Mongolia's new State Minerals Policy

In brief

The Mongolian Parliament has adopted a new State Minerals Policy, which will serve as the basis for amendments to the existing Minerals Law and other laws relating to the mining sector. Partners Igor Bogdanich and David Wenger and Senior Associates John Koshy and Tserena Yumjav look at what the new Minerals Policy will mean.

Background

On 16 January 2014, the Mongolian Parliament adopted a new State Minerals Policy (the Minerals Policy). The main focus of the Minerals Policy is to:

• establish a stable investment environment;
• improve the quality of mineral exploration, mining and processing;
• encourage the use of environmentally friendly and modern technology; and
• strengthen the competitiveness of the Mongolian mining sector on the international market.

More specifically, the Minerals Policy will serve as the basis for amendments to the existing Minerals Law and other laws relating to the mining sector.

Mining regulation in Mongolia

A draft Minerals Law was issued at the end of 2012 for public comment and was met with significant criticism by the business community and industry groups on the basis that it would impede the efficient development of mining projects in Mongolia. The draft was issued at a time when there was substantial investor uncertainty in respect of Mongolia's foreign investment framework.

The draft law was subsequently shelved in favour of amendments to the existing Minerals Law. A draft of the proposed new amendments to the Minerals Law has been prepared based on the principles of the Minerals Policy. Coupled with recent reforms to Mongolia's foreign investment laws, which we reported on previously (See Focus: Mongolia's new investment law), the Minerals Policy indicates a concerted effort by the Government of Mongolia to attract renewed investor interest in Mongolia.

The Minerals Policy outlines general principles aimed at providing long-term sustainable development of the mining industry, and provides for equal treatment and non-discrimination of investors in the mining sector. Its goals include achieving more openness and transparency of State organisations and State-owned companies. The Minerals Policy also plans the gradual privatisation of State-owned companies in the mining sector and focuses on the State improving its administrative services to achieve more transparency and efficiency, and providing more support to the private sector.

Improving the legislative framework in the minerals sector

The Minerals Policy seeks to improve laws and regulations and implement international standards in various areas such as:

• occupational safety;
• artisanal mining;
• the registration and monitoring of the transfer of exploration and mining licenses (including the transfer of all the shares or controlling shares of a mining company);
• gold mining and sales;
• evaluation of mineral deposit reserves; and
• dispute resolution systems.

It is also envisaged that separate legislation will be enacted in relation to the exploration and mining of deposits of common minerals such as sand. 

Geological industry – improving research and databases

The goal of the Minerals Policy in the geological sector is to increase the quality of, and information in, the geological database of the Mongolian State through implementing internationally recognised methods and classifications, and to intensify prospecting activities by supporting private sector involvement. An improvement of the registration and monitoring system for mineral deposits is also envisaged by ensuring that there is an annual update of the mineral reserves of Mongolia.

Extraction industry – transparent and responsible mining

A key objective of the Minerals Policy is to develop a transparent and responsible mining extraction and processing industry that is export-oriented, compliant with modern international modern standards and that will provide sustainable development to Mongolia.

In relation to strategically important mineral deposits, the objective is to develop better cooperation between the State and the private sector while also increasing the State's control, monitoring and responsibility. The Minerals Policy does not state how this will be achieved and therefore it remains to be seen how this objective will be implemented.

Finally, an important goal of the Minerals Policy is to ensure efficient monitoring by the State and or/local authorities of mining operations and the related levying of fees and charges, including avoiding any duplication of fees and charges.

Processing industry – supporting value-added production

The Minerals Policy aims to increase the secondary processing of minerals and support value-added production through policy and legislation, including through tax and financial incentives to be offered by the State.

Examples of processing projects that could receive State support include coal concentrate, coking coal and chemical plants, coal-fired power plants, liquid fuel and gas extraction out of brown coal and liquid fuel extraction out of oil shale.

Local development

The Minerals Policy supports conditions that will allow investors and local communities to better understand the impact of a mining project before the commencement of mining operations, and to increase the awareness and responsibility of local authorities in presenting the social and economic impact of the mining project to the local community.

A local development agreement, made between the investor and the local community as contemplated by the current Minerals Law, should be transparent and involve the stakeholders in the mining project.

Environmental protection and rehabilitation

Environmental protection is a key aspect of the Minerals Policy, as it seeks to develop rehabilitation regulations consistent with international standards.

With regards to water, it will encourage the use of surface water rather than underground fresh water In mining and processing operations, as well as the re-use of water and the use of grey water.

Implementation of the Minerals Policy

The Minerals Policy aims to establish a 'Policy Council' with representatives of the State, investors, professional associations and the public, to make recommendations and support the implementation of the Minerals Policy. From a practical perspective, the Minerals Policy will be implemented via legislative reform and directives to the relevant regulatory authorities in Mongolia. The Government of Mongolia has indicated that it will reflect and promote the Minerals Policy in its budget process. 

The Minerals Policy sets out a broad timetable for implementation of its objectives as follows:

• legislative reform – 2014 and 2015;
• implementation of principles of the Minerals Policy – 2014 to 2025; and
• assessment of implementation of the Minerals Policy – 2020 and 2025.

In summary, the Minerals Policy sets out objectives for the Mongolian mining sector, which should encourage both foreign and domestic investment. It will remain to be seen how such objectives are implemented through amendments to the Minerals Law and other laws, and the creation of new regulations. Investors will be interested to see how Mongolia balances the rights of State and industry, and the environment, while at the same time providing favourable conditions for the development of extractive industries and private sector involvement.    

(Allens is an international law firm which practices throughout the Asia Pacific region. It advises on international legal issues in Mongolia but does not provide Mongolian legal advice. Allens regularly works with Mongolian counsel where Mongolian legal advice is required.)