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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

Mongolia’s Policy on the Minerals Sector is Under Final Discussion

By Elena Fehrbach

Jan. 5 – The Policy on the Minerals Sector has been first introduced in July 2013 as a legal guideline on the main principles of operation in the minerals sector approved by the government. Since July, the Policy undergone a number of revisions and is now well-shaped for the final discussion by the Parliament. It should be noted, that the Policy is not an equivalent or substitute to the Minerals Law, but a leading document showing country’s direction in the minerals sector.

As for the Minerals Law, the new draft of the Law has been introduced to public approximately year ago and became a reason for a serious criticism on behalf of mining companies and potential investors. The first draft of the Law had a series of unfavorable ownership and operations conditions treated as “unacceptable” in some cases. The Government’s reaction on the criticism was a prompt promise of further work on amendments that would involve specialists from the industry involved in the minerals sector operations directly or indirectly, such as representatives of mining companies, law firms and financial institutions.

Minerals Law is still under amendments stage with no clear date of the final draft release. The Minerals Law draft release coincided by time with approval of the first new draft of the Strategic Foreign Investment Law which contained several conditions that were not accepted by the international investment community and eventually turned away a large amount of the foreign direct investment from Mongolia. The new Policy and even more important, the Law are the most welcomed pending legal documents in Mongolia which are expected to be game-changing regulations aimed to bring more minerals sector investments to the country.

Summary of the Policy on the Minerals Sector

The Policy is divided into 4 sections: rationale, principles, policy and implementation/results. The main focus of the policy is on responsible mining, transparency of operations and value-adding development of the local communities. Therefore, the key rationale of the minerals sector development is in medium and long- term development growth. The main principles outlined are provision of the stable investment environment, innovation in technologies used and mutual transparency in development.

The Policy proved the following conditions supporting the investments in the minerals sector:

  • Stability of taxation and the legal environment
  • Equal investment conditions for foreign and Mongolian investors
  • Preservation of strategic resources and responsible activities at the operation sites

The new Policy has a large focus on the private sector participation in development of the minerals sector which gives hope that smaller restrictions provided by the Policy and Law would not cause any significant difficulties during operations.

New conditions in the recent draft

The latest version of the Policy has a newly introduced section on social development and support as well as development of the rural areas:

  • Control and registration of the exploration and operating licenses transfers
  • Improved regulations on the gold extraction and gold trade control
  • Transfer of the ownership of controlling stake in the mining entities
  • Improved dispute resolution procedures
  • Compliance to the international standards in evaluation, exploration and development of the natural resources projects
  • Support of the international best practices for transparent and responsible mining

Main provisions of the new Policy:

Strategic deposits. The Policy will aim to increase the government regulation and responsibility with respect to the strategic deposits on one hand, but will aim to reduce the bureaucracy and local control over operations on the other hand. The core aim of strategic deposits development is to make it mutually beneficial for the country and investor.

Local developers. The government will aim to conduct various specific technological and scientific studies that would help the producers to increase productivity and competitiveness.

Priority commodities and activities in minerals sector. The Government outlines the key priority commodities and activities that would have a priority support, namely coal processing, coking plants, CTL and conventional coal-fired power plants.

Development of local communities and rural areas. Support of the development of local communities is of the high priority in the new Policy. That requires an extended participation of the investor’s management and local government in the development of the projects at the initial stage to create a proper working environment and level of trust. The developer is responsible for making a clear introduction about the development project, support of the local development projects in the area of operation, and introduction of the clear vision about mutual benefit from the minerals project development. The local communities should have a benefit from all the projects introduced by the developer. Employment of the local workers is another aspect of high importance.

Environmental issues. This section covers the developers’ responsibility for rehabilitation of the operation site after termination of the field works. It also covers the government’s support of the NGOs researching on environmental issues caused by the mining activities.

Implementation stages

This is the new section introduced in the most recent draft. It covers introduction of the new government regulations, projects and initiatives related to the minerals sector during the period 2013-2015. The implementation period for the mentioned activities is planned to be 2014-2025. Further planning based on the results of the mid and long-term activities is assumed to take place in 2020-2025.

Expected results

As a result of the new Policy implementation, the following outcomes are expected by the government:

  • Long-term development and prosperity of the minerals sector in Mongolia
  • Extensive establishment and implementation of the best international practices
  • Responsible and transparent operations from developers’ and government’s side
  • Increased quality and quantity of the value added products
  • Government support and implementation by developers of the latest technologies
  • Environment protection on all the operation stages
  • Development of infrastructure
  • Development of the rural areas/cities and decreased migration of population from the provinces to the capital.
  • More employment opportunities
  • Establishment of the favorable business environment based on the introduction of the new trading and business platforms

The new Policy and the amended Law should be adopted sometime in 2014. As the most expected upcoming regulations, these documents represent a big step forward in the direction of setting the new level of mining sector investments in Mongolia- the most welcomed basis for the country’s future.

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