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Client Update: New Parliament and Government for Mongolia

5 August 2016

In brief: The new Mongolian Government, which won by a landslide in the recent elections, has released its reform agenda. Partner Igor Bogdanich (view CV) and Consultant Manduul Altangerel discuss the highlights, which will be of particular relevance to foreign investors and include a pledge to 'create investment-friendly economic conditions'.

What it means for you

  • The MPP has pledged to ‘create investment-friendly economic conditions’.
  • The Invest Mongolia Agency will be replaced by the newly established National Development Agency.
  • Certain proposed reforms, such as a commitment to ensure no new taxes will be imposed and to maintain the current tax rates, are promising signs for investors.
  • Only time will tell whether certain other matters that appear to also be on the new Government's agenda, such as a possible review of the Minerals law, will be similarly investor friendly.

New ruling party forms Parliament, Government after elections

On 29 June, Mongolia held elections for its national parliament and local assemblies of the aimags (provinces) nationwide. Under a recently revised electoral system, the Mongolian People’s Party (MPP) – formerly the opposition during the 2012-2016 term –  won by a landslide by securing 65 (roughly 86 per cent) of the 76 seats in the Parliament. The remaining seats were divided among the other parties: nine (11 per cent) for the former ruling Democratic Party (DP), one Mongolian People’s Revolutionary Party (MPRP), and one independent candidate.

Proposed reforms and platform

Of particular relevance for foreign investors is that the MPP has promised to ensure resumption of ongoing investment projects and seek to kick-off new ones. Some notable actions within the proposed agenda in relation to foreign investment and ‘mega projects’ include:

  • provide the government with the option to choose the forms of tax / royalties to impose on minerals extraction projects;
  • complete and commission the power plants of CHP5, Tavantolgoi, Baganuur, Booroljuut, and Tevshiingobi, and a new high-power power plant based on the Shivee ovoo coal deposit;
  • build and commission the Egyiin river and Hovd river hydro plants;
  • build and commission the Ukhaa-Khudag–Gashuun suhait and Nariin suhait–Shiveehuren railways;
  • commission the construction of the Erdenet-ovoot and Bogd Khaan railways;
  • maintain 100 per cent of Tavan Tolgoi in the ownership of the people;
  • revise the Minerals law and relevant legal instruments regulating the sector, based on the people's discussion and proposals; and
  • ensure no new taxes will be imposed, and maintain the current rates for existing taxes.

Government restructure

The new Parliament appointed Mr Erdenebat Jargaltulga as the new Prime Minister and approved the restructure of the Cabinet and government to comprise 13 ministries and 16 Ministers (which status is exercised by the Prime Minister, the Deputy Premier, and the Head of the Cabinet Secretariat). In general, the restructuring cuts down the number of ministries to 15 from 13, and affects the following ministries:

  • The former Ministry of Labour and the Ministry of Population Development and Social Protection were combined to form the Ministry of Labour and Social Protection. This ministry has also been elevated to the status of a ‘key’ sector ministry, as opposed to its former ‘sector’ ministry. Other ‘key’ ministries are: the Ministry of Nature, Environment and Tourism, the Ministry of Foreign Relations, Ministry of Finance, and the Ministry of Justice and Home Affairs.
  • The former Ministry of Industry has been split  into two other ministries: Ministry of Food, Agriculture and Light Industry, and the Ministry of Mining and Heavy Industry.

Of interest to existing and prospective investors in Mongolia will be the replacement of the Invest Mongolia Agency by the newly established National Development Agency. The new National Development Agency is to assume the responsibilities of ‘facilitating and exercising monitoring and evaluation of the implementation of the national development concept’, and specifically in relation to foreign investment affairs: ‘identify the comprehensive national development policy, priority sectors, maintain prudential ratios between sectors and infrastructure, define the comprehensive policy on investment, define and facilitate the policy, regulation and registration of foreign investment, develop policies with regards to concessions, public-private-partnerships and feasibility studies of major national-level projects’ .1

Next steps: Government Agenda

The new Cabinet held the first of its weekly meetings on 27 July and identified 10 key items as a priority for further investigation and resolution. These include, in particular, the following items:

  • to develop the Government Plan of Action for 2016-2020, in relation to the Election Platform of the MPP; and
  • to explore the possibility of reducing the tax corporate income tax rate imposed on business entities with less than MNT1.5 billion (approximately US$750 million) per annum to 1 per cent.

We will keep you informed on further reform developments.

Allens has recently released our updated Investors Guide to Mongolia, which highlights the key issues and legal considerations for foreign investors considering investment in Mongolia.

Footnote
  1. Background paper on the proposed Government Structure and Components, 2016.

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