The State Austerity Law hits the centenary of the mining industry

2022-07-19

The Mongolian Mining Journal /June.2022/

G. Iderkhangai

The Standing Committee on State Structure of the Parliament (15 June 2022) approved a resolution to celebrate the 100th anniversary of the establishment of State Control in Mongolia. The anniversary this year will be celebrated in accordance with the Austerity Law, which was approved by the Parliament on 29 April and officially became effective on 16 May. However, this historic anniversary could be “suppressed” by the Austerity Law, and nothing special will happen until the autumn. It appears that the government treats such events as an additional economic burden although these sectors carry the country’s economy on their back.

A working group to mark the anniversary was established under the relevant ministry and even developed monthly plans, but to date nothing has happened. Of course, the traditional conferences and workshops will be held on the occasion of the 100th anniversary. But the public is highly critical of the fact that no efforts are made to educate the public and raise their awareness to improve the reputation of the mining industry and establish a valuable legacy for future generations. Once a state law is enacted, it must be implemented. However, the miners still expect the government to pass a resolution to mark the anniversary. Today, the 100-year-old mining sector accounts for 24% of Mongolia’s GDP, 69% of the industrial sector, 77% of foreign direct investment and 93% of exports. This is a large and leading industry in Mongolia.
 

Representatives of major mining companies led by Minister of Mining and Heavy Industry G. Yondon participated in the PDAC 2022 International Mineral Exploration and Mining Convention in Toronto, Canada on 13-15 June. This world’s most prestigious convention for the mining industry was attended by more than 23,000 delegates and more than 2,500 investors from 135 countries. The conversation about the centenary of the Mongolian mining sector resonated at this big event. “Mongolia is celebrating the 100th anniversary of the mining sector with a new era of development, new trends, a resilient workforce, and a new railway connecting major mines to the world market,” confidently said Minister Yondon.

That sounded interesting to foreign investors, but representatives of Mongolia’s mining sector, especially state-owned companies, are “scratching their heads” while unable to celebrate their anniversary due to the Austerity Law. It looks like the Ministry of Mining and Heavy Industry and other relevant agencies will organize Mining Days in mid-September and link annual international conferences such as Coal Mongolia and Mining Mongolia to the 100th anniversary. There is no other significant work planned.

It is true that the launch of the 26-month awaited Oyu Tolgoi underground mine, which has been a major topic of disputes among shareholders, was the first bright message of the 100th anniversary of the mining industry. N. Tserenbat, CEO of Erdenes Oyu Tolgoi LLC, told The Mongolian Mining Journal in detail that there will be no more delays and the underground mine will be fully operational by the first quarter of 2023 without incurring additional debt to Mongolia. “The future of the Oyu Tolgoi project is for Mongolians with knowledge and skills,” he said. 

The exploration, mining and oil sectors accounted for 70% of foreign direct investment over the past 30 years, which highlights the important role the investment played in Mongolia’s economic development, especially the mining sector. The only sector that attracts investment is exploration. But the industry is stagnant. Revision of the mineral licensing procedure, the electronic selection and granting of up to 400 special licenses is still delayed. The most important season for the exploration industry is soon coming to an end. How many companies have the courage and financial resources to invest in this very risky sector? How far will the sector go if the head of the government goes to the countryside and says, “We will conduct the exploration based on feedback from citizens”?

Since the beginning of the year, the Mining Ministry and the Mineral Resources and Petroleum Authority organized many meetings and conferences in rural areas to reach understanding with the local community. Many people say, “Meetings and conferences were not very successful.” In any case, good times coming to the coal sector were discussed at the online conference on Mongolia-China Coal Trade and Market Information Exchange (14 June 2022). Please, read B.Tugsbilegt’s review of the conference. However, the economist B. Munkhsoyol says that Mongolia is likely to face a deep economic crisis and will not recover this year. She told MMJ journalist J. Munkhtsetsegt that the only hope for the coming years is the Oyu Tolgoi underground mine.

The Austerity Law imposes mandatory restrictions on the activities of all levels of budget organizations, state-owned and partly state-owned legal entities. A total of 39.1 billion MNT is planned to be saved by cutting operating costs of government organizations. While austerity measures are managed by regulations in other countries, Mongolia is the only country in the world to have such a law. In any case, as part of the budget savings, the number of board members of the state-owned Erdenes Mongol will be reduced.

The 207 board members of the Erdenes Mongol subsidiaries will be reduced to 27. The government believes that this will help to save costs and ensure the company has a coherent and unified policy. It is prohibited for state-owned and open joint stock companies to have a first deputy or deputy chief. The Austerity Law also restricts the establishment of new affiliates and subsidiaries without a decision of the Parliament or the Government. In the future, 106 state-owned companies expect to be re-organized, restructured or change their ownership.

It is not clear when this law will be repealed. In any case, the 100-year-old mining sector, including state-owned mining companies, is likely to spend the year of 2022 without any achievements restricted by the Austerity Law. 
      

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