Ch.Unurbayar, Legal Policy Advisor to the President of Mongolia, explains the principles behind the draft mineral law while answering questions from the Mongolian Mining Journal.
Considering the widespread interest in what policy Mongolia adopts on its mining matters, what would you say is the defining concept in the draft law?
Our starting point is what the Constitution says, which is, “All the underground wealth is owned by all Mongolian people, and it has to be under State protection.” The two non-negotiable principles are, first, that the nation owns the wealth and, second, that the State protects it. It is very important to attract institutional investors, particularly those globally well-known, if the mining industry is to develop. We also insist on environment-friendly and safe practices, as also on use of high-grade technology. The draft law merely emphasizes and enshrines these principles. The State will keep a watchful eye and actively ensure that the national wealth is put to optimal use, while at the same time honouring fair business practices and encouraging domestic participation in mining development.
You have suggested several ways in which the State will wield more and effective control. For example, the draft calls for State ownership of certain deposits to rise from 34 per cent to 51 percent and gives the State a significant voice at all stages of a company’s operation, beginning with allocation of licence.
Yes, we have sought to tighten the legal environment and plug loopholes. The present system is too lacking in specifics and this often allows the decision-taking authorities to act arbitrarily, and, in the process, to serve their own interests. In the absence of unamuous clarity, State agencies or authorities interpret words in the law as it suits their own interest, to the despair and frustration of investors.
We have endeavoured to pinpoint situations and areas where State officials get the chance to take inappropriate decisions and to be bureaucratic. We have sought to make the rules and regulations more comprehensive and less amuous, and have also set out detailed procedures. State control will very much be there but it will be exercised in a transparent and equitable manner.
How does the draft encourage true expression of local wishes and ensure that the local authorities’ decisions are actually followed?
The draft proposes that companies seeking mining licences must first get permission from the local Citizen’s Representatives Assembly. If local people don’t give the green light, another application for a licence in that area will not be entertained for four years. Some of the initial local resistance could well be uninformed or unjustified but once people see how mining in a neighbouring soum leads to long-term economic development, their attitude of pointless opposition would change.
The real advantage of the provision is that it would put an end to the present practice which sees mining companies indulge in corrupt means to influence local executives. The negotiations would be transparent to the people and the terms of the agreement would have to be approved by the relevant ministry also. On the one hand, this would open the way to united local support for the companies and, on the other, the ministry would be involved in planning the mine’s development and its impact on local growth. All information will be freely available,making it easier for people to oversee that work implementation follows the schedule. There would also be prior announcement of areas where licences would be allocated, allowing the local development measures to be more orderly and more planned.
We have to strike a balance between attracting foreign investment and allowing local people some control over what happens in their area. There is no provision for this at present. Instead, corruption is rampant, and bureaucracy is all powerful. There is no coordination between the legitimate interests of the three parties -- local people, mining, and investors. The draft follows Constitutional principles in ensuring that investors keep local interest in mind and this is the way to healthy and proper development of the mining industry. We expect further valuable inputs from the debates, both in and outside Parliament.
Will citizens really be able to participate in local development?
Giving citizens authority is essential for development but we must also see they have adequate information and follow democratic principles. There will certainly be problems in the early stages of open and direct participation by citizens, but once people understand their rights and responsibilities, things will improve. The executive should not be the sole arbiter of state authority.
At the same time, a company has to be given a good work environment, once it has received the licence. The State’s responsibility does not end with the grant of the licence. It must ensure the proper policy is followed in mining operations. For this, the company must be free to access all business opportunities it is legally entitled to. The draft has some provisions allowing tax benefits until such time as the company recoups its initial project investment.
You earlier mentioned the need to attract investors, especially those recognised around the world. But why should they come to Mongolia when the draft has provisions like the one that says 75 percent of a mining company must be owned by Mongolians?
One of our guiding principles was to allow a good environment for domestic companies to grow and become more competitive. A good way to do this is to give them the opportunity to collaborate with foreign entities with global reputation. Obviously, domestic companies going it alone cannot compete with foreign ones, either economically or in management. So if we leave development of the mining industry in the hands of foreign investors, our national entities can never make the grade. We have tried our best to balance the two imperatives.
When do you expect the draft to be approved and become law?
We cannot give an exact timetable at the moment. We want to submit the draft at the earliest but there should be no hurry as the issue is a very serious one. Once it is passed, the new Mineral Law will largely determine the way of Mongolia’s future development. Its importance would be second onlyto that of the Constitution. Thus we are looking for suggestions from all quarters so that we do not repeat previous mistakes.
Adoption of this draft will mean changes in some 30 mineral-related laws. It has also taken over two years to be prepared. As a lawyer, are you satisfied with your work and how do you rate its standard?
We have indeed broken new ground. Never before in Mongolia were there debates where social groups whose interests are to be affected gave their views when a draft law was under preparation. This has been of great benefit as the discussions elicited views from political figures, ordinary citizens, and investors. We have not been swayed by any special interest groups but have been fair to all. It would be gratifying if the same practice is followed when any future draft law is on the anvil.