Sunday, December 30, 2012


Office of the President of Mongolia published the new draft bill of the Mining Law on its website, which drew great deal of attention from mining sector representatives. One of the highlights is adjustment made to the article of “Mineral deposits of Strategic importance”. Here is the interview with Executive Director of Mongolian Coal Association, Mr. Naran, in order to learn what the representative of one of the biggest sector of mining in Mongolia has to say.

What do you think about the new draft bill of the Mining Law is not to add any more mineral deposits to the current 15 deposits of strategic importance and, furthermore left out the 39 mines in the draft?

There is a broad misunderstanding that when mineral deposit becomes “strategic important” it is becoming more profitable to Mongolian and the Mongolian people. It is firstly, we still carry our socialist mindset that individuals cannot have capitals and it is yet “dangerous” or when it is state owned we can share it all together and everyone would be given fair share. Secondly, I do not think it is a lie when better-informed people say “After a lot of hard work and investment the mine becomes attractive and people with power try to take it away making it as “strategic important””. I hope the President envisions the pros and cons of mineral deposits being “strategic important” and make these adjustments.

According the current law state ownership is 34-51% in those 15 strategic important mines. However, the law was not implemented and all the mines privatized except Tavan Tolgoi. Don’t you think people were expecting the government to work on this issue that a few locals and foreigners own all of them?

After the parliament passed the law in 2007, not a single mine got out of state ownership. However, what it offers to the economy of the country by being strategic important? On which strategic important deposit Mongolian government invested and developed it? I do not recall any major activities that have been done except the some deposits are being bailed and the money spent uselessly. This list of mineral deposits of strategic importance includes several deposits of brown coal. No investment has been made to those and no one cared. Perhaps, if they were not “strategically important” at least the deposit could have been estimated accurately. The fear has grown among foreign investors - after much investment the deposit could be taken away by the government. It can be true that some deposits are strategically important. Yet why does it have to be owned by the government? Why private companies cannot get the license and use it without failing its strategic importance? Instead of the government “try” to use it, we’d better support the foreign investors who are investing to these strategic important mines. Unfortunately, when it comes to ones of strategic importance the development becomes slower, which make the investors disappointed. Tavantolgoi and Oyutolgoi are the clear examples.

In Mongolia, a big part of license holders are foreign companies, ranging from unknown small companies to world-class giants. How friendly is the mining sector for local/Mongolian companies?

Our companies have very limited capacity to develop and invest in mega projects. The mining business requires a great deal of sustainable and long-term investment until it becomes profitable. Since we do not have banks and investment companies that are capable of investing in big projects, mining companies are operating based on foreign investment. In the current situation, regardless of how much preferential treatment is given to local companies, it is hard to become reality without foreign investment.
Article 66 in this draft bill says Mongolian share shall be 75% in the license holder company, however, the question is if we have such capacity -- if are able to invest 75% percent in the company that is capable to develop big mining projects. We are witnessing that how the government acts as a shareholder of 34% of Oyutolgoi. It might create some fake companies as well. Even tough this article seems like it is supporting Mongolians, it can be contradicted and closing the opportunities.

For example?

Previously, 50% of the rehabilitation works and mine closure expenses was required to be deposited in advance and in this draft bill it has been increased to 100%. Let’s say if the mine is 30 year long project, thus the rehabilitation starts after the 30 years, which of course requires a lot of money. It is difficult for not only Mongolian companies but big foreign companies as well to deposit the 100% of the reclamation fund right before the mine project starts – when it is not profitable yet. So, the Mongolian shareholder of 75% (mentioned in the previous answer) has to pay the expense in advance. Perhaps, instead they would rather become government officials and sell their signatures through the levels bureaucracies and get rich.

Can you please more clarify the increased expense and bureaucracies before mine projects start?

The draft bill has increased the number of types of licenses from two to four: prospecting, exploration, mining, and processing. After obtaining the licenses, three types of permit for operating should be obtained. All the licenses will be issued through tender. However, if the authorities do not like something from any common man, Dorj or Dulmaa, they have power to not to include any areas in the tender and suspend it for unknown period of time. Moreover, local authorities, i.e. aimag or soum, are given some superior powers. Current law is not so limited for local authorities. Unfortunately, they do not seek to cooperate with mining companies according to the law and do not use the existing opportunities to develop the local areas; instead they ask different kinds of donations, contributions and even threaten the mining companies – keen on receiving any type of bribes. I am not talking about all the local authorities. Yet, I do have some proofs.

It seems like this draft bill disappoints your sector. I understand that you are critical toward the increased involvement of government.

Yes. The draft bill reads as firstly, natural resources business is to be state owned, and secondly, state bureaucracy is to be increased in all levels. Number of people who do not produce or create but issue permits, inspect, penalize, suspend, destroy, confiscate and persons of free-to-own have increased greatly.

Can you specify by sections and articles?

There are numerous of them. Perhaps, they do not all fit under the chapter of “Government regulation in the mining sector” and go under different chapters. Just to name a few, article 13 “Taking areas into state reserve”, article 14 “Taking deposits into state reserve”, and article 15 “Taking land granted by license for state or local special use”, articles entitles the government to nationalize and take mining business away for free. This circumstance makes the law-abiding entrepreneurs to stop doing business in Mongolia and enabling the opportunity for criminals who do things behind the curtains illegally. Just like how “well-known” 68% windfall profit tax creates the network of gold smuggling. We talk a lot about the same cases in some countries of Africa.

Your points are contradicting with the President’s anti-corruption agenda?

This is how the draft bill reads. It increases the government persons involvement and authority, and also includes what it seems, the discriminatory articles as well. For example, article 24 and 25 in the draft bill say “licenses can be granted to economic entity with state ownership and state ownership participation without announcing and conducting competitive tender selection” which is discriminatory for private companies. Actually, there have been numbers of discriminatory attitudes toward foreign investments, which do not seem so appealing for foreign investors.

Is it possible if you specify this?

Issues regarding “South Gobi Sands” are one to mention. As you may already read the interview by People’s Republic of China’s Ambassador to Mongolia, where he clearly indicated that it is discrimination. Lately the propaganda around Khushuut mines has been held constantly saying it needs to be added to the list of deposits of strategic importance. In 2007, this deposits with 23 million tons coal was not enable to be qualified for strategic important. Between 2008 and 2009 foreign investors made further exploration, and the amount went up to 87 million tons. Everything went to according to the related laws and regulations of Mongolia -- they developed the infrastructure, built the roads and so many other developments, which raised the reputation and attention among foreign markets. However, our “patriots” woke up all of a sudden and realized that it had to be strategic important and created arguments that are still continuing today and looks like the mine project and development has stopped there [Khushuut mines].

As may know deposits with lesser amount than Khushuut mines were added to the strategic important list before. However, the Resources council registered the Khushuut mines with 87.5 million tons, in the foreign market it is said differently – 400 million tons and 2.4 billion tons. The government has not even finalized the deposit amount until today?

My points are based on official facts and numbers that are registered by official authorities not on some rumors or hearsay with unknown purpose. It is a different story when you say the deposit amount had been registered inaccurately. My concern is that we might be drawn by misinformation based on discriminatory attitude and by people who seek to use this attitude for their own secret agenda. Another concern is if we need to contribute to the current news that is alarming the foreign investors about the nationalizing campaign in Mongolian mining sector. 

Thank you for your interview.

                                                                                    Source: “Today” newspaper   
                                                                                                                                        24, Dec, 2012