2020 Sees Uncertain Start for Foreign Investment
2020 Sees Uncertain Start for Foreign Investment
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2020 begins in Mongolia with a sense of uncertainty as movement in two separate branches of government raise concerns about the progress of the Oyu Tolgoi mine underground phase.
In November last year, a judgment of the Capital Administrative Court found to be invalid a series of government decrees which authorized signing of certain agreements between the government of Mongolia and foreign parties in charge of the Oyu Tolgoi project. These agreements were necessary to resolve issues relating to distribution of profits in connection with the Oyu Tolgoi project, and their signing allowed the underground phase of the mine to proceed. There was concern that the court’s invalidation of the decrees authorizing signature of these agreements may put the agreements and the Oyu Tolgoi project at risk. However, the court explicitly mentioned in its decision that the Oyu Tolgoi agreements themselves would not be affected by the ruling.
Certain aspects about the situation are unusual and raise concerns. Importantly, the decrees referenced in the law suit are not widely available do the public, rather they are internal documents of government. Therefore, it seems the NGO which initiated the law suit could only have been provided the decrees which the lawsuit was based on by a high-level insider in Mongolian governmental and politics. Importantly, the government of Mongolia did not appeal the decision of the court to the Mongolian Supreme Court, which the government had the right to do.
Secondly, around the same time the Mongolian Great State Khural, or parliament, issued a resolution which called for the government to reassess current agreements relating to the Oyu Tolgoi project and to make sure of compliance with the 2009 Investment Agreement which was the initial basis for the project. This resolution also calls on the government to perform new resource survey and assessment operations and to oversee a new feasibility study for the Oyu Tolgoi project.
With the recent court case calling into question the legal basis of signing of agreements enabling the Oyu Tolgoi project, and the resolution calling on the government to reassess and renegotiate the project agreements where needed, the project appears to be in a precarious position. There is widely known political pressure to renegotiate the Oyu Tolgoi project to ensure greater financial reward to the country of Mongolia at an earlier date. The government may feel forced to make expansive new demands on the investors. Negotiations are expected to begin in first half of 2020.
The current government however has adopted a position in favor encouraging foreign investment. Renegotiating the Oyu Tolgoi project agreements at this stage may be damaging for future foreign investment prospects, as foreign investors will have new concerns about the stability and reliability of the political situation in the country. A substantial reversal in the Oyu Tolgoi project may discourage major new mining investment projects in Mongolia for years to come.
