COMMENT: Mongolian govt rushing though resource nationalism bill

By bne IntelliNews April 26, 2012

Frontier Securities -

According to the website of the Mongolian parliament on April 24, the Parliament's Standing Committee on Security and Foreign Policy has supported initial reading (whether to discuss) bills on implementing limits on foreign investment into enterprises with strategic significance to ensure national security and amendments to law on the state registration of legal entities. The bills are to proceed to the floor of the united session of parliament.

According to the website, "currently there are no legislative limitations on foreign investors for any kind of investing in and owning 100% shares of a company operating in sectors with strategic significance for Mongolia."

The law on foreign investment stipulates that foreign investors can engage in business and service on territory of Mongolia not prohibited specifically by law of Mongolia. Law initiators have viewed that there is a need to regulate issue of introducing foreign investment into strategically significant sectors in relation to national economy and security interests.

MP G. Zandanshatar has commneted that in researching policies and tendencies of controlling and prohibiting foreign investment in other countries of the world, it can be seen that the controls are mostly applied to strategically significant sectors. For example, in the US it is prohibited for foreign investors to own shares of air transportation companies.

MPs have inquired whether the bill is related to issue related to SouthGobi Sands, which is attracting public attention. MP G. Zandanshatar has explained that the discussion of the bill only coincided with sensational developments related to the company. The Mineral Resource Authority of Mongolia (MRAM) suspended the mining licenses of SouthGobi Resources on April 16 following a deal by majority owner Ivanhoe Mines to sell a 57.6% stake in the company to state-run Aluminum Corporation of China's (Chalco).

Minister of Foreign Affairs G. Zandanshatar said: "It is fully possible to stop SouthGobi/Chalco deal. Parliament has full possibility to approve the bill. Because Parliament already approved whether to discuss the bill. For second reading it is only necessary two weeks. In another words, it is possible to approve this law within two weeks."

Further, according to the parliament's website: "For SouthGobi Sands company, because it has made a trade without informing the Government of Mongolia it is being currently suspended and now for this company a process will proceed to get permission from Government of Mongolia. Foreign investment should satisfy a number of several requirements such as not contradicting national security of Mongolia, not influencing taxes and no establishment of monopoly."

"MPs have united in the opinion that it is necessary to urgently approve this bill and have agreed that despite the urgent need the bill should be thoroughly discussed".

"MP and Minister G.Zandanshatar said that this does not mean pushing away foreign investors. Legal environment is being created for foreign investors to get permission from the Government while operating in Mongolia."

Communications from parliament and Mongolian media create impression that the bill has a high likelihood of being speedily approved. Exact regulations including, "not contradicting national security of Mongolia, not influencing taxes and no establishment of monopoly" and implications of this bill for investors and especially regarding globally listed companies with assets and operations in Mongolia will be fully understood after the bill becomes a law and its publication.

According to media reports, in previous version of the bill, minerals, energy and power, roads and transportation, banking and finance, telecommunications and media were among strategically significant sectors).

For SouthGobi Sands, it appears that option for a "process to get permission from Government of Mongolia" is open. It could be presumed that this "process" would be open to all related foreign investors.

We re-iterate our recommendation to investors to continue further diligently research implications of this bill if approved

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