Mongolia Open to Talks on Investment Law
Source: FINANCIAL TIMES
By David Pilling in Ulaanbaatar, Mongolia
May 29, 2012
Mongolia is willing to reopen negotiations on a controversial foreign investment law after next month’s parliamentary elections, according to the country’s president.
Known as the Qatar of central Asia because of its massive mineral potential, Mongolia is attracting keen interest from companies such as Rio Tinto, the Anglo-Australian miner, Peabody Energy of the US and China’s Shenhua group. But foreign mining companies have complained that a law, rushed through parliament this month after China’s Chalco sought to take control of a coal mine in the Gobi desert, could badly damage the investment climate.
In an interview with the Financial Times, Tsakhia Elbegdorj, the president, conceded there were problems with the new legislation.
“Personally I don’t think this is the best law. There are many issues that deserve criticism,” he said. “We are always open to improve it, including listening to the suggestions of countries and organisations that are willing to invest in Mongolia.”
The new legislation restricts foreign ownership of “strategic industries”, including mining, banking and telecommunications, in deals worth more than $75m to 49 per cent unless expressly approved by parliament. Foreign companies say this would make investments hostage to resource nationalism and corruption.
One observer, close to the mining industry, said foreign companies needed equity control given the uncertainties of investing in Mongolia. The country had become complacent, he said, and assumed that foreign investors, lured by huge mineral deposits on China’s doorstep, would come on any terms.
Mr Elbegdorj made it clear Mongolia would not roll over to foreign demands. “We need to look more to Mongolian people’s fundamental interests,” he said. Now Mongolia was “at the epicentre of global attention”, he said, it needed to “find a more effective equilibrium” than when the country was desperate for foreign capital.
Mr Elbegdorj denied that the legislation, which sets higher hurdles for state owned enterprises, was aimed at China. However, Ganhuyag Chuluun Hutagt, vice-minister of finance, conceded the law had been rushed through because of the Chalco bid.
Ulan Bator is concerned that China, which accounts for more than 90 per cent of Mongolia’s exports, could gain an unhealthy grip over mineral pricing.
Mongolia stands on the brink of an investment bonanza that could see its economy double in size every three or four years. Last year, the economy grew at 17 per cent, among the fastest in the world. Next year that is expected to accelerate to 20 per cent as big mining investments, including a big copper and gold mine, come on stream.
The top 10 Mongolian mines alone had reserves worth $2.75tn dollars at current prices, said John Finigan, chief executive officer of Golomt Bank. Shared between 2.7m people that should make every Mongolian a millionaire, he said.
But Mr Elbegdorj warned there were grave dangers associated with mineral wealth. Chief among these were corruption. Last year, Mongolia, an economy of just $8bn, attracted foreign investment of around $5bn.
“Corruption makes Mongolia look ugly,” Mr Elbegdorj said, adding that his presidential legacy should be judged according to how effective his administration had been in “eliminating, eradicating and exterminating corruption”. Current laws were inadequate, he added.
Last month, authorities arrested Nambaryn Enkhbayar, the former president, in a dawn raid. Mr Enkhbayar, who went on hunger strike in protest, said the arrest was politically motivated.
In the interview, Mr Elbegdorj firmly denied that claim, saying the former president had refused to testify in relation to serious allegations. “No one has preferential rights,” he said. “Fighting against corruption is not just chit-chat. It requires action.”
Mr Elbegdorj also expressed concern that non-mining sectors could suffer as foreign capital rushed in. The central bank has raised rates to 13.5 per cent, which, according to one official, was “killing off” whole industries.
Mr Elbegdorj said: “With old infrastructure and with the old economic infrastructure, we cannot keep pace with the growth of foreign investment inflows. Therefore we have to channel mineral resources proceeds into other sectors.”