Ch.Otgochuluu, Head of Strategy and Policy Planning at the Ministry of Mining, talks to S.Bold-Erdene on what lies ahead, now that the long awaited amendments to the Minerals Law have been approved. What are the principal changes made to the Minerals Law?The minerals sector makes up 20% of the Mongolian economy, draws 80% of its Foreign Direct Investment and accounts for nearly 90% of our total export. Mongolia imports food, clothes, consumer products and oil and it is the income from the minerals sector that provides the money for this import. It was thus necessary to change the sector’s law so that the geology and exploration sector could attract investments that would finally end up strengthening the economy.
The amendments were aimed at protecting the legal rights of investors and valid licence holders. Parliament emphasised this principle when discussing the draft amendments. I would say the amendments will support the private sector and reduce bureaucracy, and can therefore be seen as making the law more liberal. For example, take the issue of licence trading. Because of the sector’s unique character, licences are constantly in movement, which basically helps develop the sector. Smaller companies sell their licences to ger ones. Not every geologist can operate a deposit. Some drastic changes to the law had been proposed to stop such trade, but several of them were not supported by MPs after discussion in Parliament.
One amendment will help national companies providing products and services to major deposits. Use of more and more modern technology means the number of jobs in mining proper gets reduced, and this loss can be balanced only if the supply sector expands.
Procedures for obtaining or extending licences have been made as simple as possible. The old law listed many grounds on which licences could be cancelled, but now many of these call for just a fine. Earlier a licence was cancelled if the licence fee was not paid strictly on time or if a court made a decision to cancel that particular licence. The judicial right remains untouched but there would no longer be any cancellation if the fee was paid one hour late because some bank employee or an accountant had been negligent.
Now if a court case is finally decided in favour of a licence holder, the validity of the licence will be extended for the time spent on the disposal of the case, during which operations remained suspended. There was a case where a case lingered for some four years, and at the end of it, the licence holder had only five years left for exploration work though the licence had been given for nine years.
Another amendment concerns the issuance of mining licences. Instead of the earlier practice of dong this through a tender, now those who apply first will be granted first, which is the international way of granting licences. This will be good for investors.
The exploration period has been extended from 9 months to 12, keeping in mind that Mongolia’s winters are long.
The Professional Minerals Council is no longer under Government control, and NGOs and professionals are now responsible for running it. This, too, is international practice. The rationale is that professionals can better assess exploration work reports, reserve estimates, feasibility reports and such. With international stock exchanges also requiring this system, the change will help licence holders raise money.
Laws and regulations should have stability, whereas in Mongolia, especially during elections, they tend to change a lot. In order to prevent this, we decided to establish the Policy Council. Its main purpose is to keep the legal environment for the mineral sector stable, and it will have representatives from investors as well as professional associations.
Another issue we tried to address through the amendments is bureaucratism. There have been many cases of government organisations not responding timely to a licence holder’s concerns. So we set a timeframe. From now on any case should be dealt with within 30-60 days. This particular amendment should reduce bureaucratic apathy and high-handedness now experienced by business owners and mining companies.
And, of course, the principal change is to allow resumption of granting licences after a gap of 4-5 years.
Why was no decision taken on strategic deposits?There were a lot of differences on them. The amendment proposed by the Government wanted to retain strategic deposits, but did not favour Government borrowing to own shares in them, arguing that taxpayers’ money should be spent in building hospitals and schools. Basically, mining exploration is a gamble. With luck, one can find something after 10 drills, and without it, nothing can be found even after 100. Drilling costs a lot. The volatility of commodity prices means mining itself is a risk. A company cannot even be sure of recouping costs. So we thought the State should not be put in such risk. This was what the majority of MPs also thought.
The 15 deposits are certainly of economic importance but they form just a small part of the total mining industry. OT has its own Investment Agreement and the State doesn’t own any stock in the Tumurtei zinc deposit. Erdenet is operating smoothly and Tavan Tolgoi is about to get going. Boroo has exhausted its reserves and three uranium deposits will be regulated by a different law. This being the situation in the mineral sector, we did not want the issues around these 15 strategic deposits to restrict the working of the whole sector and the career prospects of mining professionals experts. Also, the proposed amendments had created great expectations in the economy and the investor community. So we postponed a decision on the issues regarding strategic deposits and approved the rest of the draft law.
When will the amended law start being implemented? When will new licences begin to be granted? There are standard procedures to be followed but implementation should not take long to begin.
The mainstay of the mineral sector is geology and exploration work. Extraction and sale come only after we know what minerals are where. Finding out mineral reserves is important in many ways. It will raise our credit rating. Besides, all the investments made in geology and exploration will stay in Mongolia, creating many jobs, and giving national companies the opportunity to provide services such as drilling, geophysics, catering etc. As no new licences have been issued in the last 4-5 years, the number of currently valid licences is fast depleting. It will take the next 2-3 years for things to change. This does have its pros, but the cons are more. Geologists have been idled and are in need of jobs. We have decided to begin granting licences again, but of course, this cannot begin from tomorrow. Certain steps have first to be taken.
The previous Government took responsibility for exploration work at all places where there was potential to add to the State reserve. The present Government will have to annul that decree. This is part of the 100-day programme. This could not be done earlier as we were waiting for the amendments to be adopted.
New licences that will now be issued cannot cover any area included in the long-named law. The Government has to issue a decree determining which areas do not fall under that law, and licences over them can be offered only after that. I think all this will be done only by the end of this summer.
How extensive is the area over which the State has the authority to grant licences?At one time, licences were granted over 45% of the total territory of the country. This has now fallen to 7% and with so many licences expiring, this percentage will only decrease. Areas under mining licences do not cover even 1% of Mongolian territory.
Nearly 70% of the total territory is protected by the long-named law and the law on protected areas or are in State reserve, so licences can be granted only on the rest of the land. The map for the long-named law is almost ready.
Before the ban on new exploration licences, something like $600 million had been invested in the sector in a year. Some $400 million was spent just on drilling. The ban led to a drastic reduction in investment but we do hope things will look up once we begin granting licences again.
Which cases will qualify for tender selection?Areas that have prospected reserves will go through tenders. There are unavoidable cases for tenders regarding the company’s financial and technical abilities etc.
Will there be any regulation for this?Yes, the regulation is ready. Once the law begins to be implemented, the regulations will have to be aligned with the law and registered at the Ministry of Justice.
An amended version of the Law on Petroleum was also passed. What were the main changes made to this law?The amended Law on Petroleum determines the responsibilities of Government organisations and opens up choices for contractors. And it creates the legal environment for oil shale, coal methane gas and bitumen. Certain changes have been made in taxes also. For processing plants and untraditional forms of petroleum, there will be no VAT and customs duty for the first five years.