Ulaanbaatar city to be miner

There are, somewhat unusual decisions made one after the other in the mining sector. As well as the fading of the issue regarding the license for mining of foreign investors, an exploration license has been issued to the Municipal Administration office. It seems that the Governor of Ulaanbaatar Sumyabazar.D missed the mining sector. In order to accomplish his enthusiastic desire to explore mineral resource in Dornogovi province and even excavate further for profit if any resources are found, he “whipped” the license of “Erdenes Mongol” and had it authenticated by Government Resolution.

The 217th resolution to establish a legal entity was passed at the Cabinet meeting held on the 31st of May. The resolution decided to establish a capital owned ‘Erdenes Bayanbogd” LLC and allocate 66 percent to “Ulaanbaatar city development Corporation” JSC and 34 percent to ‘Erdenes Mongol” LLC. The City council conducted a meeting on the 17th of June and approved the motion to establish a joint legal entity of “Ulaanbaatar city development corporation” JSC and “Erdenes Mongol” LLC. “Erdenes Bayanbogd” company hold the XV-22117 special license for mineral exploration for 14,944 hectares of land named Bogd mountain in Ulaanbadrakh soum of Dornogovi province.

The intersection of the special license was approved by the 110th resolution of the Cabinet meeting held on the 9th of June and decision was made to issue the special license to ‘Erdenes Mongol” company, the Mineral Resource and Petroleum Authority of Mongolia issued the special license to ‘Erdenes Mongol’ on the 29th of April. This is the reality of how ‘Erdenes Mongol’ is losing its license to the Governor within just one month’s time. The governor Sumyabazar.D, who once lead the mining sector and chaunted genuinely about supporting domestic investors, private sector and trading the shares of state owned companies to the public suddenly decided to explore minerals through the State owned company can’t be fathomed by the sector.

The government organizations seem to have nothing to say but ‘What can we do since it is the Government decision…” and the sectors seem to do nothing but take it as another stupidity of the government and shake their heads. The biggest sarcasm is that just a week after the Government issued the approval to establish a mining company in Ulaanbaatar city, a decision was made to privatize the state-owned unprofitable companies through stock market and permit it the public. One can interpret this decision as ‘shove’ the unprofitable companies to the public and enter into a profitable business for all administration levels and will be shielded by the ‘equal distribution of wealth’ slogan that has been included in the Constitution by the latest amendment. Ulaanbaatar city having a financial authority and have independent economic growth has been talked about for many years. It seems that the only thing missing for the city to ensure an independent economic growth was mining.

This can be illustrated by the City Council’s resolution stating ‘To ensure the Ulaanbaatar city’s social, economic and financial funds and in order to provide opportunity to develop based on the investment and natural resource benefits, an approval has been granted to “Ulaanbaatar city Development Corporation “JSC to establish a joint venture with ‘Erdenes Mongol” LLC to conduct exploration and mining activities.” This raises a question of the competence of budget and finances for Ulaanbaatar city. Many governors criticize how the city is doing not much to ensure satisfied living for the people due to financial scarcity. But the below graphic shows the regular annual increase in the city’s budget.

Capital Property Relationship Department holds 100 percent of the corporation and was established in 2015. It was established with an objective to develop and strengthen the relationship between government and private sector based on the best management and trust of the foreign investors for projects and programs reflected in the Mid- and long-term development policies of the capital. The department also hold multiple shares of companies that implement many significant projects that can resolve many crucial issues of the city such as parking management and introduce liquefied combustible gas. But there are no information regarding the exploration of natural resources and investment.

As by the statistics of last year, the income totaled 720 million tugrugs of which 500 million tugrugs was government subsidy. Also, from the approved 11.3 billion tugrugs funding from capital budget to the Corporation, 10.7 billion are the assets of the equity fund. Curiosity is elevated to see how the City is persistence to step into the natural resource sector and the effect it will have on the mining sector. In recent years, there has been a dramatic shift in the perception and policy that the government only have shares of the strategic deposits. Since the state ownership of the Salkhit Money deposits and transfer of authority to ‘Erdenes Mongol’ LLC, the government started penetrating through all that is valuable and beneficials in natural resource exploration and mining. But it is also necessary to highlight that it was within the ownership scope of ‘Erdenes Mongol” LLC. If there is a case of local administration having a share of a mining company, it was limited to a few coal mines. The local state-owned mining companies, except from ‘Tavan tolgoi’, has a main objective to supply the local area with coal power supply. The current case of Ulaanbaatar city dramatically changes the policy and regulations abided by government in mining sector. Every now and then, the local provincial and soum citizen’s representatives who issued permits in their respected constituencies spoke of their interest in gaining a share of the mining companies that hold special licenses.

There have been cases of, if do not agree to their shares, they will oppose to their license approval and look away. There has even been Governors who insist on receiving royalty if do not have shares of their companies. Ultimately, the best path seems to be establishing the Local development fund and receive percentages of the income from every ton of coal and kilo of gold. This issue will probably become sturdier as time goes on. Obviously, one will argue that if the City can have shares in mining companies, why can’t we also have shares. It wouldn’t be a surprise if the people stand up since all have budget scarcity, there are no benefits coming from local mining companies to the locals and city, province or soum all want the same development but are being discriminated and mistreated. Furthermore, it is also uncertain and questionable if the government decision are within the Law on Natural resources.

Article 7 of the Law on natural resources state the criteria for special license holders. Article 7.1 states the special license for exploration and mining, if not stated differently in relevant laws, will be issued based on a selection process to legal, tax paying entities established and operating under the Mongolian laws, but the 110th and 217th Resolution of the Cabinet may be in breach of the law. In another words, the license was issued not through a selection process but through a cabinet resolution and also the license holding companies are non-existent and are not tax payers.