Tag Archives: Foreign Direct Investment

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.

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.

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.

Closing Down A Mongolia Company



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In Mongolia company liquidation proceedings may be started by either a decision of the shareholders, or order of a court.

If the company is liquidated by decision of the shareholder’s, the Board of Directors (or in its absence, the executive body), will submit a draft Shareholders Resolution of Liquidation of the company. The shareholders resolution must include appointment of a liquidation commission and authorization of its commission, a liquidation timeline and if necessary, a procedure for the distribution of the company’s remaining property among shareholders after creditors` claims are satisfied. The shareholder resolution must be approved by an overwhelming majority of votes of shareholders.

The company/legal entity is obliged to notify the relevant state registration authority in writing within 3 working days and attach the original decision on liquidation.

Upon appointment of the liquidation commission, the company’s executive authority will be terminated and such authority is transferred to the liquidation commission. From then on, the liquidation commission has final authority over the company.

The liquidation commission is required to publicize the pending liquidation of the company via the media. If the company has any licenses, the commission will request that they are canceled and returned to the relevant authority.

The following actions must also be completed over the course of the liquidation. The State Registration Certificate of the company must be officially handed in. The company’s bank accounts closed, the company’s official seal must be handed over to the police. Finally a form must be obtained from the Customs Office to confirm no related taxation issues remain on behalf of the company.

The Tax authority will examine and investigate the company’s tax records, and an auditor will be required to handle the closing financial statements. Then an accountant will issue the closing balance of the company.

Once the Liquidation commission has submitted the required documents such as the Shareholders Resolution, completion report of the liquidation, report or reference by the tax inspector and reference by court decision enforcement agency on debt obligations to the State Registration Office (SRO), the SRO will remove the legal entity from the state register. The registration body will announce publicly the deletion of the company from the State Register. It will likely take 6 months to 1 year to complete the company liquidation process.

China’s Smart Oil Investment In Dornogovi



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The Mineral Resources Authority of Mongolia (MRAM) and Smart Oil Investment of China signed a production sharing agreement for an oil exploration site on Oct 14, 2016.

Smart Oil Investment of China was selected for the tender for oil exploration at Ergel 12. The company obtained an 8 year exploration license. During that time, Smart Oil Investment plans to conduct gravity and magnetic exploration, 2D and 3D seismic surveys, and drill eight exploration and evaluation holes for the sum of 35.5 million USD. The company will spend one million USD for land reclamation.

Signing an agreement with a company that has resolved investment issues and ready exploration plans in a time when the nation’s foreign investment and exploration have slowed down is vital in intensifying oil exploration in Mongolia. The production sharing agreement for oil exploration is a big step towards attracting more foreign investors to the nation’s oil sector.

In accordance with the production sharing agreement, Smart Oil Investment will give 40 percent of oil explored to the government of Mongolia. The MRAM noted that Mongolia’s stake may increase to 70 percent if the company’s oil exploration is higher than 15,000 barrels per day.

The World Bank Warns Mongolia on Debt



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The World Bank projects that the Mongolian budget deficit will reach over 18 percent of national GDP by the end of this year. If current trends continue government debt financial obligations will reach 90 percent of GDP.

 The report welcomed the swift measures announced by the new government to address the growing fiscal risks, and called for strong fiscal and monetary policy adjustment to address increasing fiscal and balance of payments risks.

 The World Bank noted that the central bank has provided significant liquidity to the government, and warns that continued financing of the government could worsen macroeconomic vulnerability.

 The World Bank also cautioned that falling mineral exports would add challenges the balance of payments in 2017, but indicated that with proper fiscal and macroeconomic management such problems could be overcome.