Opinion
Exploration sector ready to regain lost ground
2017-05-01
The Mongolian Mining Journal /Apr.2017/
N.Ariuntuya
The map shows the places where exploration licences will be allocated. They total up to 20.1 million hectares or 12.8% of Mongolia’s total territory.
The mining ministry is following a policy of increasing national wealth by discovering new mineral deposits that can then be developed. Exploration is also the sector to attract the most foreign investment, which had earlier poured in, only to almost dry up in the past seven years, following the blanket ban on issue of new licences and cancellation of existing ones, leading to confusion among investors who preferred to step back. Domestic companies had carried on exploration work, however, as S.Bold-Erdene’s article in this issue details.
The exploration sector waits to regain its pre-eminence, as allocation of fresh licences based on a new system of application is set to resume after a year’s hiatus. The path may not be very smooth, though.
The Government will any day now announce the areas where licences are to be granted after all issues related to any encumbrance are sorted out. The Ministry of Mining and Heavy Industry has proposed to begin with allocation of approximately 18.5 million hectare of land based on applications. Some five million hectares of this has been described as ecologically sensitive, though not formally designated as such. Whether these areas would also be opened to exploration will become clear after discussions between the ministries of mining and of the environment and tourism. For a start, we have 18.5 million hectares land to be explored. Exploration is an activity that shows constant change and every time a licence expires or is cancelled or surrendered, the land it covered would be re-offered for return to the economic cycle. Any area exempted from restrictions on special use will also be similarly announced.
The Mineral Resources and Petroleum Authority is responsible for the implementation of the work, and has made all arrangements to allocate exploration licences through an application system. The entire process will be online. The principles behind the procedure and the procedure itself remain the same as followed in 2015. The only change is that the applicant now has to fill in a form.
The Authority for Fair Competition and Consumer Protection had ruled that the system of issuing an application number online was legally untenable without any official regulation. This lacuna has now been rectified and a modified Article 18.2 of the Mineral Law reads, “The legal entity stated in Article 18.1 of this law shall submit to the State administration office the application to request the special exploration license filled out according to the approved form, which includes the following documents”.
Larger areas than before will be given under licence in the selection process. Since the start of the year an additional 1.6 million hectares have been announced to be open and recently it was announced that feedback on 75 segments had been received from the locals. The state administration office will start receiving in the beginning of May the selection documents of the areas approved by the local communities.
Applications will be received only after the Government announces the area coordinates. After the initial approval, the applicants will seek further approval from the locals. This second round can take time as local administrations could take longer to come to a decision than the law gives them.
The revised process of exploration licence allocation began in January 2015 after it had been halted in April 2010. The new system based the grant on online numbers, and this, too, was discontinued on December 14, 2015. The reason formally given for the halt was that the authorities wanted additional coordinates of the special licence area and to free more areas under State protection, but everyone understood that actually the online system was not working smoothly. Now, one hopes, everything has been set right.
Hopes of attracting investment, activating the economy and increasing state income by putting exploration licences into the economic cycle were not fulfilled in 2015, mainly because in almost every single case, locals refused to go ahead with the allocation, leaving 70% of the total announced area still uncovered. The reasons for their refusal were often not strong or grounded on fact. Locals would claim the area to be under local protection when the coordinates had already been announced and would on occasion pick up the phone to just say “We refuse”. This persistent refusal by the locals was the expression of widespread resentment that mining activities in an area were not bringing in any real benefit to the community there.
The Ministry of Mining, as it was called at that time, was realistic enough to realize the depth of the local feelings, even if these did not warrant such wholesale refusals. It set about changing perceptions and it appears the efforts have been quite successful.
Amendments were made in the related laws so that a higher share of the mining revenue went to the area of the mining. Since January 2016, the locals have been receiving 30% of royalties and 50% of the total special licence fees paid.
As for royalties, the 30% earmarked for mining site local areas were brought down to 10% by amendments to the budget law approved on September 9, 2016. Further changes were made in the local community development fund sources during the amendments to the budget following the IMF’s Extended Fund Facility Programme (EFF). Now, until the completion of the EFF, only 5% of the royalty payments will go to the locals, as it used to originally. It is yet to be seen what effect this will have on the attitude of the local communities.
Unwilling to risk losing the support of these communities in granting exploration licences, the sector ministry wanted in early 2016 to make some amendments to the Mineral Law, such as ascertaining their views on the areas to be opened up for exploration before making the list of such areas public, but could make no progress because it was an election year. Talking to the locals first, and not later, would have convinced them that their views really mattered and would have softened their resistance in most cases, thereby ensuring that the companies’ expenses in making the online application would not be wasted. Maybe it would have made it easier for exploration activities to begin with a bang.
The Ministry of Mining and Heavy Industry and the Mineral Resources and Petroleum Authority of Mongolia have been trying to soothe such misgivings by reassurances that they have reached out to local governments by arranging meetings where they have presented and explained the government’s policy and decisions, emphasising their good intentions. This is helpful but maybe not enough. Other stakeholders should also be roped in to allay the locals’ misgivings, or else, the story of 2015 may well be repeated. Already, locals have refused to endorse 63 of the 75 sites announced under the selection process. In desperation, the ministry wants to list more such sites, much as it was in a Mongolian film where 14 wheels were ordered for a car so that at least four would work. If locals choose to dig in, maybe even in the face of good sense and logic, the work of fresh exploration will get stalled. We have to wait and see.
Finally, B.Tugsbilegt analyses in his article how the government’s amendments to this year’s budget, in keeping with its negotiations with the IMF, might turn out to be unrealistic in calculating revenue. That it did not cut any budgeted expenditure and did not also take any bold decisions to go for new monetary and fiscal policies might well prove to be a costly gesture of stubbornness in not learning from experience. Here, too, we have to wait and see.