Government policy and State policy

29th of 1, 2019

G. Iderkhangai

Events in the past few weeks cannot but make us wonder where the state policy on the mineral sector is headed. A special operation with soldiers and police personnel was undertaken to clear the Salkhit silver mine of all activities by its licence holders. The operation was initiated by G.Zandanshatar, as Chief of the Cabinet Secretariat of the Government, but ironically, he is also head of the Investment   Protection Council. This was not the first time he has been in the limelight for hurting investors’ feelings. It was he who in 2012 initiated the law on the regulation of foreign investment in entities operating in the strategic sectors, the same law that led to an exodus of big foreign investors from our country, with the result that exploration activities slowed down for years and are still struggling to recover. Many observers feeI there would be no big western investment here for years to come, particularly after the departure of Centerra Gold. 

To go back to what happened at Salkhit, on 7 January, the government secretariat instructed the related authorities to take Salkhit, Asgat and TsagaanEreg (tungsten)mines into state owned Erdenes Mongol’s ownership. It was given out that the action had become necessary as Salkhit had not paid taxes, as there was too much corruption there, and as there were court disputes between the licence owners. It all sounded like public relations, to impress voters with how the government had to step in to maintain order and discipline. No matter that the way MRPAM cancelled the licences showed little sense of order or discipline. Indeed, nothing in the Mineral Law gives the government the power or the right to take over a licence by force, and the now-former owners of the mine plan to go to court against the government on the ground that it acted illegally. 

As for Asgat, the situation is totally different. Seeing how all strategic deposits are being gathered under the state-owned entity (SOE) Erdenes Mongol, it was clear that, sooner or later, the licence over the strategically important silver mine would be transferred to it from another SOE,Monrostsvetmet. The government had every legal power to do so and dealt with the issue quickly, also promising to expedite start of extraction. Any mine usage agreement will, however,have to be discussed in Parliament. 

The Prime Minister has now repeated his wish to take back the Tsagaansuvarga copper and molybdenum mine into state ownership. That would be a flagrant violation of the law and would make both foreign and domestic investors pause before taking another step. However, such words fit in with the very recent trend of the state taking up total control of mega projects in the mining sector, including those now being developed by private companies. It is pre-election populism, giving the people the impression that wealth is being transferred to them. 

As we said last month, the stalemate in Parliament has meant some important laws have got stuck, with the result that gold miners have been paying 9 percent royalty from the start of the new year. There is no certainty that Parliament would bring this back to the 2.5 percent that was in force until 31 December 2018 but lower royalty would support the gold sector in a big way, and more gold at Mongolbank would mean a boost for our forex reserves. 

These individual instances aside, how effective has the state policy on the mineral sector (2014-2025)been so far? P.Ochirbat, academician, was quoted in our January 2018 issue as saying that a“policy” should be clear, stable, and with a long-term perspective. But in Mongolia every new Government upends its predecessor’s actions and decisions, rendering any policy unstable. There is no longer any talk of a new law on mining, which raised hopes of a comprehensive overhaul of everything from geological studies to mine closure. The Ministry of Mining and Heavy Industry (MMHI)has given enough indication that the law died before its draft was ready. 

Any comprehensive change will have to include rules and regulations for licence allocation to environmental protection, and eliminate duplication, contradiction and ambiguity among the 10 major laws that govern mining in Mongolia. The MMHI position is that such a clean-up job would call for Parliament to review and amend the Mineral Law, the Petroleum Law, the Petroleum Products Law and other laws.

The MMHI did set up a working group to prepare a national programme to develop the mineral sector, but after making some loud noises, it has gone silent. What we do know about its achievements so far, it seems the program it was going to recommend would not have been much different from or better than what is already there in the State policy on the mineral sector. That may be why any comprehensive sectoral policy has given way to smaller programmes on individual minerals. This is also what the state policy recommends. When that document was being discussed in 2013, ministerial working groups were entrusted with preparing programmes on gold, coal, iron, fluorspar, rare earth elements, copper and such.The only real out come was the Gold 2 programme.

The most ambitious of these was on coal, work on which was started by N.Altankhuyag’s government. That government resigned, and as coal export surged dramatically and reached record level seven without  a programme,the general feeling may very well be that it is of no real consequence. 

The work on the programmes for copper,iron, and zinc must be in some files but nobody quite knows where these could be. Today, some attention is falling on fluorspar, a sector where Chinese companies dominate. They export the ore, neither concentrating nor processing it, and paying royalty in very few cases. As with the others, there is no trace of all the work done since 2014 on a fluorspar programme, but a new project has recently been taken up on fluorspar production and export. If it is endorsed, it will be part of the state policy and the fluorspar sector would be more coordinated. A first ever programme to develop heavy industry is also being prepared by the MMHI. 

This issue of the MMJ gives information on these programmes and their progress. There is considerable divergence on the latter between claims by the Ministry staff and the assessment of professional associations. The most work would seem to have been done in the area of legal changes. The Mineral Resources Professional Council would soon start following international norms and standards and much of its present responsibilities would be taken over by professional associations, as has already been done by the Mongolian Professional Institute of Geosciences and Mining. The council would come under the sector ministry, and more stakeholders would be included in it. 

Some professional associations have said they have little idea or information about how the ministry is structured to do its wide-ranging work. Actually, MMHI has five major departments and eight sections. The Policy Implementation Regulatory Department has been abolished, and the Geological Policy Department and the Mining Policy Department have been amalgamated under the name Geology and Mining Policy Implementation Regulatory Department. The Heavy Industry Policy Department and the Fuel Policy Department have been combined into the Heavy Industry and Petroleum Policy Department. A completely new Strategy and Policy Planning Department has been formed. Coal policy issues would now be dealt with by the Mining Department. The restructuring has not led to any job loss or new jobs and is unlikely to result in any change in policy and direction.  

This issue also contains articles giving the views of professionals on the state policy and related matters. An interview with B.Bayarsaikhan, Head of National Development Authority, reveals how investment promotion programmes are being coordinated with the state minerals policy. A report examines if work on the Asgat deposit can really begin before the Tsagaan Sar holidays. 

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