Tweaking the Minerals Law to fit the new State Policy

11th of 3, 2014

By G.Iderkhangai

Following the recent adoption by Parliament of the State Policy on the Minerals Sector, the current Minerals Law will have to be amended, to incorporate features of the new policy, but analysts expect the changes will not be many and will also be minor in nature. A working group has been established at the Ministry of Mining to recommend likely amendments and it is now making its own study, as well as asking professional organisations and experts for suggestions.

The exercise also offers a chance to remove or at least reword ambiguous articles. These have been known to create misunderstanding between the Government and businesses, and has also made for uncertainty among investors. The working group is not sharing any information on the changes it is seeking, but we give below our predictions.

The State Policy on the Minerals Sector has introduced a brand new concept it calls The Policy Council. Its main role will be to consider any need or demand for any changes in the law. The authority to set up the Council will come from a regulatory provision and there would be no need to have a separate new law. Several other issues, including some related to minerals export, will also be covered by regulatory provisions.

One of them is setting up a Department of Geology.This is a new concept in the Policy and the Minerals Law will set out the legal basis. The existing Professional Council of Minerals will be disbanded and its work will be transferred to professional NGOs and analysts. This will also be done through regulatory provisions.

An amendment in the present law will be needed to restructure the Ministry of Mining and the Government to help implement the Policy. For example, the Government will get the exclusive authority and responsibility to set up the Minerals Exchange and also the Department of Geology.

From now on, the final closure process would begin right from the time a deposit begins operation. New regulatory guidelines for mine closure and rehabilitation will be in force and the responsibility for implementation will rest with the Ministry of Mining, and not with that of the Environment, as at present. A new mechanism will be installed to conduct professional monitoring of how companies proceed with rehabilitation and mine closure activities. It will also ensure that the mining area is handed overto the Ministry of Environment after mining ends.

The Minerals Law puts mineral deposits into three classes: those of strategic importance, those of common minerals, and those of conventional minerals. The State Great Khural recently passed a law on common minerals and this would now regulate the relevant issues.
State funds are being used to prepare 1:50.000 scale geological maps of the territory of Mongolia. Given the value of the work in creating a database, an amendment is likely to mandate the State to continue to finance the project. Experts want another amendment ensuring State financial support for development of a deposit prospected with State investment to increase its value.
Another likely change would make it mandatory for an exploration or mining licence holder to notify the Government when it plans to sell shares at a foreign or the local stock exchange.

Putting licences in order

At present there is no centralised access to find out if the same holder has obtained a number of licences of different types, say, for exploration, radioactive minerals and petroleum. An amendment is likely to suggest creation of a database where information on all licences will be sorted according to their social and economic significance, so that any consideration of revocation will be easier.
A licence holder is also likely to be legally obliged to choose national or local entities for the execution of mining activities.
Licences are likely to be made mandatory for activities such as exploration drilling, setting up a geological laboratory and geophysical research.

A licence holder will be made legally obliged to abide by labour safety guidelines, pay attention to the environment and rehabilitation, and make accurate estimates.
Amendments are likely to be suggested to bring order to the present situation where all sorts of trade in licences are rampant. A mining licence holder will no longer be allowed to keep the licence without using it. Failure to prove that the deposit is economically efficient and that the holder is able to carry out rehabilitation work according to the law will allow the State to take strict corrective action.

On the other hand, one proposed amendment will enjoin the State to provide all reasonable safeguards to an exploration licence holder for legitimate activities in the area under licence. The application for a licence should come only after at least a year of the area being studied, and the licencewill be granted only when the area is included in the land utilisation plan of the State.

The present provision that an extension of an exploration licence should be applied for at least one month before its expiry has come in for much criticism, and an amendment is likely, favouring either elimination of the provision or giving more time to the holder.
Once the proposed amendments are approved and the Minerals Law gets a new and streamlined look, it is expected that a move will be made to lift the ban of issuance of mining licences. This will, however, depend on what the President thinks, as it was he who had initiated the ban.

Processing plants

Though the State Policy has specific articles on the processing and concentrating industry, the current Minerals Law makes no reference to it and amendments cannot fill the gap. A separate law is needed to regulate the processing industry, expected to come up in a big way. For now, processing activities could be brought under licence so that labour safety is assured.

The State Policy says mining companies will be granted a licence only after reaching an agreement with the local administrative authority. Article 42 of the Minerals Law, referring to “Relations with local administrative bodies”, however, merely says: “A licence holder shall work in cooperation with the local administrative bodies and conclude agreements on issues of environmental protection, mine exploitation, infrastructure development in relation to the mine-site development and job creation.”This recommends cooperation but falls short of making it an essential condition for obtaining a licence.

Strategic deposits

The Policy document calls for improved management in the 15 strategic deposits listed in Decree No.27 of Parliament, suggesting creation of“ the most efficient economic cycle possible based on State and private sector cooperation”. It is not clear how to reflect this in an amendment to the Minerals Law.
A strategic deposit will no longer be required to “produce more than 5% of GDP”. This, and the need for a strategic deposit to have reserves that are competitive in the region, can be easily covered in an amendment.
As a matter of terminology, Parliament now has to decide whether to retain the term “Strategic deposits” or to call them deposits of “strategically important minerals”. Once a decision is reached, an amendment will follow.

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