We give below a summary of President Ts.Elbegdorj’s opening address at the public discussion of the draft Minerals Law in the Citizens’ Chamber.
This is my second meeting with you since we began working on the draft two years ago.
The media reports that Mongolians do not favour the newly revised draft. A consensus, or even a perfect understanding of another side’s views, is something that cannot happen easily. The Mongolian State principle is to come to a closer understanding on basic issues with our scholars and researchers. We need to find the “golden mean” in the positions of all sides and then include it in the draft.
The Working Group put in a lot of work. The draft was presented to the public and the feedbacks so far are just the tip of the iceberg. Today, I shall get to hear more opinions.
I would like to focus on three main issues. The first is the geological exploration of minerals. A mining activity starts with exploration. This includes prospecting, exploring and researching. We need to view the start of a mining activity properly. The second thing is research and study. We need to encourage basic research and to have a clear idea of future goals. The last thing is the operation of the mine. Today, all our focus is set on this last stage, with little interest in the two that come before.
Currently, the State’s role is restricted to issuing of licences to private entities and it doesn’t get involved in prospecting, exploring and estimation of resources. Until now, we have been saying, “If you find anything from your exploration then your exploration licence can serve as a mining licence.” When it’s like this, there is no use screaming for “the State and the people”once a problem arises afterwards. The State no longer has any policy on geology. No longer does it think about where and what kind of minerals we have and where and what to explore. We have also neglected to formulate a State policy on minerals.
This is not a subject for the election
The previous Government did do something but the new Government found it ill-prepared. Perhaps the matter is being discussed at the Ministry of Mining now. Let’s talk about this first.
I agree with what the seniors, experts and scholars of the mining sector are saying. We study the examples of Australia and Chile a lot, but we also need to get acquainted in detail with various features of our own mining. We need to identify the mistakes in Oyu Tolgoi and Tavan Tolgoi, and start making a list of lessons to learn. The State policy on Minerals would be formulated on the basis of observations and criticisms, but evaluation and assessment of the draft of the Minerals Law is not yet complete. The delay is only to allow further studies on this important issue, but suspicious people have said the President wants to keep the Minerals Law issue alive for the coming presidential election. It is not so. Those who relate this with the election must realise issues concerning our minerals affect the destiny of the Mongolian people and go much beyond one presidential election. If we fail to do things correctly, we shall have no end of disputes in the next five to ten years. That’s why the draft will not be presented in the Spring session. The old Minerals Law remains in force until the new one is passed.
There are money issues in the mining sector. If money is spent, then the policy comes out. Domestic private entities can influence the policy of the State because they spend money and so do foreigners. This could mean that both the State’s and the people’s interests are overlooked. There is no progress regarding the making of the State policy, because no money is spent yet. When we talk about mining, we only discuss one third of the issues and the remaining two thirds are left out. Their social structures apart, countries have their particular geological features. Perhaps the word geology will be added to the name of the Ministry of Mining once the law is passed.
Let’s first determine the State policy on the mineral sector and then attend to a Minerals Law. One thing that is bringing down the reputation of Mongolia is the perception that a few members of parliament can change laws however they want, making the legislatory environment unstable. Therefore, the policy needs to come out first and then the general law. And after this, let’s coordinate issues pertaining to geological and strategic minerals.
Also we need to give attention to the issuing of licences. Taxation, rent and royalty issues must be solved as a whole. We shouldn’t change the present laws before a holistic policy is adopted. The State shouldn’t sit without money not knowing what’s under the subsoil. The State can do the geological work.
We shouldn’t be in a hurry to use up all the resources
The Constitution says, “The natural resources under the subsoil belong to the people and will be in circulation through the State.”
There are 2253 exploration licences and 1255 mining licences in Mongolia today. The Director of the Minerals Authority has noted that over 100 of these licences were issued illegally. Isn’t it enough to have so many mines in Mongolia ready to be operated? Between 300 and 400 of these licences are in the South Gobi area. There will thus be 40 more active deposits if just 10 per cent of these licences are activated. We shouldn’t be in a hurry to use up all our resources.
A problem arises here. Construction material prices are going up. Some want to take up sand, gravel and common minerals separately. Personally, I don’t think it’s a good thing to make a separate law on nonmetallic resources such as sand and gravel. We also need to consider what to do with uranium, oil, natural gas and rare earth elements. Let’s tell them to stop bringing down the reputation of Mongolia both from within and outside. It is not that the Mongolian State has suspended everything. There are 2253 exploration licences out there. Plus there are mining licences under the old law as well.
The State doesn’t have a clue about what resources are where. Such lack of knowledge affects our capacity to act. If the State spends more on geological research and exploration, it will be easier to have a data-based policy on their use.
I’m not sure what happened to our Geological Institute of the old days. This used to decide what kind of township and infrastructure needed to be set up. Because we don’t any longer have such an organisation, no city is being built around Oyu Tolgoi. Actually, an investment agreement should include such provisions. National security and foreign policy concerns dictate that we have clarity on investment from other countries. We must be sure how much investment from a country is acceptable and also about what form this investment takes.
There are aimags with fewer than ten licences while some others have too many. In Zavkhan aimag, there were no mines at all but now there are two or three. I heard that there are 27 exploration licences in Khuvsgul. How can the State support them in terms of road, tourism, and agricultural industry?
I’m not calling for a return to the old days of socialism when everything was planned by the State. Our policy is to look at aimags one by one and decide which sector should be developed where. We should not be obsessed with mining. We have privatised animal husbandry, and wish to have a clear and detailed idea of what kind of natural resources there are.Only then can we formulate the correct policy.
When we talk about geology, we need to plan the exploration activities in the field, and to prepare accurate technical and economic feasibility studies. What should be the State’s exact role in all this? Will it just approve what the companies submit? There are people who discount the worth of exploration work done during socialism, and spend money to do the work all over again according to approved foreign standards.
The problem is that there is no database of the samples that were dug out. Exact and clear information must be thereon what kind of minerals lies where and at what depth. In the absence of clarity, it is wrong to say, after the event, that the State made a mistake regarding investment agreements and licences and gave away wealth for cheap.Let us establish a reserve fund and aresearch organisation to help determine policy.
We need to agree
Doesn’t having a strategic deposit mean it has more significance than others, and that the State needs to pay more attention to it and to have guidelines on how it is to be run?
There is a fall in the number of people who want the State to own a certain pre-set percentage of the strategic deposits. Taxes on deposits of strategic importance should be much higher. They need to have adequate social infrastructure. If a strategic deposit has been developed by a company, the State should take it back and reimburse the construction costs. We need to determine how the location of a deposit affects Mongolia’s strategic security. Foreign countries even have specific rules and regulations for particular deposits.
We talk about local participation and local authority a lot. But this is not to allow some authoritative boss at the local governing office to make mad demands. There are many issues to solve including licences, the environment, mine closure agreements etc. Earlier, because all deposits were State-owned, all post-closure responsibilities devolved on the State. Since today most of the deposits are in private hands, if a mine is not correctly closed, the ultimate responsibility will be that of the people of Mongolia.
It has been a mistake to devote only a few articles to regulate issues concerning the Contingency Fund and mine closure. They look more like declarations of intent than mandatory requirements. Ideally, we need clear regulations governing every stage of mining activity. We need 400-600 articles to regulate one particular deposit, including its monitoring and financing, but since we don’t have them, we tend to cover everything in the investment agreement.
We have issues concerning stocks and distributions and we even started talking about a resource fund. How should we really spend the revenue from natural resources? Should we eat them up in the name of the State? Or should we set aside 5, 10 or 96 per cent as Norway does for the future and put the remaining 4 per cent into the Budget? Probably we can’t go from 100 per cent to 4 per cent right away, but we can try gradually doing so. We will not have a good policy unless we see the ger picture for the mining sector.
If underground natural resources are the property of the people, who is competent to make claims and complaints regarding them? What powers will courts that deal with such issues have? When discussing the Minerals Law, we should also consider issues concerning artisanal mining in the Law on Artisanal and Small-scale Mining. We have to clearly apportion responsibilities. Will the State do exploration work? What if the resource amount is determined incorrectly? What punishment should be given if one estimated the resource amount of a deposit to be 120 billion tons while it is in fact 200 billion tons?
Will the Minister establish agreements?
We need to specify in the law that the local authority should have superior rights concerning supplies. Price of minerals is always controversial and we have varying explanations regarding royalties. We need a consensus on these issues.
Laws on nuclear energy, natural gas and petroleum are being implemented separately. We need to think about whether we need a separate law on natural gas or not. Also there is the issue of rare earth elements. Some European countries and other highly developed countries propose to work with us in the sector of rare earth elements. But when the licence is in the hand of “bad guys”, how can we determine the state policy?
It’s been way too long since we last touched the subject of the Civil Law. How should we handle arguments? Will the Minister be responsible to make agreements, or private professional companies? Let us make this clear. Let us classify the issues concerning arguments on mines by the type of the minerals. Let us have a new Working Group. The current Working Group will not be disbanded but will be expanded. Let us have further discussion on the draft. The draft will not be submitted for discussion in the Spring session.
There is no law on property rights in Mongolia. Regulations on State, public and private property should be included in such a law. This law is a most crucial one in a free market society like ours. The Government should be working on this.
Let me say this to the foreign investors. Until the new law is passed, they have to abide by the current Minerals Law. We will work towards passing a law that is not one-sided. Work on railway and power plants will take place at the same time.
Haste most often makes waste, so instead of having problems crop up after some time because we made a “half-baked” law today, we’d rather spend more time on determining policy now and review all controversial issues carefully.
A new Working Group will be established to formulate State policy in Minerals Sector after discussions with D.Gankhuyag, Minister of Mining. I shall attend those talks. However, there needs to be a separate group of law experts to draft the text of the law. We have had many law proposals and Working Groups. We have learnt our lessons from the past and want to do better this time around. It is not like we are going to start from scratch, because we do have an existing policy and law, and can build on that foundation.
I have been talking about local rights for four years. There has been no law as yet, but we have made some progress. We can follow this example in carrying out other tasks. Some people might feel unhappy at the delay in passing the law but the policy is clear and we do have a current law. If necessary, we shall make some urgent changes to other legislation as we wait for the “ law” to be passed.
I think it’s been nine years since we started extending exploration licences. Even if the law is much more precise and detailed, it may not be able to catch all the tricks companies use. A new situation may very well arise in five or ten years. What I’m trying to do here is to let you know that we need to regulate the issues we face today.
If we can make a good proposal, the outcome can be good. We will discuss who should submit the draft proposal. If the President submits the proposal, he can’t veto it if any change is made to the draft. For today the principle that the President would submit the revised draft of the Minerals Law is still valid. We can change this afterwards upon discussing with the State Great Khural and the Government. The President needs to have the right to veto if there is anything wrong after the State Great Khural’s discussion. The wall is being built by the President’s institution. The President has to participate in such a significant law draft.