As part of the ‘Local News Network’ project implemented by The Mongolian Mining Journal in cooperation with GIZ IMRI, a wrap-up meeting was held in Ulaanbaatar on 10 November, where 52 journalists from different local areas participated. A special feature of the event was that these journalists were provided with an opportunity to listen to three persons in positions of authority, something they miss where they work. The three officials who very kindly agreed to make a presentation to the visiting participants were B.Batkhuu, Chief of the Policy Implementation Regulatory Agency of the Ministry of Mining, B.Baatartsogt, Head of the Geological Policy Department, and N.Chinbaatar, of the Cadastral Department of the Mineral Resources Authority of Mongolia. We give below short accounts of what they said.
More benefit to places with actual mining B.Batkhuu: Considerable progress has been made in clarifying the legal environment in the mining sector and preparing a proper framework for it ever since the exclusive and independent mining ministry was set up after the Parliamentary election in 2012. Given its pre-eminent status in the Mongolian economy, it is only fair for the mining sector to be governed by a formal policy document. Frequent changes in the law and regulations make investors’ position untenable, after they have made large investments and have to wait to start making a profit. This is especially true of the tax regimen.
Accordingly, we formulated a state policy on the mineral sector which was approved by Parliament after intensive discussion. This document makes for changes in the Mineral Law (last amended in 2006) and in the law on oil, which has actually remained more or less untouched since it was approved in 1990. One of these changes has seen resumption of allocation of exploratory licences, banned for 4 years at the initiative of the President. However, the modalities in the allocation process are now different. Earlier, a licence was for the asking, and would be granted on any geographical area asked for, which had led to resistance from local citizens and environmental damage. Now exploratory licences are granted only in places approved by the state.
Another change is in the sharing of mining revenue. All of this used to be put into the state budget, which would spend 20% of the amount in the aimags, and 10% in soums, but the Government in Ulaanbaatar was the sole arbiter of how and on what the money would be used. Now a Local Development Fund has been set up, and this distributes the mining revenue to aimags and soums, according to provisions in the State budget law. Civil Representatives’Khurals and local citizens now decide what to do with the money thus received.
At present, 5 percent of the mining royalty accrues to the local development fund to be spent in the 21 aimags and the 365 soums in them. Of the rest, 70 percent goes into the Human Development Fund to pay for children’s and students’ allowances and other social welfare measures. The other 25 percent becomes part of the state budget. From the coming year, 5 percent will go to the local development fund, 65 percent to the Human Development Fund and 30 percent to the state budget, with the proviso that 30 percent of this last would be allocated to the local communities, making sure that the aimag and soum where mining operation is taking place, gets a fair share of the mining revenue.
In persisting with financial decentralization, 10 per cent of the mining money coming to an aimag’s local development fund will be allotted to soums where there are operating mines. Apart from this, 50 percent of the licence fees collected will be sent to the soum where the licensed area falls. Thus soums where there is mining will get more funds than those where there is none. Their funds will come from two sources: from the state budget and from the local development fund.
A draft model agreement between a mining company and a local community has been prepared by a consulting company and will be approved before long. It will make sure that actual and tangible development takes place in the local community, while prohibiting companies from making any donation not related to development work. The model agreement also makes it mandatory for mining companies to enter into an agreement with the local community before starting to work.
Priority is to identify totally unencumbered squares
B.Baatartsogt: Some geological work, such as mapping, is done with state finance but all exploratory work is now the responsibility of the licence-holder in the private sector. The total cost of all such work at present would be approximately MNT11 billion, showing a rise in the very recent past. Once the nationwide basic study is done, state financing would be available for more sophisticated and more specialized geological studies.
The present priority under the changed mineral law is to list territories or squares where exploration or extraction can be done. This is mainly the responsibility of the Mining Ministry, which has to work in tandem with other ministries such as those of Construction and Urban Development, Environment and Green Development, and Food and Agriculture so that the listed squares are not in any specially protected area, natural reserve, a local special needs area, pastureland for migrating livestock, or designated farmland etc. Once the totally unencumbered squares are identified, they are announced to the public.
In August 2014, the Government announced the coordinates of areas totaling approximately 31 million hectares, or 20 percent of the total territory of Mongolia, where geological studies and exploration could be conducted. This 20 percent is outside all special regions and the ambit of the long named law, where our policy is not to have any mining operation.
So far this year, exploratory licences valid for 12 years have been allocated on some 8 million hectares of land. Licence holders prefer to finish with part of their area every year. Once a square is returned to the state, after the 12-year period, the state can again offer it for geological study or put it into economic circulation.
The Mining Ministry has almost completed the work of identifying squares where exploration licences can be given to private investors. At the same time, other ministries such as Environment and Green Development, and Tourism are seeking to increase the size of national reserves. There is no contradiction, as the mining ministry is fully committed to environmental protection and strengthening the agricultural sector.
Online allocation working without any major glitch
N.Chinbaatar: The government proclaimed Resolution 239 when it decided to resume grant of exploratory licences on all land except what was legally barred from such use. Some 30 million hectares were found to be free for mineral exploration, and it was decided that licences over approximately 20 million hectares, or 13.3 percent of the total territory of Mongolia, would be granted against application, while the remaining 10 million hectares or 6.6 percent of the total territory, would be kept open for now.
With new licences again being granted, development of the mining sector is entering a new phase. As of a few days ago, our records showed more than 3,200 active licences, covering 8.7 percent of our total territory. Of these, almost 1,750 are exploration licences, over 12 million hectares or 7.9 percent of national territory. The remaining 1,400 or so are mining licences covering 1.2 million hectares or 0.7 percent of our total territory.
According to the Mineral Law, an appropriate authority assesses applications and then grants exploratory licences, following the international norm of ‘First come, first served’ as far as a square is concerned. In the past, applicants had to come in person to the MRAM office, and since the first claimant would get rights over an area others also wanted, there would be long and disorderly queues, sometimes causing damage to office property. In keeping with changed times, applications are being made and exploratory licences issued online since 26 January, 2015. The system is working well, with glitches on only two occasions so far, but without any major disruption.
Between 26 January and 9 November, there have been 32 sessions, with the total number of applications accepted standing at 3,215. Unlike when applicants came in person, we now have almost no instance of one entity asking more than one licence. Competition for licnce is particularly strong in the eastern region, so there is less chance of any one entity cornering more than one licence.
The country has been divided into the western and the eastern parts for the purpose of granting exploratory licences. Areas in the western side were taken up first, in a bid to attract investment and develop the infrastructure there. Only after the free squares on that side had been applied for, did we start receiving applications in the eastern side, on 24 August.
Of the total 3,215 applications received, 602 have been found fit to be allocated licences to date. Now these have to be ratified by local governments. MRAM forwards the application to the aimag governor who refers it to the Citizens’ Representatives’ Khural and the governor of the soum where the square in contention is, to know if they have any legally tenable objections.
The law does give an aimag governor the right to reject a proposal on certain specified grounds, such as the square being part of an already notified local special needs area. However, the local authorities are at times overstepping their jurisdiction, holding back approval on the basis of majority opinion in a CRK.
Apart from licence fees, professionally conducted exploration work in a square costs money, and companies usually do not destroy the land in the name of exploration. At the first stage, geophysical, magnetic and such surveys are done without the land being dug up, and the several succeeding stages of geological study are also not damagingly intrusive. The drilling work is monitored for its environmental impact by professional agencies. Generally, only a part of the square is found to host the mineral, and that small part of the total land will become the focus of future mining. It is wrong to think that an exploratory licence over a 10,000-hectare area will lead to extraction work on the whole land.
Of the 10 million hectares in the eastern half where exploratory licences will be allocated, 28 squares have so far been offered to applicants on three dates. There were no takers for 16, good participation for 10, and in the case of the other two, a fresh date will be announced as the first participants did not meet legal requirements.
Ten more squares will be open to applicants before mid-December. There is so much more activity and enthusiasm all around than earlier, not just because of the resumption of issuing exploratory licences, but also because everything is so very transparent now. Just the 10 squares have netted over MNT3 billion for the state budget.
The next issue is about the cancelled 106 licences. Following court rulings, the government framed special rules on compensation and also on re-inviting tenders. Things are moving, with 8 squares being licensed to new claimants, while 39 have been reverted to the previous holders. Decision on some squares are held up as some previous holders are negotiating new fees with MRAM.