November 2013
The draft of the State Policy on the Minerals Sector was submitted by the Ministry of Mining on May 31 this year. After almost half a year of discussion, what have been the major changes suggested to it?
The motto of the working group of the State Great Khural (SGK) for this work was “Clear definitions, not mere statements”. The group consisted of 12 members representing each political party and coalition that sits in Parliament. There was also a sub-working group that had members from professional organisations such as the National Mining Association and the Geological Association of Mongolia.
The Mongolian Mining Journal published in its July issue the text of the draft submitted by the Ministry. This issue presents the document as it looks after incorporating changes, ready for Parliament to discuss it.
The SGK working group held nearly 20 meetings. It set up smaller groups from among its members which sat with each party and coalition for detailed discussion of their respective recommendations. The changes to the draft suggested by the Justice Coalition of the Mongolian People’s Revolutionary Party and the Mongolian National Democratic Party were 14 pages long and those of the Mongolian People’s Party covered 8 pages. The Democratic Party is not known to have submitted any formal suggestions. There were a number of suggestions from the coalitions and independent MPs at a meeting of the Standing Committee on the Economy and its working group.
All this has taken almost one half year and now a fresh version of the draft is being discussed at Parliament. Next year’s Budget and Monetary Policy have been approved and this is the next big work before Parliament. It is ‘big’ as, once approved, the policy document will be the basis for almost all work in the minerals sector for the coming 15 years, especially relating to implementation of amendments, orders, programmes and sub-programmes. MPs have prepared themselves to take part in a comprehensive and informed discussion. The working group has listed 69 issues that need agreement.
It would be interesting to know which major idea was suggested by whom. Please note that the translation of the language of the articles is based on approximation, and is neither literal nor authorised.
For example, the Justice Coalition suggested adding the words “…to protect the basic interests of the nation” in 1.1. of the General Provisions section.
It also stressed the need to preserve minerals, with MP D.Battsogt calling for mining activities to be prohibited in forest areas. The working group felt there was no need for this as about 70 per cent of the territory of Mongolia is already designated as prohibited or special use area or included in the long named law. Finally the related article was revised to read:
2.1.9. Preserve some mineral deposits to meet the needs of the next generation and provide national security and environmental balance.
MPP VS CWGP
The MPP suggested and strongly pressed for the idea of a Treasure Fund. S.Demberel of the Civil Will Green Party opposed any reference to distribution of shares and also spoke against State involvement in mining, to discourage corruption. According to Demberel, this should be the guiding principle of the policy document. Democratic Party members wanted inclusion of pro-investment and pro-business policies, leaving issues of social welfare to other laws. This is how the draft reads after all this discussion:
(3.7.5.) Diversify the economy, support export-oriented industries, protect the environment, rehabilitate, provide economic stability and improve national competitiveness by establishing Funds from the income accumulated in the State budget from minerals sector production.
Several MPs favoured the suggestion of Demberel to restrict the State’s role in the minerals sector, but the majority opinion was that State involvement was essential up to a certain level. The draft contains a number of articles reflecting the view of business owners that there should be no scope for State pressure in mining. It also reflects the voice of tax payers to an unprecedented degree. It is now to be seen what Parliament keeps in and what it puts out.
The result of deliberations on the following articles would be closely watched.
2.1.8. Increase State involvement at the levels of registration, licensing and supervision, but restrict it in the spheres of prospecting and exploring.
2.1.1. In order to provide sustainability to the State policy on the Minerals Sector, decisions relating to the legal and tax environment should be based on thorough research and analysis without harming the legal interests of the participating parties.
2.1.5. All investors should be equally treated, without any discrimination based on consideration of the amount of capital invested.
3.1.1. Provide tax incentives to a license holder who develops social and engineering infrastructure in the local area with his own resources.
3.3.2. Enhance the economic efficiency of deposits of strategic importance listed in Decree No.27 of the State Great Khural made in 2007 by improving State supervision, regulation and responsibility which will result in better cooperation between the State and the private sector.
3.3.5. Remove bureaucracy and overlapping in supervision, and in levying and collecting fees and payments by the State and local authorities.
3.7.3. Follow principles of good corporate governance when filling leadership and management positions in a State owned entity.
3.7.2. Gradual transformation of entities under State ownership into shareholding companies
INTERNATIONAL STANDARDS
The Minerals Sector of Mongolia has 90 years of history. Of this, the last 20 years have been rich with failures and successes rolling in the strong waves of Mongolian politics. The global reach of our minerals sector has brought forth demands for following international standards. Some two decades after the momentous transition, our geological and minerals sector is now ready to be judged by international standards. This is reflected in the following articles of the policy document:
3.1.9. Adopt the international standard for estimating mineral deposit reserves.
3.1.11. The system and standard of work at the Professional Minerals Council must conform to international standards, and professional associations and analysts must be given more important roles.
3.1.12 Conflict resolution methods must conform to international standards, and use the professional expertise of lawyers, economists, analysts and arbitrators.
3.2.2.11 Demarcation of licensed areas must conform to international standards and be reflected on a cadastral map.
If these concepts do get approved, that would mean that much or at least some of the present duties and responsibilities of the Government will be vested in professional organisations. A feature of the discussions so far has been the emergence of several lobbying groups pleading for some organisation or the other. This is a new trend in the minerals sector, and we should be careful that no advantage is taken of the democratic way in which the working group functions to give any professional body, old or just formed, a reputation or recommendation it does not deserve.
A SPECIAL FEW
The original draft was characterised by the Working Group of the Parliament as being too full of general “statements”. Specific definitions acquired urgency when it was decided to eliminate from the first version the term “mineral deposits of strategic importance”. I think it would have been more beneficial for the future development of the minerals sector if we had retained the concept of strategically important resources such as underground water, rare earth elements and radioactive minerals, while abandoning the concept of “deposits of strategic importance”.
It appears political pressure was at play behind the agreement to keep the status of 15 strategic deposits undisturbed and the issue of the 39 new deposits likely to be listed as strategic by the State Great Khural. It’s even possible that the 6 new deposits that were going to be added to the list of 15+39 will now be left out of discussion. Asked to explain why they had decided to retain the status of the 15 deposits of strategic importance, S.Odontuya, head of the working group, said it was felt this would maintain stability in the minerals sector. One wonders if it would not be closer to the truth to admit that the real reason why the parties agreed not to rock the boat too much was the perceived imperative to keep political peace.
The policy document mentions a few projects that will be supported by the State. These are projects that have always received approval at every political level and private companies have already begun working on them. There can be no argument that these projects require such a huge investment that State and the private sector have to cooperate on them.
3.4.4 Support projects on coal processing, coke, chemical plant, power plant based on coal deposits, smoke-free, liquid fuel production from brown coal.
NON-PARTISAN INSTITUTIONS
Onemember of the working group, Independent MP S.Ganbaatar has repeatedly emphasised that the Ministry of Mining tends to get too politicised, and therefore “it is necessary to help and encourage good research organisations to come up to instil professionalism, neutrality, and nonpartisan and dispassionate analysis to reach unbiased and independent conclusions”. There was strong demand for improving the present quality of scientific institutions, but S.Odontuya revealed that a proposal to this effect, presented by some private organisations, was rejected by the working group. Likewise, neither the Policy Council decision nor the reference to the principles of public-private partnership (PPP) was the result of exertions of any lobby group.
3.6.18. Strengthen the cooperation and activities of scientific organisations in the minerals sector and implement the common strategy planning, research, development projects and programmes through Public-Private Partnership.
3.7.1. Establish an independent Policy Council with equal representation from State organisations, investors, professional associations and civil society and adopt a system of making joint decisions.
THE IMPLEMENTATION
The working group discussed all 69 suggestions submitted by the Standing Committee on the Economy and came to an agreement to add the above mentioned articles to the draft. Parliamentary discussion on the draft began on November 21.
As the economy goes through the present critical situation, there is a tendency among the public to say the State and the civil society should not put any pressure on the mining industry that produces our main export products. It is my personal hope that the discussion in Parliament will not radically change the main principles behind the draft. President Elbegdorj keeps reminding us of his belief that business needs support even as State involvement in business is legally restricted. He has even coined a term, “The wise State”. The time has come for the Government, where the DP is in a majority, to go beyond mere talk and show unequivocally that it is serious about support to business and industries.
The timeframe for the policy for the minerals sector is as follows:
-improve the legal environment and put in place the relevant regulations, rules, programmes and projects (2013-2015)
-implement the programmes and projects (2014-2025)
-assess progress of policy implementation and plan for the future (2020-2025).
Some people want immediate elimination of the terms “ninja” and “strategic deposit”. But can we just wish away the existence of the 50,000 people forming the “ninja army” or the importance in the national psyche of the 15 strategic deposits? Gradualism may prove to be more effective than a sledgehammer blow.