“The draft new law is not populist, it introduces professionalism”

14th of 4, 2017
The response to the draft law on mining has been mixed. Among those who are fully or partly against it, some have specific objections while the reservations of some others stem more from fears of uncertainty. We at MMJ thought it would be good to talk to framers of the draft to find out what they mean it to say, as against maybe uninformed perception of their intent. Accordingly, N.Ariuntuya sat down with M.Dagva, a member of the working group responsible for the draft. Dagva is Advisor to the SESMIM project and represents industry professionals on the group. He explains how the draft aims at long-term overall reforms, and not at stopgap measures to tide over short-term difficulties. The whole idea is to abandon the present system where the state is the final decision-maker on everything, and to hand over the job of running a business to professional managers with specialized skills. Their wide-ranging conversation covers issues related to the Mineral Resources Professional Council, public involvement in overseeing mining activities, mine closure, and many other matters in the sector that is so important to society and the national economy. This issue of MMJ has the first instalment of the interview, focusing on the underlying concept and general issues. The concluding part will appear next month and will answer specific questions.

How did you find yourself in the working group? Was it a suddenly taken decision to draft a new law?
First, let me explain that our work is not complete. Many details will be filled in once a wide range of stakeholders give their feedback. It may take quite some time to come up with our final version.
As for me, on the several recent occasions when I talked in public about having a mine closure law, I felt that such a law to effectively regulate the process of closure should stand by itself and be independent of other legislation. It should not be adjunct to any of the other related laws, but will certainly be coherent with their intention and implementation. Most important would be to synchronise it with the existing mineral law. This would pose many problems but people in the sector had high expectations about clear-cut and practicable legal regulations on mine closure, and I took up the challenge.

During the drafting, I spoke to many people to elicit their views. Quite a few saw the closure regulations as just a legal formality at the last stage of mining, when the treasures of the mine are exhausted. Some felt the current mineral law is no more than a set of regulations for cadastral issues, including allocation of exploration and extraction licences, and wondered why the scope of the law could not be widened. My usual reply to them was that mining is an enormous issue, and regulating it from beginning to middle to end would be a similarly enormous job, but it could be done, I said, if we put our heads together.

Late last year we went to Canada to study their experience with mine closure. Our group was led by Kh. Badamsuren, then Deputy Minister of Mining and Heavy Industry, and Ts.Batbayar, Deputy Minister of Environment and Tourism, and included representatives from the Ministries of Justice and Finance, and the Mineral Resource and Petroleum Authority. It well represented our mineral sector. We visited two provinces where mining was a major industry and got familiar with how ministries and other mines-related organizations worked at national and provincial levels, and also talked to people representing different interests.
Our group’s focus was always on the mine closure process, and on if it was regulated by an independent law or was under the wider mining law. In Canada, it was the latter.

On our last day, we had a meeting to discuss all that we had seen and learnt and what we should do next. The general feeling was that a mining law would be better than just a mine closure law. I feared that would be taking up a much too big job, touching multiple interests, and dealing with myriad issues that would have to be regulated after much negotiation, and at every step we would need to be in step with so many others. Altogether, we would be committing to a long-term thing that would also take a long time. Anyway, we came back and submitted our report, after which the ministry decided to go for a mining law.

It approached me to be part of the drafting group for the law on behalf of professionals in the sector because I had studied the mine closure issue for many years and also had experience of other areas. So that is how the draft was taken up and how I was included in the working group.

How wide did you plan to make the scope of the law?
This was the first thing the working group discussed.
Most mining conferences and meetings in the last few years discussed two or three common issues. First was the feeling that many problems were being created because the mineral law failed to adequately regulate the sector in its entirety. Second was the awareness that this failure was putting the sector into a state of uncertainty, hindering its development.
Many favoured having a comprehensive mining law to regulate the mining sector issues wholly, in multiple ways. I found during my meetings with sector people that certain issues could not be resolved without a new law. In Mongolia only Parliament can pass a law, while a ministry can issue regulations for any particular subject not covered by law. However, if such regulations are found to contravene a law in any manner, they have to give way, leaving the issue unregulated.

Mining is too important for us to be treated as the elephant in the room, meaning it is obvious that a problem is there, but no one wants to admit its presence. When regulations are unenforceable, everybody deals with a problem in their own way, but there clearly were some issues in the mining sector that are outside the law, and could be controlled only by regulations which might not be effective if challenged.
Our task right now is to fill this vacuum, leaving alone several complex mining issues. Only that sector knows its problems, but in recent years, efforts have been made to resolve some of these gaps with regulations from other sectors.
I’ll give you just one example from many. One clause in the mineral law is on protecting paleontological finds during mining. Of course, we should protect such finds but this should be by applying the cultural heritage protection law or something related to it. The mineral law should just say that the discovery of anything of paleontologic interest during mining would be subjected to such and such law. But there was no relevant regulation in the related law, and. That’s why this clause was put in the mineral law. So many such regulations have been added in other sectors’ laws and also in the mineral law, but without taking a comprehensive or systematic view. Such stopgap measures cannot provide good support for the development of the sector.
The new mining law will allow the sector ministry to impose regulations entirely on its own or, if the occasion demands, in cooperation with other ministries. A persistent concern has been possible conflicts between laws in different sectors, and now we see cooperation among ministries to see this does not happen.  
Recourse to other sectors’ laws is taken only because the mineral law and the law on underground wealth cannot at present regulate all issues in the mining sector. A new mining law was found to be the only way to ensure total regulation of the sector.

Exactly what are the issues to be regulated by the mining law?
After all had agreed to draft a new mining law, the question of its contents was raised.
We spent one month discussing the possible parameters of our work. Would the new law supersede or totally replace the present mineral law or if they co-exist, which will have pre-eminence, enjoying precedence? At that time, the major concerns were the relations of the new law with the law on underground wealth and with the mineral law.
The law on underground wealth dates back to 1989 when our country was known as the Mongolian People’s Republic. In the confusion and uncertainty of the transition that came soon after, nothing was done to adapt the law to the new times, and then, I suppose, it was allowed to be forgotten when a mineral law was enacted.  However, a mineral law is intrinsically related to the underground wealth. Who is responsible for it? Which government agency is in charge? Such questions have been left unclear for far too long.
And it is not just mining that is related to underground wealth. Littering, construction work, agricultural activity and many such areas of daily life have to do with underground minerals and thus the law. The mining sector people understood this and kept their hands off that law.  
We studied the law carefully and realised it could not be kept as it was. Other sectors had already arranged their relations to the underground wealth law, so had no interest in amending it, but we realised it was essential to update its mining-related sections. The law was either to be amended or regulated through the new mining law. The law has hardly ever been used, so if it were to be made irrelevant, there would be no complaints as other sectors have already rearranged their position.
As for the mineral law, its major and almost exclusive concern is with how particular areas are to be used or not used for mineral exploration or extraction. The land can be commercially used for various purposes, and the mineral law regulates how it is used for the particular purpose for which a licence has been granted. It also regulates allocation and refusal of licence, and, after allocation, effect on the environment, land tenure, and cadastral issues.
This may sound simple, but in fact, the mining sector has wide ramifications. Its licences are in a way like giving APU LLC the right to commercially brew beer. That permission also covers packaging, labelling, stages of production and such details. Similarly, a licence for mining exploration will not include directions on how to do it but the licence holder will have multi-pronged relations with the state, all of which should be regulated by law. The mineral law alone is not enough to regulate the entire course from exploration to closure. After exploration, there should be a review of whether the deposit discovered should be mined, and this would depend on multiple criteria. Actually, a correct or good review should assess so many factors that many of them are not even identified under the regulations.
Then it is time to build the mine. In a good example of how other sectors enter into mining sector issues the construction of a mine is regulated by the law on building, no matter that a mine, particularly a so-called underground mine, is totally unlike a normal building on the ground. Its purpose and manner of use are both vastly different, and its building regulations too should be so.
The phase between building a mine and start of extraction is marked by many disparate issues, such as relations between the mine and the local community, between the mine and the mining ministry etc. Some of these are again regulated by other sectors’ laws.
The final stage is that of mine closure, which lies in legal limbo, having never been regulated.
So the new mining law will cover all things big and small which turn up during all the stages of mining.
Second, regulations and the need for them, or its absence, will be freshly and fully assessed. In recent years, the sector ministry has released many regulations to deal with issues, that had to be regulated, but those were stuck at the Justice Ministry due to they concluded there was no legal basis for those regulations. Our working group decided to review all such cases and also possible instances where regulations have to be introduced.
Mining regulations will not be subject to other sectors’ laws. They will receive authorization from only the mineral law and the proposed mining law and will be in force until either of these two laws is amended.
These were the main ideas or building blocks for the draft mining law.
After these choices had been made, we turned to the question of how to handle laws from other sectors which are already fixtures in the mining sector. Now that the sector will be fenced in by its own laws, what do we do with laws from other sectors?
That is a very sensitive issue, as several other sectors now have a toehold, if not a foothold proper, in the mining sector, entering unregulated areas which called out for some kind of regulation, from whichever source. They entered because they saw the mining sector as profitable. They created their own rationale, based on claims supported by their own laws, that some mining-related steps required permission from them.  
The legal system in the mining sector is uncomplicated and simplistic, giving enough leeway to other sectors to make too many inroads, giving rise to a situation where an average-sized mining company has to seek 120-150 permissions per year. The practice boosts bureaucracy and corruption. Don’t take my word for it. Last year an IRIM study on corruption risks in the mining sector in Mongolia reported such risks to be present in 15 stages. The study concluded that the sector’s weak regulatory system helped bureaucracy and corruption to thrive.
As for us, we are trying to assert that our sector will have enough of its own laws to regulate all its own issues. We don’t wish to reject any law from another sector, but shall make them redundant.  This does not mean we shall be authoritarian or wilful in the way we enforce our regulations. It only means taking more responsibility for and authority over our own needs. This would make it easier for mining companies to progress, meaning more tax revenue for the state. It is imperative to stop illegal monetary transactions, and the only way to do that is by adopting improved and more effective regulations. If we do not allow any space to other sectors, they would have to stand back. This is how we are working.

It seems another big change will be reducing the state’s power and role in the sector?
As the major law of the mining sector, it must determine how the sector will run. I do not mean the law will dictate to the ministry how many departments it will have. It is more about changing some entrenched practices and empowering independent institutions. Some years ago, Mongolians hotly debated why some countries succeed more than others. The answer is obvious. If a country has strong institutions, then irrespective of who holds power it will develop. Conversely, a country with fragile institutions is certain to stumble.
Many laws in Mongolia are adopted with the sole purpose of increasing state power, by giving more authority to governors, inspectors and such state functionaries to control others and events. The draft new mining law proposes a change from absolute state dominance to a system where the state will accept the private sector as an equal partner. Not just the mining sector, nationwide, all sectors are trying to move away from state control to what is called the public-private partnership. But it is still a long way off.
When we transited to the market economy, everybody went for small trading. We thought in a market economy everybody tries to do whatever they can. Today we know better. Small-scale individual economic activity has given way to a system where companies run the economy, even though small trading remains endemic. How will the public-private partnership work out in the mining sector? The new law is aimed at giving the concept a hard push.
The draft does not envision the state deciding everything. Under the new law, the ministry will still be a key player, but companies, professional associations, and institutions will all have similarly important roles, and since mining operations are in local areas, the voice of citizens in an aimag or a soum will also have to be heard. Just 27 years after embracing the market economy, this is going to be Mongolia’s giant step forward and a major break with the past. A person holding an office of power and authority should not be taken as a god. He cannot use this power and authority granted to him by law to become a law unto himself. Both the governor and the governed have their own functions, and in my opinion, one of the biggest reforms of our existing system in the mining sector put forward in our draft is to give a legal mandate to their cooperation through mutual understanding.
Feedbacks from local communities are essential to develop this understanding, and the new law will put in place a mechanism whereby the public will give their views in many forms and ways. It will not be just many herders and some local officials meeting to talk about things. The sector ministry and a company can also exchange opinions, the sector associations and the sector ministry can share ideas, and the sector association and companies can negotiate with each other. Whatever has so far been done in this regard has been done without understanding the underlying purpose. That’s why there are so many complaints about things in the mining sector. The draft seeks to repair these rifts.  
All the amendments to the mineral law -- in 1997, 2004, and 2006 – touched on these relations but only in a certain way and only up to a certain level. Meanwhile the sector has grown considerably and the regulations should keep pace with its growth; indeed, they should be one step ahead for better results. Our job was to identify areas needing improvement, and to frame appropriate regulations.  
I do think we have been on the right path, but of course not everybody will agree. There are interest groups who have been taking advantage of the lack of proper and strict regulation, and they certainly would not like to lose their positions of privileges. Some of them are powerful enough to try lobbying for an outright rejection of our proposals. We can counter their criticism only if other stakeholders and the concerned public understand and accept the need for reforms, and find merit in what we are trying to do.  Laws imposed on an unwilling people will not be respected and may be breached more often than observed. We understand this but trust the people will be supportive of our bid to take the sector forward.
The working group will continue to work on and improve the draft, and to provide information until it goes to Parliament for approval. Until then, we are here to answer questions, explain our position, and review our work on the basis of feedbacks.    

The need for a comprehensive mining law like what you propose has been felt for long, but is this the right time for such radical reform? Can the sector bear the strain of such novelty at a time when the economy is struggling, mining operations are lacklustre, and foreign investment has been falling?
I have asked myself this. My focus for long was restricted to the mine closure law but now I feel we need something bigger -- a new mining law. I thought carefully before changing my position. What would happen to my professional career and reputation if I failed to produce a draft acceptable to stakeholders and Parliament? I am doing it for my country’s development but failure to deliver would harm my private business life also. After deep consideration, I determined to take the plunge.
As you ask, is it the right time for this work? This, too, I considered for long and from different angles. Would it be seen as just another instance of the famous Mongolian penchant for replacing an existing law? Would the very fact of bringing in a new law scare away foreign investors?
As for the first, it is a fact that many amendments have been made to the mineral law, but some of these were truly necessary and have been useful, even if the same cannot be said about all have them.
Foreign investors generally take a decision after checking out a few basic things? Are there really good deposits to be found? The answer here is, yes. Is there a market for the extracted product? The answer is China, right next door. How is Mongolia in terms of governance? In this, our country is below average. Bad governance means business is done from someone’s private perspective, so why should investors mind if we instal an institutionalized system?
We also expected people to wonder if we would propose more power to the bureaucracy and thus make it more risky for companies. At its very first meeting, the working group decided not to issue any new special licences. These licences are now regulated under the mineral law, but we want the mining law to regulate the operations of companies holding them.
The draft seeks to reduce the power of the bureaucracy. We listed all the many documents a company has to submit -- the feasibility study, the environmental assessment, the mining plan, the environmental management plan, etc. We want to put some of these together to  make things easier for the investor, and bring down from ten to three the number of permissions required by laws in other sectors.
Our goal most certainly is not to alarm investors, but to have something like a one-window policy so that there is less bureaucratic control. I do wonder why some people object to this.
There is another thing about the timing. Any new government wants to make a quick impact by taking up major programmes in its first months. This government is new and has total control of Parliament. Populist politicians, whose policies did a lot of harm to mining, are out for the time. It is as good a time as any to bring in a law drafted on purely professional lines, but I realize that it could upset people brought up on a populist diet.
We were encouraged to feel that the time for the law was right when the Ministry of Mining and Heavy Industry announced that it wanted to make the sector more professionalized and more responsible.
You asked why we should bring in a new law in such difficult times as now. We would perhaps have more problems in better times. When revenue pours in from the mining sector, nobody would like to rock the boat.  
Difficult times allow us the necessary pause to review the fundamentals, when people’s – and also the government’s -- attention is not on the money and what to do with it and how to earn more. We are aiming at some fundamental changes, and are sure the resultant stability would help us when boom time comes again.  

The 2013 draft mineral law initiated by the President of Mongolia had taken two years to prepare, but your working group has taken less than three months. Does this mean it is too raw or has been prepared in haste?
The 2013 draft was a carefully prepared document and has been quite a help for us. I have consulted it on mine closure provisions. It would have given us a very good law for that time and I was very sorry when it was withdrawn. On a recent re-reading, however, we in the working group felt it was somewhat dated. Times have changed and call for a different kind of reforms, which you see in our draft. What we have learnt in the past three years has pushed our horizon back.
With the Law on Legislation coming into force from 1 January this year, there is no longer any chance of a law draft being prepared without enough study. We studied a mass of background material and went through the proceedings of all mining-related conferences held in Mongolia since 2010. There is enough evidence in our draft of how we used all this information.
We studied all the suggestions that came to us, and intensely discussed their merits. Members of the working group also had their own ideas and vision. The draft is the combined outcome of all this.
The internal discussions in the working group were very productive. Our lessons from the study trip to Canada were supplemented by the suggestions from so many people who came to us. Their eagerness to help us made us more confident that we were on the right way.
We do not work in isolation from others in the sector but have been in constant touch with the staff in the Ministry, the Mineral Resource and Petroleum Authority, and in mining companies to ask questions and to pick their brain. We have constantly asked them and individuals who had anything to offer, “Is it right to see the issue in that way?” “How do you see that as the solution?”and such questions. Their answers sometimes confirmed our own thoughts, and sometimes opened up new windows for us.
We hope to submit to the government, along with the law draft, a number of papers including ones on why a new law is needed, the likely social impact of its implementation, the potential financial effect on mining companies and the state budget etc.  

Since the proposed law will regulate mining sector operations in their entirety, why cannot it replace the present mineral law? How would they be kept separate?
The majority in the working group agreed to keep all licences-related issues under the current mineral law. Parliament might very well decide to amend the mineral law any time in the future, and if the two laws are kept separate, the new law would not be affected in that eventuality. We shall not be the first or only country where licence allocation is kept separate from regulation of mining-related issues.
We also feel that merging the current mineral law with the new mining law could cause instability in the sector. We are confident that we have done good work, but the real test will come with time. In the worst case scenario, maybe in 10 years’ time the new law will be repealed, but that will still leave us with the mineral law.
It is quite likely that after being tested on the ground for some time, the new law will be amended a few times. That is true of all laws. Even with such amendments to the mining law, the mineral law will keep the sector stable. If some time in the future, it is decided to combine these laws, so be it. We are not in a hurry to bring that future forward.

You mentioned the structure to implement the new law. How would that affect similar structures for the mineral law, the oil law, or the law on nuclear energy?
We are open-minded on this. We asked the Mineral Resource and Petroleum Authority their personnel plans for the future when, along with the new mining law, the sector enters anther level of development. Will its staff still be doing the same work, will their number remain the same, or will some of its work be taken up by professional associations, or outsourced? There is a fair possibility that the state budget will have less financial liability as fewer people will be paid from it. Articles in the new law cover that possibility.
At present a mining company operating in Khovd aimag has to come 1500 km to Ulaanbaatar to get an approval. Every Mongolian company has to submit its annual report to UB in December and receive the approval in January. These two visits merely add to the UB traffic jam and smoke level. Mongolia is talking about regional development, so why cannot many routine and simple things be dealt with at the local level? Why do we have to keep a centralized system? We found out that only one person is there to approve the plan submitted by each and every mine. One plan is about 40 pages and, that official may receive 100 plans. What does this workload say about the quality of his work, his commitment?  
Should we be stuck in the current situation, whoever might have designed the system or should we try to change it for the better? The Mineral Resource Professional Council is an object of nationwide criticism and blame. So what is the solution? Many issues are being discussed and are set to be covered by the law. The role of the Government and NGOs is also under review. All who come under the new law will find some change in the rules of the game.
There are several instances in Mongolia of a law being approved and then abandoned. Only those who prepare the text of the law knows exactly what purpose the law is meant to have, but they have no say in its implementation, which may very well vary from aimag to aimag, from soum to soum or from company to company, depending on individual interpretation or choice. That is why we say that Mongolia has no law that is really implemented and so many laws without being implemented. We think everything will be all right once a law is prepared and approved, but it does not work like that. When preparing a law, you have to think of the right implementing structure. The new law will certainly need a new structure to be successfully and meaningfully implemented.
We relate our work to the sector ministry’s plan. In 2017, we shall finalise the draft. In 2018, we shall focus on the environment in which the law is to be implemented, the institutional structure, and the regulations to follow the law. We see 2019 as the year to educate the public about the law, so that everybody understands it in the same way. Mongolia wants to use its natural wealth for progressing to the next level of development, not just to meet the basic needs of its people. Our long-term view clearly indicates our position that our draft looks beyond the here and now to a future bright with promises of development.

To be continued

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