A matter of ownership

Trained as a non-ferrous metal engineer and later earning a law degree, N. Algaa was first Executive Director and then President of the Mongolian National Mining Association, before joining Dat Consulting LLC as Executive Director. The Mongolian Mining Journal has interviewed him on several occasions, and we are happy that he will be writing a series of articles for us giving his analysis of and views on developments in the minerals sector. This is the first one and was written in August.

At the moment we do not know when the Constitution will be amended, nor do we know what these amendments will be. As of now, then, we go by Articles 6.1 and 6.2 of the Constitution. The first says, “… natural resources are subject to national sovereignty and state protection,” while the second reads, “The land … as well as the subsoil with its mineral wealth, forests, water resources, and game is the property of the State.” The Minerals Law similarly states, “The mineral resources naturally occurring … are the property of the State.”    

These assertions leave one in no doubt that both the Erdenet Ovoo copper and molybdenum deposit and the Oyu Tolgoi copper and gold deposit are essentially state property. But what about Erdenet Corporation which conducts mining operation at Erdenet Ovoo and, again, Oyu Tolgoi LLC? Whose property are these? People often get worked up over this question, but actually the answer is quite straightforward.

Erdenet Corporation was initially under joint Russia-Mongolia ownership. After a long recent dispute on keeping 49 percent of it under private ownership and 51 percent under state ownership, it became a wholly-owned state property. Oyu Tolgoi, on the other hand, is 34 percent owned by the Government of Mongolia and 66 percent by Rio Tinto. There is no anomaly in this, as even when the mineral deposits remain the property of the state, the company that works on them can be state-owned, private or a joint venture. Ownership of a mineral deposit and ownership of the company which runs operations there are completely different issues and must not be mixed up. This is supported by Article 5.2 of the Constitution which says, “The State recognizes all forms of both public and private property and legally protects the right to ownership.” 

Now the question is: what is state property? Well, it is one form of public property, but let’s try go deeper and see how the Constitution and the Minerals Law help us understand the complex issue. 

The Constitution specifies at one place that “The land, its subsoil, forests, water, fauna, and flora and other natural resources are subject to national sovereignty and state protection,” and at another that “The land, except that in citizen’s private ownership, as well as the subsoil with its mineral wealth, forests, water resources, and game is the property of the State.” 

The Minerals Law says, “The mineral resources naturally occurring … are the property of the State. The State, as owner …, is authorized to grant mineral licences to other persons in accordance with the terms and conditions of this law.”
The following three articles of the Constitutions are also relevant. 

Article 3.1: 
“State power is vested in the people of Mongolia.  The people exercise it through direct participation in state affairs and through representative bodies of state power elected by them.”

Article 20: 
“The national parliament is the highest organ of state power, and the supreme legislative power is vested only in the national parliament.” 

Article 23.1: 
“A member of the national parliament is an envoy of the people and represents and upholds the interests of all the citizens and the state.”

If we dig out the meaning and implication of these articles, the following simple concepts will emerge. 

An individual or a legal entity enjoys the right to acquire property in accordance with the law. The State shall protect this right making no exception on the basis of the type or form or value of the property. The parliament (the State), because it represents the total population and the country’s interests, enjoys the rights to possess, utilize and dispose of mineral resources, which are owned by the State and are public (= the state) property, and it is also authorised to transfer entirely or partially its right to own, utilize and dispose such resources to others (= private investors) under certain conditions and terms by making laws on this. Parliament shall exercise this right by making special laws (the Minerals Law).   

The general understanding is that the Government is authorized by Parliament to exercise the right to hand over -- a right inherent in the larger right to own -- mineral resources which are public (or State) property, to a legal entity meeting the requirements set out in laws such as the Minerals Law, along with the rights to possess (= explore and mine areas within the borders determined by law) and utilize (= earning money and other benefits by mining and selling) under terms and conditions determined by law.   

The recent discussion on the different Constitutional amendments proposed centred on whether natural resources would be “the country’s property” or “the people’s property.” Either was meant to replace the present terminology of “public property” and “state property”. There has been a lot of legal nitpicking, but I still fail to see the difference between “the people’s property” and “public property”. Apart from property under specifically private ownership, logically all the country’s property is the property of all Mongolians. In the time of socialism, there were two types of property: “socialist (public) property” and “personal property.” Are we going back in time? u

WHAT IS PROPERTY? 
 
In most countries property is divided into two principal kinds, both legally sanctioned and protected: public and private. “Public property” is owned by all the people together, while “private property” is owned by an individual or a family or a business group. Private ownership includes the right, no matter how big or small the property, to retain one’s hold on the property if all laws are honoured, and also the right to sell or otherwise transfer it to others.

The economic concept of property is very extensive. As Dr. S. Narangerel explains in his Law Dictionary, it is, first, “an economic concept of a system of historically changeable objective relations of people… defined by obtaining means of production and consumer goods”; second, “a law concept expressing belongings of property in certain conditions and forms to an individual and a collective”; and, third, “is a law institute composing a complex of legal norms directed to regulating the economic relations of the property”. 

As an economic concept, “property right” is a specific authority defining how to utilize resources (tangible and intangible) under ownership of the government or an individual.  As a result of state administrative control and social pressure and coercion, society recognizes the utilization which is chosen by a holder of the property right.  

WHAT IS OWNERSHIP RIGHT? 

In his dictionary, S. Narangerel defined “ownership right” as “the right to own, utilize and dispose property of a certain person keeping her/himself in the direct law norms under her/his discretion and interest and not depending on other’s influence”. He also gave the following explanation to the three integral parts of ownership right: 

1.“Right to own” is a power vested in an owner, allowing her/him to keep things directly and objectively under her/his power, with complete legal support.  

2. The “right to utilize” gives an owner the authority to use her/his property in any way she/he wants, as long the law is followed, and to obtain benefits and income from it.

3. The “right to dispose” is another important component of ownership right; giving the owner full freedom to sell/transfer/lease the property in a legally sanctioned manner.  

The right to dispose is enjoyed only by the owner, but the right to temporarily own and utilize can be enjoyed by another person in accordance with law.  Therefore, the right to dispose of (= the right to decide the legal destiny of) mineral resources (= public property = state property) is granted to the government (= the parliament), but the right to own (= explore and mine areas within the borders determined by law) and to utilize (= earning money and other benefits by mining and selling) is granted by the government (= the parliament) for a period of time and under conditions specified by laws such as  the Minerals Law.