Category Archives: Uncategorized

Mongolia Cabinet Approves Construction of Oil Refinery



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The Cabinet’s ministers voted to pursue negotiations to use a one billion USD loan from India to build a petroleum processing factory in Sainshand soum in Dornogovi Province. Total preliminary estimated cost for opening refinery will be 1 billion USD, 264 million USD will be spent on refinery and 264 million USD will be spent on a petroleum pipeline.

Early studies indicate the refinery could generate annual revenue of 1.2 billion USD, and net profit would be 43 million USD. The plan for the refinery capacity to process is up to 1.5 million tons of petroleum annually, 560,000 tons of gasoline, 670,000 tons of diesel fuel, and 107,000 tons of liquefied gas meeting Euro 4 and Euro 5 emission standards.

Studies shows that the proposed factory could contribute to increase the country’s GDP by 10 percent and a twofold increase in the revenue generated by the natural resources processing sector.

Economists predict that the investment could contribute to increasing the flow of foreign currency and help to stabilize Mongolia’s macro economic and monetary policy. The Cabinet believes that the refinery could create around 600 new jobs and pay more than 150 million USD a year in state and local taxes which will contribute to the state budget. The Finance Ministry suggests that a total of 30 factories, including tire, rubber, plastic, cosmetics, and pharmaceutical factories, could be established with direct access to a domestic refinery.

8 “Must Do’s” to Keep your Mongolia Company Safe



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Every Mongolia company, foreign or domestic, is required to have a Company Seal, which takes the form of a simple stamp. These seals serve as the legal “signature” of the company for various documents and are officially registered with the government. When a seal is affixed to a contract the company will be legally bound to the terms of the contract.

While these seals can be a convenient way for a company to indicate acceptance of a contract, the nature of the system can allow misuse by unapproved parties, or misappropriation of the seal if not kept securely. Even a misused seal will legally bind the company.

Problems encountered due to misuse of seals include employees redrafting employment contracts and granting themselves increased salary or benefits, Employees using company seals to bind the company to expensive contracts with the employee’s friends or relatives, or employees using seals to deposit company funds directly into the employee’s foreign bank account.

Seals personally kept and under the control of individuals may also be subject to theft or simply refusal to cooperating in executing certain company policies. This can include, holding seals “hostage” and demanding a payout from the company, refusal to approve important business deals, leaving the company unable to take action. Employees holding seals may refuse to cooperate in providing the necessary seal for the employee’s own termination from employment; or if terminated, an employee may continue to hold a company’s seals and continue to carry out business in the company’s name. In an extreme case, a terminated employee holding the companies seals may initiate lawsuits against the company itself, or against its trusted business partners sabotaging the relationship.

It is imperative for each company to establish clear systems for management of the company’s seals, particularly where they are kept on premises. The following are recommended best practices.

  1. Company management should appoint persons authorized to approve use of each particular seal (such as a department manager, whether in Mongolia, or abroad), and clearly communicate these authorizations to all employees.
  1. Company management should appoint persons authorized to hold and use each particular seal, and clearly communicate these authorizations to all employees.
  1. An employee seeking to utilize a seal is required to first report the required use, and gain approval from the authorized personnel, and then report to the individual authorized to hold and use the seal to finally affix the seal on the document.
  1. Each individual authorized to hold a seal is to be required to maintain the seal safely and securely, and has the responsibility to prevent unauthorized use of the seal in their possession, or delivery to unauthorized personnel.
  1. When applying for use of a seal, the applicant shall file an application form or send an application email stating clearly the purpose of the required use of the seal and the nature of the documentation to be stamped.
  1. Each time the seal is used, the individual seeking use of the seal is required to sign their name, and mark the date to record the seal use.
  1. Each time a seal is used, the authorized holder is required to maintain the application and approval documentation in their possession, clearly filed along with scanned copies of each stamped document.
  1. Seals are not to be affixed to any blank or incomplete document.

Britain and Mongolia to Partner in Mining Sector



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Britain and Mongolia this week signed a new memorandum of understanding targeting the mining sector. The two countries pledged an exchange of technology and expertise, and deepening ties in the mining sector.

The agreement, recognizes “the spirit of cooperation that exists between the respective countries” and demonstrates a desire on both sides to “to promote closer cooperation in the extractive sector”. The MOU was signed by the two parties at a Mining conference held in UK.

Future cooperation is expected to cover technology transfer, education, and financing. This is good news for the mining sector in Mongolia, which relies on foreign technology, expertise and financing to develop its vast mining resources.

Oyu Tolgoi, the largest mining project in Mongolia, is managed by UK based Rio Tinto.

Basics of Maternity Leave in Mongolia



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As with most countries, Mongolia provides special benefits for expecting and new mothers. The law provides for a period of “Maternity Leave” as well as a period of “Baby Care Leave.” Understanding the differences of each of these leave periods is critical for foreign companies operating in Mongolia.

Maternity Leave is designated under Mongolian law as a required period of 120 days. This Maternity Leave period is intended to cover 60 days prior to birth and 60 days after delivery. During this legal Maternity Leave period, the Mongolian Social Insurance system is responsible for payments to the new mother. Maternity Leave is not available for male employees.

The Baby Care Leave is granted to all mothers (and single fathers) with children under 3 years, and is optional at the employee’s discretion. During the leave period, the Employer is obligated to pay required monthly Social Insurance payments to the Social Insurance Fund on behalf of the employee. The employer is obligated by law to accept the employee in the same employment position or in a new position when the employee returns to work at the end of the leave.

Intellectual Property Protection in Mongolia



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Mongolia may be a relatively small market, but global brands are increasingly seeking to protect and enforce intellectual property rights in the country. Our firm works directly with global brands as to trademark and patent registration in Mongolia, cancellations of prior registrations, and IP enforcement matters.

Enforcement is difficult. Due to the relatively small population in Mongolia (about 3 million people in the whole country with about half in one City, Ulaanbaatar), many local lawyers and law firms are often unwilling to pursue intellectual property enforcement actions or litigation in Mongolia. The small interconnected population means many lawyers are unwilling to proactively advocate on behalf of clients, for fear of making enemies. Most trademark and patents providers will simply file registrations. When they do file an enforcement action it is more  “proforma” and less proactive advocacy.

One thing missing in Mongolia is a strong sense of the value of branding, and a clear understanding that brands deserve protection via copyright. The firm is acting on behalf of a group of brand owners who seek to create a new organization with the goal of raising awareness of the importance of intellectual property in Mongolia. The key to better protection is awareness.

Mongolia Looks to Improve Agricultural Sector



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During Parliament’s recent session, issues confronting agriculture in Mongolia were discussed. Importantly, economic growth in the agricultural sector was 2.8% higher this year than in the January through October period of 2015. This is contrast to many export sectors which saw a decline.

The government of Mongolia is implementing policies to support production of agricultural products in Mongolia. In each of 2012, 2014, and 2015, Mongolia produced the highest recorded crops yields in 25 years.

The government is seeking ways to promote Mongolian livestock and agricultural products to increase competitiveness globally and to meet international standards

Policies implemented by the government include discussions with China to promote meat export to China, and the government is pursuing a policy to provide herders and farmers with soft loans.

With all this in mind, it’s looking like a very good time to make a new investment in Mongolia in the farming and animal products sectors.

New Budget means Mongolia is Open for Business



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A draft of the 2017 budget for Mongolia is approved including a budget framework and an overview of policy through 2019.  The budget projects a 9.1% deficit for 2017.

The budget expects economic growth of 3% in 2017. In the interests of maintaining a stable tax environment for companies, taxes are not expected to increase. The government aims to improve infrastructure in the mining sector, move forward in large mining projects and generate budget revenue by increasing construction and investment.

The government’s operating expenses are set to be cut by 1% over 2017.  At the same time, money has been set aside for loans and scholarships for top students, as well as funding for private and public colleges.

There are also steps included to minimize the deficit, for example, operating expenses for state organizations will be cut. Each organization will receive a cut of 10% to 100%, depending on the organizations function. Expenditures for a number of state funded programs and events will be reduced by 410 billion MNT.

Mongolian parliament has approved the reduction of the number of domestic bonds issued and will promote economic growth by taking steps to ensure proper spending of funds received from foreign loans.

These measures, to limit the deficit, to promote large mining and infrastructure projects, and investing in Mongolia’s schools and students, are all positive steps for the country at a time when the overall economy has slowed due to global economic forces. If the increase in mining and infrastructure projects proceeds as expected, Mongolia could return to double digit growth in the coming years.

Two Kinds of Employment in Mongolia



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Mongolian law recognizes “Specified Term” and “Permanent” employment. A Specified Term agreement states a definite starting date, and ending for the employment, or a condition that ends the employment when and if it occurs.

Mongolian law stipulates that a Specified Term agreement will be automatically extended for the duration of the initially stated term if termination of the agreement is not proposed by the parties, and the employee continues to work in the position.

For a valid Specified Term agreement, the employment automatically ends at the end of the specified term, or upon the occurrence of an event, such as return to work of an original employee. In this case, a termination notice from the employer should be utilized so as to avoid the situation described above in which the Specified Term agreement automatically renews under Mongolian law.

To qualify as a “Permanent” position under Mongolian law, the employment agreement must be concluded for an indefinite term. This means no stated ending date, and no stated event or condition upon the occurrence of which the employment ends.

If a Specified Term agreement is terminated before the term expires, or a Permanent position is terminated, the termination provisions of the Agreement and of Mongolian Law will apply.

Per Mongolian law, for a Specified Term agreement, the requirements and reasons requiring Specified Term employment, and any conditions in connection with the same must be clearly stated in the Employment Agreement.  Such requirements, reasons or conditions will typically be the need for temporary or seasonal employment for the replacement of an employee that is taking some kind of hiatus from work, but whom the employer expects to return.

Basics of Mongolia Land Law



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Land in Mongolia is categorized in accordance with the unified land territory of Mongolia and, unless otherwise granted for ownership to Mongolian citizens in limited cases, is owned by the State and leased in the form of either possession or use rights.  In almost all cases, other than those for limited household use or small farming plots, the acquisition of land rights is subject to a tender process.

The unified land territory of Mongolia is classified based on the general purpose of its use and the need for its use as follows:

  • Agricultural land;
  • Land of cities, villages, and other urban settlements;
  • Land under roads and networks;
  • Land with forest resources;
  • Land with water resources; and
  • Land for special needs.

Under Mongolian law, there are three (3) types of rights related to land, such as Land Ownership, Land Possession and Land Use. 

Both the Constitution and the Civil Code define “landowner” as the State unless otherwise dictated by legislation allowing private ownership. The Constitution states that only Mongolian citizens may Own land. The Land Law specifically states that “land, excluding pastureland, land for common tenure and land for the state special needs, may be given for Ownership to citizens of Mongolia only.” Furthermore, the most specific legislation regarding Mongolian ownership of land, the Land Ownership Law, prohibits the transfer of the Owned land to foreign citizens through sale, trade, gift or pledge.  However, the Land Ownership Law provides that landowners may transfer to others for Use or Possession their land with the relevant Soum or District Governor’s consent.

Mongolian citizens of 18 years and over, companies and organizations may Possess or Use land in compliance with the Land Law and “Land Possession Certificate(s)” shall be given only to Mongolian citizens, companies and organizations.  There are three steps toward acquiring land Possession by a Mongolian: 1) the Governor must pass a resolution accepting the Mongolian’s request to possess land; 2) after successfully passing of the resolution, a Land Possession Agreement is created between the Government authority and the Mongolian requesting land possession; and 3) when the agreement is successfully executed, a Land Possession Certificate is issued.

 With the permission from the corresponding Governor, the land Possessor has the right to grant whole or partial Use Rights of the land to others. This granting of Use of the land to others may be on the basis of land lease agreements or other similar agreements. The Land Law allows foreign legal entities, international organizations, foreign citizens, stateless persons and business entity with foreign investment only to Use land for a certain period of time.

New Mongolian Plan on Overcoming Economic Difficulties



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The Mongolian economy has faced challenges in recent years, including decline of foreign investment and slow down in the economy. The current government of Mongolia has stated that restoration of the reputation of Mongolia is the top priority. The cabinet has established a new council responsible for communicating with investors in hopes of attracting more foreign investment.

 The Minister of Finance has recently presented a draft of a new Program on Overcoming Economic Difficulties and Stabilization. The Program includes over 60 policy proposals designed to stabilize the Mongolian economy, assist with economic restructuring, and securing sustainable growth.

 The plan aims to achieve 3% economic growth in 2017. This is be accomplished by coordinating monetary and budget polices, and attempts to increase foreign exchange. Growth of 5.1% is targeted in 2018 and 7.1% in 2019. Better infrastructure, transportation and non-extractive exports are expected to contribute to growth.

 The plan lays out growth of 20,000 jobs each year between 2017-2019 and aims for 8% percent unemployment by the end of 2019. The processing industry is expected to grow by 6.3% by 2019.

 The Program estimates that exports from Mongolia will amount to USD 5.4 billion in 2019, and imports will amount to USD 5.5 billion. Increased construction activity is expected to contribute.

 The Program aims to increase annual FDI investment to USD 2.0-3.0 billion. Overall the Program is a positive indicator for prospective economic growth in Mongolia. Conditions for foreign investment are expected to improve. LehmanLaw Mongolia will be watching closely and are ready to assist any foreign company considering a new investment in Mongolia.