The Next Move
What is a country with 1.6 billion tonnes of oil reserves, of which 196 tonnes are proven, to do? Must it be exploited? The answer is no. Creating a suitable legal environment would be the most appropriate choice. Does Mongolia have such an option?
“The petroleum law is one of the few laws under the name of Mongolia, meaning it is considered to be very strong law that has been enforced very strictly”, said D. Zorigt, minister of natural resources and energy, at the international legal forum held last month at Ikh Tenger. This statement triggered arguments among attendees. Some said although Mongolia has a great amount of oil resources, it is completely dependent on Russia. This can be directly linked with the law on oil and its legal environment. However, the head of the ministry of that sector argues the opposite. It was his opinion that making industry more beneficial and profitable for the government, domestic companies and the nation would require revision to the petroleum law.
The law, which was ratified in 1991, needs some serious adjustments and revision. According to experts from the Petroleum Authority, it has become an aggregate of informal agreements that profiteers exploit as the monitoring and regulation of the sector weakens. Fourteen domestic and foreign-financed companies together can barely exploit 300 tonnes of oil annually, which only takes a few hours in Saudi Arabia. That sum might sound small, but in a nation like Mongolia with a small population, it is not as bad as it appears.
J. Oyungerel, the board director of Petrovis, said at the legal forum that domestic oil importers are willing to support this aim.
“After lot of hard work, we exploit very little oil”, said Oyungerel. “However, up to 75 percent of it goes to the government, according to the production sharing agreement. In other countries like Mongolia, a maximum 62 percent is taken. The industry needs a stable legal environment. If the law was revised, then our initiations and opinions must be heard and included”.
“They go to quite a lot of trouble taking surveys and doing research. But the final results are often unrecognizable and completely different. Speaking directly, we don’t want to share the products we have worked so hard to deliver”.
After having worked so hard, nobody would want to give away his or her profits for free. However, the petroleum sector in Mongolia is different because the natural and ground resources in the Mongolian territory are legally the property of the nation. Thus, citizens want to benefit from this resource as they will from the shares of Erdenes Tavan Tolgoi. Considering this, the government has decided not to eliminate its production sharing policy in the revisions to the petroleum law that were initiated by the president. To share or not to share? Which side will win?
Who will benefit from monitoring petroleum imports or gathering profits by a production sharing policy? What results can it bring?
According to petroleum importers, the government tries to minimize their importance, close their profit circulation, and, finally, eliminate them from the market by taking the petroleum sector in its own hands. In addition, there are rumours of its intent to erase domestic companies from the market, allowing the government to invite big foreign investors to strike product sharing agreements with them.
However, the government said it intends to accumulate the natural resources, compounding national petroleum reserves instead of selling the crude oil directly. Doing so would bring stability to fuel prices. It is irrelevant to ordinary citizens which side wins this battle. The most important issue is producing fuel domestically and reducing dependency on foreign nations. If the fuel price decreases, it would be helpful to all. However, the government must not neglect domestic traders who have sweat blood running their businesses. For example, the government should clarify vague resolutions, including issues on the granting of special exploitation licences and their transference.
Foul Deals Effect Foul Results
“The production sharing agreement causes various disputes around the world”, said British Ambassador Christopher Stuart, at the legal forum. He added “Stability must be sought. Governments tend to seek profits by privatising this risky sector. The industry has to have a strict taxation and budget policy. The revised law should include exact sums for taxation”.
“Comparisons with foreign markets could be effective in the future. Big investments and tonnes of experiences are crucial in Mongolia’s still developing petroleum sector. Thus, developing policies that could attract investors would be efficient. The sector itself is a risky one. For that reason, investors might not be interested if taxes are too high”.
“At present, Indonesia declares it will take 85 percent of its domestic petroleum trade. As a result, the foreign investment rate has fallen because executives are not approving of such demands. Ratifying the law doesn’t solve problems. Enforcement and improvements would lead to great production”.
Forum participants noted that in under-populated countries like Mongolia, the sharing ratio in the production sharing agreement with the government usually takes about a third of the profits.
The petroleum law of 1991 allowed domestic companies to make their agreement classified for exploration and exploitation when cooperating with foreign companies. This means if anything goes wrong, the situation will be resolved according to the agreement, not the law. Simply said, if one runs away with all the profits from the petroleum operation, he cannot be held legally responsible because the cooperation was based on the agreement rather than the law.
Any foul articles could be mentioned in the agreement. However, before legalising the agreement it must be reviewed the National Consulting Authority. But Mongolian companies have to be cautious. Industries based on natural resources are developing. Thus, leaving loopholes in these laws and regulations could lead to negative consequences for Mongolians.
The government must function to reserve shares for our future generation by implementing strict laws and strong regulations.
“The petroleum law is one of the few laws under the name of Mongolia, meaning it is considered to be very strong law that has been enforced very strictly”, said D. Zorigt, minister of natural resources and energy, at the international legal forum held last month at Ikh Tenger. This statement triggered arguments among attendees. Some said although Mongolia has a great amount of oil resources, it is completely dependent on Russia. This can be directly linked with the law on oil and its legal environment. However, the head of the ministry of that sector argues the opposite. It was his opinion that making industry more beneficial and profitable for the government, domestic companies and the nation would require revision to the petroleum law.
The law, which was ratified in 1991, needs some serious adjustments and revision. According to experts from the Petroleum Authority, it has become an aggregate of informal agreements that profiteers exploit as the monitoring and regulation of the sector weakens. Fourteen domestic and foreign-financed companies together can barely exploit 300 tonnes of oil annually, which only takes a few hours in Saudi Arabia. That sum might sound small, but in a nation like Mongolia with a small population, it is not as bad as it appears.
The minister of the oil sector said it had the goal to exploit 1.5 tonnes of oil by 2015. Last year, Mongolia was ranked 33rd from over 100 countries for its oil resources. If Mongolia could take advantage of it, it would have a bright future ahead of us.
Slipping Policies
The Mongolian petroleum industry can be compared to a toddler who is just learning to walk. For that reason, global giants in the industry have expressed their interest. However, they want to eliminate the current petroleum policy on production sharing between the government and companies, letting a cool breeze blow over those old law papers.
Slipping Policies
The Mongolian petroleum industry can be compared to a toddler who is just learning to walk. For that reason, global giants in the industry have expressed their interest. However, they want to eliminate the current petroleum policy on production sharing between the government and companies, letting a cool breeze blow over those old law papers.
J. Oyungerel, the board director of Petrovis, said at the legal forum that domestic oil importers are willing to support this aim.
“After lot of hard work, we exploit very little oil”, said Oyungerel. “However, up to 75 percent of it goes to the government, according to the production sharing agreement. In other countries like Mongolia, a maximum 62 percent is taken. The industry needs a stable legal environment. If the law was revised, then our initiations and opinions must be heard and included”.
“They go to quite a lot of trouble taking surveys and doing research. But the final results are often unrecognizable and completely different. Speaking directly, we don’t want to share the products we have worked so hard to deliver”.
After having worked so hard, nobody would want to give away his or her profits for free. However, the petroleum sector in Mongolia is different because the natural and ground resources in the Mongolian territory are legally the property of the nation. Thus, citizens want to benefit from this resource as they will from the shares of Erdenes Tavan Tolgoi. Considering this, the government has decided not to eliminate its production sharing policy in the revisions to the petroleum law that were initiated by the president. To share or not to share? Which side will win?
Who will benefit from monitoring petroleum imports or gathering profits by a production sharing policy? What results can it bring?
According to petroleum importers, the government tries to minimize their importance, close their profit circulation, and, finally, eliminate them from the market by taking the petroleum sector in its own hands. In addition, there are rumours of its intent to erase domestic companies from the market, allowing the government to invite big foreign investors to strike product sharing agreements with them.
However, the government said it intends to accumulate the natural resources, compounding national petroleum reserves instead of selling the crude oil directly. Doing so would bring stability to fuel prices. It is irrelevant to ordinary citizens which side wins this battle. The most important issue is producing fuel domestically and reducing dependency on foreign nations. If the fuel price decreases, it would be helpful to all. However, the government must not neglect domestic traders who have sweat blood running their businesses. For example, the government should clarify vague resolutions, including issues on the granting of special exploitation licences and their transference.
Foul Deals Effect Foul Results
“The production sharing agreement causes various disputes around the world”, said British Ambassador Christopher Stuart, at the legal forum. He added “Stability must be sought. Governments tend to seek profits by privatising this risky sector. The industry has to have a strict taxation and budget policy. The revised law should include exact sums for taxation”.
“Comparisons with foreign markets could be effective in the future. Big investments and tonnes of experiences are crucial in Mongolia’s still developing petroleum sector. Thus, developing policies that could attract investors would be efficient. The sector itself is a risky one. For that reason, investors might not be interested if taxes are too high”.
“At present, Indonesia declares it will take 85 percent of its domestic petroleum trade. As a result, the foreign investment rate has fallen because executives are not approving of such demands. Ratifying the law doesn’t solve problems. Enforcement and improvements would lead to great production”.
Forum participants noted that in under-populated countries like Mongolia, the sharing ratio in the production sharing agreement with the government usually takes about a third of the profits.
The petroleum law of 1991 allowed domestic companies to make their agreement classified for exploration and exploitation when cooperating with foreign companies. This means if anything goes wrong, the situation will be resolved according to the agreement, not the law. Simply said, if one runs away with all the profits from the petroleum operation, he cannot be held legally responsible because the cooperation was based on the agreement rather than the law.
Any foul articles could be mentioned in the agreement. However, before legalising the agreement it must be reviewed the National Consulting Authority. But Mongolian companies have to be cautious. Industries based on natural resources are developing. Thus, leaving loopholes in these laws and regulations could lead to negative consequences for Mongolians.
The government must function to reserve shares for our future generation by implementing strict laws and strong regulations.
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