry of Economy.

Legislative Decree No. 2326 of January 29, 1957, which provides that the
Ministry of Economy shall include a Department of Economic Promotion entrusted
generally with the promotion and stimulation of the industrial and mining activities
of the country, in accordance with regulations and instructions of the Ministry of

The head of this Department rules on applications for concessions, watches
over mining enterprises operating in the country, and enforces the laws to which
such enterprises are subject; and he has assumed the other functions which the
Mining Cpde bestowed on departmental governors. In any references to these lat-
ter officials it is to be understood that their functions have been transferred to the
Department of Economic Promotion.

In addition, the Constitution contains certain provisions which, although not
referring specifically to mining, are applicable thereto. Article 138, for example,

prohibits confiscation of property, as a penalty or for any other reason, but in the
event that any authority violates this prohibition, the confiscated property is

Article 136 of the Constitution guarantees economic freedom in anything not
opposed to the social interest and also ensures that the State shall promote and
protect private initiative, within the conditions necessary to increase the national
wealth. Associations of a kind that tend to increase the general wealth by means
of a better utilization of natural resources and manpower, and to promote a fair
distribution of the profits derived from their activities, are to be encouraged and
protected (Article 145, Constitution).

With respect to individual rights, Articles 173 and 174 of the Constitution af-
firm the freedom of every person to dispose of his property without restrictions
except those imposed by law. Freedom to dispose of property by will and to make
contracts, in conformity with the law, is also affirmed.

2. Ownership of Mines and Subsoil

Article 137, third paragraph, specifies that the subsoil belongs to the State.
This general right is confirmed more specifically in Article 12 of the Mining Code,
which provides that the State is the owner of all minerals and substances found in
veins, strata, beds or deposits and which by their nature are distinct from the
components of the land, such as ores from which metals and metalloids are ex-
tracted for use in industry, and also deposits of precious stones; products derived
from the decomposition of rocks, when their exploitation requires underground
working; phosphates that may be used as fertilizers; solid mineral fuels; petroleum
and other solid, liquid, or gaseous hydrocarbons; nitrates and potassium salts.

Article 137 also provides that the State may grant concessions for the exploi-
tation of the subsoil. However, certain mineral products of an earthlike nature
are regarded by Article 13 of the Mining Code as belonging to the surface owner,
as for example, siliceous rocks and building stone, sands, clays, magnesian
earths, limestone and calcareous earths, and table salt (sodium chloride).

Article 17 of the Mining Code provides that the mining industry is regarded
as of public benefit (utilidad pfblica), and consequently owners of mining property
have the right of expropriation in those cases and conditions indicated in the Code.

The ownership of a mine is acquired originally from the State, by concession
made by competent authority, and thereafter by any title transferring ownership
recognized by law. An explorer or prospector who discovers a metal or other
substance included under Article 12 may apply for a legal concession of his claim
(pertenencia) to acquire ownership of what he has found. This concession con-
sists in the formal adjudication of a mine and the consequent authorization to ex-
ploit it within a specified area of land. After the concession holder has acquired
ownership, he may freely dispose of the mine or its products as his own. By Ar-
ticle 22 of the Mining Code a concession is granted for an unlimited time, as long
as the concession holder complies with the conditions imposed by law. No con-
cession of a mine may be granted unless a metal or other appropriate substance
has first been discovered.

Every concession holder is the exclusive owner of all metallic substances and
veins existing within his claims, regardless of their nature or the state or form

in which they occur, with the exception of petroleum, hydrocarbons, bituminous
minerals producing oils, and phosphates in general.

A mine is considered to be real property, including buildings, machinery,
equipment and animals employed in its exploitation, as well as all other objects
or works inherent in the operations and permanently in use.

3 Denouncement and Concession of Mines

a. General principles. The Mining Code provides that authorization may be
granted, now through the Department of Economic Promotion, to individuals to
explore and excavate in lands of any ownership in order to search for minerals re-
ferred to in Article 12. The exploration zone is to be demarcated by taking a
fixed and easily identifiable point as the center of a circumference with a maxi-
mum radius of 500 meters.

However, such excavations may not be made within the area of a town except
by authorization of the Executive Power. In each particular case, the competent
authorities shall establish the distance that an exploration area must be from
buildings, railroads, dams, permanent works, public lighting enterprises, indus-
trial enterprises, and other publicly or privately owned construction, taking into
account the nature of the exploration and the condition of the terrain. In the case
of rural or urban lands privately owned and containing buildings or planted crops,
permission of the landowner is also required. If this permission is refused, the
interested party may appeal to the government, eventually to the Executive Power,
if necessary. The period of excavation shall be sixty days, counted from the date
of granting the permit, with extensions allowable up to one year.

It is not considered illegal, however, if a private person undertakes explora-
tion or excavations on his own property without a license, provided he meets the
requirements concerning distances, and this may be done on the property of an-
other person with the owner's permission, but the Code expressly states that such
work shall not constitute legal grounds for priority in any way with respect to
third parties.

Landowners may not oppose explorations made on their property, but they do
have the right to demand indemnity or even to require a bond from the explorer to
cover liability for damages that may be incurred.

According to Article 32 of the Mining Code, if the discovery is made in abso-
lutely new mineral terrain, the discoverer, at the time of making denouncement,
may apply for a concession of more than one claim and the competent authority is
empowered to grant up to ten contiguous claims covering one of the veins discov-
ered and five more claims covering each of any other veins discovered at the
same time. Absolutely new mineral terrain is defined as lands that are at least
ten kilometers distant from the nearest mine containing the same substance as
was discovered, whether it is being exploited or has been abandoned.

Anyone who discovers a vein or bed in mineral terrain already known has the
right to only eight claims, which must also be contiguous.

A claim (pertenencia) is defined as a unit of mining property comprising a sol-
42 id of indefinite depth, bounded at the surface by four vertical planes corresponding

to the projection of a horizontal square of 100 meters on each side. The descrip-
tion and measurement of the property on the surface does not presume the right
of occupation thereof, but merely serves to determine its boundaries. A claim
may be less than one hectare (a square of 100 meters each side) by reason of the
presence of adjoining claims.

Articles 35, 36, and 37 of the Mining Code regulate procedure and the rights
of explorers in the event of the discovery of a substance different from that for
which the exploration license was issued.

b. Formalities. Article 29 provides than anyone who discovers a new vein,
bed, outcropping, seam, or other deposit containing a substance listed in Article
12 is entitled to a concession thereon upon making appropriate application. If the
concession is obtained the holder must pay indemnity to the surface owner for the
value of the land occupied as well as damages incurred by the property and a bond
to cover subsequent damages. Thereafter work may be started on the concession.

If several persons claim to be discoverers of the same deposit, the conces-
sion will be granted to the person actually conducting excavations, or if there is
no such person, it will be granted to the one who proves that he first found the
substance in question, even if others have previously been excavating the same

A denouncement may refer to the discovery of a mineral in free land or land
not previously granted in concession to another person, as well as in an abandoned
mine. It must be submitted in writing on 30-centavo stamped paper to the Depart-
ment of Economic Promotion and recorded in a register, accompanied by a sample
of the mineral found. The person making the denouncement is entitled to request
a certification of the entry, which serves as evidence of priority. A period of six
months is granted to make a drilling or tunnel at least 10 meters deep or long and
2 meters wide. The period may be extended for an additional six months.

The registration is published in three consecutive issues of the Diario Oficial
in order to receive any objection filed within a period of eighty days. Ifthereisno
valid objection, a concession will be granted by the Department of Economic Pro-
motion, which is likewise recorded in the register of denouncements. A certifi-
cate of this entry together with.the instrument of conveyance of the land constitutes
the title of adjudication, conveyance and possession. The first page of this docu-
ment must be on 10-colon stamped paper and the others on pages of 30 centavos

c. Mining taxes. The provisions governing taxes on mining are contained in
Article 198 of the Mining Code, giving the authorities broad elasticity in this re-
spect. This article provides that the Executive Power shall specify an annual or
semi-annual surface tax (canon) to be paid by a concession on each claim that is
granted and class of substance that is exploited, if there is exploitation or if a
denouncement has been made.

In accordance with Article 199, owners of mines must pay this tax promptly,
within the period fixed, to the Departmental Revenue Administration or Fiscal Of-
fice indicated by the Executive Power. This prompt payment is an essential re-
quirement and whenever a payment is overdue the delinquent is not considered as
owner or possessor, for legal purposes, and after a fixed period of grace, the

concession will be considered forfeited. Payment must be in full for each
period and not for only one or more parts of the concession.

d. Privileges and exemptions. Surface property owners must grant mining
property owners easements of right of way, drainage, aqueduct, ventilation, and
transmission of electric power. Mines are subject only to the legal easements of
drainage and ventilation in favor of other mining property. Easements in general
are governed by the provisions of the Civil Code. An easement of right of way in-
cludes the installation of cables, power lines, and any other means of transporta-
tion intended exclusively for the needs of the mining property in exploitation. The
zone in which this right is exercised may not exceed 15 meters in width, unless
otherwise stipulated.

Articles 69 to 74 of the Mining Code describe in detail each type of easement.
Easements must be established with the consent of the owner of the servient prop-
erty, by order of the appropriate Governor or by court judgment.

Legislative Decree No. 106 of July 23, 1937, considering that the protection
of mining exploitation had always taken the form of tax exemptions for concessions
granted by the Executive Power, and was not based on provisions of law, over-
came this objectionable practice by providing legislatively that mining enterprises
established in the country and whose operating contracts had been duly approved
by the National Assembly and granted exemptions of any kind should continue to
enjoy such exemptions.

Enterprises operating mines without a contract, provided ownership thereof
was protected by a lawful title, and those established in the future, shall be ex-
empt, for the duration of the corresponding mining concession, from the payment
of any taxes and duties whether municipal, fiscal, or consular, on the following:

a) Imports of machinery, tools, equipment and materials intended solely and
exclusively for the working, maintenance, and exploitation of the mine.

b) Imports of machinery, tools, equipment, substances, and other materials
necessary for electrical installations exclusively for better operation of
the mine.

The sale of any articles brought in under such exemptions or their use for any
purpose other than mining activity is prohibited.

Article 2 of the decree provides the following exemptions for the same

a) For a period of five years, counting from the first shipment made, exemp-
tion from any fiscal, municipal, or other tax or duty on exports of gold or
silver ore, bars, dust, or other form;

b) For the duration of the concession, exemption from any fiscal municipal
tax or contribution of any kind imposed solely and exclusively on mining
income or capital, but not taxes of a general nature.

Violation of the prohibition against sale or other use of exempted articles is
punishable by a fine of not less than $250 (US) and loss of the right to exemptions.

However, an amendment contained in Decree No. 100 of December 20, 1941
allows mining enterprises, by authorization of the Ministry of Finance, to make
loans to other enterprises of materials imported for mine work.

Article 102 of the Mining Code provides that when a mine has been granted as
a concession it becomes separate and distinct property from that of the surface and
hence is susceptible of new mortgages, without prejudice to any that are established
on the surface property.

e. Abandonment, liquidation, transfer. A mine is considered to be abandoned
under the following circumstances: first, if after the concession is granted, six
months elapse without the undertaking of preliminary work necessary to demon-
strate that the concession holder intends to carry out exploitation in good faith
(this six-month period may be extended for an additional six months on justifiable
grounds approved by competent authority); second, if work of exploitation is sus-
pended for six consecutive months or if it is reduced to an extentthat cannotbe re-
garded as reasonable in relation to the importance and resources of the mining

In the event of public disaster or disturbance of the public order, all mines in
the given locality shall be regarded as being in exploitation without the necessity
of any special formality.

In the case of two or more contiguous claims, all are protected by legal work
undertaken on any one of them, but if they are not contiguous each must be pro-
tected separately.

If there is abandonment (desamparo) the mining concession is forfeited and all
acquired rights are lost. However, the work of a concession may be suspended by
permission of competent authority for a reasonable period not to exceed one year,
except in case of acts of God or force majeure, in which case the period may be
extended successively as long as such reasons exist.

A concession may likewise be forfeited for lack of security measures, or if its
condition would endanger the lives of workers, or for failure to comply with pro-
visions of the Mining Code or other provisions enacted with respect to any aspect
of exploitation or the mining industry, unless corrected within a reasonable period.
Repetition of the non-compliance is ground for forfeiture without further formali-
ties. Total or partial suspension of work due to internal flooding, without the wa-
ter being removed within the legal period, will also result in forfeiture.

When a mining concession is forfeited for any reason, ownership thereby re-
verts to the State ipso facto and ipso jure, and it may again be granted as a new
concession. However, by Article 57 of the Code, the former owner retains his
right over buildings, machinery, tools and other works still in use, but only for
purposes of their transfer to a new concession holder who must pay their appraised

A lawsuit concerning ownership or possession of a mine which has been adju-
dicated does not bar the actual possessor from continuing to work it.

Article 5 of the Complementary Mining Law states that, in addition to the cases
mentioned in the Mining Code, abandonment of a mine will be presumed if, after a

significant reduction or exhaustion of the veins, beds, or other formation in ex-
ploitation, three months is allowed to pass without adequate efforts either to ex-
ploit other deposits existing in the concession or to discover new deposits suitable
for exploitation.

4. Mining Companies

In accordance with Article 85 of the Mining Code a mining enterprise is re-
garded as commercial and hence the obligations of a concession holder are subject
to all pertinent provisions of the Commercial Code.

The Mining Code makes special reference to a "simple mining association"
(simple comunidad minera), which occurs whenever two or more persons jointly
possess and exploit a mine in equal or unequal shares without a prior contract.
Direction and administration is entrusted to one of them, appointed each year. All
phases of activity deriving from the community of interest are governed by Articles
153 to 175 of the Mining Code.

Whenever a mine belongs to a company organized by public instrument it shall
be exploited and profits distributed in the manner established by the parties to the
contract. The terms of such a contract shall be governed by the rules established
in the Mining Code wherever applicable and by pertinent provisions of the Commer-
cial Code and the Civil Code. Under normal conditions, in the event of nullity of
the instrument of organization, the company remains as a simple association.

5. Mine Safety

Article 183 of the Mining Code provided for the appointment of mine commis-
sioners (comisionados) who were entrusted with policing functions, and the Exec-
utive. Power was empowered to appoint engineer inspectors of mines entrusted with
technical supervision within mines, but the Complementary Mining Law repealed
this article and provided that "at the proposal of the office of the Director General
of Commerce, Industry and Mining (now the Department of Economic Promotion),
the Executive Power, through the Ministry of Economy, may appoint for each mine
under exploitation a permanent official to be known as a "mine commissioner"
(comisionado de minas) entrusted with the inspection and supervision of the activi-
ties of the enterprise. Their salary and legal benefits are to be paid by the respec-
tive enterprise as indicated by the Department of Economic Promotion according
to the size of the undertaking and the financial position of the enterprise.

The Complementary Law assigns the following powers to the mine commissioners:

a) To comply with and enforce the provisions of the Mining Code and instruc-
tions issued by the Department of Economic Promotion, in carrying out
their functions;

b) To inspect and supervise the production of the mine and transmit pertinent
information to the Department;

c) To oversee the conservation of boundary markings and guide posts, claims,
and mining property; to notify interested parties of needed repairs; and to
intervene in boundary operations to prevent changes that would prejudice
adjoining owners or alter the identification of the property;

d) To oversee the safety of the mine and personnel, and compliance with
provisions and precautions on this subject;

e) To oversee the conservation of woodlands and surface land and compliance
with provisions governing their exploitation;

f) To investigate any act contrary to legal or administrative provisions to
which the mine is subject and any incident that affects the tranquillity of
the local inhabitants, and to report the case to the competent authorities;

g) To submit a monthly report to the Department and any other reports re-
quired by the latter regarding the functioning of the enterprise or opera-
tions of the mine.

Mine commissioners are considered to be public officials and may be sus-
pended or removed at any time by the Executive Power, through the Ministry of


Although certain studies made in El Salvador indicate the existence of beds
of bituminous materials and hydrocarbons, the only legal provisions governing the
subject are included chiefly in the Mining Code, but because of their special nature
their treatment differs from that of other minerals.

Where the Code speaks of ownership of mines, it expressly states that its
rules are not applicable to petroleum, hydrocarbons, or bituminous minerals pro-
ducing oil or the like from distillation of the rock itself, or to phosphates in gen-
eral, unless such rules specifically indicate the contrary. These substances are
governed by special rules contained in the Code.

In referring to exploration, the Code provides that the period allowed and
the area to be granted as a concession shall be determined by the Executive Pow-
er. This special concession will be extended to cover exploitation of petroleum
and the industries deriving from such exploitation, each concession to be granted
in accordance with the national interest.

To start exploration of a given site, selected by the interested party within
an exploration concession granted by the government, a prior license must be ob-
tained, compatible with the concession granted by the Executive Power.

The Complementary Mining Law establishes one additional requirement,
that is, special approval by the Legislative Power. In addition, any concession
holder must grant to the State a share of not less than 50 percent of distributed

In accordance with Article 205 of the Mining Code, the Executive Power may
not grant a concession to a foreign person or company except under the following

a) That its domicile shall be established in San Salvador and it shall have
legal representation there for all matters concerning the enterprise formed.

b) That the enterprise shall expressly undertake the obligation to submit to
the laws in general and especially the mining laws of El Salvador and shall not re-
sort to intervention by the government to which it belongs, with respect to the con-
cession or exploitation, unless all legal recourses have been exhausted.

The discovery of petroleum, hydrocarbons, or phosphates in general, when
a concession has been granted for other substances, will be governed by the fol-
lowing rules:

a) If the discoverer is the owner of an exploration license granted for a dif-
ferent substance, and the discovery is made within the exploration zone, he has

the right of preference in the granting of a concession by the Executive Power if
the conditions he offers are better or at least equal to those of another interested
party and if there is no impediment to the granting of the concession under the spe-
cial rules of the Code.

b) If the discoverer is the owner of a mining claim and the discovery is
made within the limits of the claim he shall have exclusive right to be the conces-
sion holder of the substances discovered, within the limits indicated, if there is
no legal impediment under the special rules of the Code and if he accepts whatever
conditions the Executive Power deems necessary for the national interest. In the
event of lack of agreement with the Executive Power, however, no concession may
be granted to a third person to exploit that substance within the mining property.
Its owner retains the right to reconsider his negative decision at any time, but the
government may always in granting him the concession, make its decision in the
best interests of the nation,

c) The owner of the mining property, whether he has been granted the con-
cession to exploit the new substance found therein or in the absence of an agree-
ment with the Executive Power, nevertheless retains the right which the law ex-
tends to private persons to obtain an exploration or exploitation concession for that
same substance outside the boundaries of the claims in his holding, although re-
lating to the same bed or deposit, in accordance with the rules of the Mining Code.

By the mere fact that this type of substance is subject to special regulations
for concessions, Article 206 provides that no concession holder may transfer his
concession to a third person or company without the consent of the Executive Pow-
er, and such permission may not be granted in advance nor in general; it must be

With respect to forfeiture of concessions, the Mining Code states if the right
of exploration has been granted by special concession of the government, in accor-
dance with the provisions of the Code concerning the substances listed in section
two of Article 12, the concession holder, in addition to complying with the provi-
sions of the Code and of subsidiary laws applicable to such exploitation, must com-
ply strictly with the terms of the special concession, and any omission or delay
therein may cause forfeiture, after a reasonable period to show compliance. Any
repetition is sufficient to hold the concession legally forfeited without further



1. General Principles

The present basic mining legislation is contained in Decree No. 2000 of May
22, 1934, the Mining Code, supplemented by Decrees Nos. 1993 and 1998 of 1937.
The provisions of the Code cover all deposits of minerals of commercial value,
with the exception of quarries of rocks, sands, clays, earths, other substances
enumerated and in general used for construction, pottery, ceramics and similar

Mines of all kinds constitute property separate from that of the surface. In
accordance with Article 214 (6) of the Constitution of 1956 "the subsoil, deposits of
minerals and hydrocarbons and any other organic or inorganic substance are prop-
erty of the State." This is reiterated in Article 2 of the Mining Code. Private own-
ership of mines acquired prior to enactment of the Code remains unaffected.

Deposits may be explored by and concessions may be granted to private per-
sons in accordance with the provisions of the Mining Code. Mines may be obtained
in this manner by either citizens or foreigners, in general under equal conditions.
Foreigners, it should be noted, are limited by Article 127 of the Constitution which
prohibits their ownership or possession of property within a zone fifteen kilometers
wide along the frontiers and three kilometers along the coasts.

Gold-bearing and tin-bearing sands and other alluvial and placer deposits may
be freely exploited if found in public lands, but if they are exploited as a fixed es-
tablishment a mining concession must be obtained.

2. Exploration

The Ministry of Economy in Guatemala City, or a Jefe Polftico in the interior
of the country, may grant an exploration permit to search for minerals for a peri-
od of three months, with the possibility of extension for an additional two months.
In the exploration of privately-owned lands permission of the owner should be re-
quested and compensation paid for damages. There are special restrictions with
respect to exploration in or near cultivated fields, buildings, roads, military
installations, etc.

A permit covers all mineral substances but the prospector is entitled to extract
only amounts of ore necessary for submitting samples which accredit him as the
discoverer of a mine. Exploitation of the discovery without fulfilling additional re-
quirements is subject to a fine and possible cancellation of the permit and confis-
cation of the product.

3. Exploitation Concession

The holder of an exploration permit who has discovered a mine is entitled to
priority in obtaining a mining concession, granted by the Ministry of Economy
upon completion of due formalities. The following may not obtain a mining conces-
sion nor be partners or shareholders in a company engaged in mining: a) officials
and employees of the Ministry of Economy; b) the Director General of Mines and
Hydrocarbons or Chief of the Mining Section in the foregoing Ministry, or their
employees; c) mining engineers employed by the State or performing administra-
tive functions, in the district in which they serve; d) a Jefe Polftico, Judge of
First Instance, or Magistrate, or their clerks, within their respective jurisdic-
tion; e) wives and children of any of the persons listed in the foregoing categories.
This prohibition does not affect rights acquired prior to appointment, prior to
marriage, or by inheritance.

Foreign natural or juridical persons who apply for a concession must ex-
pressly declare that they will submit to the laws of Guatemala and renounce the
right to diplomatic intervention in any claims relating to mining.

By Article 36 of the Mining Code a mining concession is limited to a rectangle
one side fo which must be at least 100 meters in length, of indeterminate vertical
depth in the subsoil. If the mine is discovered in terrain where no other mine has
been registered or discovered within a radius of five kilometers, the area of the
concession may be 30 hectares, but if there is another mine in the vicinity, the
area is reduced to 10 hectares.
In accordance with Article 218 of the Constitution of 1956 rights of exploration
and exploitation for hydrocarbons and minerals may be obtained for a maximum
period of forty years, with the possibility of extension for another twenty years.
In fixing the time, due consideration should be given to the quality and condition of
thd mine, the capital invested, and other circumstances.
An application for a mining concession should contain the following information:

a) The names of the petitioner and his associates or joint holders, and per-
sonal data contained in their identification cedulas;
b) The most precise and characteristic marks of the site where the mine is
located, and the municipal and departmental jurisdiction thereof;
c) Information as to whether the terrain in question has been previously
d) Nature and kind of minerals discovered, surface area of the proposed con-
cession, in accordance with pertinent provisions;
e) Name and residence of the surface owner or indication that public or com-
munal lands are concerned;
f) Kind of bed or seam discovered, its location and its approximate direction
in relation to the terrain;
g) Name to be given to the mine and the names of neighboring mines, if any,
and if so, whether they are under concession or under some form of title
of ownership;
h) Time limit proposed for the concession;
i) Place, day, month, and year of presenting the application.

Each application must be accompanied by three samples of the mineral dis-
covered, weighing not less than one kilogram; by the original exploration permit;

proof of having made payments agreed upon with the surface owner and details con-
cerning any such agreements; and the power of attorney if the applicant is acting in
behalf of another person.

Within fifteen days following application the interested party must give evidence
of: a) the actual existence of the seam at the place and site denounced and that the
samples submitted were extracted therefrom; b) that appropriate landmarks and
boundary marks have been fixed on the surface of the site which will serve for ready
identification; and c) whether the terrain discovered actually comprises the area
applied for as a concession. All these facts are to be established by the statements
of two competent witnesses, who must substantiate their assertions.

If in order, the application is published in the official gazette during a thirty-
day period. Up to a time limit of fifteen days after last publication any person
claiming a better right may present his opposition, which will be passed upon by
the Ministry of Economy. If the claim lacks justification a fine may be imposed,
such a fine being likewise applicable to the applicant for the concession if the evi-
dence indicated malicious intent.

If the application is finally approved the samples of minerals will be analyzed;
while if the opposing claim is recognized, that claimant will be given fifteen days
in which to file application unless already supported by a concession or title
of ownership.
The samples are examined by the Chemical Assay Laboratory of the office of
Director General of Mines and Hydrocarbons and may be reexamined after a first
adverse report. The findings of the second examination are final.

If the assay is favorable, the next steps are the survey and demarcation of the
mine, within 120 days. A surveyor is appointed from the staff of the corps of mine
surveyors under the Director General of Mines and Hydrocarbons. When these
steps are concluded, possession of the mine is turned over to the applicant. All
fees and expenses involved in the proceedings are at the expense of the applicant.
Subsequent changes must be approved by the Director General of Mines and Hydro-
Every concession contract for exploitation of a mine must contain, in addition
to the basic requirements, the following points:

a) The time limit within which the work of exploitation should begin and the
obligation of serving notice when starting such operations;
b) The right of the government to inspect the work whenever this is deemed
c) Obligation of the concession holder to employ at least 75 percent of
d) Obligation of the concession holder to show his books whenever sorequested.
by the government;
e) Recognition by the concession holder of the right of the State to appropriate
all minerals not expressly included in the concession;
f) Obligation of the concession holder, if a foreign company, to maintain in
the country a legal representative with full powers to perform all judicial
or administrative acts or transactions;
g) Any special agreements that are made and which may warrantlater changes.
The contract is to be executed in triplicate.

If the work of exploitation is not begun within the period stipulated, the conces-
sion may be declared forfeited.

The granting of a mining concession implies the right of free entry, for a
period of 10 years, of the machinery, parts, and other equipment strictly neces-
sary if not suitably produced by domestic industry. This includes substances to
be used in the processing of ores, granted free entry for the duration of the con-
tract. Payment of consular fees is not included in this exemption.

Even if not stipulated in a concession contract, the State or its agencies shall
have priority, under equal conditions, over any foreign market, for the purchase of
the minerals produced by a mine.

Rights in a concession are lost permanently by express or tacit abandonment
or by curtailment of work (despueble). A concession holder may abandon the prop-
erty by express declaration to the Ministry of Economy, with due publication;
tacit abandonment occurs after a cessation of work for more than six months. Cur-
tailment of work despueble iq by definition, the employment of less than four
workers. The contract may be rescinded in the event of an insufficient quantity of
ore. A temporary suspension may be granted in the event of force majeure or if
the market price of the mineral concerned is unprofitable.

The surface terrain is subject to the following servitudes, solely for the pur-
pose of suitable exploration and exploitation of the mine:

a) Occupation of an area necessary for storage yards and depots for ore, tail-
ings, dumps, etc.; extraction and processing plants; canals, tanks, pipe-
lines and necessary buildings and other constructions;
b) Right of way and occupation by roads, railways, pipelines, ramps, and
cableways uniting the mine with public roads, processing plants, railway
stations, port facilities, etc.;
c) Those established for electric power enterprises, according to law. Other
servitudes may be established (in uncultivated or unfenced lands) for pas-
turage of animals, gathering of firewood, water supply, etc.

All servitudes must be established with the approval of the Ministry of E-
conomy, must be recorded in the Register of Mines and the Real Property Register,
and must provide due compensation for direct and indirect damages to the property

Decrees Nos. 1993 and 1998 deal with the financial requirements of applicants
for mining concessions. An important provision is that any foreign individual or
juridical person desiring to obtain a concession must submit substantiated evidence,
as follows: a) kind of commercial and financial activities undertaken during the
preceding two years; b) practical results and profits derived from these transac-
tions; c) subsidiary companies and their addresses; d) proof of legal organization
of the company, status of the capital, and that the company is actually engaged in
the activities stated, in the country of domicile, as authenticated by a Guatemalan
consular or diplomatic representative. The Government of Guatemala may under-
take any investigation deemed appropriate to verify information submitted.

Aside from the normal form of concession described above, the Government
may specifically reserve certain mines to be worked under special contracts, in

which case the area to be worked need not conform to the normal standard for
ordinary concessions.

4. Royalties

A royalty of not more than five percent is payable to the government during the
life of a concession, and one percent is payable to the owner of the surface land.
In the case of the specially reserved mines, the amount of royalty may be fixed as
high as ten percent.

The percentage is fixed as a result of inspection of the accounts, based on the
profits for quarterly periods. The royalty is payable in money or at the option of
the Government may be claimed in produce of the mine as ore, concentrates, or
the refined product on the basis of the market price in London or New York. A
fine is imposed, equal to the amount of royalty due, for delayed payment, and if
payment is not received within forty-five days after it is due, the concession may
be forfeited. In addition, the government may seize a sufficient quantity to cover
the payment due.

5. Mining Authorities

All matters connected with the mining industry are entrusted to the Direcci6n
General de Minerfa e Hidrocarbonos, an office under the Ministry of Economy,
headed by a Director General of Mines and Hydrocarbons who is appointed by the
Executive Power. His functions are enumerated in Article 79 of the Mining Code,
embracing the supervision and inspection of all matters connected with mining, as
discussed herein.

In this office is a corps of mining engineers (ingenieros de minas) who are not
salaried by the Government but are paid by the fees charged for the services ren-
dered to interested parties. They serve as the surveyors and inspectors, and per-
form other required services.

A Register of Mines is maintained in which are recorded all mines under pri-
vate ownership or under concession, according to detailed regulations, and based
on a like entry in the Register of Real Property. Certified copies of the entry in
the Register of Mines, or any part of the entry, will be issued upon application.


1. General Principles

By Decree No. 345 of July 7, 1955, Guatemala adopted a Petroleum Code (1)
governing all matters pertaining to the petroleum industry. This Code repeals De-
cree No. 649 of August 30, 1949 and Presidential Decree No. 172, the Law Prelim-
inary to the Code, which previously governed the subject. Many principles of the
previous legislation are continued in the new Code, but its main provisions are out-
lined below.

By Article 1 all natural deposits or occurrences of petroleum located within
the land or maritime boundaries of the Republic or within the outer limit of the con-
tinental shelf belong to the Nation, and this ownership is inalienable and imprescriptible.

The term petroleum is used to include all natural mixtures of hydrocarbons
and the hydrocarbons that compose it, accompany it, or are derived from it, re-
gardless of their physical state.

By Article 3 all operations relating to surface reconnaissance, exploration,
exploitation, refining, and transportation of petroleum are declared to be of public
utility and governed by the provisions of the Code and its regulations. The State
may conduct such operations directly or may grant petroleum rights to legally qual-
ified natural or juridical persons, national or foreign, who have a residence in
Guatemala or who appoint a duly qualified attorney, and who demonstrate financial
capacity and technical aptitude necessary to undertake the operations to which their
rights shall apply. Granting of such rights in no way conveys ownership of the pe-
troleum fields.

Any arrangements to avoid in whole or in part, directly or indirectly, compli-
ance with the provisions of the Code or to defeat its limitations are prohibited.

The following may not acquire petroleum rights, directly or through interme-
diaries (Article 6):

a) Foreign governments or states, or persons, institutions, or agencies be-
longing to or directly or indirectly dependent upon them.

b) Public officials and employees directly or indirectly having duties of inter-
vening in, resolving, or passing judgment on petroleum matters. This includes
parents, wives, and children, but does not include rights acquired prior to taking
office or rights acquired by inheritance.

(1) Translation of full text may be obtained from Guatemalan Embassy, Washing-
ton, D.C.

c) Persons in default with the State for any payment or grant derived from a
petroleum right, unless they provide bond, pledge guarantee or mortgage or depos-
it a sufficient sum to cover amounts in controversy.

For reasons of national security the State may restrict the granting of petro-
leum rights in zones situated within 15 kilometers of the frontiers.

No petroleum right may be granted without a sufficient and reasonable guaran-
tee to cover damage that may be caused to third parties and amounts that must be
paid under the provisions of the Code.

Alienation or encumbrance of petroleum rights requires previous authorization
of the Executive Power, the inscription of such rights in the Petroleum Register,
and execution by means of a public instrument. Otherwise, the State and third par-
ties are not bound by the terms of the transaction.

Holders of petroleum rights must undertake their operations with due diligence,
avoid wastes and dangerous acts, and must carry outtheir operations with maximum
efficiency in accord with sound practice of the industry. These requirements are
defined in Article 12.

In certain cases a holder may be authorized to omit a specific operation or be
granted an extension of time for performance. Requirements for compliance will
be waived during the existence of causes of force majeure but this will not extend
the period of validity of petroleum rights.

The State reserves the right to intervene in petroleum operations in the event
of war.

Petroleum rights may be renounced in whole or in part but a holder who ac-
quired them by competitive bidding must previously comply with obligations conse-
quent to the bidding.

The non-existence (insubsistencia) or extinction of a petroleum right, for any
reason, shall not affect the rights of the holder regarding installations, materials,
or other assets, except as prescribed in the Code.

Stock companies organized in Guatemala with foreign capital to undertake pe-
troleum operations must offer a public option, for a period of ninety days, to Guate-
malans to participate in a minimum of thirty percent of the initial capital, on equal
terms. The same obligation exists as to placement of unsubscribed shares of au-
thorized capital or an increase thereof, but in such cases only persons who have
bought shares shall have the right to acquire them. Shares of such companies must
be nominative. Bearer shares are prohibited, and sale to persons not qualified to
acquire petroleum rights are void.

2. National Reserve Zones

Lands which have formed part of an exploration or exploitation right but which
for any reason have been recovered by the State become national reserve zones.
Petroleum rights of exploration and exploitation shall be granted in the national re-
serve zones only by public bidding after due notice and description. Bidding upon

national reserve areas does not obligate the granting of petroleum rights, and
the State reserves the right to declare the unacceptability of the offers.

The State may also deny the granting of petroleum rights in lands correspond-
ing to agricultural, grazing, or industrial regions, if it deems that petroleum op-
erations in such areas may be contrary to the petroleum policy of the country. Ac-
cording to Article 21, the petroleum policy of the country should ensure uninterrup-
ted and efficient fulfillment of the operations of discovery, development, exploita-
tion, refining, transportation, and distribution of petroleum in Guatemala, prefer-
ably through private initiative and investment compatible with the national welfare.

3. Surface Reconnaissance

This right confers the authority to make topographic, geological, geophysical,
and geochemical studies related to petroleum and to carry out investigations and
similar examinations, as well as drillings to obtain geological data.

Holders of a surface reconnaissance right may not: a) drill wells for the pur-
pose of discovering or producing petroleum; b) undertake reconnaissance in areas
already granted under exploration or exploitation rights, except with concurrence of
the interested parties; c) obstruct the activities of other persons who have acquir-
ed petroleum rights.

The holder of a reconnaissance right is liable for damages and losses caused
to propetry of the State or private persons and must furnish bond of not less than
10, 000 quetzales to guarantee payment. He must obtain the consent of owners in
order to enter on private lands, but with a right to court action in the event
of refusal.

A written report must be submitted every six months containing data obtained
by studies and work undertaken, with the exception of observations of a geological
or geophysical character.

The surface reconnaissance right does not authorize its holder to explore, ex-
ploit, refine or transport petroleum, and does not grant exclusive right over the
area covered.

4. Exploration

An exploration right confers exclusive authority, for a fixed period and spe-
cific area, to carry on all works and operations necessary for the purpose of dis-
covering petroleum, including the drilling of wells and surface reconnaissance work
in the same area.

An exploration right authorizes the holder: a) to undertake operations neces-
sary to define the oil field and determine productive capacity, to construct build-
ings, camps, and auxiliary installations and transportation facilities; b) to produce
and freely use for his work petroleum that is discovered, and to sell the surplus.

The area granted in an exploration right may not exceed 400, 000 and may not
be less than 5,000 hectares, except when the land involved is less than that area,
or as established in Article 85.

No person, directly or through intermediaries, may obtain or retain more
than ten exploration rights at one time, and the sum of all surface areas covered
by these rights may not exceed 400, 000 hectares.

Exploration rights are granted for a period of six years counting from the date
the title is published in the Diario Oficial. This period may be extended twice, for
two years each time, if the holders apply for such extension six months in advance,
show that they have undertaken exploration drillings but have not discovered petro-
leum in commercial quantities, and show that they complied with all obligations.

The following are obligations of holders of exploration rights:

a) To begin exploration work in at least one area granted, within ninety days
following effective date of their right, and continue the work with due diligence dur-
ing all of the time covered by the right;

b) To invest minimum amounts in such work, amounting to 90 centavos per
hectare during the first three years, 1.05 quetzales per hectare during the fourth
to sixth years, and 40 centavos per hectare during the seventh and subsequent

c) To advise the General Bureau of Mines and Hydrocarbons of discoveries of
petroleum in commercial quantities, within fifteen days plus allowance for distance;

d) To pay the annual surface rentals, royalties, and applicable taxes;

e) To mark at least two diagonal corners or a clearly defined reference point,
within the first three years;

f) To advise the General Bureau of Mines and Hydrocarbons thirty days in ad-
vance of a renunciation of their right.

The discovery of petroleum in commercial quantities obligates the holder to
define and exploit the petroleum field with due diligence within a period of five years,
the time being counted in the forty years for which an exploitation right is granted.

The mere fact of discovery of one or more fields gives to an exploration right
the quality of one of exploitation and the holder becomes subject to the provisions
governing that right.

When an exploration right is converted into one of exploitation, the holder must
renounce and return to the Nation one half of the area held for exploration, but with
the inherent right of selecting the part or parts of the surface to be retained and of
distributing them in one or more exploitation rights, so long as the area of each
tract is not greater than 25, 000 hectares. Under certain conditions an exploration
right may be converted before the discovery, and lands may be held in part for ex-
ploration and in part for exploitation.

5. Exploitation

This right confers authority to extract, store, and transport petroleum, make
it available for refining or transportation, sell and export it, and to undertake any

work necessary for such purposes. The right is exclusive within a specified area
and for a fixed period. An exploitation right may be granted only to holders of ex-
ploration rights, as indicated.

The area granted under each right may not be greater than 25, 000 hectares
nor less than 1,000 hectares unless the available land is smaller in area. One per-
son may not hold more than ten exploitation rights at the same time, directly or
through an intermediary, and the sum of the areas may never exceed 200, 000 hec-

These limits also pertain to persons who have more than 25 percent of the
shares in a petroleum company holding rights to 200, 000 hectares, to persons in
the company organization holding authoritative and directive positions, and to per-
sons who receive the major part of the earnings of one or more companies which
together exceed the indicated surface limits.

An exploitation right is granted for a period of forty years counted from date
of publication of the title in the Diario Oficial or as indicated in Article 34.

Holders of exploitation rights have the following obligations:

a) To mark the boundaries of the area, in accordance with regulations, with-
in three years;

b) If a field has not been discovered or a discovered field not delimited, to be-
gin to drill one well within six months and to continue drilling with due diligence
according to conditions;

c) To delimit and exploit with due diligence discovered petroleum fields;

d) To pay the annual surface rental, royalties, and applicable taxes;

e) To notify the General Bureau of Mines and Hydrocarbons of the discovery
of petroleum fields;

f) To produce petroleum, within the limits of Article 52, with appropriate ef-
ficiency at an adequate rate as defined in Article 49;

g) To store petroleum for 30 days that must be paid as royalty in kind; if the
State does not remove it within that period it shall be understood that it has elected
to receive the royalty in money and the holder must make the corresponding pay-

h) To advise the General Bureau of Mines and Hydrocarbons ninety days in
advance, in case of renouncement of the right.

Various holders whose areas cover all or part of one field may operate jointly
for purposes of economy'and efficiency, and joint efforts shall be deemed as com-
pliance with individual obligations.

Article 49 of the Code provides that whenever the Executive Power considers
it advisable, no petroleum or products thereof may be !exported unless the exploit-
ers have offered to sell within the national territory at the free market price, a
quantity proportional to the production of each, which, taken together with all others,

is sufficient to fulfill the requirements of domestic consumption. This is limited
to petroleum and products in the form in which they are exported and does not im-
pose the obligation to transform or refine them in Guatemala, unless the producer
has refineries in operation in the country.

The holder of an exploitation right who fails to produce petroleum in commer-
cial quantities within three years from the date of discovery of a field shall be giv-
en warning to produce within 90 days under penalty of forfeiture of his right and
this is enforced except in cases of force majeure. Similar warnings will be given
if production is terminated at subsequent periods.

According to Article 52, the holder of an exploitation right may not be required:
a) to produce petroleum in quantities greater than the maximum efficient rate of
production of the wells; or b) to increase production in greater proportions than is
required of other producers under equal circumstances.

6. Refining

The refining right is non-exclusive authority to establish and operate, for a
fixed period, installations to refine petroleum, manufacture products therefrom,
and to undertake work necessary for such purposes. This includes the production
of steam and electricity; the extraction of water and installation of water supply
systems; installation of tanks, shops, warehouses, etc.; construction of communi-
cations and road systems, within the area or in zones of access; other auxiliary in-
stallations for refining and transportation.

The State may grant refining rights to construct refineries even when there
may not be petroleum under exploitation in the country, or when there is production,
to persons other than holders of exploration or exploitation rights.

7. Transportation

This right confers non-exclusive authority to construct and operate, for a fixed
period, lateral and trunk pipelines for the transportation of petroleum or its deriv-
atives along specified routes between fixed points. Such transportation shall be a
public service. The right includes necessary auxiliary installations and construction.

All installations must be within Guatemalan territory except as provided in in-
ternational agreements.

The State must obligatorily grant to holders of refining or transportation rights,
the complementary transportation or refining rights, respectively, providing the
requirements of the Code are met.

The duration of a refining or transportation right is forty years and may be ex-
tended for an equal period if the holder so requests and has complied with all obliga-
tions. The interested party must expressly agree to pay all taxes and contributions
and to comply with all obligations established by laws in force on the date the ex-
tension is granted.

If a transportation right is granted to the holder of an exploitation right, the
transportation right shall be extended to cover all the time that the producer shall
require to transport his petroleum, subject to the legal conditions pertaining to the
exploitation right.

Without prejudice to other obligations established by the Code, the following
are obligations of holders of refining and transportation rights:

a) To begin construction work within the first year their right is in effect;

b) To submit for approval by the General Bureau of Mines and Hydrocarbons
the plans, estimates, and proposals for construction necessary for opera-

c) To transport other petroleum of compatible characteristics which third
parties offer, according to the unused capacity existing in their installations
and in proportion to actual possibilities;

d) To apply, in case of transportation, the general schedule of rates approved
by the Ministry for payment for services;

e) To undertake all operations with due diligence;

f) To give advance notice of ninety days relative to renunciation of any right.

If the holders of refining and transportation rights are also holders of exploi-
tation rights, the Executive Power may require that all or part of the petroleum
demandable as royalty be refined or transported and delivered to a suitable instal-
lation along a pipeline route until the capacity has been filled. Such refining and
transportation shall be required solely in the unused capacity of their installations
and for the account of the State, subject to the usual rates or contract prices.

However, the petroleum destined for royalty to the State shall have priority
over petroleum of third parties in the utilization of remaining capacity, and in the
event of war, insurrection, public calamity, or national emergency, it shall have
priority even over petroleum of the actual holder.

There is no limitation on the number of refining or transportation rights that
may be acquired by one person.

8. Supplementary Provisions

The number of exploration and exploitation rights that one person may hold
simultaneously or in undivided form may not exceed fifteen. In all cases, the areas
held as indicated may not be greater than 500, 000 hectares, within which the sum
of areas in exploration may not exceed 400,000 hectares and the sum of areas in ex-
ploitation'may not exceed 200, 000 hectares.

The surface area granted as a right must form a single unit, and be oriented
in north-south and east-west directions, with straight boundaries, except when it
has a common boundary with a frontier or when the available area does not have
that form.

Articles 71 to 73 govern provision for increases in areas, the acquisition of
private lands within or outside the area covered by a right, and procedure for

Title to a petroleum right is granted on stamped paper of 10 quetzales value for
the first page and 5 centavos for subsequent pages; it is signed by the President of
the Republic and the Minister in charge, registered in the General Bureau of Mines
and Hydrocarbons, and becomes valid upon publication in the Diario Oficial.

Article 75 outlines what information relating to petroleum operations shall be-
come public and what shall remain confidential.

In addition to other obligations, as outlined, a holder of petroleum rights must:
a) give notice of the discovery of archeological findings and preserve them until
placed at the disposition of competent authorities; b) give notice of the discovery
and submit samples of non-petroliferous substances that may be commercially ex-
ploitable or whose exploitation is governed by other laws; c) place in public service
the roads, airports, canals and other works of public character, unless the Minis-
try resolves otherwise.

Special authorization from the appropriate Ministry must be obtained to under-
take petroleum operations: a) within lands on which military installations are lo-
cated; b) within 60 meters' distance of historical or religious relics, of drinking
water installations or reservoirs, of any public road or construction extraneous to
the petroleum operations; c) within city limits or a metropolitan area.

By Article 79, Guatemalans shall have priority to work as employees in all
branches of a petroleum organization, under equal conditions and wages with foreign
employees of the same category. Guatemalan workmen must be hired when techni-
cal skill is not necessary. When the competence of Guatemalans and foreigners is
equal, nationals shall have priority until 80 percent of the total is covered. Holders
of petroleum rights (other than surface reconnaissance rights) must provide for the
training of Guatemalan employees, in a percentage of not less than 5 percent of for-
eign personnel, at suitable educational institutions or in the petroleum industry,
within or outside the country. Apprentice programs must likewise be provided
(Art. 80).

The Government reserves the right to purchase the assets included in installa-
tions, pipelines, equipment, etc., upon termination of a petroleum right, in accord-
ance with Article 81.

Special provisions for Guatemalans (Arts. 85 to 89). Natural or juridical
Guatemalan persons whose capital is exclusively national may elect to acquire areas
of over 1000 hectares for exploration and greater than 500 hectares for exploitation.
Such persons shall have priority in acquiring national reserve zones, and foreign
persons will not be permitted to compete with them, but if Guatemalan persons do
not attend this bidding, bids of foreigners may be accepted.

Guatemalan persons who have acquired national reserve zones under these terms
may not alienate their exploration rights to foreign persons except when they have
discovered petroleum in their drillings. Exploitation rights may be transferred at
any time, unless acquired under the provisions of Article 36, in which case it is
necessary to wait ten years. This prohibition does not apply if, during the ten years,
62 petroleum is discovered in commercial quantities.

The circumstance that a Guatemalan person has obtained credits for financing
his operations from natural or juridical persons, national or foreign, not engaged
in petroleum business, or loans from banks or credit institutions, shall not be
grounds for denying applications under these provisions.

9. Termination and Penalties

Termination of petroleum rights. Articles 90 to 98 outline the grounds and
reasons by which petroleum rights are terminated, distinguishing the terms non-
existence (insubsistencia), extinction, forfeiture (caducidad) and nullification (nuli-
dad), depending on the reason involved.

Non-existence arises from the granting or alienating petroleum rights to per-
sons expressly prohibited from acquiring them. Extinction takes place when the
period of validity has expired or by renouncement or abandonment, as well as other
reasons specified in the Code. Forfeiture of rights is declared by the Ministry for
failure to comply with various requirements, set forth in Articles 93 and 94. Nul-
lification is declared by the Ministry in two circumstances, if the area of a granted
right coincides wholly or in part with another right granted previously, or if rights
are granted in national reserve zones in violation of provisions of the Code or under
conditions less favorable than for unreserved zones.

Declarations of non-existence, forfeiture, or nullification of petroleum rights
are made without prejudice to other legal liability. When final, they must be pub-
lished in the Diario Oficial.

Penalties. Without excluding penalties prescribed by other provisions of the
Code or other laws, fines up to 10, 000 quetzales may be imposed on: a) persons
who undertake petroleum exploration operations without due authorization; b) per-
sons who conduct exploitation, refining or transportation operations without being
holders of such rights; and if three times the value of the petroleum involved is
greater than the amount of the fine, payment of the former will be imposed, with
possible confiscation of the product; c) persons who enter into agreements prohi-
bited by Article 5, that is, contravention of the provisions of the Code.

Persons who knowingly make false statements in applications to acquire petro-
leum rights, in order to gain benefits or to cause injury to third parties, are sub-
ject to a fine up to 5, 000 quetzales.

Fines to be imposed for a number of other causes are prescribed in Articles
102 to 105.

10. Benefits

Import and export benefits (Arts. 106 to 112). During the validity of a petrole-
um right the holder may import free of customs and consular duties, consigned
revenue and other import charges, materials which are not produced satisfactorily
in Guatemala and which are needed for petroleum operations. This includes prod-
ucts, machinery, equipment, instruments, spare parts, accessories, supplies,
and raw materials. Each exemption must be approved by the Ministry, on the

recommendation of the General Bureau of Mines and Hydrocarbons. Holders of
petroleum rights shall be liable for import taxes if the exempted articles are not
used as authorized.

Petroleum produced in the country and products obtained in refineries shall
not be subject to export duties. Likewise, imported materials as described above
may be reexported by holders of rights without charge, subject to the limitations
of Article 81 (by which the Government has the option of purchase).

Transfer of funds. The transfer of funds to any foreign currency and the trans-
fer thereof to other countries is free to holders of petroleum rights. The transfer
of assets and property of such holders is likewise free, except as limited by the
Code. The Code, however, contains provisions relative to exchange rates (Arti-
cle 114) and compliance with any existing or future laws regulating conversion of
funds or foreign currency. In all circumstances, conversion and transfer is free
for funds in excess of necessary payments as defined in Article 115.

11. Taxation

A special tax regime is outlined in the Code, and holders of petroleum rights
shall be subject to other tax laws only to the extent that they are not incompatible
with its provisions (Arts. 116 to 152).

With respect to income tax, holders of petroleum rights, whether or not their
headquarters are located in Guatemala, shall pay income tax only on income ob-
tained from petroleum operations in the country, or on capital gains related there-
to. Income from other commercial transactions is subject to the taxes applicable
under other laws.

Every applicant for an exploration, exploitation, refining, or transportation
right, or for an extension of these rights, must pay an initial quota of 500 quetzales
for an exploration right and 1000 quetzales for the others. The amount is to be de-
posited in the National Treasury, but if the right is not granted 75 percent will be
returned to the applicant.

The holder of an exploration right must pay an annual surface rental (canon) on
the area covered by the right. This canon is payable quarterly at the end of each
calendar quarter, according to the following schedule:

From the first to the third year, inclusive,
for each year and for each hectare or fraction Q. 30

From the fourth to the sixth year, inclusive. .. .. ..Q0.45

In the seventh and each subsequent year . QO. 60

The amount of royalty, if any, corresponding to the same area, is deductible
from each quarterly payment. Certain expenses up to 75 percent of the surface
rental are also deductible.

The holder of an exploitation right must pay an annual surface canon, likewise
payable quarterly, according to the following scale:

From the first to the fifth year, inclusive
for each year and for each hectare or fraction Q 1.50

From the sixth to the tenth year, inclusive .... Q 3.00

From the eleventhto the fifteenth .. .. Q 6.00

From the sixteenth year onward. .. . Q 4.50

Similar deductions for royalties are allowed. Deductions for expenditures up
to 50 percent of the canon begin with the fifth year, but cease if petroleum in com-
mercial quantities is discovered.

Holders of exploitation or exploration rights must pay quarterly to the State a
royalty of 12 1/2 percent of the oil produced and saved in the area covered by the
right. Petroleum used in operations or injected into the field for technical purposes
is excluded from the calculation.

The royalty is to be calculated at the price of petroleum at the place of produc-
tion in accordance with world market prices, and may be paid in money or in kind.
The General Bureau of Mines and Hydrocarbons must give notice sixty days in ad-
vance concerning the form in which payment of the royalty is to be made. Details
as to payment in kind are governed by Article 124.

The owner of land on which a well is located shall receive, in lieu of compen-
sation for the occupation, 4 percent of the royalty of 12 1/2 percent. This is al-
ways payable in cash, by deposit with the state for payment to the interested party.

Taxation of income. Articles 128 to 144 outline the procedure and regulations
for the valuation of assets, with detailed definitions of accounting terms and items,
costs, capital assets, depletion factor, the calculation of permissible deductions,

The deductions authorized under Article 131 include:

a) Cost of materials used and consumed, and of services relatingto petroleum
b) The authorization factor for depreciation, obsolescence, or exhaustion of
capital assets;
c) The depletion factor;
d) Losses arising from damages, destruction, etc. but not including fines;
e) Surface rentals and royalties;
f) Exploration costs, intangible drilling costs, costs of drilling non-productive
wells, organization and administration expenses, and other duly proven ex-
g) Interest on debts of the enterprise;
h) Remunerations, benefits, compensation and pensions to persons providing
services to the holder; also insurance premiums;
i) The unrecovered value of capital assets that are renounced or abandoned;
j) Payments made to other persons for the use of their assets or in relation
to their use;
k) Net operating losses from preceding taxation .periods, carried forward as
provided in Article 143;

1) Amounts not included in the foregoing but which are deductible under pro-
visions of the Code or of other applicable laws.

Article 146 outlines the form in which income from petroleum operations is
taxed, as follows:

The normal tax, which is the sum of:

a) The amount of the tax on earnings in accordance with the general tax laws
and their amendments, as modified by the provisions of the Petroleum Code.

b) The amount of tax imposed on income or capital gains or both together, to
which shareholders of a company are subject. This tax is payable to the State in
the name of the shareholder and shall be withheld by the holder of a petroleum right
if so requested by the State0 In this case, the shareholder shall be considered as
having complied with the obligation to pay this form of tax.

To determine the net profits subject to normal tax, there may be deducted
from the gross income obtained during a tax period, the value of the deductible
amounts authorized by Article 131.

The additional tax, which is the amount resulting from subtracting from 50 per-
cent of the net profits subject to the additional tax, the amount of the normal tax
and that of other direct taxes, including import taxes and any other tax charges,
that of the surface rentals and that of royalties payable by the holder to the State.

In order to determine the net profits subject to the additional tax, there may
be deducted from the gross income, the value of all deductible items authorized by
Article 131 with the exception of surface rentals, royalties, or direct taxes, in-
cluding import taxes and other tax charges.

Article 147 provides that the holder of a petroleum right shall be subject to
payment of the additional tax whenever the value of his capital assets, calculated
in accordance with Article 129, and increased by the amount of losses that may be
carried forward in accordance with Article 143, is less than the sum of:

a) The value of the net profits subject to normal tax for the tax period in ques-
tion and of all preceding periods, reduced by the value of normal taxes on such
profits paid or payable up to the date on which the holder is subject to the additional
tax and those paid in all preceding tax periods.

b) The amount resulting from subtracting from the value of the depletion fac-
tor on the basis of the percentage that the holder has deducted, the value of the de-
pletion factor on the basis of cost, both corresponding to all taxation periods, in-
cluding that up to the date on which the holder is subject to the additional tax.

According to Article 148, if in any tax period the normal tax indicated in Arti-
cle 146(a) exceeds 50 percent of the net profits subject to normal tax calculated in
the form specified in the last paragraph of Article 146(a), the excess shall be uti-
lized: a) to reduce the part of the normal tax established under Article 146(a-2);
and b) if a balance remains, to reduce the tax on profits established under Section
(a-1) of Article 146.

Article 149 provides that whenever, in a tax period, there are added to the
amount of the normal tax (or to the sum of this tax and the additional tax, if any)
the other direct taxes, including import taxes and other tax charges, the surface
rentals, and royalties, the total may not exceed 50 percent of the net profits sub-
ject to limitation on taxes corresponding to the tax period in question.

If any excess exists, this shall be utilized: a) first, to reduce the part of the
other direct taxes to which the foregoing refers; or, b) secondly, to reduce the ad-
ditional tax, if any, to which Article 146(b) refers; or c) thirdly, to reduce the part
of the normal tax established under Article 146 (a-2); or d) fourthly, if any balance
should still remain, to reduce the profits tax as established under Article 146(a-1).

The foregoing reductions shall be made up to the point at which the sum of the
surface rentals, royalties, and remaining direct taxes, the additional tax, if any,
and the normal tax reach the mentioned limit. In order to determine the net profits
subject to limitation on taxes, there may be subtracted from the gross income, the
value of all deductible amounts authorized by Article 131, with the exception of:
a) the surface rentals, royalties, and direct taxes, including import taxes and other
tax charges; and b) the amount resulting from subtracting from the value of the de-
pletion factor on the basis of the percentage deducted by the holder, the value of the
depletion factor on the basis of cost, corresponding to the same tax period.

Under Article 150, capital gains or losses that arise from the alienation of pe-
troleum rights or of capital assets related thereto must be treated by the holders
according to the following rules:

a) When the capital losses in a tax period exceed 50 percent of the capital gains
calculated in accordance with section (d) below, the capital losses must be consid-
ered as an amount deductible from gross income in the form prescribed in Article
131; and the capital gains, if any, must be included as a part of gross income, from
which the authorized deductions may be made;

b) Whenever the capital losses in a tax period are equal to or less than 50 per-
cent of the capital gains, the capital losses, if any, must be deducted from the said
capital gains and the difference shall be subject to a tax on capital gains at the fixed
rate of 25 percent;

c) The capital losses to which the two foregoing sections refer shall be deduct-
ible only under the following conditions:

1) When the capital losses arise from the alienation of petroleum rights or
of assets related thereto that have been in possession of the holder during a pe-
riod of two years or less the capital losses that may be deducted, as indicated,
shall be 100 percent of the amount of capital losses calculated in accordance
with Section (d) below;

2) When the capital losses as described above have been in possession of
the holder for a period exceeding two years the capital losses that may be de-
ducted as indicated shall be 50 percent of the amount of the capital losses calcu-
lated according to Section (d);

d) To determine the amount of capital gains or losses, there shall be subtract-
ed from gross income received from an alienation the sum of: 1) the value of the

rights or assets at the moment of transfer, said value being established in accord-
ance with Articles 128 and 129; and 2) all expenditures made for the alienation;

e) A mere exchange of petroleum rights, assets, shares or values related
thereto must be treated as an alienation in which no gains or losses are realized,
subject to the taxes provided by Article 150 or 146. Alienation of petroleum rights,
assets, etc., that are made to merge, consolidate, reorganize, or recapitalize one
or more petroleum enterprises shall not be held as productive of capital gains or
losses subject to those taxes, except when, as a result of such operations, a capital
gain by the receipt of money in addition to the assets is obtained.

Article 151 provides that a holder of a petroleum right, while required to pay
the taxes imposed by other laws of Guatemala, shall not be required to pay any class
of taxes or charges when they affect him in a discriminatory manner in relation to
other taxpayers, or those taxes from which he is expressly exonerated by the Code.

12. Supervision of Petroleum Activities

Authorities. The supervision of petroleum activities and enforcement of pro-
visions of the Petroleum Code is entrusted to the General Bureau of Mines and Hy-
drocarbons (Direcci6n General de Minerfa e Hidrocarburos), including inspection,
examination, and audit of all operations relating to the industry.

The functions of the General Bureau of Mines and Hydrocarbons are enumera-
ted in Article 154 of the Code.

Persons who are engaged in exploration, exploitation, refining, transportation,
export and import, and distribution of petroleum and its products are required to
register in the petroleum registries and to furnish the data requested of them, as
well as to extend full cooperation, within their installations, to employees of the
government who undertake inspection and auditing activities.

The Petroleum Register, kept by the Bureau, contains a record of: a) applica-
tions for petroleum rights; b) rights granted, their holders and other pertinent data;
c) modifications, terminations, or cancellations of petroleum rights; d) transfers
of rights; e) annotations, encumbrances and limitation on rights; f) any other cir-
cumstances indicated by regulations.

The Code requires that the following be published in the Diario Oficial: a) the
national reserve zones and any changes therein; b) grants of petroleum rights, and
declarations of non-existence, termination, forfeiture, nullification, or modification
relating thereto; c) encumbrances, alienations, andrestrictions of petroleumrights;
d) any other circumstances requiring such publication under provisions of the Code.

Publication in the Diario Oficial serves as legal notice of the matter in question,
but is not a substitute for personal notification when required by the Code, its reg-
ulations, or other laws.

The ordinary courts of the capital city of Guatemala have jurisdiction over con-
troversies that arise between the State and holders of petroleum rights except in
those cases which under the Code may be solved administratively. Final appeal may
be made to the Supreme Court.

Application procedure. The procedure for applications for petroleum rights is
outlined in Articles 165 to 189 of the Code. Applications must be submitted to the
General Bureau of Mines and Hydrocarbons on 25 centavos stamped paper, together
with two copies thereof and of all accompanying documents, on plain paper.

In general, an application must contain the following data:

a) Full name of the applicant, his age, marital status, nationality, domicile,
residence, and address for receiving notices and citations;
b) For juridical persons, the legal name and domicile thereof, name and gen-
eral information as to their legal representative or attorney;
c) A clear and categorical statement that the applicant, his representative, and
heirs subject themselves to the jurisdiction of the administrative and judicial
authorities indicated in the Code;
d) The place, date, and notarized signature of the applicant, on the original.

The following documents must be submitted with the application: a) for juridi-
cal persons, documents that legally verify their existence; b) for foreign persons,
documents that legally establish that a duly empowered attorney with domicile in
Guatemala has been named; c) in applications for reconnaissance rights, evidence
of the consent required by Article 28.

Applications for exploration or exploitation rights must indicate the location,
area in hectares, and boundaries of the area applied for. In applications for exploi-
tation rights, there must be an express statement that the applicant will comply with
Article 36(c), which requires drilling to begin within six months after the right is

Applicants must also submit: a) proof of having paid the initial quota; b) a sketch
and aero-photograph, if such is possessed, of the area applied for; c) documents
which establish their economic and technical capacity; d) a sworn declaration to the
effect that in the petroleum operations of the right applied for, no interest is heldby
persons to which Article 6 refers, and no matters are found which are included
among the prohibitions of Articles 31, 42, and 69; e) a sworn declaration givingthe
names and addresses of persons contributing to the financing of the operations, or
an express declaration that they are acting for their own account.

Applications for refining or transportation rights must meet the same general
requirements as to information and documents and in addition, in the case of a re-
fining right, the applicant must submit detailed plans and estimate of construction
of the refining installations and plants, together with a technical description thereof
and exact location of the refinery; if the application is for a transportation right,
there must be submitted plans and description of the pipeline project to be construc-
ted, as well as the location of routes and terminals.

A period of from thirty to ninety days will be allowed for compliance with re-
quirements that may have been omitted. If an application is in order it is published
in the Diario Oficial, by the applicant, and in a newspaper of Guatemala City, three
times in the course of thirty days. During this thirty-day period, opposition to the
granting of the right may be presented, and a similar thirty-day period is allowed
for hearings.

Final decision must be rendered within sixty days, counting from the date of re-
ceipt of the application or date of ruling on an opposition. If favorable it is published 69

in the Diario Oficial and title is to be granted within fifteen days following this

The date of presentation of an application determines its priority. If there is
a coincidence of applications presented on the same day, this will be decided by com-
petitive bidding, ordered by the Ministry.

All decisions of the General Bureau of Mines and Hydrocarbons or of the Minis-
tries shall be subject to the administrative remedies established by law, and final
appeal in cassation may be interposed before the Supreme Court of Justice.

Competitive bidding (Arts. 190 to 198). Competitive bidding shall in all cases
be made by offers of payment in cash. There must be competitive bidding for ex-
ploration or exploitation rights, in the following cases: a) in national reserve zones;
b) when indicated in the Code as a solution of conflicts due to coincidence of applica-
tions; c) in other cases or for other reasons indicated in the Code.

The place, day and hour of the auction must be announced in the Diario Oficial
and a newspaper of Gutaemala City, three times in the course of fifteen days. No-
tices of the bidding shall also be posed on the premises of the General Bureau of
Mines and Hydrocarbons,

The highest bidder must deposit 10 percent of the value of his offer, after which
the application is processed, to the exclusion of other parties.

The original holder of an exploration or exploitation right, whose area is sub-
ject to bidding by virtue of having been recovered by the State throughtermination of
the period of the right, shall have the right of first refusal over any other.

Regulations. The Regulations for the Petroleum Code, giving details of the ap-
plication of the provisions described above, are contained in Decree No. 445 pub-
lished in the Diario Oficial of October 27 and 28, 1955.



1. General Principles

Mines and quarries are governed by Decree-law N 337 of December 20, 1943,
and are considered to be commercial companies. This decree-law is a consolida-
tion of provisions relating to mining and is now the only legislation in force on the
subj ect.

Under the law, mines and quarries that may be worked only in underground gal-
leries form a part of the private domain of the State. Mines and quarries that can
be worked above ground belong to the surface owner. The provisions discussed
here are confined to those in the private domain of the State.

2. Prospecting Regulations

Prospecting for minerals is governed by Articles 16 to 30 of Decree-law N 337.
With the exception of a surface owner, who has the right to make excavations in his
own property, a prospector may undertake work of excavating, prospecting, and
drilling only under a permit issued by the Secretary of State for Public Works, with
the consent of the Council of Secretaries of State.

Under the law there are two types of prospecting permits (permis de recher-
ches)--simple and exclusive.

A simple prospecting permit is issued upon payment of a tax of 500 gourdes.
It is valid for one year but may be renewed for a like period without additional
charge. It grants the right to carry out any works of prospecting and drilling at
any place in the country. It may not be transferred without the authorization of the
Council of Secretaries of State. All permit holders enjoy the same rights.

If the holder of a permit undertakes works for discovering or protecting depos-
its, he must compensate the surface owner for any damages. In certain cases (Ar-
ticle 28), he may not undertake works without the authorization of the Secretary of
State for Public Works.

Substances extracted by the holder of a prospecting permit may not be sold or
utilized without'authorization by the Secretary of State for Public Works.

An exclusive prospecting permit is granted to cover one or more specified sub-
stances upon payment of a tax of 1, 000 gourdes. It is valid for a maximum of three
years and gives exclusive right to make investigations in a definitively delimited

3. Regulations on Exploitation

Mines and quarries may be exploited in three ways: by the holder of a provis-
ional exploitation permit, by a concession holder, or by the State directly, through
the agency of the Bureau of Mines.

A Provisional exploitation permit is a temporary authorization granting the
right to operate a mine. It is granted by the Secretary of State for Public Works
solely to holders of a prospecting permit who wish to undertake preliminary work,
upon payment of a tax of 1, 000 gourdes. This permit is valid for one year, but may
be renewed by payment of a tax of 500 gourdes per year.

The application for a provisional exploitation permit must be accompanied by a
sketch of the land on which the exploitation is to take place. The permit, when
granted, enumerates the rights and obligations of the holder.

A provisional exploitation permit may be transferred only to the holder of a
prospecting permit. It may be annulled by the Secretary of State for Public Works
if it has expired and not been renewed or if the work for which it was granted has
not been carried out.

Mining concessions are governed by Articles 43 to 77 of Decree-law No337. A
concession gives to the holder the exclusive right of exploitation and the holder is
the owner of any products obtained. Every concession holder must deposit in the
National Bank of Haiti a bond or guarantee of not less than 25, 000 gourdes for a
mining concession or 5, 000 gourdes for a concession for a quarry.

If operation of the mine or quarry is not commenced within the period fixed in
the concession, the concession is forfeited and the deposit is retained by the State.
Otherwise, the deposit is reimbursed to the concession holder.

The system of granting concessions for mines and quarries may be briefly
summarized as follows:

a) The Government is entirely free in its choice of the concession holder; the
surface owner, discoverer, or others have no acquired rights.

b) The concession is temporary, being granted for a maximum of sixty years
in the case of mines and forty years for quarries.

c) The mine granted as a concession is regarded as a new property and it may
be mortgaged. This new ownership, however, may not be subdivided into smaller
plots or shares without the prior authorization of the Government.

d) The operation of a mine is subject to the control of the Bureau of Mines, a
subdivision of the Department of Public Works.

e) The concession gives the right to occupy and utilize any part of the surface
necessary for the exploitation, and also includes the right of expropriation. It also
gives the right to establish means of communication as well as to construct quays
and docks according to the needs of the operations.

f) Free customs entry is accorded to the concession holder for articles neces-
72 sary for installation of the works to be undertaken. However, spare parts and

accessories and material for replacement are subject to import duties. Instruments,
materials, and medicines necessary for the establishment of hospitals or dispen-
saries to be maintained by the concession holder are also granted free entry.

Required payments. A concession holder must make the following payments in
connection with his concession:

a) To the State

A fixed charge of a minimum of one gourde per year per hectare. Howev-
er, the concession contract may stipulate that a rebate will be paid to the
concession holder from payment of the surface tax on that portion of the con-
cession actually exploited, beginning on the date of such exploitation.

A payment, or royalty, in proportion to the grossvalue of the ore extracted.

b) To the surface owner

A payment for the use of the subsoil (redevance tr6foncibre) which shall
not be less than 5 percent nor more than 10 percent of the proportional pay-
ment (royalty) made to the State.

c) To the discoverer

A payment which may not be less than 10 percent of the proportional pay-
ment made to the State.

Reimbursement of the expenses necessary to arrive at the discovery.

Haitian law contains no restriction or prohibition with respect to foreigners
either in prospecting or in the exploitation of mines and quarries.

In addition to the taxes and payments mentioned, mining enterprises must ob-
tain a patent (and a licence, if the enterprise is foreign) and are also subject to
the income tax. The licence, or national license, is governed by the law of Aug-
ust 11, 1903 and the patente, or local permit, is governed by the Decree-law of
September 23, 1935. The latter, being a local tax, varies according to the class
of municipality, but for foreigners it is double the tax paid by Haitians.

Although the only law governing mining activities is Decree-law No 337, this
law states (Article 5) that the exploitation of hydrocarbons, coal, and other com-
bustible mineral substances shall be governed by a special law. However, up to
the present time no such legislation has been enacted. A bill providing for new
mining and petroleum .legislation was submitted in December 1959 to an extraordi-
nary session of Congress, approved in committee but not passed. A second extraor-
dinary session ended in February 1960 without passage of this legislation.

Any interested party can obtain a concession for the mining of gold under the
provisions of Decree-law N 337, but under the provisions of the Law of August
31, 1942 the National Bank of Haiti has the exclusive right to purchase and export
gold in the form of coin, bullion, ore or gold dust, throughout Haitian territory.
These provisions do not apply to gold jewelry or other articles manufactured from

Any person who purchases or attempts to purchase gold without having re-
ceived a license granted by the National Bank of Haiti is subject to imprisonment
of from four to six months and to a fine equivalent to five times the value of the
gold purchased and never less than 100 gourdes. The gold will be confiscated and
reverted to the Public Treasury. Anyone who sells or attempts to sell gold is sub-
ject to imprisonment of from one to three months and a fine of 50 to 100 gourdes.
Any person who exports or attempts to export gold is subject to a fine of 300 to
1000 gourdes or to imprisonment up to one year, or both penalties.


There is as yet no special legislation in Haiti governing petroleum or other hy-
drocarbons. As mentioned in the preceding section, the Congress has recently con-
sidered legislation to govern petroleum but this had not been enacted at the close of
the extraordinary session of February 1960.



Mining activities in Honduras are governed by the Mining Code promulgated
by Decree N 64 of February 15, 1937 as amended by Legislative Decree N 3 of
December 11, 1939 and Decree N 119 of March 13, 1950. The latter amendment
added to the original 230 articles of the Code a Title XVIII, Supplementary Provi-
sions (Articles 231 to 302), and it repealed Articles 165, 166, 168, 169 and 170.
Mining laws and regulations are administered by the Ministry of Natural Re-
sources (Ministerio de Recursos Naturales) through its Department of Mines (De-
partamento de Minas).

1. Ownership of Mines and Minerals

Article 1 of the Mining Code declares that the State is the owner of all depos-
its of gold, silver, copper, platinum, mercury, lead, zinc, bismuth, antimony,
cobalt, nickel, tin, arsenic, iron, chromium, manganese, molybdenum, vanadi-
um, rhodium, iridium, tungsten, sulphur, petroleum, apatite, nephelite, rock
salt, radium, nitrates, precious stones, coal, and fossil substances, notwith-
standing ownership by corporate entities or private persons of the surface of
the areas in which they are located. Uranium and Plutonium were added by De- N 104 of March 7, 1950.

But private persons will be granted the right to explore and excavate in lands
under any form of ownership in search of any of the minerals mentioned; and to
work such mines and dispose of them as owners, in accordance with the require-
ments and under the regulations prescribed by the Code. The acquisition of such
mines isfree to private persons, regardless of the origin or form of deposits,
with the exception of sulphur, nitrates, coal and other fossil substances, asphalt,
manganese, and iron ores, the exploitation of which shall require a special con-
tract with the Government, which limits such concession periods to twenty years
(Decree N 3 of December 11, 1939).

The Mining Code allows duty-free importation for a period of twenty years of
much of the machinery, equipment, and supplies necessary for mines and plants,
if not obtainable in Honduras.

Precious stones and metals found in their natural state at the surface belong
to the occupant. Stone for construction or ornamentation, sand, slate, clay,
lime, pozzuolana, peat, marl, and other substances found in public lands of the
State or municipalities, may be exploited by any private persons, without preju-
dice to the right of the State or a municipality to grant permission under special
contracts, or in accordance with regulations.

Gold-bearing and tin-bearing sands and other mineral deposits in rivers or
players may be freely exploited if located on idle lands. However, if they are to
be worked by permanent installations, a mining claim must be established.

Abandoned mine excavations, dumps, and tailings are integral parts of the
mine to which they belong, but unless the mine has become private property, they
are free for common use.

Article 234, as added to the Code in 1957, reserves to the State any deposits
of uranium, uranium salts, thorium, and similar substances essential to the pro-
duction of atomic energy, Concessions covering these substances may not be
granted to Hondurans or foreigners.

Articles 7 to 10 of the Code govern rights of way, easements, use of water
and other facilities for preparing and working a mine.

A mine is real property, separate and distinct from the surface land, even if
belonging to the same owner; the ownership, possession, use, and enjoymentthere-
of may be transferred in the same way as other property, but subject to the special
provisions of the Mining Code. Permanent installations, such as buildings, ma-
chinery, pumps, apparatus, tools, and animals are regarded as accessory real
property of a mine. This does not include animals and articles employed for the
use of persons or in the transportation or commerce of minerals or products, or
expendible provisions.

The law grants ownership of a mine to private persons under condition that it
will be worked and exploited continuously, subject to provisions of the Mining Code
and to regulations governing conservation, safety and health; but ownership is lost
and reverts to the State only in those cases specifically provided by law.

2. Acquisition of Mines

Prospecting. Exploration and excavations in search of mines may be under-
taken in any lands not enclosed or not under cultivation, or in the latter case if
permission is granted by the owner or by a court. Any person having the legal ca-
pacity to own real estate in Honduras may engage in prospecting with the exception
of mining engineers who exercise administrative functions in the district concerned
or judges to whom mining matters are submitted.

No person may acquire more than three mining claims (pertenencias) as dis-
coverer, registrant, or concessionaire, within the same mine field, but there is
no limit to the number of claims acquired by other titles.

Discovery. The discoverer of a mine at a place where no other mine has been
registered within a radius of four kilometers is termed "discoverer of a virgin
field (cerro virgen)", otherwise, he is "discoverer in a known field". The rights
and obligations of each class of discoverers are governed by Articles 26 to 46, in-
cluding recording, publication and allotment of a claim.

A claim (pertenencia) is defined as a solid with a rectangular base and inde-
finite depth within vertical planes, comprising an area of five hectares as a max-

imum and one hectare as a minimum, in accordance with fixed boundaries. For
mining operations on a large scale (mineral zones), as mentioned at the end of
this chapter, the Ministry of Natural Resources may grant concessions up to 200

Articles 47 to 66 contain detailed rules governing the survey, measurement
and demarcation of mines. Articles 67 to 69 deal with the proprietary rights of
a concession holder and relations with neighboring owners.

Exploitation. Mines must be worked and operated in accordance with tech-
nical mining standard and police and safety regulations prescribed by laws and
regulations. To this end, mines are placed under the supervision of administra-
tive authorities who shall make inspections whenever appropriate.

Mine owners or managers must keep their mines well ventilated; must prevent
danger from noxious gases or the accumulation of water. They are liable in case
of accident, if work is carried out where there is insufficient air; and they are pro-
hibited from permitting work being performed in darkness.

Articles 89 to 98 deal with the working of mines from adits located outside the
boundaries of the operator's claim, the location of galleries leading therefrom, and
arrangements to be made with operators of adjoining mines.

After a mining concession is granted, operations must be started within five
years (four years for alluvial deposits) and work may not be suspended for over two
years except in case of force majeure. An average of at least six persons must be
employed daily (Article 237 of the Mining Code).

Every concession holder must submit an annual report covering such matters
as-work accomplished; amount of minerals recovered, sold, and exported; taxes
paid; accidents and compensation paid in connection therewith; hospital and health
situation; list of employees, etc. (Article 240).

Two books must be kept, one showing the amount of ore extracted daily and
the other the mineral content obtained from processed ore.

Alienation. A mine may be alienated inter vivos and by inheritance in the
same manner as other real property. Original possession is acquired by regis-
tration, and is thereafter subject to provisions governing registered property.
Any transfer must be made by public instrument, duly recorded. The period for
acquisition of a mine by ordinary prescription is two years; by extraordinary pre-
scription, ten years.

Retail sale of minerals renders the purchaser liable to give an explanation as
to how they were obtained; otherwise there is a presumption of theft. But there
can be no claim against minerals bought at a mine, or from a known miner, or by
execution of affidavit before a judge, or a certificate issued by appropriate authority.

3. Employment in Mines

Contracts for the employment of workers in a mine for more than one year
must be in writing, but a worker may not be bound to remain for more than three
years. If no time is fixed, either party may terminate the agreement at any time.
In the case of foremen, artisans, or other workers of similar category, either
party may give fifteen days' notice of intention to terminate the contract.

If the contract is for a fixed time and the worker leaves suddenly without due
cause he must pay the employer an amount equal to one month's wages, or, if a
time for giving notice was fixed by contract, a sum equal thereto. An employer
who dismisses a worker under similar circumstances must pay a like amount and
travel expenses if a change of residence was necessary.

A worker may be dismissed for ineptitude, bad conduct, insubordination, or
in case of incapacity for work for more than one month. If, however, such inca-
pacity was due to work in the mine or to an accident therein, the employer is re-
sponsible for the worker's recovery.

These provisions of the Mining Code are not applicable to contracts covering
a specific undertaking or to the services of managers, bookkeepers, and other em-
ployees in this category.

Wages and salaries of workers and other employees constitute a preferential
lien on the output of a mine, its tools and implements. In regard to other property
of an insolvent mine owner, workers' and employees' claims are entitled to the
privileges provided in ordinary civil law.

According to Article 119 at least 75 percent of the workers employed by a
mine owner or operator must be Hondurans; this includes a foreigner whose spouse
is Honduran by birth.

The bulk of the provisions added to the Mining Code by Decree No 119 of 1950
deal with preventive health measures; work accidents and occupational diseases,
with definitions, regulations and compensation for each; safety measures in the
conduct of operations, transport of workers into mines, ventilation, illumination,
safety lamps, etc. Penalties for violation or disregard of these provisions may
range from a fine to suspension of work or forfeiture of the concession.

Decree N 119 created the position of Technical Inspector of Mines, who is to
be a geologist or mining engineer and who shall make monthly inspections of min-
ing enterprises for the enforcement of these provisions.

4. Mining Companies

A mining company exists if two or more persons work one or more mines in
common in accordance with the provisions of the Mining Code. A company is
formed: a) by registering a mine as a company; b) by acquiring a share in a reg-
istered mine; c) by a special company contract, which must be in the form of a
public instrument.

Company organization is subject to simple rules, outlined in Articles 120 to
148 of the Mining Code.

5. Mining Taxes

Owners of mining zones or claims must pay an annual tax of one lempira per
hectare, but if this includes both mining operations and processing, mines are di-
vided into three classes, according to mode of processing: by local methods; or
by large-scale foreign machine methods and other processes. For the first cate-
gory the tax is two lempiras per hectare; for the second, five lempiras; and for
the third category, ten lempiras per hectare, all payable every January to the
National Treasury. Fractions of hectares of less than half are not counted.

Rights in a mine, mining concession or processing concession will terminate
by reason of failure to pay the annual tax, by abandonment, or by failure to work
the mine (despueble). These matters are governed by Articles 149 to 184 of the

A mine is considered as unworked (despoblada) if there are less than six wor-
kers on the job for a period of six months; if the work of six workers is alterna-
tively suspended to the extent that a mine is idle for 200 days of a year. Under
certain conditions several claims may be worked as one mine.

Article 197 et seq authorizes the formation of mining zones for large-scale
mining operations in proven deposits and with evidence of adequate resources.
The area of a single zone may not exceed 200 hectares.

Foreigners may not be granted mining zones in lands within forty kilometers
of neighboring countries or seacoasts; or in lands on islands, keys, reefs, shoals,
rocks, ledges, or sandbanks.

All mine owners are entitled to use of water and timber from public lands
without payment of a tax, subject to conservation restrictions. Article 213 enu-
merates the equipment, materials, etc., comprising an exhaustive list of essen-
tials, that may be imported duty free for the exclusive use of mining operations.
Likewise, mining products may be exported free of tax.

Article 221 as amended by Legislative Decree No 3 of December 11, 1939,
stipulates that mining enterprises must pay the State 5 percent of net profits from
mining operations.

Under the 1953 Income Tax Law, mining enterprises are subject to a graduated
income tax ranging from 15 to 30 percent, but the Industrial Development Law of
April, 1958 exempts new industries from income and production taxes for from
three to ten years, depending on circumstances, but excepting those years for
which profits exceed 20 percent of the paid-in capital.

There are no taxes on production or exports; no governmental, regional, mu-
nicipal or other local taxes on mines; no special exchange rates applicable to min-
eral exports; and no limitations on the export of profits or invested capital, al-
though authority to transfer funds must have the approval of the exchange-issuing


1. General Principles

Petroleum activities are governed by the Petroleum Law, Decree No 171 of
October 16, 1957 (published in La Gaceta N 16379 of January 11, 1958).

In accordance with Article 1, the State is the sole owner of all deposits of pe-
troleum and similar hydrocarbons existing within the national territory, including
lands covered by territorial waters and the continental and insular shelf. The term
petroleum includes all natural mixtures in gaseous, liquid, or solid form, but ex-
cluding substances covered by the generic term "coal."

State ownership of petroleum deposits is imprescriptible, but the State has the
option of engaging directly in the petroleum industry or of granting concessions in
accordance with the provisions of the Petroleum Law. A concession does not con-
fer ownership of deposits but only a real right to explore the area granted and to ex-
ploit deposits for a limited time. An exploitation concession may be mortgaged but
the mortgage or any other encumbrance automatically ceases when the concession
terminates, and the concession reverts to the State free of encumbrances.

The petroleum industry is regarded as of public benefit (utilidad pfiblica). Con-
sequently it is entitled to priority over any other use of the surface land whichthere-
by becomes subject to expropriation or temporary occupation upon payment of ap-
propriate compensation and indemnity. However, in special agricultural, livestock,
and industrial areas the Ministry of Natural Resources must approve the action.

The petroleum industry includes reconnaissance or prospecting, exploration,
exploitation, transportation by pipeline, and processing or refining.

Non-exclusive permits may be granted for prospecting and reconnaissance,
but exploration or exploitation concessions confer exclusive rights over the areas
covered. Concessions for processing and for pipelines do not imply a privilege or
exclusive right which would prevent the granting of similar concessions to others.

Permits and concessions may be granted to natural or juridical persons, na-
tional or foreign, who show financial capacity and necessary technical skill. How-
ever, in certain reserve zones (Article 17, Sections A and B) concessions may be
granted only to native or naturalized Hondurans or to Honduran companies; butthese
may make contracts with foreign persons or companies, if approved by the Minis-
try of Natural Resources. Foreigners who legally obtain a concession in the interi-
or of the country may construct and operate pipelines within the 40-kilometer zone
along the seacoasts or frontiers, and under the same conditions may constructroads
or other means of communication within these zones.

Within the meaning of the law, national companies are corporations organized
in Honduras in accordance with provisions of the Commercial Code, with domicile
in Tegucigalpa. The capital, consisting of registered stock, must have been open
to public subscription for at least ninety days on equal terms with the founders and
with priority to not less than 30 percent Hondurans. The board of directors must
include Hondurans in the same proportion as the percentage of capital subscribed
by them, and at least one manager must be Honduran. The State shall subscribe to
whatever part of the aforementioned 30 percent is not taken up by Hondurans.

Foreign governments or states and enterprises or companies directly depend-
ent on them, and foreigners in the service of foreign governments or states may not
apply for, acquire, or possess a concession directly or indirectly, by any title or
through a natural or juridical person as intermediary. This also applies to a mort-
gage or encumbrance of any kind.

A foreign company or individual applying for a concession must be inscribed in
the Register of Commerce of the Department of Francisco Morazan, and it must ap-
point a Honduran representative or delegate.

Likewise, no concession may be applied for or held, directly or indirectly, in-
dividually or as a company by: the President or Vice President of the Republic or
their substitute; the Secretaries and Under-Secretaries of State; diplomatic repre-
sentatives; deputies in the National Congress; judges and magistrates; and in gen-
eral, public officials or employees directly or indirectly concerned with petroleum
matters. This prohibition includes the parents, spouse, and children of all such
officials, but petroleum rights acquired prior to holding office or acquired by in-
heritance or legacy or through marriage are not included.

Every concession holder is subject to the laws and courts of Honduras; foreign-
ers in obtaining a concession must expressly renounce the right to any diplomatic

A concession holder has only such rights in the surface land as are expressly
stated in the law; all others pertain to the surface owner without change. A holder
must conduct operations with "due diligence, prevent waste, premature exhaus-
tion of wells or acts endangering persons or property, and must carry out operations
with maximum efficiency according to accepted practices.

Concessions obtained under the Petroleum Law may be transferred to other
natural or juridical persons who meet the requirements indicated and with author-
ization by the Ministry of Natural Resources. Transfers within reserve zones may
be made only to persons particularly qualified to obtain such concessions.

Article 17 establishes certain national reserve zones, as follows:

a. Lands within the boundary zones adjoining neighboring States; lands located
on the Atlantic or Pacific seacoasts within the area extending from 12 kilometers
seaward from the shoreline to 40 kilometers inland, including islands within thena-
tional territory.

b. Lands submerged under the sea beyond the limits of territorial waters, con-
stituting the continental and insular shelf, together with islands, keys, banks, reefs,
sandbars, or rocks within such areas.


c. Lands which previously formed a part of an exploration concession, but re-
verted to the State after two years when it became an exploitation concession; and
lands previously in an exploitation concession which reverted to the State for any

d. Lands so specified at any time by the Executive Power, not included in any
exploration or exploitation concession or in a pending application.

All other lands are open for prospecting, exploration and exploitation, under
provisions of the law. Concessions within the reserve zones may be granted only to na-
tive or naturalized Hondurans or to Honduran companies. However, provisional
rights may be granted to foreigners on condition that within six months a national
company will be organized. Special rules apply to the different zones enumerated.

2. Petroleum Rights

Surface reconnaissance. Reconnaissance permits may be granted coveringfree
lands. These permits do not confer exclusive rights nor priority of any kind to ob-
tain a concession and hence may be granted simultaneously or successively to other
persons covering the same areas. Their duration shall never be more than two
years and they may be cancelled at any time by the Ministry of Natural Resources.

They may be granted for lands included in an application for concession of ex-
ploration or exploitation, and within reserve zones only to persons approved by the
Executive Power.

A permit entitles the holder to make maps, conduct topographical, geodesic,
geological, geophysical, and geochemical surveys relating to petroleum; to under-
take prospecting and tests, and drillings for purposes of obtaining geological infor-
mation. Works proper to exploration or exploitation are prohibited. Areas utilized
for various purposes enumerated in Article 26 are excluded from permits.

The holder of a permit must have the prior consent of owners to enter private
property and will be liable for damages to private or state property, for which bond
must be posted. Every six months and within sixty days after termination of activi-
ties a report must be submitted to the Ministry of Natural Resources.

The fee for a permit is 500 lempiras, with an additional charge of 1 lempira
for every one hundred hectares in excess of 50, 000.

Exploration. Exploration concessions may be granted in free lands, in one or
more separate areas, not to exceed 400, 000 hectares in all, to persons having ca-
pacity as prescribed in the law. A concession must have a minimum surface area
of 5, 000 hectares, except in individual cases where the available area is less. Con-
cessions may also be granted in the reserve zones to qualified persons. Special re-
quirements as to area and boundaries of these latter concessions are contained in
Articles 40 to 42.

An exploration concession confers on the holder an exclusive right and the ob-
ligation to explore "diligently" the area included, for a period of six years from
date of publication in La Gaceta. The period of exploration may be extended twice
for two years each, that is, to a maximum of ten years if certain conditions are
fulfilled, as outlined in Article 33. The concession holder is authorized to construct

necessary works such as means of communication and transportation, etc., to un-
dertake operations necessary to delineate and estimate the capacity of deposits and
to use discovered petroleum in exploration operations. Unnecessary areas, in rec-
tangular shape, not less than 10 percent of the total area, may be returned to the
State during the first year of exploration.

At any time, the concession holder has the right to select one or more areas
for exploitation, to a limit of 50 percent of the area included in the exploration con-

The following are the chief obligations imposed on the holder of an exploration

a. Begin exploration work within 180 days after obtaining the concession, and
continue work throughout its duration.

b. Invest a minimum amount per hectare each year, as follows, beginning in
the second year:

Second year L 0.50
Third year 0.60
Fourth year 0.70
Fifth year 0.85
Sixth year 1.00
Seventh & eighth 1.25 (first extension)
Ninth & tenth 1.50 (second extension)

c. Report any discovery of petroleum in commercial quantities or significant
indications of petroleum or gas deposits.

d. Pay the surface tax (canon) beginning in the second year.

e. Give thirty days' notice of intention to renounce the concession.

Concessions must be in the form of a rectangle with sides in the proportion
ranging from 1:1 to 1:6, north-south, east-west. Exceptions are permitted due to
geographical features or boundaries of other concessions.

Exploitation. An exploitation concession may be granted to the holder of an ex-
ploration concession, regardless of whether petroleum has beendiscovered, inareas
selected by him, covering not over 50 percent of the area of exploration. The same
rules as to shape are to be followed. The portion not selected reverts to the State.

Application for exploitation must be accompanied by a report of studies and
work done in exploration, maps of the areas desired, and indication of their loca-
tion in the over-all exploration concession. The areas selected, whether separate
or contiguous, constitute one concession. Article 48 applies special rules to con-
cessions in the continental and insular shelf.

Exploitation concessions may also be granted directly to persons showing ca-
pacity prescribed in the law and following application requirements including those
applicable to the continental shelf.

A direct exploitation concession must have a minimum area of 1, 000 hectares
and follow the usual requirements as to shape. One and the same natural or juri-
dical person may apply for any number of direct concessions up to a maximum of
200, 000 hectares. If the applicant held exploration concessions with an area of less
than 400, 000 hectares in all, he may be granted additional direct concessions to
bring the total up to 200, 000 hectares.

Articles 54 and 55 provide special rules applicable to direct exploitation con-
cessions in reserve zones and the continental shelf.

An exploitation concession is granted for forty years, which period may be ex-
tended once only for an additional twenty years provided all royalties, taxes, etc.,
are paid, all obligations met, and the concession is in continuous commercial pro-

Article 58 outlines the rights of a concession holder, including production, con-
tinued exploration, construction of necessary works, installations, pipelines, etc.
The chief obligations of the holder of an exploitation concession are as follows:

a. To establish the boundaries of the concession, according to regulations.
b. To begin work within six months after the concession is granted.
c. To report to the Ministry of Natural Resources any discovery of petroleum
with a map showing its location; a map showing proposed drillings, an es-
timate of the total and recoverable capacity, production and rate of "opti-
mum efficiency".
d. To extract petroleum according to accepted practices and with a view to
meeting the needs of the domestic market.
e. To advise the Ministry of Natural Resources whenever the work on a depos-
it overlaps into another concession.
f. To pay all surface royalties and taxes.
g. To store any petroleum due as royalty, up to a period of sixty days, it be-
ing assumed thereafter that the royalty is to be paid in money.
h. To give thirty dayst notice of any intention to renounce the concession.

Articles 61 to 65 regulate the situation in which one petroleum deposit is divid-
ed among more than one concession.

Holders of exploitation concessions are required to sell in the domestic market
a proportional share of their production in order to meet the needs of internal con-
sumption. The remainder may be exported without restriction.

If non-petroliferous substances arediscoveredduring operations their acquisi-
tion is governed by pertinent law unless they are in combination or suspension with
petroleum or gas. Substances found during a refining process must be included in
the value of the petroleum.

Articles 67 and 68 outline the rights and requirements involved when a conces-
sion expires and reverts to the State.

Processing and transportation. Concessions for processing or transportation
may be granted as an independent industry, even if there is no petroleum production.
This extends to holders of exploitation concessions also. Processing concessions
are granted for forty years, unless they terminate at the end of an exploitation con- 85

A processing concession is non-exclusive but includes the right to process pe-
troleum produced from other concessions or third parties. Rights to construction,
installation, etc., are enumerated in Article 73.

Pipeline concessions are likewise granted for forty years or for the duration
of the exploitation concession. They are also non-exclusive and the facilities offer-
ed are considered to be a public service, except that if connected with an exploita-
tion concession they may be limited to transporting the production of that conces-
sion. Spt'-il rights are enumerated in Article 79. The entire pipeline installation
of a concession must be located within Honduran territory unless other rights are
established by an international convention.

If the State grants an independent processing concession this automatically in-
cludes a transportation concession, and vice versa, if applied for, and legal re-
quirements are met.

An independent processing concession is regarded as a public service to man-
ufacture and refine products that originate from the exploration or exploitation of
petroleum deposits in the country. Rates to be charged are fixed by the Ministry of
Natural Resources on a reasonable profit basis.

In case of limited capacity, the State has priority over others for processing
and transportation, and in case of war, insurrection, disaster, etc., this priority
extends over the products of the concession holder. Other general rules are con-
tained in Articles 82 to 89 of the law.

Supplementary provisions. Articles 90 to 117 outline various rules applicable
to all concessions, particularly with respect to the occupation and use of lands and
various subsidiary obligations of concession holders.

Lands outside the boundaries of a concession may be occupied or used by the
establishment of permanent or temporary easements such as right of way, roads,
aqueduct, pipelines, firewood, pasturage, etc.,subject to payment of due compen-

Where an easement does not suffice, lands may be expropriated, inside or out-
side a concession, for construction or permanent works. Expropriation is made in
favor of the State since a concession holder has the right of occupation and use mere-
ly for the duration of the concession. This may include lands for camps, refineries,
power plants, pumping stations, pipelines, etc. The declaration of "public benefit"
for expropriation cannot be contested and the procedure to be followed is that pre-
scribed in Title XIV, Book IV of the Code of Procedures. Costs of proceedings and
expropriation are borne by the concession holder. Special rules apply to frontier
lands and lands underneath territorial waters or in the continental shelf.

A concession for petroleum rights does not confer any rights in surface lands
other than those necessary for the exploration and exploitation of petroleum depos-
its, and processing and transportation. Likewise, a petroleum concession does
not include the right to exploit substances other than hydrocarbons.

Holders of exploitation concessions must construct hygienic camps, free ele-
mentary schools, and medical and hospital services. Article 112 enumerates var-
ious subsidiary obligations of a concession holder, relative to periodic reports,

protective and preventive measures to be taken, a bond of 1,000 lempiras per
10,000 hectares as a guarantee against damage to surface owners, etc.

In employment, Hondurans shall be given preference as employees, and a mi-
nimum of 80 percent of the labor force must be Hondurans. Exceptions must be
expressly authorized by the appropriate Ministry. With the exception of holders of
reconnaissance permits, all other holders of petroleum rights must provide free
technical training for Hondurans in a ratio of not less than 5 percent of their foreign
personnel or an absolute minimum of three persons.

3. Taxation

Exploration and exploitation concessions are subject to special taxes but other
direct or indirect taxes imposed by Honduran laws are applicable when not in con-
flict with these provisions. Processing and transportation concessions are subject
to general income tax legislation.

Surface tax. Exploration concessions are subject to a surface tax (canon) be-
ginning in the second year at L 0.50 per hectare; increasing progressively to 0.60
in the third year; 0.70 in the fourth; 0.85 in the fifth; 1.00 in the sixth; and if ex-
tended, 1.25 in the seventh and eighth years and 1.50 in the ninth and tenth. Deduc-
tions for certain expenditures may be made, up to 85 percent in the second and
third years and 75 percent thereafter.

Exploitation concessions pay an initial canon of L 3.00 per hectare and there-
after an annual canon on the following basis:

First to fifth years L 3.00
Sixth to tenth years 6.00
Eleventh to fifteenth years 12.00
Sixteenth and beyond 9.00

The deductions allowed are: a) royalties paid in the pertinent year; b) 75 percent
of amounts invested during each year, until commercial production is obtained.

Royalties. Every exploitation concession must pay a quarterly royalty of 12.5
percent of the crude petroleum, natural gasoline and gases, or other solid, liquid,
or gaseous products obtained. Excluded from the computation are petroleum or
gas used in operations and gas injected into a deposit either to maintain pressure
or for lack of a market.

The royalty is payable in kind or in money at the option of the State. If the
royalty is to be paid in kind, the Mines and Hydrocarbons Administration (Direcci6n
General de Minerfa e Hidrocarburos) must so notify the concession holder sixty
days in advance. Otherwise payment is to be made in money on the basis of the
world petroleum price at point of production. Of royalty payments, the municipal-
ity or district in which wells are located receives 2 percent and the remaining 10.5
percent goes to the State. Concessions in the continental and insular shelf must
pay a royalty of 10.5 percent.

In accordance with Article 75, authorizing the Executive Power to take steps
to stimulate the petroleum industry, a reduction of up to 2 percent (that is, to

10.5 percent) may be made for any part of the petroleum production that is refined
in the country.

The royalties and canones imposed by law are inherent in petroleum conces-
sions, and payment is required even if operations show a loss; but in special indi-
vidual cases the Executive Power may grant temporary reductions in theroyaltyfor
five-year periods, but not more than one third of the amount required by law.

Profits obtained from petroleum exploitation are subject to the income tax as
imposed by the law in effect, but in accordance with Article 146 of the Petroleum
Law, the total tax payments to the State shall not be more than 50 percent of the
net profits from operations after making authorized deductions. In computing the
amount payable, the income tax due is added to the surface canon and royalties and
if the resulting sum is less than half the net profits an additional percentage is ad-
ded to arrive at that amount, or on the contrary, the percentage is reduced so that
the total tax payment is not over 50 percent.

Expenses and investments made during the period of exploration, exceptingthe
surface canon, may be deducted from profits obtained during exploitation in twenty
equal annual installments.

Net losses in any tax period, excluding the surface canon and royalties, may
be spread over succeeding years as deductions, but not over more than ten succes-
sive years, nor more than ten years after the loss occurred.

In every tax period a deduction of 25 percent of the gross value of crude petro-
leum production, after payment of royalties, may be made as a "depletion factor",
but this amount may in no case exceed 50 percent of the net profits.

Exports of petroleum or of products obtained in refineries installed in the coun-
try shall be exempt from export tax, and in general petroleum activities shall be
exempt from any taxes not mentioned in the Petroleum Law, but this does not in-
clude municipal charges unless they are discriminatory. Industrial equipment, ma-
chinery, instruments, repair parts and accessories not produced in Honduras may be
imported free of customs and consular duties, if for exclusive use of the industry.

Under all circumstances holders of petroleum concessions may maintain for-
eign funds abroad, derived from operations including sales of petroleum in a foreign
country, to the extent necessary to meet obligations specified in Article 154.

4. Administration

The Petroleum Law of 1957 created the Mining and Hydrocarbons Administra-
tion (Direcci6n General de Minerfa e Hidrocarburos) as a technical-administrative
division of the Ministry of Natural Resources, entrusted with application of the Pe-
troleum Law and with the inspection, supervision, and control of all operations of
the petroleum- industry. This office maintains a Register of Petroleum Concessions
that includes all concessions authorized according to law and all acts, contractsand
encumbrances pertaining to such concessions. Such registration is separate and
does not preclude registration in the Register of Real Property.

Articles 118 to 122 impose fines of varying amounts for infractions of provi-
sions of the Petroleum Law, but not to the exclusion of other penalties that may be
imposed by other pertinent legislation.

Concessions terminate either by expiration of the period of duration or if ex-
pressly renounced or abandoned by the holder. A concession may be forfeited by
administrative action on various grounds, such as failure to pay the surface canon
or royalties, failure to comply with certain technical requirements or boundary de-
marcation, for repeated acts or negligence coming under the definitions of "due di-
ligence", "dangerous acts", or "waste", or for repeated refusal to allow inspection,
supervision, etc. in less serious cases, the Executive Power mayreplaceforfei-
ture by a fine of ten to twenty thousand lempiras.

The regular courts in the capital, Tegucigalpa, are the only courtshavingjuris-
diction over disputes arising between the State and holders of petroleum rights or
applicants. Any resort to diplomatic intervention or disregard of Honduran juris-
diction in a matter will automatically result in voidance of the concession or rights
acquired. Appeal may be taken to the courts from administrative decisions, but
only if they are final.

All applications for permits or concessions in free zones must be submitted to
the Ministry of Natural Resources, through the Mining and Hydrocarbons Adminis-
tration, in accordance with requirements of the Law, indicated briefly in pertinent
sections of this chapter.

A guarantee deposit of L 0.50 per hectare for exploration, L 1.00 per hectare
for exploitation, and 1 percent of the budgeted outlay for processing or transporta-
tion must be made in all cases. The deposit is to be made in case or public debt
bonds, in the Central Bank. For exploration concessions the deposit may be re-
placed by a bond issued by a recognized bonding company.

The requirements to be followed in original applications, as well as for exten-
sions are set forth in Articles 166 to 194 of the Law.



1. Laws and Regulations

The following laws and regulations are now in effect:

Constitution of Mexico, Article 27.

Mining Law of August 2,1930 (published in Diario Oficial of August 7,1930;
amended in 1934 (Diario Oficial of August 31,1934) and in 1944 (Diario Oficial of
February 7, 1944).

Regulations of the Mining Law, September 24,1930 (published in Diario Ofi-
cial of October 18,1930).

Regulations of the Mine and Security Police on Mining Work, of October 4,
1912 (in Diario Oficial of October 12,1912).

Declaration incorporating beds or deposits of rock salt in the national mining
reserves, February 9,1944 (in Diario Oficial of February 26,1944).

Regulations for special concessions for the exploration and exploitation of
sulfur deposits in formations associated with saline domes, July 12,1949 (in Dia-
rio Oficial of July 23, 1949).

Instructions for applicants for mining tracts, published in the Boletfn de Pe-
tr6leo y Minas, March, 1935.

Order (acuerdo) incorporating in the national reserves free lands of the
Republic containing deposits of tungsten, molybdenum, manganese, chrome, nickel,
platinum, aluminum, magnesium and antimony, of September 7,1938 (in Diario
Official of September 28,1938).

Law governing the assets of the Mining Development Commission, dated
December 31,1938 (in Diario Oficial of January 25,1939).

Law on Taxation and Promotion of Mining of December 30,1955 (Diario Ofi-
cial of December 31).

Regulations of the Mining Development Commission, January 12,1939 (in Dia-
rio Oficial of January 25,1939); amendment of 1957 (in the Diario Oficial of Decem-
ber 23,1957).

Law declaring as national mineral reserves deposits of uranium, thorium,
and other substances from which fissionable isotopes may be obtained that may
produce nuclear energy, dated December 31,1949 (in Diario Oficial of January 25,

Declaration incorporating in the national mining reserves beryllium found in
deposits in free lands of the Republic, dated May 13, 1952 (in Diario Oficial of July

Regulations of the law declaring as national reserves deposits of uranium,
thorium, etc., of January 15,1952 (in Diario Oficial of January 17,1952).

Declaration incorporating in the national mining reserves all deposits of
titanium, of March 27,1956 (in Diario Oficial of April 11, 1956).

Declaration providing for incorporation in the national mining reserves baux-
ite found in the central section of the state of San Luis Potosf, of February 16, 1959
(in Diario Oficial of March 3,1959).

Same declaration incorporating phosphorite from the zone of San Luis Potost,
Durango, Coahufla, Nueva Le6n and Aguas Calientes.

Organic Law of the Council on Non-renewable Natural Resources of Decem-
ber 30,1957.

Constitution. The third paragraph of Article 27 of the Constitution provides
that the Government has the right at all times to impose on private property such
provisions as the public interest may dictate and also to regulate the utilization of
any natural elements susceptible of appropriation in order that there may be an
equitable distribution of the national wealth and that this wealth may be preserved.

The fourth paragraph states that the nation has direct ownership of all miner-
als or substances found in veins, strata, and other forms of deposits, the nature
of which differs from the components of the soil, such as ores from which metals
and metalloids are extracted for use in industry, deposits of precious stones, rock
salt and salt beds formed directly from sea water; products derived from the de-
composition of rocks, if their exploitation requires underground operations; miner-
al or organic deposits which may be used as fertilizers; solid mineral fuels...

Ownership by the nation is inalienable and imprescriptible. The Federal
Government may grant concessions to Mexican private individuals for the exploita-
tion of such substances and also to Mexican companies, whether or not they have
foreign partners, and to foreign private individuals, but in the latter two cases
they must renounce the right to seek protection from a foreign government.

The Mining Law. For some time the enactment of a new mining law has been
under consideration inasmuch as the current law of 1930 does not fully meet pres-
ent-day needs of the country. Among other matters are the existence of new miner-
als and fissionable substances and the fact that non-metallic minerals have as-
sumed an importance almost as great as metals. These require more modern and
more effectively applied rules. In addition, there are now numerous isolated
provisions which should be included in a single body of law.

The Law of August 2,1930 governs the exploitation and processing of all
mineral substances with the exception of the following which are subject to other
special laws or to ordinary law:

a) Petroleum and its derivatives;
b) Earths which may be utilized for agricultural or forestry purposes;
c) All rocks which cannot be used commercially in the mining or petroleum
d) Products derived from the decomposition of rocks, if their exploitation
does not require underground operations;
e) Substances contained in solution or suspension in underground waters,
if such waters do not come from a mine;
f) Materials for construction or ornamentation;
g) Products of salt beds not formed directly by sea water.

Article 2 of the Mining Law classifies those mineral substances with which
it is concerned into three groups: a) metallic minerals; b) non-metallic minerals,
including guano and amber; c) mineral carbons (coal) and graphite.

The Mining Law states that the following are regarded as commercial acts
and hence subject to provisions of the Commercial Code unless otherwise provided
by law:

a) Mining enterprises, defined as any enterprise for the direct purpose of
acquiring, operating, or profiting from mining concessions or rights
derived therefrom;
b) Contracts made for the purpose of exploring, exploiting, or transferring
mining property;
c) Contracts relating to the products of mining property.

Regulations of the Mining Law. The Regulations of the Mining Law, enacted
September 24, 1930, specify that the Secretariat of Industry and Commerce (Secre-
tarfa de Industria y Comercio) is entrusted with the application of the Mining Law,
but by virtue of an administrative reorganization which occurred at the end of 1958
all matters governed by mining legislation are now entrusted to the Secretariat
of Government Properties (Secretarfa del Patrimonio Nacional), although legal
provisions to this effect have as yet not been enacted. The Mining Agencies (Agen-
cias de Minas), with offices throughout the country, supervise the enforcement
of the mining laws.

With respect to applications, the Regulations indicate the manner in which
they are to be submitted and the procedure to be observed in relation to the
Mining Agents. The details and requirements that are to be fulfilled in applica-
tions are set forth, which are to be made directly to the Secretariat of Govern-
ment Properties.

The Regulations also cover the subjects of identifying and marking mining
tracts, the form in which applications are to be submitted for processing plants,
the circumstances under which easements may be established and expropriations
carried out, proof of regular operation, official inspections, and penalties.

Regulations of the Mine and Security Police. These regulations establish
the bases on which exploration may be undertaken, the safety measures that must
be taken for mine shafts, mine machinery, reinforcement of mines, ventilation,
communication with flooded workings or those containing poisonous gases, the
handling of explosives, safety measures in coal mines, and the penalties for vio-
lations of restrictions which the Regulations establish.

2. Concessions

General principles. The right to exploit and other rights derived from con-
cessions may not be transferred, wholly or in part, to foreign governments or
sovereigns, nor may a concessionaire admit such entities as partners, associates
or shareholders or grant them any right in a concession. Consequently any act
or contract which infringes upon these restrictions shall be null and void.

The unit of a concession is a mining claim (pertenencia) which is defined as
a solid of indefinite depth, bounded by four vertical planes corresponding to a
horizontal square of 100 meters on each side (i. e., one hectare or 2. 471 acres).

A mining tract (lote minero) may be one solitary claim or a group of adjoin-
ing claims, even if connected by only one point in their horizontal surface, covered
by a single title of concession.

Mining cpncessions may be transferred only to individuals or enterprises
which in accordance with the Mining Law have the legal capacity to obtain such
concessions from the Government.

Prospecting concessions (Concesiones de cateo). In accordance with arti-
cle 20 of the Mining Law, prospecting concessions must conform to the following

a) They shall consist of 9 claims included in a square 300 x 300 meters,
extending from north to south and east to west, with the starting point for measure-
ment in the center, with the understanding that any claims already deeded or pro-
tected by a pending application for concession shall be deducted from the desig-
nated square as well as any portions which are not contiguous to the claim includ-
ing the starting point of measurement;

b) Concessionaires may dispose of such mineral products as are obtained
from operations, and may install plants exclusively for their processing;

c) They are not subject to a special surface tax;

d) They continue in force for two years;

e) The beneficiaries thereof shall have the exclusive right to present an
application for a concession of exploitation to replace the prospecting concession,
wholly or in part, providing such application is made while the first concession
is in force. In the event that the application is still pending at the time the pros-
pecting concession expires, the latter shall be regarded as extended, together
with all rights and obligations derived therefrom, until the date of issuance of
title to the new concession or until other final action is taken.

In accordance with Articles 20-24 of the Law of August 2, 1930, only one
prospecting concession may be held at one time by any person or corporation. A
decree of December 31, 1943 requires proof of the existence of a mineral deposit
in order to obtain a prospecting concession.

Concessions of exploitation. A concession of exploitation shall have the
following characteristics:

a) It must refer to only one of the groups of substances listed in Article 2,
but the holder of a concession in one group, discovering a mineral of another group,
may petition for its inclusion (Article 25 of Law of August 2, 1930);

b) It is granted for an unlimited period, covering a maximum area of 100
claims, except in the case of coal, where the area may include up to 1, 000 claims.
However, one person or corporation may hold an unlimited number of exploitation
concessions on "free lands".

c) The concessionaire is authorized to dispose of such mineral products as
are obtained from his operations and to install and operate processing and pre-
paration plants;

d) It is subject to annual verification of compliance with the constitutional
requirement of regular operation;

e) It is subject to payment of the surface tax in accordance with the terms of
the Law on Mining Taxes.

Proof of regular operation as required by the Mexican Constitution may be
shown by expenditures for wages as provided in the Regulations of the Mining Law.

The amount expended in wages must be on a precise scale determined by the
purposes of the concession, and may vary according to the area of the mining plot
and the group of substances for which the concession was granted.

During the first five years that a concession of exploitation is in force, the
concessionaire is required to expend only one half the wage investment required
and pay fifty percent of the surface tax fixed in such concession by the Law on
Mining Taxes.

Concessions for processing plants. These concessions are granted for the
installation and operation of processing plants with the exception of iron and
steel foundries, of plants for private use with a capacity of less than 25 tons
installed by holders of mineral concessions; and of plants devoted solely to the pro-
cessing of residues derived from other plants and acquired by the owners of the new

Concessions for processing plants are divided into two classes: for private
use, and for public use.

Concessions for private use may be granted only to the holder of an exploi-
tation concession, and the concession holder is required to devote a minimum of
20% of the capacity of the plant to the treatment of ores from the public in the form
and under the terms indicated in the Mining Law and its Regulations.