TREATMENT OF
NATURAL RESOURCES
IN THE 1993 SNA
Ivo Havinga
UN STATISTICS DIVISION
Economic Statistics Branch
National Accounts Section
UNSD/NA/GS
UNSD/NA/GS
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NATURAL RESOURCES IN THE SNA
In this session we shall be discussing the
treatment of the following in the SNA:


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Mineral exploration
Land
Decommissioning costs
Exploitation of natural resources by nonresidents
Mobile phone licences
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NATURAL RESOURCES IN THE SNA
Mineral exploration
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Mineral Exploration in the 1993 SNA

Mineral exploration is undertaken in order to discover new
deposits of minerals or fuels that may be exploited
commercially.
•
•
Such exploration may be undertaken on own account.
Alternatively, specialized enterprises may carry out exploration
either for their purposes or for fees.

The information obtained from exploration influences the
production activities over a number of years.

The expenditures incurred on exploration within a given
accounting period, are therefore treated as expenditures on
the acquisition of an intangible fixed asset and included in
the enterprise's gross fixed capital formation.
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Treatment in 1993 SNA

In discovery of assets through mineral
exploration, 1993 SNA recognises two assets
•
“mineral exploration” as a category of produced
fixed asset.
• “subsoil deposits’ as a category of non-produced
assets.

Exploration, whether successful or not, is
treated as gross capital formation.
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Calls for review of present treatment
Since publication of 1993 SNA a number of
questions have been raised;


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Is the exploration activity separable from the value of
the asset?
How to measure exploration activity?
How to value the deposit?
How to record payments by the extractor to the legal
owner of the deposit?
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Terminology and coverage for
mineral exploration

The IASB uses the expression “mineral
exploration and evaluation” which includes
expenditure on following items:
•
•
•
•
•
•

acquisition of rights to explore;
topographical, geological, geochemical and geophysical
studies;
exploratory drilling;
trenching;
sampling; and
activities in relation to evaluating technical feasibility and
commercial viability of extracting a mineral resource.
This coverage is substantially the same as the
SNA coverage (1993 SNA para10.91)
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AEG Recommendations:


•
Since information compiled according to the IASB
recommendations is likely to form source material
for statisticians, and because it is desirable to
avoid giving the impression that the SNA coverage
is narrower, it would seem desirable to adopt the
longer and more precise terminology used by the
IASB
AEG Recommendations:
The AEG agreed to change the item “mineral
exploration” to “mineral exploration and evaluation”
and to draw on the IASB coverage of this item to
specify the SNA item.
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One asset or two?
Is the exploration activity separable from the value of
the asset? (one asset or two)

There was a suggestion that instead of keeping the discovery
of the asset separate from the deposit itself, they should be
combined and a new “developed natural asset” recorded
instead. This would be treated as a produced asset so that, in
effect, the value of the deposit became included in the total of
produced assets and excluded from the total of non-produced
assets.
AEG Recommendations

The group agreed to maintain a distinction between:
• ‘mineral exploration and evaluation’ as a produced asset
and
• the mineral deposit as non-produced assets.
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How to measure exploration activity?


The 1993 SNA (para 10.91) recommendation has led a
number of users to assume that the mineral exploration
activity is always to be treated as a non-market activity
with no associated net operating surplus.
In case of own-account exploration, valuation may done
so. However, when the activity is undertaken by a
separate enterprise the full amount charged by this
enterprise, including their net operating surplus, should
be included in the value of mineral exploration and
evaluation.
AEG Recommendation:

“mineral exploration and evaluation” is market
production to be valued either at market prices, if
purchased, or as the sum of costs plus mark-up, if
produced on own-account.
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How to value deposits?
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•
•
•
There are 3 options to value deposits:
Present value of net returns from exploitation
Market prices (seldom available)
Owner’s valuation
The AEG agreed that the preferred valuation for
mineral deposits is market price which is
seldom available. In default, the deposit
should be valued as the present value of future
receipts of resource rent.
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How to record payments by the extractor
to the legal owner of the deposit?


In1993 SNA payments made by the exploiter
to the legal owner are treated as property
income.
Sometimes, when the owner of the resource
is the govt, the payments may be described
as taxes even though they are still effectively
appropriation of part of the resource rent.
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AEG Recommendations

In principle, payments by the extractor to
the owner of the deposit are property
income.

Payments by extractor to owner of
deposits should continue to be shown as
property income even if they are
described as taxes and treated as such in
government accounts.
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Lease on Natural Resources

Natural resources with infinite life (like land and
radio spectrum) may be made available, on lease
to other units, for use.

Such a lease does not fit in the characterization of
either the operational lease or the financial lease.

Resource Lease: A resource lease is an agreement
whereby the legal owner of a natural resource which has an
infinite life makes it available to a lessee in return for a
regular payment, recorded as property income and described
as rent. The resource is recorded on the balance sheet of the
lessor. No consumption of fixed capital is recorded in respect
of the resource in the SNA in the accounts of either the
lessor or lessee.
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NATURAL RESOURCES IN THE SNA
Treatment of Land
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Treatment of Land in 1993 SNA

Land improvements are GFCF.

On the balance sheet, land improvements
are included with land as non-produced
assets.

The decline in value of land improvements
is recorded as CFC.
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Land improvement – 1993 SNA
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Reclamation of land: dykes, sea walls,
dams.
Clearance of forests, rocks, etc.
Draining marshes, irrigation of deserts by
dykes, ditches, irrigation channels.
Prevention of flooding or erosion by sea
or rivers: breakwaters, sea walls, flood
barriers.
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Land improvement – 1993 SNA

Land improvements …..are not in themselves used directly
to produce other goods and services in a way that most
structures are. Their construction is undertaken to obtain
more or better land, and it is the land, a non-produced asset,
that is needed for production. For example, a dam built to
produce electricity serves quite a different purpose from a
dam built to keep out the sea.

Acquisitions of tunnels and other structures associated with
the mining of mineral deposits, etc., are classified as GFCF
and not as improvements to land.
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Land - Problems in current treatment
• Land improvements are recorded as GFCF but are
•
•
•
also recorded as non-produced assets on the balance
sheet
CFC is recorded in respect of a non-produced asset.
In some cases, land improvements may account for
most of the combined value.
Some countries are unable to obtain estimates of the
total value of land, and they can only estimate land
improvements.
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Way forward: Options
1.
Leave the SNA as it is.
2.
Classify land as either produced or nonproduced according to how much land
improvements contributed to total value.
3.
Identify land improvements as produced assets
and unimproved land as non-produced.
4.
Treat land improvements in the same way as
buildings and structures.
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AEG decisions

GFCF of land improvements should be treated
like other GFCF and result in a produced asset
appearing separately in the balance sheet;

The non-produced component of land should be
valued at its present unimproved value;

Where the value of land cannot be partitioned
into an improved and unimproved part, adopt
recommendations for land and associated
structures as in Para 13.57 for balance sheets
and Para 7.131 for rent and rentals;
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AEG decisions – contd.

Costs of ownership transfer on land should be
recorded as fixed assets and included with land
improvements.

Activities such as land clearance, land contouring,
creation of wells and watering holes which are
integral to the land in question and which are carried
out by the landowner are to be treated as part of land
improvements. Activities such as the creation of sea
walls, dykes, dams and major irrigation systems
which are in the vicinity of the land but not integral to
it, often affect land belonging to several owners and
which are often carried out by government, are to be
classified as structures.
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Treatment of
disposal/decommissioning
costs in the SNA
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Cost of disposal of non-financial
assets

Costs of ownership transfer is capital formation

The cost of ownership transfer on disposal of an asset should be
recorded as gross capital formation at the time it occurs, but this
GCF should be written off over the period the asset is held.
•
•

This is a change from SNA93, which says that it is written off
immediately after the transaction occurs.
This also means that in order to write off the value of COT on
disposal, one needs to have an estimate of expected length of
time an asset is held on average and an estimate of expected
COT on disposal. Remember that it is written off even before
COT takes place.
Installation and de-installation costs should be included in costs
of ownership transfer if separately invoiced, and in the
purchaser’s price of the asset otherwise.
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Cost of disposal of nonfinancial assets

Terminal costs should be recorded as capital
formation when they occur but the whole cost
should be written off as CFC over the life of
the asset, analogous to costs of ownership
transfer on disposal. This means that it will
have to be written off even before
decommissioning takes place.

When this recommendation on terminal costs
cannot be followed for lack of adequate data,
these costs should still be recorded as GFCF
but written off as CFC immediately.
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Natural resources in the SNA
Right to use/exploit natural
resources between residents
and non-residents
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Right to exploit natural resources
between residents and nonresidents
LAND

For land a notional resident unit is created which is
deemed to purchase the land while the non-resident is
deemed to purchase a financial asset.

Similar treatment for the building or other immobile
produced asset when acquired by a non-resident.
Thus the decision to treat some land as produced
(land improvements) does not alter the position that
all land must be owned by a resident unit.
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Right to exploit natural resources –
contd.
Mineral Deposit

If a unit is exploiting mineral deposit for more than one year, it is
necessarily a resident unit.

It is possible to imagine a licence to exploit a mineral deposit
being given to a non-resident unit

In the period before exploitation starts, should this unit be
regarded as resident?

The 1993 SNA recognize that in this case a centre of economic
interest was not established before activity started.

But in alignment with the BPM, it has been decided by the AEG
that the acquisition of the licence is sufficient to establish a
centre of economic interest and thus the licence holder would be
deemed to be resident.
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Right to exploit natural resources –
contd.
Forests

If a non-resident unit enters a country for a short period
(less than one year) to fell part of a forest, should this be
treated as a notional resident unit giving rise to production
or not?
AEG Decisions:
For logging or static natural resources subject to short-term
extraction:

Extraction must take place for more than a year to
establish a resident unit,

A fee for one-time extraction represents the sale of an
asset, and

Illegal extraction should be recorded as uncompensated
seizure.
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Right to exploit natural resources –
contd.
Fish

A fishing vessel becomes resident only if the operator
establishes a base in the country in question, otherwise
the residence of the vessel remains that of the operator,
regardless of the area in which it is fishing,

Fish beyond the EEZ may be treated as assets if allocated
by international agreement,

Permits to catch fish may represent assets in their own
right,

Illegal fishing should in principle be recorded as
uncompensated seizure.
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Treatment of mobile phone licences
Issuing licences for mobile phone licences – major source
of income to Govts. Treatment not exclusively
mentioned in the1993 SNA
The ISWGNA decided:
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•
•
•
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Spectrum is a tangible, non-produced asset
The license to use it is an intangible asset in most circumstances
Typically, licence payments are neither taxes nor purchases of the
spectrum itself
Land, subsoil assets and the spectrum are similar types of assets and
so are leases and licences based on the use of these assets
There is no single, universal and clear-cut criterion to distinguish
between rent and asset sale — a range of criteria needs considering
Most cases examined point to licence payments as purchase of an
asset, not rent
The value of licence and the value of the spectrum move symmetrically
Further elaboration will be useful for the future
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Mobile phone licences – contd.
Payment for licence to use - rent or sale of asset?
Determining Criteria:

Costs and benefits assumed by licensee: more risks and
benefits associated with the right to use an asset are incurred
by the licensee, the more likely the qualification of a transaction
as the sale of an asset as opposed to rent.

Up-front payment or installment: mode of payment is in itself
not conclusive for a characterisation as asset or rent payment.
However, business practice shows that up-front payments of
rent for long periods (15-25 years in the case of mobile phone
licences) are highly unusual and this favours an interpretation
as sale of an asset.
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Mobile phone licences – contd.

Length of the licence: licences granted for long periods
suggest a treatment as the sale of an asset, for shorter periods
a treatment as payments for rent.

Actual or de facto transferability: possibility to sell the
licence is a strong indication of ownership.

Cancellation possibility: stronger the restrictions on the
issuer's capacity to cancel the licence at his/her discretion, the
stronger the case for treatment as a sale of an asset.

Conception in the business world and international
accounting standards: businesses, in accordance with IAS,
often treat a licence to use the spectrum as an asset. This
provides an added incentive to treat them in a similar way in
the national accounts.
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Licence to undertake an activity

Payment to Govt. to undertake a specified activity is a
tax unless it involves the use of a natural resource
(environment is not a natural resource in the SNA).

When payment is associated with the use of a natural
resource – whether it is payment of rent or acquisition
of an asset would be determined using the criterion
mentioned in case of the mobile phone licence.
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Thank You
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