ALLENS CLIENT UPDATE: PROVIDING GREATER INVESTOR CERTAINTY IN MONGOLIA
March 21 (Allens) In brief: There are reports that the Mongolian Government is considering amending its controversial Law on Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance (colloquially known as theStrategic Entities Foreign Investment Law) to make Mongolia a more attractive destination for private inbound investment. PartnersDavid Wenger (view CV) and Igor Bogdanich (view CV), Senior Associate John Koshy and Lawyer Manduul Altangerel report.
BACKGROUND
The proposed amendment to the Law on Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance (the Law) is the latest turn in the development of Mongolia's foreign investment framework.
As we noted previously, the Law was introduced at a time when the Government of Mongolia was concerned about the apparent lack of controls over foreign investment in Mongolia, and during a parliamentary election campaign.
Broadly speaking, the Law classifies and regulates foreign investment into two categories: foreign investment into sectors of strategic importance, and foreign investment by foreign State-owned entities.
Under the first category, the Law applies to entities engaged in sectors of 'strategic importance'. These sectors are minerals, banking and finance, and media and communication.
Under the second category, foreign State-owned legal entities or businesses with foreign state ownership are required to procure consent from the Mongolian Government (Cabinet) to make any investment in Mongolia.
The introduction of the Law created uncertainty for foreign investors in Mongolia, particularly in the mining sector, which had attracted the most interest from foreign investors. This uncertainty has dampened foreign investor sentiment towards Mongolia.
The proposed amendment would have the effect that the Law would no longer apply to foreign private entities investing in Mongolia. The reports indicate that the Law will continue to apply to State-owned Enterprises or entities with foreign State ownership.
It is understood that the Government of Mongolia has separately developed implementing regulations in respect of the Law. However, the status of those regulations is not yet clear.
POTENTIAL IMPLICATIONS FOR FOREIGN INVESTMENT IN MONGOLIA
If the proposed amendments to the Law are passed, this could potentially give rise to renewed foreign investor interest in Mongolia. The critical issue will be the terms of the proposed amendment, and other relevant sector specific regulation.
For example, in regard to the mining sector, the Mongolian Government has been considering the introduction of a new Minerals Law. The current draft Minerals Law has been met with criticism from participants in Mongolia's mining industry on the basis that, if enacted, the law will impede investment and development of mining projects in Mongolia. However, in another recent development, debate on the draft Minerals Law has been postponed until after the upcoming Presidential election scheduled for the second half of May of this year. It is hoped that this will allow for further consultation between the Mongolian Government and key stakeholders.
NEXT STEPS
The media reports suggest that the proposed amendment to the Law will be tabled in the State Great Khural (Mongolia's national parliament) during the upcoming Spring session to be held from April 5 until July 1.
We will continue to monitor this development closely and provide an update once the position becomes clearer.
Link to report
BACKGROUND
The proposed amendment to the Law on Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance (the Law) is the latest turn in the development of Mongolia's foreign investment framework.
As we noted previously, the Law was introduced at a time when the Government of Mongolia was concerned about the apparent lack of controls over foreign investment in Mongolia, and during a parliamentary election campaign.
Broadly speaking, the Law classifies and regulates foreign investment into two categories: foreign investment into sectors of strategic importance, and foreign investment by foreign State-owned entities.
Under the first category, the Law applies to entities engaged in sectors of 'strategic importance'. These sectors are minerals, banking and finance, and media and communication.
Under the second category, foreign State-owned legal entities or businesses with foreign state ownership are required to procure consent from the Mongolian Government (Cabinet) to make any investment in Mongolia.
The introduction of the Law created uncertainty for foreign investors in Mongolia, particularly in the mining sector, which had attracted the most interest from foreign investors. This uncertainty has dampened foreign investor sentiment towards Mongolia.
The proposed amendment would have the effect that the Law would no longer apply to foreign private entities investing in Mongolia. The reports indicate that the Law will continue to apply to State-owned Enterprises or entities with foreign State ownership.
It is understood that the Government of Mongolia has separately developed implementing regulations in respect of the Law. However, the status of those regulations is not yet clear.
POTENTIAL IMPLICATIONS FOR FOREIGN INVESTMENT IN MONGOLIA
If the proposed amendments to the Law are passed, this could potentially give rise to renewed foreign investor interest in Mongolia. The critical issue will be the terms of the proposed amendment, and other relevant sector specific regulation.
For example, in regard to the mining sector, the Mongolian Government has been considering the introduction of a new Minerals Law. The current draft Minerals Law has been met with criticism from participants in Mongolia's mining industry on the basis that, if enacted, the law will impede investment and development of mining projects in Mongolia. However, in another recent development, debate on the draft Minerals Law has been postponed until after the upcoming Presidential election scheduled for the second half of May of this year. It is hoped that this will allow for further consultation between the Mongolian Government and key stakeholders.
NEXT STEPS
The media reports suggest that the proposed amendment to the Law will be tabled in the State Great Khural (Mongolia's national parliament) during the upcoming Spring session to be held from April 5 until July 1.
We will continue to monitor this development closely and provide an update once the position becomes clearer.
Link to report
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