Economic impact of Serbia’s Jadar lithium project: Projected contributions to GDP and state revenues

The argument in favor of lithium mining in Serbia, particularly the Jadar project by Rio Tinto, is largely centered on the anticipated economic benefits. Here’s a breakdown of the key points and data provided in the study by Ergo Strategy Group:

Economic contributions:

1. Direct GDP contribution: The Jadar Project is expected to contribute approximately 695 million euros annually to Serbia’s GDP. With Serbia’s GDP at around 60 billion euros in 2022, this represents about 1.2% of the GDP. By 2027, with a projected GDP of 100 billion euros, this contribution would be about 0.7%.
2. Total economic impact: Including both direct and indirect effects, the project’s contribution to Serbia’s economy could reach 1.9 billion euros, which is more than 3% of the current GDP.

Budget contributions:

1. Initial phase payments: During the initial phase (until Rio Tinto recovers its 2.5 billion euro investment), annual payments to Serbia’s budget are estimated to be around 48 million euros. This includes:
   • Income tax: 1 million euros
   • Mineral rent: 23 million euros
   • Municipal payments: 2.5 million euros in income tax, 6 million euros in property tax, and 15.5 million euros in mining rent
2. Post-incentive phase payments: After the investment recovery period, payments are expected to rise significantly to 184.5 million euros annually, including:
   • Mineral rent: 24 million euros
   • Profit tax: 85 million euros
   • Dividend tax: 50 million euros
   • Increased mining rent: 16 million euros

Company profits:

• Estimated annual profit: Based on a profit tax rate of 15%, Rio Tinto’s planned annual profit from the Jadar Project is around 567 million euros, given a lithium carbonate price of 15,600 euros per ton.

Tax incentives:

• Current status: Rio Tinto has indicated no specific discussions or agreements regarding tax incentives with Serbian authorities yet. The company notes it will comply with the OECD’s “Pillar 2” regulation, which ensures multinational companies pay at least a 15% effective income tax rate.

Construction and operation timeline:

• Construction period: Estimated at 48 months.
• Full capacity operation: Expected to take an additional 36 months.
• Investment recovery: Expected to take about 15 years from the start of construction.

Uncertainties:

• Tax incentives and subsidies: There’s a degree of uncertainty regarding potential tax incentives or subsidies, which could impact the total payments to the budget. Rio Tinto has not detailed any specific agreements on these incentives.

This economic argument for lithium mining in Serbia emphasizes the significant potential benefits to the country’s GDP and budget, despite the environmental concerns and uncertainties about specific tax incentives.