New mining law to have longer regulatory reach

23th of 2, 2017

The Mongolian Mining Journal /January 2017 098/


The Ministry of Mining and Heavy Industry has completed work on the draft of a brand new mining law which will soon be offered for public discussion. This does not seek to replace or supersede the current mining law but would be a separate and independent law containing regulatory provisions.

The news has come as a total surprise, and reaction to it has been divided. Some see it as an anomaly that there would be a new law with the existing one remaining in force, but others feel that a new law will be more effective than a series of amendments to plug loopholes in the present law, to resolve contradictions between regulations, and to correct ambiguities.

As far ago as in 2010, the private sector made a strong demand for what was called a ‘hat law’ as it would comprehensively regulate all areas of the mining sector. Work on a draft began but was abandoned without much progress. The Ministry of Mineral Resources and Energy – as it was then called -- decided that the then existing law had to be studied in more detail, and if it needed changes or improvements, amendments to its provisions could take care of that.

A working group established under the Office of the President came up with a draft mining law at the very end of 2013. This faced a lot of criticism and, after a few months during which time it had been discussed in the Civil Chamber, the President announced that he would not proceed with it. Instead, he instructed officials to prepare a state policy on the mineral sector. This was in the early months of 2014, and the Ministry of Mining and its affiliate agencies worked hard to finalise a draft policy document before long. Later in the year this was approved and adopted by the Parliament as the State Policy on the Minerals Sector until 2025. The Reform Government was then in power, and the policy was widely hailed as a real progressive step.

At the same time, the feeling was gaining ground that provisions in the present mining law were inadequate to effectively regulate complex issues cropping up in the course of extraction, processing, closure and rehabilitation activities. The Ministry of Mining and Heavy Industry agreed and appointed a working group to prepare the draft of a fresh mining law in November 2016. It was led by J.Ganbaatar, Head of the Mining Policy Department at the Ministry, and its members included specialists from the Ministries of Finance, and Environment and Tourism, the MRPAM and M.Dagva, project advisor to the SESMIM. This group has now submitted the draft.

Ts.Dashdorj, Minister of Mining and Heavy Industry and S.Byambatsogt, Minister of Justice and Internal Affairs, formally approved the concepts of the draft on 5 January. It was put on the ministry’s website on 1 January, 2017 and the mandatory open discussions would be held before long.
The preamble gives four reasons for why the law was found necessary and lists three main objectives. The main justification was given in the following words: “Proper implementation of the measures stated in the State Policy on the Minerals Sector until 2024 would be possible only if there is a conducive legal environment related to the mineral law and the entire mining operation cycle including extraction, refining and processing activities is regulated by law.”

Another justification given is that a new law is needed to help achieve the avowed goal of the Action Plan of the Government 2016-2020 “to effectively run mining projects and create a legal environment for mine closure”. The new regulations will lead to fewer disputes on issues of environmental rehabilitation and also of project implementation, which would be decided after thorough economic and investment analysis.

The justification that has drawn the most attention from industry professionals says, “There is need to make a public revelation of the actual ownership of mining companies, in tune with recent global trends.” Now, making it legally mandatory to declare ownership or the pattern of shareholding is certainly one way of ensuring transparency but it is not an easy way, is time consuming and bears the risk of alienating investors. Still, it is in accordance with the interests of national security, promoting responsible and transparent mining, and tightening the monitoring of revenue.

The draft is quite clear about why a new mining law was needed, saying, “The mineral law and law on underground wealth do not completely regulate all areas in the mine life cycle, and some of the regulations are inconsistent with current trends. The mineral law basically regulates matters associated with mining licences, but fails to set out rules on mining investment, infrastructure, extraction, refining, production, rehabilitation and closure. This is leading to problems on the ground.”

It is also seen that even though various laws, such as the one on the environment, the mineral law, the law on common mineral resources, on nuclear energy, and others do regulate mining activities to a certain extent, they are sometimes inconsistent with one another and lack the proper mechanism for implementation. This is also included among the justifications.

The proposed new law thus has the potential to resolve inconsistencies in rules and regulations, and eliminating the possibilities of concealed ownership. The working group has promised that 2017 will be the year when the messy legal environment will be put in order and set on a right course.

Areas to be regulated

The objectives are listed in 14 articles and starts with the following, “To extract mineral resources in an economically profitable way with a minimum impact on the environment, and in accordance with national interests and to develop responsible mining practices”.
Enumeration of objectives, definitions, the scope of the law, rights of state organizations, the control system and involvement of professional unions and non-governmental organizations are stated in the first two chapters.

Chapters 3-7 include regulations related to goals of geological studies and mineral exploration work, and to stages of financing, reporting on results, requirements for feasibility studies, designing of processing plants, preparations before the resources are used, resources extraction and related activities, refinery, production and waste treatment plants.
Chapters 8-14 consist of issues related to occupational safety, health, rescue measures, the environment, rehabilitation, product sales, mine closure, transparency, management, organization and dispute resolution.

The chapters are divided into stages of the production process and the articles can be changed after the open discussions. Some of these exist now in the form of regulatory practice but without any legal mandate.

In a major move, the draft seeks to change the system of working with an exploration licence first, and then switch to extraction. Under the new law, anyone desirous of running extraction operations would have to show they know and understand the rights and responsibilities of a licence owner before hoping to get the rights to start mining.
A set of articles lists the main requirements for a feasibility study and designing the mine. For example, one article in the fourth chapter says, “The feasibility study of the refinery and processing plant based on the mineral resources deposit will have to be supported by adequate and appropriate technical and technological data giving the most economically efficient option and setting out the schedule of work at every stage of implementation.”

A feasibility study will cover all the stages of the project, from initial exploration to mine closure, and mine managers will have to work strictly according to the schedule therein. The present practice of approving a feasibility study within 60 days of its completion is being changed to something more realistic.

Transparency and mine closure

These are the two areas where the new law will have the most impact. As an expression of its intent, the working group has put the two laws into a chapter all by themselves. Clare Short, Chair of the EITI board, spoke about the importance of legal provisions ensuring transparency to the then Prime Minister, Ch.Saikhanbileg, when she met him in June, 2015, and now they are part of a chapter in the draft.

Certain issues related to mine closure are at present regulated differently by the mineral law and the law on the environmental impact assessment. The draft proposes comprehensive regulations reconciling these differences. This is after a working group established last year under the Ministry of Mining to prepare a draft law only for mine closure had found that the contradictions in the present laws were too difficult to resolve.

The issue is of the utmost importance if we are to follow responsible mining practices. People will not any longer allow miners to ‘leave behind the empty box after taking the gold’. The demand for stronger regulations with legal force behind them has grown along with the awareness that the mining sector must operate in a sustainable and economically efficient manner, with the minimum harm to the environment. Mining in Mongolia must be more than owning a licence and extracting.

The draft seeks to codify this trend. However, this is not the first time that such an initiative was proposed. Certain similar suggestions were made in the policy research report on improving legal regulations on mine closure in 2010. The present Government’s Action Plan 2016-2020 also talks about bringing mining rehabilitation and closure activities to international standards.
Would it have been better to have all regulations on mine closure in one law exclusively devoted to that issue? The present working group obviously did not think so and preferred to make them part of a wider-ranging mining law. Some industry professionals are not convinced.

When the present draft, prepared with international financing, is approved as a mining law, it will change the nature and quality of the way mining is done in Mongolia. Many experts, however, wonder if it would not have been better to wait for some time. Their particular concern is with the mine closure regulations. What is the hurry, they ask, when only two large mines -- Erdenet Mining Corporation and Mongolrostsvetmet – are due to close in the near future?

The work of implementing a law approved by the parliament is usually given to an agency like the MRPAM, which has this responsibility for the mineral law and the law on petroleum. In case the present draft becomes law, the Government will have to establish an implementation structure, and it is doubtful if it has the necessary money for this. On the other hand, dismantling the current Mineral Resource and Petroleum Authority could cause some difficulties.

Given that the existing mineral law is proving inadequate, was there any overwhelming need to prepare a draft for a new law? What is the experience of other countries? Developing countries such as Chile, Vietnam and South Africa usually have one law on mineral resources whilst developed countries such as Australia and Canada also have one, which they call their mining law. Some suggest that Mongolia as a developing country could focus on the cycle-processing concept of the current mineral law and then take time to adopt a mining law.

The mining law in a developed country usually covers only extraction, refining, processing, reclamation, and mine closure, leaving geology-exploration and tax issues out of its ambit.
This is so as the purpose of the mining laws there is to accelerate growth in the mining industry through minimum environmental harm, but for a country like Mongolia, laws should apply more to work on the ground, and be focused on extraction and processing activities and, of course, to proper closure.

Mongolia has a different perspective, and there is no surprise that news of the draft mining law has generated public debate. The Ministry of Mining and Heavy Industry’s working group has initiated preparation of 10 law amendments including mineral law, law on underground wealth, common environmental law, penal law, law on violation, law on common mineral resources, law on special licence for organizations/entities, and fee on government special seal.
A number of provisions such as feasibility studies on using a mineral deposit, and mine closure plans would be added to the mineral law. Furthermore, the draft mining law states, “The issues related to mine and mine closure will be regulated by the mining law.”

Amendments to other laws will also be incorporated into the draft law, which might cause duplication, leading to confusion and lack of clarity, instead of taking the industry forward.

Comment ...
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