B.Baatartsogt, head of the geological policy department of the strategic policy and planning authority at the Ministry of Mining, was part of the working group on amendments to the Minerals Law, to bring it in sync with the recently adopted State Policy in the Minerals Sector. N.Ariuntuya talks to him on the amendments, now awaiting discussion in Parliament.
Why were the proposed amendments needed, and how will they improve the law?
A little background first. The State Policy on the Minerals Sector was passed in January, and is meant to guide the direction the Mongolian geological and mineral sector will follow until 2025.
A law on banning the issuance of mining licences was approved in 2010. Since then, not a single fresh licence has been granted and the existing licences are coming close to their respective expiry dates. If it goes on like this, there will be not one valid licence remaining in Mongolia in four years’ time. This has meant a halt in investments in the geological and exploration sector and there is little work in drilling, prospecting, geophysics and laboratories.
This was the main force behind the amendments to the Minerals Law, to reintroduce a sense of urgency and vibrancy to the sector, setting out norms and guidelines incorporating lessons from the past.
Our emphasis was on grant of new licences. They will now be granted only on areas approved by the State. Under the existing law, licences are issued in two ways: they go to the first applicant or a tender is floated. This tender was announced when a license had expired, or had been cancelled or returned. The amendments now propose granting a licence on cancelled areas or areas returned partly or wholly to the first applicant. Since 2006, cancelled licences were replaced by selection through tender, whereas now they will be granted through the chronological order of receiving applications: First come, first granted. New licences will be issued on nearly 20 per cent of the total territory.
Another major change is in the definition of ‘deposits of strategic importance’. At present, the term is applied to a deposit that may have a potential impact on national security, economic and social development of the country or that is producing or has a potential to produce more than five per cent of total Gross Domestic Product in a given year. The amendment omits the reference to any potential impact on the national economy. Mongolia’s GDP and economic capacity is growing, and so we decided to classify the ger deposits as strategic. It is now up to the State Great Khural to approve the change.
We also propose that documents such as reports on exploration work results, reserve estimation and feasibility studies will be prepared by accredited professionals. Their accreditation will be the responsibility of NGOs. This is in line with the State Policy on the Minerals Sector provision to transfer certain responsibilities of the State to professional associations. We believe this will also be a help to the Professional Mineral Council to improve its working to meet international standards.
Several amendments seek to support the operation of entities registered in Mongolia. For example, when a licence holder acquires goods or services, or hires subcontractors, he will be required to give priority to such taxpayer entities. The present law has little on processing plants but the amendments propose that the Ministry of Mining and the Government of Mongolia will set out standards for processing plants and regulations for their operation. This will help in establishing processing plants, in national entities having more work and income, and in making value-added products locally.
There is also an amendment regarding penalties and corrective measures. Bigger fines have been proposed for infringements, going up to 30-50 times the minimum wage for certain offences. The oversight system to identify violations is also getting stricter.
We put in several provisions to clear up the mess around licence issuance and illegal trading in licences. We have proposed a total ban on any transfer of a mining licence within three years of its grant. Once a licence is granted, its holder will have to hire professional organisations and teams to perform geological and exploration work and to conduct a complete survey of the licensed area. This will stop people from holding on to the license for years without doing any exploration and then selling it.
A minimum amount has been set for annual exploration work and this is highest in the last year of the life of the licence. When applying for an extension of the licence at the end of its 3-year term, the holder would return 10 per cent of the land and then 20 per cent of the remaining land by the 6th year. This proposed amendment is to ensure that the licensee actually does exploration work, and also makes a proper study of the exploration area. Some exploration licences covered around 400,000 hectares of land, an area equivalent to what could cover several soums and aimags. We studied the matter and have proposed that no single licence will cover more than 150,000 hectares, thus obviating the possibility of large tracts of land kept without any meaningful exploration work on them.
The proposed amendments also suggest adopting international standards in estimating reserves and doing mineral reserves classification. This will enable international acknowledgement of the worth of the professional work of Mongolian mining experts and geologists. We should speak the same language as the rest of the world mining industry, and our calculations, results and templates for feasibility studies should be for everyone to understand.
The amendments want exploration licences issued on the basis of geographical coordinates on an area approved by the State. Has enough work been done for determining an area by coordinates?
We began the work last year and identified lands ready to be used for exploration licences. The Law on Land classifies land into six categories: agricultural; land of cities, villages and other settlements; land under roads and networks; land with forest resources; land with water resources; and land for special needs. We completed work on determining the borders of these lands, and then compared these borders with geological maps showing potential deposits and earmarked lands where exploration can be done. So now all explorable land is marked on a proper scientific basis. As and when the amendments are adopted, the Ministry of Mining will prepare a registry of these lands and submit it to the Government to be approved and recorded. From then on, licences will be issued only on lands determined by coordinates. No other land will be available for any kind of mining activity. These ‘unavailable’ lands would include those in the ‘long-named’ law, land for special needs and agricultural land.
Would the “first come, first granted” principle for issue of mining licences not encourage illegal trading?
It is international practice to grant the licence to whoever applies first. Actually, the system of selection by tender affords more likelihood of extraneous influences to come into play, deterring genuine investors. However, it is proposed to continue with selection by tender or auction for lands where the reserve amount is already estimated. This, too, is accepted international practice.
You propose several kinds of mining licences in place of the only two at present. Why did you feel it necessary to issue separate licences for processing plants, mapping, feasibility studies, geological research and analysis, drilling and geophysical activities?
These were there in the first draft, but were omitted after talks with a working group from the National Security Council, as being contrary to the principle initiated by the President – “From a Big Government to a Smart Government”.
Maybe some such kind of regulation will be found necessary in the future, to ensure standards are maintained and to improve the quality of work.
So processing plants will not require a special licence?
No. But there is a set of standards and operational rules for them. However, geological mapping, feasibility reports, geological survey, drilling and geophysical activities will follow the old pattern.
The draft requires a mining licence holder to get the first permission from the local self-governing authority, and then sign an agreement. Many fear this will in many cases be denied, given the strong anti-mining sentiments now prevalent. Is this not likely to hinder the growth of the industry?
We did consider this. The prototype of the agreement will be prepared by the Government, to ensure clarity and transparency. It will set down the norms of the cooperation and relationship between the licensee and the local authority.
What would these be?
These mainly relate to issues of environmental protection and voluntary support to local development. There will be no more celebratory feasts and events for fund raising or demands for sponsorship.
How about infrastructure issues?
These will feature in Feasibility Reports and not in the agreements with the local authority. All issues related to development of a deposit’s infrastructure will be dealt with in the Feasibility Report.
The amendments were widely expected to say something radically new about ‘mineral deposits of strategic importance’, but all that you propose is omitting any reference to the ‘national economy’. Obviously, contributing 5% of the GDP cannot be a criterion for strategic deposits as that is a fluctuating figure. What is your take on this?
Not many deposits of strategic importance will fulfil this criterion, but we have kept it.
Decree No.27 lists 15 deposits as being of strategic importance and the draft retains it, but also suggests no new addition. In case the Government shares ownership of a deposit, the percentage will depend on the deposit’s economic viability and profitability.
The State now has ownership in deposits where State funds were spent on prospecting and exploration, but also in those where this was not the case. Where private money had been spent, the licence holder could submit a request to list the deposit as one strategically important. Without such request, the deposit will not be classified as of strategic importance even though it produces or has the potential to produce more than five per cent of the GDP. Therefore it is stated, “A deposit of strategic importance will be operated in cooperation with a legal body that submitted a request to the state central administrative body in charge of geology and mining.” But a deposit where State fund was spent for prospecting will definitely be classified as strategically important.
You say the percentage of State ownership in any strategic deposit will be determined by an agreement on usage of the deposit. What things will be considered and how?
The most important reference point will be the Feasibility Study. The percentage of the State’s ownership in deposits where its funds were spent could be up to 50 per cent and it will be up to 34 per cent in deposits where State funds were not spent. We just wanted to get rid of the system where the State owns some share in a deposit and spends money on it. It’s up to the State Great Khural to make a decision.
The draft wants a feasibility study to be prepared by an authorised entity within one year of obtaining a mining licence. Is that enough time to complete a feasibility study for a deposit?
The present limit is 60 days, and we extended it to one year, based on the opinions of companies, NGOs and professional associations. One year is reasonable amount of time, but if it’s a really deposit, we can extend the time limit.
When will all the regulations be in place?
We have proposed a reduction in the number of regulations, often transferring to NGOs and professional associations responsibilities now vested in the State.
The government has to approve the template for miners’ agreements with the local self-governing authority. Amendments have been proposed to the existing regulations on mineral deposits and enrichment plants. Totally new regulations are needed for the database in geology, mining and minerals, and for NGOs to handle authorisation of experts and analysts. Another set of regulations will be needed for the Policy Council -- its structure and operation.
You propose transfer of certain responsibilities of the State to NGOs. Do we have NGOs with the required qualifications? Or is there need for new NGOs to be established?
The main area of such transfer is authorization and certification of experts.
Now, Mongolia is soon to become a member of CRIRSCO (Committee for Mineral Reserves International Reporting Standards) in order to align with international standards our own standards for mineral reserves classification. One prerequisite for membership of CRIRSCO is to have a professional NGO for geology and mining, authorised to certify experts. With this end in view, a NGO called Mongolian Institute for Geology and Mining was established. Its first general meeting was held on April 18 last, with nearly 500 experts, geological and mining engineers and technical staff participating. The NGO approved its internal regulations, membership rules and ethical rules at this meeting. A 15-member board, along with the president and executive president, was selected. Basically, this is an organisation similar to the Mongolian Institute of Certified Accountants and the Lawyers’ Association. Eventually this organisation will be in charge of certifying professional advisers and issuing degrees etc and represent Mongolia on CRIRSCO. As soon as the draft is passed, this organisation will begin operation.
Will the Ministry of Mining be in charge of approving regulations for mine closure and rehabilitation?
It will do this along with the Ministry of Environment and Green Development. Mine closure and rehabilitation is part of mining activity, so the Ministry of Mining has to be involved. And the other ministry comes in as rehabilitation is very much associated with environmental issues.
Do you propose regulating rare earth elements through the Minerals Law?
Yes. Mining these elements will involve radioactivity to a certain degree. Every mineral has some radioactive content. So uranium and thorium will be regulated by the Law on Nuclear Energy and rest of the minerals will be regulated by the Minerals Law.
What do the amendments say about the 106 special licences and halt in investment following the long-named law?
The amendments say nothing at all about either issue. As you know, the court has ordered to float a tender to select new holders for the 106 licences, and issues regarding the long-named law have to be regulated through the regulatory law.