The vast deposits of copper, coal, gold and silver under Mongolian soil could soon be governed by a radically different regulatory framework ? if a new draft of the country?s Minerals Law is passed in its current form.
The new draft was published by the Mongolian government in December, and makes far-reaching changes to the way mining and exploration licenses are awarded and maintained. It mandates that Mongolian citizens must hold a 34 per cent equity stake in all mining projects, and gives state-owned companies a pre-emptive right to any mining or exploration licenses transferred from one entity to the other, according to a summary from law firm Hogan Lovells.
The reaction from Mongolia?s business community has been apoplectic. Earlier this week the Business Council of Mongolia sent a letter to the President warning that the law ?threatens to shut down the entire minerals industry of Mongolia,? according to a copy of the letter emailed to the FT. The letter added:
The impact of the draft law on the minerals industry will be to halt current minerals exploration and development in Mongolia and greatly discourage any future investment. . . Collateral damage is likely to include all other sectors of supply, including but not limited to the construction and real estate sectors, imposing a significant chain-reaction burden on the banking and financial institutions which they may not be able to withstand and leading to a deepening crisis.
The draft Minerals Law could still change significantly before it is passed, and the Business Council is no doubt hoping that parliamentarians will heed these warnings as they amend the law in coming months.
However members of parliament will also have to take into account voters who are worried that Mongolians are not seeing the benefits of the minerals being extracted. Campaigning for office ahead of elections last summer, many members of parliament promised to get tougher on foreign miners.
And last fall more than 20 parliamentarians petitioned to rewrite the investment agreement that governs Oyu Tolgoi, the giant copper-gold mine run by Rio Tinto.
The debate over the new Minerals Law will be further influenced by the upcoming presidential election in June. The Democratic Party, which leads the coalition government and controls parliament, will be working to ensure re-election for current President Tsakhia Elbegdorj. Their constituents may not see things the same way as the Business Council does.
The gap between voters who are increasingly nationalist, and the business community which broadly supports free-market principles, has been slowly widening. Parliament will not have an easy time reconciling these differences as it tackles the Minerals Law.
Related reading
Central Asia: A rocky road to riches, FT
Mongolia: wrestling, coalition building, and resource nationalism, beyondbrics
Mongolia: we want to be Chile, beyondbrics
Mongolia?s new investment law: deterrent or clarification? beyondbrics
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