PRESENTATION

2. Investing in a changing legislative
environment
Elisabeth Ellis
April 2013

3. Agenda
• Navigating Mongolian laws
• Practical challenges
• Minerals law
• Foreign Investment law

4. Navigating Mongolian laws
• Dynamic
• Regulations lagging
• Uncertainty

5. 2013 – legislative agenda
Change to date
16 new laws Jan- March
• Explosives
• Tax consultancy
• Lawyers
• Food
• Food safety
• Courts
• Social insurance
66 laws amended
Laws for consideration
• Foreign investment
• Minerals
• Securities
• Land
• Geodasy and Cartography
• Health Insurance
• Public service
• VAT/PIT
• Petroleum
• Labour

6. Risks
• Security
• Pledge of licence to non-banks
• Pledge of movable property
• Insolvency
• Uncertainty
• Corporate structuring

7. Dealing with change
• Changing laws
• Changing personnel
• Changing interpretation
• Changing requirements

8. Foreign investment
• Socialist era – illegal if not permitted
• Foreign Investment Law 1993
• 2008: US$100,000 investment

9. Foreign investment
Illegal as not
permitted
Soviet
era
Foreign
Investment Law
US$100,000
SEFIL
Investment Law
1993
2008
2012
2013

10. SEFIL
Detail Comments
Sectors of strategic
importance
• Mining
• Financial services
• Media and telecommunications
SEOs Cabinet approval required for investment by foreign state
owned entities, entities with state ownership and
international organisations (irrespective of sector or amount
invested)
Cabinet approval Cabinet approval required if a foreign investor will:
• operate in a sector of strategic importance;
• enter into a transaction which provides a right for the
foreign investor to:
• Acquire 33.3%
• Control management/executive decisions
• Create monopoly
• Affect price of exported goods

11. SEFIL
Detail
Comments
Parliamentary
approval
Parliamentary approval required for foreign investment:
• Acquisition of more than 49%
• Investment greater than US$75 million
Notification FIRRD must be notified if a foreign investor acquires 5% -
33.3%
Criteria The Government may withhold approval on account of the
following:
• national security;
• the applicant does not comply with Mongolian legislation
and established business codes;
• competition will be adversely affected in the relevant
sector;
• negative effect on the national budget and other policy
activities of Mongolia; or
• negative effect on the relevant sector.

12. SEFIL
Detail
Comments
Sanctions • transaction being held invalid
• Mongolian company may be required to
discontinue activities
• licence may be revoked
Buy local Any entity operating in a strategic sector must give
‘preference’ to an entity which is at least 51% Mongolian
owned

13. The good news story - Investment Law
Detail Comments
Key principals • Investment is not restricted
• Equality :Common regulation
• Stability : Guarantees
• Rainbow economy
• Creation of complex investment environment
• Monitoring of investment
Exclusion • Investment from state or local budget
• Indirect investment (eg bonds)
• Manufacturing, import, sale of tobacco and alcohol
Strategic sectors • Mining
• Banking
• Media and telecommunications
Approval Only required for SOEs (wholly or partially owned)
FICB approval required for investments > 49%
FICB comprises chairman and 6 members accountable to
Government

14. Investment Law
Detail Comments
Guarantees • If property is expropriated – indemnity for value
• Assets can be taken out of Mongolia (income, dividends,
royalties)
• Dispute resolution: Foreign or local arbitration permitted.
If not specified – court
• IP
• Trading environment
Other relief Visa, Land, Licence support
Tax concessions
Funding support

15. Investment Law
Detail Comments
Ongoing obligations Corporate governance
Training to upskill Mongolian citizens
Investment reports
Stability Not Investment Agreement
Protects against future tax increases
May be revoked
May be improved
Available to investments over the past 5 years
Tax stabilisation
certificate
• 10 -18 years
• Location
• Investment amount (10bn – 500 bn MNT- verfied)
• Job creation
• Export
• Non-mining
• High technology
Obligations Mongolian executive
Continuous training
Equal salary for Mongolian

16. Minerals Law
• Restraint on ownership
• Expropriation
• Lack of stability
• Opportunity for corruption
• Increased administrative
burden
• Strategy paper
• Working group to
include industry and
professional
advisors
• Suite of laws