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Wednesday, July 6, 2011

Mongolia Briefing is a magazine and daily news service about doing business in Mongolia. We cover topics relating to the Mongolian economy, the market in Mongolia, foreign direct investment and Mongolian law and tax. It is written in-house by the foreign investment professionals at Dezan Shira & Associates

Law on Prohibiting Mineral Exploration and Extraction Near Water Sources, Protected Areas and Forests

By Elena Fehrbach

The Mongolian Government is currently reviewing the Law on Prohibiting Mineral Exploration and Extraction Near Water Sources, Protected Areas and Forests. This Law is commonly referred as the “Long Name Law”. The first version of the Law was adopted in 2009 aiming to keep the mineral extraction operation within the environmental framework that would ultimately protect rivers and forests from harmful disturbing.

Though the idea of the Law is clear and understandable, the actual execution of the Law has been inadequate in the sense of the reasonable application of all possible conditions from Government side, as well as the mining companies. When the Law was first introduced, it was under the governance of the Ministry of Environment and Green Development, which supposed to implement certain measures, such as setting of the boundaries of the three affected regions in Mongolia, however, it hasn’t been done so far.

As a result, the Ministry of Mining has received petitions from 346 mining companies that have been granted mining licenses and started the extraction operation before the Law was adopted, but had to suspend operation after the Law came into force.

The new legal framework is suggested to establish the mutually beneficial conditions of mining operations. One of the key conditions is that mining companies will develop the rehabilitation plan which would be the basis for the three-lateral agreement between the Mineral Resource Authority, mining company and local Government in provinces. The main points of the agreement would be the successive stages of company’s operations, the expected revenue and possibility to rehabilitate the land after mining operation is finished. Mining companies will be obliged to plant 10 new trees for each cut tree. Three-lateral agreement will provide the opportunity for a dialogue and monitoring of mining operation on the local Government level.

This Law has primarily been affecting gold producers. Currently there are 30 mining companies that produce gold and provide the gold reserve of the Bank of Mongolia. Previously the Bank of Mongolia has been receiving up to 20 tonnes of gold per year, now it decreased to 4-5 tonnes. The new framework is assumed to bring the gold companies back to operation allowing a reasonable extend of mining operation boundaries in the forest and river areas. The Government has been discussing the issue with gold producers and received the preliminary confirmation from the gold producers to deliver gold to the Bank of Mongolia.

The establishment of the transparent and reasonable legal framework will be mutually beneficial for the Government and mining companies. The Government interest is largely within the tax and revenue input from gold mining operation as well as companies’ responsibility to rehabilitate the mine site at own cost; while for mining companies getting back on track with minimum disturbance is the most desired factor.

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