End of confusion over “long-titled” law in sight

The law prohibiting exploration and extraction in certain water and forest areas, commonly known as the“long-titled” law, continues to be in limbo. Belying expectations, the special session of the State Great Khural did not discuss the draft regulatory law to amend several of its disputed provisions. Some reconciliation of opposing positions is now likely before the Fall session. N.Aruintuya explores how the proposed amendments will alter the law.

The newly passed Investment Law has invalidated the earlier Law on Regulating Foreign Investment in Entities Operating in Strategic Sectors but the draft amendments onthe “long-titled” law will not do any such thing. The basic principles in the law as it stands now are not negotiable to those who see it as an obligation for the state to protect water sources and forest reserves, both already under threat. The Government’s main concern is how to meet the claims of companies who say their interests have been unfairly violated. That is why the Government wants to pass the Regulatory Law, which seeks to draw a line between licences issued before and after July 16, 2009, the day the long-titled law came into effect, and also to differentiate between prospecting licences and mining ones.

The amendments would have mining licences legally issued before the passing of the law to remain valid but all others stand to be cancelled, with no claim to compensation. The 346 mining licences that are to remain in force will be given a choice. They can operate only if they agree to full and proper post-closure rehabilitation. Those who may not agree to the rehabilitation terms will be allowed to surrender their licence, but will be allowed to leave only after rehabilitation of the land already affected. They will also not be entitled to any compensation.

Licence holders willing to continue operations are to submit a request, which will be processed under terms set out in the draft amendment. To enable the Regulatory Law to be drafted, the Ministry of Environment and Green Development slightly changed the definition of what constitutes the border of the protected regions, and it will now first make sure that the continuing operations will not be in areas still shown as protected. The other assessment will be made jointly by the Ministry of Mining and the Ministry of EGD to determine whether the amount of mineral resources estimated to be found by prospecting is enough to pay for adequate ecological reclamation following mining activity. Experts of the Ministry of Mining will calculate the costs of using the estimated resource according to the Feasibility Study, and those from the other Ministry will set the standards and costs for rehabilitation. A comparison of the two and the final decision will be taken by a joint working group. The entire process will be a long-drawn one, and the draft envisages it will take one year or so for every case to be decided.

If the request is seento be viable on both counts, the company will then be asked to give a guarantee that it is capable of undertaking the rehabilitation work according to standards set by the Ministry of EGD. After this, an agreement will be made between three parties -- the Mining Authority, the company and the local authority, with the aimag Governor representing the last.

The draft also changes the way rehabilitation will be guaranteed. At present, the companies have to make an advance deposit of 50 per cent of the current year’s rehabilitation expenses, but the proposed Regulatory Law asks for an advance cash deposit of 50 per cent of the total costs, and some form of guarantee covering the remaining 50 per cent.

The present law affects 10 types of minerals, butmost of it is gold, with nearly 200 of the 346 mining licences and 316 of the 789 prospecting licences pertaining to it. Gold companies have to submit all the gold they mine to the Mongol Bank. The draft law is in pursuance of the Government desire to make this sale of gold a transparent process and also to increase exploration activities.The Ministry of Mining estimates that a total of 123.8 tons of gold -- 27.4 tons in the placer deposits and 96.4 tons in the main deposits -- is there in the border zones sealed off by the present law. Separate model agreements will be prepared on each mineral, and any violation of terms will mean cancellation of licence.

The present law stipulates that companies that do not wish to continue operations as also those failing to meet the established standards will lose their licence, and will not be paid any compensation. So far, 163 of the 242 gold deposits have submitted their request to continue. Nearly 80 of them have been allowed to continue operations without compensation, while 63 others have been declared liable to get altogether MNT222.5 billion as compensation.

Still no regulation for prospecting licences

The draft Regulatory Law has no separate directives for prospecting licences issued before the law came into force, treating them on par with mining licences. The Ministry of Environment was more concerned with mining licences. B.Batkhuu, director of the Policy Implementation Department at the Ministry of Mining, had argued that prospecting is risky work, with no guarantee of success, and so the 789 valid prospecting licences should be allowed to continue work until these expire in 2018. The only restriction he supported was toprohibit prospecting in areas too close to the banks of the river. If a deposit is found, it will automatically be subject to strict mining norms, but if the estimated mineral reserve is not enough to cover final rehabilitation costs, that would be hard luck for the prospectors. His views werenot favoured by the Government.

Even then, the issue of prospecting will have to be discussed at the ensuing Parliament session, and there would certainly be demands for special treatment for projects which have seen substantial investment and also for those whose estimated resource amounts are high. Of the 789 prospecting licences, the investment amount for 84 exceeds MNT1 billion each. On the other hand, 386 licences have spent less than MNT50 million each.

Let us take the example of Haranga Resources LLC, which has found the second gest iron ore deposit in Mongolia. Its prospecting license expires in a year. Registered at the Australian Stock Exchange, the company has many Mongolians among its shareholders. Its total investment has been $14 million. Now, a project like this surely deserves special consideration. Its find can be termed a strategically important deposit to keep it out of the law’s ambit.

Only 77 of the 789 licences are on areas wholly forbidden, and the rest covers areas partly there, partly unencumbered. They can surrender the prohibited parts and stay clear of the law. It is the other 77 which will test implementation of the long-titled law.

Prohibited zone not finalised

The law applies to 1,336 licences, 909 of them for prospecting, and 427 for mining. The corresponding numbers in the draft Regulatory Law are 1,135, 789 and 346 respectively. This is because mineral licences could be granted and transferred in the 11 months between July 16, 2009, when the law was passed, and June, 2010, when the President banned such activity. That accounts for the absence of any reference to 120 of 909 prospecting licences and to 81 of 427 mining licences. However, there is something else: 77 out of 81 mining licences were issued in addition to already active prospecting licences, because the holders of the prospecting licences could not change them into mining ones before the law was passed. Parliament will have to discuss this, though there is little doubt that the remaining 4 licences will be cancelled.

Similarly, the 1,728 licences originally included in the long-titled law became 1,336 because around 400 licences surrendered areas falling in the prohibited zones. The same happened to 242 gold licences, of which 10 were eliminated.

The number of licences has kept changing because of incomplete demarcation of the borders of prohibited areas. The borders mentioned in the Government’s Decree No.174 in 2011, which listed 1,728 licences, were redefined in the later Decree No.194, which the Ministry of Environment announced to the public. Now, there are some problems with Decree No.194. It was issued in haste on June 5, 2012, most likely with an eye on the election. The list of protected areas mentioned in the decree was submitted to the Ministry of Mining only after the election and was found to have lots of errors. Non-professionals like soum governors had had a hand in preparing the list, and this had led to mistakes.

A joint working group established by the two ministries to fix the errors is still at work. The Ministry of EGD wants to use satellite images, but this is expensive. Since the draft says the coordinates must be approved by citizens’ assemblies, the images will be sent to the aimags and from there to soums. Any local authority refusing approval will have to provide cogent reasons.
Time constraints have been cited as the reason why the draft has been submitted to Parliament before these errors are rectified. Neither side is helped by loss of more time. However, accurate borders indicating admissible buffer zones are essential for fair implementation of the law. Naturally, the number of licences will change as the borders shift. In many cases, the licence holder and the local authority may have to sit together and work on the map. Any disagreement will be ironed out with help from an expert from the ministry, but once a decision is reached, it will be final.

Ministry of EGD surrenders, and stays put

The revised Law on Water allows the Ministry of Environment and Green Development to make an evaluation of the prohibitory borders and the respective local authorities will approve its decision. The Ministry, perceived as not being too mining-friendly, has been surprisingly accommodative this time and many see this as surrender in a way. In a bid to restrict the prohibited area, the protected zone has been brought forward 200 metres from the original 400 metres. Nearly 100 licences will benefit from this, though final figures will be clear only when error-free geographic coordinates are published.

The two opposing sides in the controversy over the long-titled law are, broadly speaking, companies and the civil society. Both are known to have carefully studied the draft Regulatory Law and are likely to have sent in their suggestions. Environmental organisations had come to an agreement with the working group on the need for a quick solution, but on the day the special session of Parliament began, they opposed amendments to the law and created chaos outside Parliament House, using guns. Their leaders were arrested. It’s difficult to say what will happen next. The companies, on the other hand, have approved of the general principle of the draft while seeking some change in a few articles.

The Ministry of Mining had suggested prohibition of mining only in water source areas, but the Ministry of Environment and Green Development was firm on retaining the ban on forest areas as well. Even after it has agreed to bring forward the protected area by 200 meters, gold placer deposits are likely to be shut down, denying licence holders access to an estimated 27.4 tons of gold. Several major investors suggested a compromise regulation that would allow mining if the river areas were rehabilitated to their original condition.
The Ministry of EGD justifies its stand by pointing out that environmental experts see a decade of drought now giving way to a decade of rain. Rising precipitation started in the summer of 2010 and is likely to continue until 2020. With so much area in the territory of Mongolia scarred by mining activities, rains give us a chance to work on rehabilitating these areas and to allow top soil to form, says D.Enkhbat, Director of Environment and Natural Resources Department at the Ministry of EGD. Reclaiming destroyed land is not an easy job, and it takes year of uninterrupted rehabilitation to get back top soil. Things get much more difficult and expensive in dry weather, and the Ministry of EGD’s position is to proceed with rehabilitation and reclamation work in the remaining few years of the pleasant cycle. The Government appears to accept the argument.

There is an air of optimism that with some tweaking here, and some change there, the confusion generated by the long-titled law is finally going to be ended after four years. We have to tread carefully so as not to leave behind any scope for future controversy. Some major steps in breaking the deadlock would be, as we have shown, unamuous demarcation of the prohibited zones, ensuring that licences issued prior to the law’s passage operate strictly in accordance to the law, enforcing rehabilitation responsibilities, and solving the  compensation issue equitably.

Our fair land must prosper to everybody’s benefit and not be subject to unrestricted depredation. Some 27.2 million hectares of land or 17.3 per cent of the total territory of Mongolia are in the strictly protected regions and 41.7 million hectares or 26.7 per cent are for special local use. It is no great loss if nearly 50 per cent of the territory of Mongolia remains out of bounds for mining activities. Systematic and sustainable exploitation of what remains will be adequate.