MP S.Oyun, a member of working group of drafting amendment in the Mineral Law of Mongolia, has her words regarding the current issues and mining legislation development.
Q: Working group held several meeting, but it had not that satisfactory results.
MP S.Oyun: We met several times after studying four or five drafts for the Mineral Law of Mongolia, presented since 2006. In year 2006, the Mineral Law of Mongolia has provision that the Government of Mongolia to own up to 34% in strategic deposits. After that there were talks about increasing it to 51%. Also provisions on agreement in dividing product and windfall tax change were added. Meantime, world economy is undergoing the financial crisis and the commodity price is decreasing 2 months in a row. Actually, commodity price is surging, therefore mining business is risky. Members of the working group are discussing seriously about 51% ownership of the Government.
Q: So it can be understand that 51% ownership of the state will not be supported?
MP S.Oyun: We are talking about whether the Government of Mongolia can receive such a big financial load and responsibility on its shoulder or not. For example, 5 billion US$ is required for Oyu Tolgoi. If the Government owns 50% of it, we need 2,5 billion US$. In other words, it is whole year’s budget of Mongolia. If we take loan, it will take long to recover. Also, there will be more issues such as human resources and management. Therefore, it must be decided very cautiously. Mineral price has circulation of 5-10 years. Recent years, commodity demand is increased and the period of super circulation was occurred. Chinese and Indian economy were blooming. Now the super cycle is waning. Hence, we should decide whether the government to bear responsibility or to shift it to private sector and tax them. Moreover, there are many concerns regarding the national security and security of economy. At the moment the working group hasn’t reached to the final conclusion.
Q: What alternatives are you in favor?
MP S.Oyun: As for me, the Mineral Law of 2006 is good. We adopted the law and haven’t seen its implementation in reality. If the government must own 51%, then it is the issue of tax payers. I don’t support personally that the Government gave up all its properties decades ago and now it is truning back to acquire or involve in. The reason why is that the Government might put the money of taxpayers in risk. Besides, the foreign investors don’t like the idea of 51% ownership. Especially, in time financial crisis, we should implement the previous law and realize our mining projects immediately.
Q: Also the windfall tax issue is in discussion?
MP S.Oyun: Of course the windfall tax must be changed. It can bring some money in shirt run but it suffocates long term mining exploration and investment. In reality, the government is rich when citizens are rich. But state is not always rich when government is rich.
Q: Some suspect that it is a plot not to insert this provision by blaming 51% Government ownership. When the crisis is over, economy is stable and the commodity price is rising, it is not the correct decision.
MP S.Oyun: Personally, I don’t think that it is a good idea to own 51% even in stable situation. It is to insert 51% in order to put control on the project. But we can get this control and monitoring through the investment agreement. Once the project is in Mongolia, if it operates wrong or with less profit we can impose more tax or amend the regulation. When it considered as the business, it is risky that the Government involves in business, fund it, manage it and gain profit. Basically, we made single move forward when we changed occasionally our legislation of mining industry, waiving the mainstream of the world business standard. Therefore, I think it is not necessary to introduce a brand new idea. We lost golden moment thanks to politics in mining industry. We haven’t created workplaces when it necessary, but now we are talking about to own the mining projects and distribute many million MNT to public. Actually, there are many opportunities to create workplaces in businesses that provide service to the mining projects. If the government pays attention in it and creates workplaces with million MNT salary, then it is far better providing money to public.
Q: How about the agreement on product share?
MP S.Oyun: MPs brought this idea when they understood that 51% ownership was no longer correct. This agreement is made in oil industry, but recently it was made in metal mining also. But it is not the perfect alternative. Generally speaking, each deposit demands different mining condition, therefore, it is better to make agreement that can match their characteristics and peculiarity. Shortly, there must be different two different alternatives to exploit Asgat and Tavan Tolgoi.
Q: Prime Minister S.Bayar talks about the separate agreements on major mining projects without waiting for the mineral law to be amended.
MP S.Oyun: Yes. According to the world standard, strategic deposits an be mined based on the agreement. We adopted over 10 deposits already. It is impossible to regulate them through one strict provision. It is very difficult for them to exploit when the Government will own 51% and has agreement of product share.
Q: Basically, we lost our opportunity. Do you agree that it is too late now to adopt the law and start mining?
MP S.Oyun: I said earlier that we lost the golden moment. But I rely on the silver and bronze opportunities. The expense is increasing for the mining projects, but if we make an agreement on Oyu Tolgoi and Tavan Tolgoi, then the price cycle will be changed in four or five years. It is important to develop the economy through categorizing it.But today, the real interest is in mining sector. Mongolia has 2.6 million population and has small market. How much it expands it will roll internally. Therefore, the chance to be integrated with the world economy is mining sector. Even the tourism and agriculture sectors develop, the main and important one will still be mining sector.