Mongolia Is Feeling Friendlier Toward Foreign Investors
BEIJING–Mongolia may scrap a year-old law restricting foreign ownership of what it deems strategic assets including mines, as it struggles to reverse the effects of resource nationalism and a global commodity slump.
The proposal, which a senior Mongolian official said requires passage by Mongolia's parliament— with a vote likely in late December—underscores the shift in the country's fortunes since the law was passed. Mongolia then was asserting national interest in its fledgling energy and mineral sectors as a tide of suitors washed in from China, Australia and elsewhere. But commodity markets have since turned south.
Under the changes, the landlocked Asian nation would lower barriers for foreign investors in "strategic" sectors including mining, telecommunications and finance—though it would still closely scrutinize deals involving government-controlled companies such as China's big state-owned enterprises.
"We are trying to cut the Strategic Entities Foreign Investment Law," said Otgochuluu Chuluuntseren, director-general of strategic policy and planning in Ulan Bator's Ministry of Mining, in an interview on Wednesday. Under the amendment, he added, "there will be no more distinction" between foreign and domestic investors.
The law, enacted in May last year, requires that foreign investors get government approval for deals valued at more than $75 million that would give them 33% or more of a company in a strategic sector. Foreign bids for 49% or more require parliamentary approval. The proposed amendments would lift these restrictions.
A month before last year's law was enacted, state-owned Aluminum Corp. of China had said it would pay about $920 million for control of 800 million metric tons of Mongolian coal via a 60% stake in SouthGobi Resources Ltd. SGQ.T 0.00% The deal fell apart four months later, after Ulan Bator suspended some of SouthGobi's mining licenses.
In a signal that its concerns on this front haven't abated, Mongolia plans to continue singling out bids by state-owned investors for special review, by setting up an official regulator modeled on Australia's Foreign Investment Review Board.
"In Australia, they have this FIRB," Mr. Otgochuluu said. "Something like this will happen here in Mongolia."
Chinalco referred a call for comment to Zhao Zhengang, general manager of the Chinese metals giant's overseas investment unit. Calls to Mr. Zhao weren't answered Wednesday.
Mining accounts for a third of Mongolia's economic output, but official data show foreign direct investment in the resources sector in the first six months of 2013 was down 32% from a year earlier.
The proposed amendments to Mongolia's foreign-investment laws are a "long overdue significant message from Mongolian authorities that the country wants investment back, both foreign and domestic," said Dale Choi, analyst with Mongolian Metals & Mining Research consultancy.
They may also be aimed at assuaging worries among major non-state investors likeRio Tinto RIO.LN -1.55% PLC, which owns a 66% stake in Mongolia's $13 billion Oyu Tolgoi copper-gold mine. The government has never publicly challenged the extent of Rio's holdings, acquired before the May 2012 law, but it has in the past refused to support the company's subsequent fund-raising efforts to develop the project, and the two are in dispute over investment in and management of the project.
Earlier this month, Rio Tinto RIO.AU -2.64% said it plans to lay off as many as 1,700 employees and contractors at Oyu Tolgoi. A spokesman didn't respond to a call for comment Wednesday.
The proposal, which a senior Mongolian official said requires passage by Mongolia's parliament— with a vote likely in late December—underscores the shift in the country's fortunes since the law was passed. Mongolia then was asserting national interest in its fledgling energy and mineral sectors as a tide of suitors washed in from China, Australia and elsewhere. But commodity markets have since turned south.
Under the changes, the landlocked Asian nation would lower barriers for foreign investors in "strategic" sectors including mining, telecommunications and finance—though it would still closely scrutinize deals involving government-controlled companies such as China's big state-owned enterprises.
"We are trying to cut the Strategic Entities Foreign Investment Law," said Otgochuluu Chuluuntseren, director-general of strategic policy and planning in Ulan Bator's Ministry of Mining, in an interview on Wednesday. Under the amendment, he added, "there will be no more distinction" between foreign and domestic investors.
The law, enacted in May last year, requires that foreign investors get government approval for deals valued at more than $75 million that would give them 33% or more of a company in a strategic sector. Foreign bids for 49% or more require parliamentary approval. The proposed amendments would lift these restrictions.
A month before last year's law was enacted, state-owned Aluminum Corp. of China had said it would pay about $920 million for control of 800 million metric tons of Mongolian coal via a 60% stake in SouthGobi Resources Ltd. SGQ.T 0.00% The deal fell apart four months later, after Ulan Bator suspended some of SouthGobi's mining licenses.
In a signal that its concerns on this front haven't abated, Mongolia plans to continue singling out bids by state-owned investors for special review, by setting up an official regulator modeled on Australia's Foreign Investment Review Board.
"In Australia, they have this FIRB," Mr. Otgochuluu said. "Something like this will happen here in Mongolia."
Chinalco referred a call for comment to Zhao Zhengang, general manager of the Chinese metals giant's overseas investment unit. Calls to Mr. Zhao weren't answered Wednesday.
Mining accounts for a third of Mongolia's economic output, but official data show foreign direct investment in the resources sector in the first six months of 2013 was down 32% from a year earlier.
The proposed amendments to Mongolia's foreign-investment laws are a "long overdue significant message from Mongolian authorities that the country wants investment back, both foreign and domestic," said Dale Choi, analyst with Mongolian Metals & Mining Research consultancy.
They may also be aimed at assuaging worries among major non-state investors likeRio Tinto RIO.LN -1.55% PLC, which owns a 66% stake in Mongolia's $13 billion Oyu Tolgoi copper-gold mine. The government has never publicly challenged the extent of Rio's holdings, acquired before the May 2012 law, but it has in the past refused to support the company's subsequent fund-raising efforts to develop the project, and the two are in dispute over investment in and management of the project.
Earlier this month, Rio Tinto RIO.AU -2.64% said it plans to lay off as many as 1,700 employees and contractors at Oyu Tolgoi. A spokesman didn't respond to a call for comment Wednesday.
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