Chris Melville, Partner, Hogan Lovells LLP, Mongolia

1. 30 April 2014
Legal Developments in Mongolia and the
stimulus for FDI
Chris Melville, Partner
Hogan Lovells Ulaanbaatar

2. www.hoganlovells.com
Introduction
• Background and opportunities
• Investment Law
• Developments in the minerals sector
• Other upcoming legislation
• Steps to improve investment environment
• Conclusions
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Background and opportunities
• Investment environment
• FDI in 2013 fell by over 50%
• Factors:
– Weakening of commodity prices
– Policy decisions and implementation issues
• Strategic Foreign Investment Law (SEFIL)
• Moratorium on new exploration licenses
– OT impasse
• Corrective action over past 9 months
• Significant opportunities:
– Vast infrastructure requirements;
– Minerals: 20 per cent of Mongolian territory explored
– Banking and finance
– Clean energy
– Retail
– Services sector
– Food and distribution
– Real Estate – residential and commercial
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Investment Law and related legislation
• Passed in November 2013
• Repealed SEFIL
• Key highlights
– Simplifies company registration process
– Introduces tax stabilisation incentives for projects (regional variations)
– Generally treats foreign and domestic investors equally
– Created Invest Mongolia agency
– Introduces a different regime for SOEs
– Proposes further tax/employee benefits
• Implementation is at early stage
• Positive development to help stimulate FDI
• Recognition of issues and taking corrective action
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Investment Law and related legislation (2)
• Revised Securities Market Law
• Investment Funds law
• Regulations on entry into of investment agreements
adopted in February 2014
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Minerals sector developments
• Adoption of Minerals policy on 16 January 2014
• Adjustment to gold royalty rate to 2.5%
– Encourages sale of gold within Mongolia to Bank of
Mongolia
– Shores up BoM reserves
• Spring session proposes amendments to:
– Minerals Law 2006
• Highly anticipated draft amendments being finalised at the cabinet
level
• No major structural changes according to the latest draft
– Lifting of moratorium on exploration (tendering process)
– “Long Name Law”
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Proposed Amendments to the Minerals Law
• The latest draft version was circulated among business
community in mid-April
• expected to be approved during this spring
Parliamentary session
• Overview of the key features:
– maintains the existing licensing and operational regime with
minor or supplemental changes
– provides for new state agency, National Geological
Bureau/Office
– maintains the concept of strategic deposits
– additional or amended obligations for licence holders
– extends the term of exploration licences by 3 years
– increases sanctions for non-compliance
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Proposed Amendments to the Minerals Law (2)
• National Geological Bureau to be established by the
Government with a mandate to:
– carry out geological exploration, mapping, and other research
– assess mineralised areas and prospects for mineral exploration
– provide information services in relation to geological and
minerals register/database
– maintain a national minerals register/database and reserve
records
• Ad Hoc Advisory Council to be established by the
Ministry of Mining to ensure stable regulatory regime,
increase competitiveness and promote the sector
• Minerals Resources Authority remains to be the main
regulator of the sector in charge of issue of licences and
monitoring licence holders
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Proposed Amendments to the Minerals Law (3)
• The term of an exploration licence would be
extended by 3 years to 12 years
• No transfer of exploration licences in the first three
years of issue date
• Additional obligations on minerals licence holders:
– relinquishment obligations
– local procurement obligations (preference to Mongolian-
incorporated, Mongolian tax payer entities in procuring
goods, services)
– prior notification obligations re suspension of activity
– local content obligations
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Proposed Amendments to the Minerals Law (4)
• Conclusion:
– Overall a positive development paving the way to the
lifting of the current moratorium
– No major changes significantly altering the existing
regulatory regime
– Separate state agency in charge of geological exploration
and mapping
– Clarifies but increases certain obligations of licence
holders
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Other upcoming legislation
• Resolution on economic stimulus
– Resolution of disputed mining licenses
– Amendment to debt ceiling
– Improving immigration and visa requirements
• “Double deel” legislation
– Proposes separation between certain ministerial posts
and MPs
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Improving FDI
• A number of positive developments in legislation
• Implementation issues important
• Confidence will return combined with legal
developments if:
– Oyu Tolgoi on Phase 2 impasse is resolved
– Key infrastructure projects get to financial close TTPP;
CHP-5
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Improving investment environment
• Suggestions for improving the FDI environment
– Develop online company registration and access to
company information
– Stimulate SMEs by improving access to capital
– Streamline and codify the regime for taking security,
improving access for both foreign and domestic business
to sources of funds
– Improve transparency in the procurement process
– Take the politics out of business
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Conclusions
• Outlook is positive, certainly long-term
• Important developments in legal framework
– Investment law
– Lifting of exploration moratorium
– Proposed Minerals law amendments
• Key to work hard to close infrastructure projects
• Focus on implementation of law, not only its
passage
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