Doing Business in MONGOLIA in MONGOLIA ion to a new wave of emerging economies in 2013,
sight into investments and business start-ups in ce.
is that a number of the Mongolian laws are in a state of flux. Before the June elections there was a ‘wait and see’ approach, but now the election is behind us, the newly elected Government is expected to begin making its intentions clear.
Recent developments such as the Strategic Foreign Entities Investment Law - which imposes certain approval requirements on foreign investors who choose to operate in a sector of strategic importance (among other things) - has had a chilling effect on foreign investment into Mongolia. This has come at a time when coal prices payable by Chinese buyers are depressed and there have been accusations of resource nationalism arising from the Government's review of the proposed $926 million takeover bid by Chalco for up to 60% of South Gobi - a coal company with Mongolian concessions - and the request for the company to suspend exploration and mining activity amid corruption allegations.
While there is much speculation in the business community arising from these developments, my view is that these matters have at least to some extent been triggered as a result of specific circumstances rather than necessarily indicating a growing trend that is applicable to investors across the board. I still feel that the longer term outlook is promising and each potential investment should be analysed in conjunction with the appropriate advisors on a case by case basis.
Q
A group of foreign energy companies is set to invest $1.3bn
in a Mongolian power plant. What doe does this mean for the country?
Marius Toime
This deal is certainly a positive development for Mongolia on a number of levels. The country has significant energy needs (particularly during the winter months) but a lack of basic infrastructure, including power supply, is holding it back.
Mongolia is still relying on aging Russian-era combined heat and power plants, which means pollution is also a concern. And, so the idea of incorporating newer and much cleaner technology to improve pollution and to fill the gap in energy needs is most definitely a good thing.
The deal should also bring in foreign investment, which would be an incentive for the Mongolian government to push through new laws to enhance the legal framework. At the moment, there are several inconsistences and gaps, which make it difficult for investors.
Q
According to the World Trade Bank website, Mongolia ranked 86
out of 183 economies in 2012 in "Ease of Doing Business", moving up from 89th in 2011. Why do you think this is? What has changed?
The country is recognized as an open democracy with transparent processes. The Mongolian authorities have very ambitious plans to develop the country, and they appreciate that foreign investment will play a big part
in that. They welcome foreign investors; every time I am over there, they ask when I will open up an office!
Q
Is there anything else you would like to mention?
The Mongolian Government Action Plan from 2012 to 2016, which has been informally released to the public, gives an indication of potential future regulatory developments. In the mining sector, this includes potential restrictions on the export of raw ore, the use of national contractors as opposed to foreigners and other regulations relating to mining licenses and local ownership requirements.
Our Singapore mining team has many years experience in Indonesian transactions, and some of the proposed new laws bear striking similarities to those imposed on the mining sector in Indonesia. The fast growing economies of both countries are fuelled by coal and other natural resources, and there are parallels to be drawn. Based on Indonesia's experiences over the last 20 years during a period of extraordinary growth and development of its coal and other industries - Indonesia is now one of the largest thermal coal exporters in the world - Mongolia may be able to learn from such experiences in order to assist in tackling some of the challenges that lie ahead.
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