Friday, September 19, 2008

Mongolia creates new Ministry of Mining and Energy to emphasize mining's importance

Mongolia now seems on the way to enabling new mining legislation with the formation of a new Cabinet including a Ministry responsible for Mines and Energy.

RENO, NV -

Mongolian Parliament Wednesday approved the structure of its new coalition government with 15 ministries and 11 ministers including the new created position of Minister of Mining and Energy.

The new institution will be charged with overseeing mining, including minerals and petroleum, as well as fuel and energy, the UB Post reported Thursday. It replaces the Ministry of Industry and Trade.

Prime Minister Sanj Bayer said the country is recognizing the vast potential wealth available to Mongolia through development of the mining industry, Chinese state news agency Xinhua reported Thursday.

The Ministry of Foreign Affairs will be replaced by the new created Ministry of External Relations, which will deal with the economy as well as foreign affairs. The structure of the new coalition government will include a Ministry of Finance, Ministry of Justice and Home Affairs, Ministry of External Relations, Ministry of Health, Ministry of Defense, Ministry of Education, Culture and Science, Ministry of Nature and Tourism, Ministry of Infrastructure and Urban Development, Ministry of Social Welfare and Labor, Ministry of Defense, Ministry of Food, Agriculture and Light Industry, and the Cabinet Secretariat Office.

Earlier this month, the leaders of Mongolia's two main political parties signed an agreement to share power until the parliamentary election of 2012, the UB Post reported. Under the agreement the coalition government will aim to create 60,000 new jobs, as well as promote child birth to increase the population of Mongolia.

The UB Post reported that the government plans to "redefine its minerals policy, revise the mining law, promote ecologically friend mines, and to push strategically significant mineral deposits into production." Among the nation's significant deposits is the massive Oyu Tolgoi copper and gold mine.

"The government also plans to distribute mining revenue made from strategic deposits with a minimum of [the Mongolian Tugrik] Tgr1.5 million (US$1,034) awarded to each eligible citizen in the country," the Post reported.

The government also plans to promote and operate major projects including an oil refinery, coal-to-liquid fuel conversion, natural gas production, as well as nuclear energy for use by mining.

At a recent conference last week hosted by Euromoney Magazine, Randolph Koppa, Mongolia Trade and Development Bank CEO, said the nation's economy has done well without new sources of mining. However, he warned that if Mongolia hopes to tap major new sources of revenue it will have to begin exploiting its large recently discovered copper and gold deposits.

Koppa also noted that for the last three annual Euromoney conferences, "we have been on the brink of having the mining agreement." He said that government ownership questions and debate over new mining laws have stalled the development of new projects, according to the UB Post.

Khan Bank CEO Peter Morrow told conference attendees that the high level of optimism exists that the new coalition government will work. He anticipated that mining law amendments will be enacted, "they'll approve some of these big projects and things will get going."

The UB Post reported that "certain governmental elements favor 51% state ownership of new mining projects and high taxes. ...Some fear that Mongolia may have already missed a golden opportunity to take full advantage of its mining industry. Some commodity prices have decreased lately, and when, or if, the agreements pass, it will take time before mining projects progress to the point where resource extraction begins."

During the conference, Dr. Graeme Hancock, senior mining specialist for the World Bank's Oil, Gas and Mining Policy Division, suggested that the next few months are critical for Mongolia. "The decision the government makes will shape the form of the economy for the future. They're big decisions, but they do need to be made."

In a presentation earlier this year, Hancock said, the Mongolian mining sector has the potential to significantly contribute to the nation's economic growth, but its development will depend on the government's ability to establish and maintain the following:

· A clear mining policy,

· A competitive, stable and predictable fiscal regime for mining,

· A stable and transparent legal and regulatory framework to manage mining development, protect the environment and ensure good corporation governance,

· Policies and procedures to attract and retain world class investors who have the resources, management and technology to locate and exploit mineral deposits in a sustainable way,

· Efficient mining sector institutions and strong administrative capacity for oversight,

· Appropriate policy responses to and transparent management of expected increases in mineral revenues ... and ensure lasting benefits.

Hancock said Mongolian officials also have to better manage risks. "Mongolia's revised legal, regulatory and fiscal policies were formulated during a period of high commodity prices and strong international competition for mineral resources. The question now arises whether these policies are realistic and sustainable in the longer-term.

"There is an urgent need for Mongolia to conclude an investment agreement for Oyu Tolgoi, sending a strong signal to investors that government has realistic expectations, and is supportive of mineral development. A key element to attract and sustain investment and growth will be to re-establish and maintain the legislative and institutional stability, which was instrumental in spurring investment in Mongolia's mineral sector over the past few years," he advised.

Hancock also suggested that the Mongolian government improve its tax regime and adopt a model investment agreement for all new mining investments.

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