Mongolia's New Strategic Foreign Investment Law - A Temporary Inconvenience?
19 May 2012
On 17 May 2012 the Parliament of Mongolia enacted the Law of Mongolia on the Regulation of Foreign Investment in Business Entities Operating in Sectors of Strategic Importance (the "Strategic Foreign Investment Law" or the "SFI Law").
The enactment of the law comes at a tumultuous time of political posturing by Mongolia's political parties that are starting up campaigns for the general election to be held on 28 June 2012.
The developments stand in stark contrast to Mongolia's centuries-old reputation as a sleepy and quiet backwater. However, the country is undergoing profound change on account of its resource boom. Mongolia literally sits on mountains of coal, copper, gold, silver, iron, uranium and other essential metals eagerly sought by China to sustain its economic development. Next year, the Oyu Tolgoi copper mine will enter into production, thus providing the government with a rich flow of royalties. The stakes could not be higher as ambitious Mongolians seek to be in power at the time of this bonanza. For many seekers of political office, the rhetoric of resource nationalism makes for an attractive campaign platform, as further evidenced by recent proposals to Parliament to increase the levels of taxation on companies in the mining sector, which is generally perceived as foreign dominated.
While Parliament first contemplated a similar draft law in 2009, the immediate catalyst for the reconsideration of the foreign investment regime appeared to be the proposed acquisition by state-owned Aluminium Corporation of China of Ivanhoe Mines' fifty-six per cent equity stake in South Gobi Sands LLC. At the time of the announcement, Mongolian law did not expressly impose any notification or approval requirements upon offshore transactions affecting strategic sectors of the economy.
This briefing is based upon the final form of the law presented to Parliament prior to its approval and enactment and a review of the final Plenary Session of Parliament (the "Plenary Session").
Once the enacted form of the legislation is available, we will circulate an update of this briefing with details of any material changes.
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