PANAMA Law and Practice Contributed by: Roy C Durling, Arias, Fábrega & Fábrega
first one of ten years and the last two of five years each. In the case of construction materi - als, such concessions are granted for an initial period of ten years and a maximum area of 500 hectares, and their term may be extended for an additional ten-year period. Prospecting permits are granted to individu - als (not companies), and allow their holders to engage in preliminary geological surveying on a non-exclusive basis for an initial period of six years. Transportation and processing concessions enable the holders thereof to transport and pro - cess minerals on behalf of a mining operator legally entitled to extract those minerals. Each such concession may be granted for an initial period of 25 years, subject to three renewal peri - ods, the first one of ten years and the last two of five years each. Holders of extraction conces - sions engaged in the ordinary course of extract - ing and selling mineral products are not required to obtain these supplemental concessions. Issues During Concessions Concessions may be cancelled if the holders thereof breach their obligations under their con - cession contracts or relevant legal provisions under the CMR and other applicable laws. A mineral concession may also be cancelled if the holder is declared bankrupt or insolvent. The concession contract may include concession- specific events of default that give rise to the cancellation of the contract. The CMR allows a grace period of one year for payment defaults by concession holders, and provides that the concession will not be can - celled in the absence of repeated refusals or failures to submit required reports or comply with inspection requests from government offi -
cials. Moreover, a concession will be considered abandoned if mining operations cease for an entire year, in the absence of any force majeure event. The cancellation of the concession will be decreed by the Minister of Commerce and Industries in an official document that will list the reasons for such cancellation. By law, the government of Panama has the right to terminate a concession agreement for rea - sons of public interest (ie, without the existence of defaults) and upon the payment of fair com - pensation. This principle applies to all the con - cessions that may be granted to a mining com - pany for the development of a mining project (mining, water, power, road building, etc). The details of what constitutes public interest and fair compensation depend on the type of con - cession. Typically, the reasons of public interest will be explained in the decree that declares the termination of the concession. In the absence of special dispute resolution pro - visions in the applicable concession contracts, an affected holder may have to resort first to the Administrative Tribunal of Public Contracts and ultimately to the Third Chamber of the Supreme Court of Panama to challenge any unjustified ter - mination of its rights. It may be possible to nego - tiate with the government for the inclusion of an arbitration clause in the concession contract to address the resolution of potential disputes, but generally the government is reticent about the inclusion of such clauses. In addition, if any holder hails from any country that has entered into a bilateral investment treaty (BIT) with Panama, it may use the remedy and protection mechanisms provided in such treaty.
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