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Bill to control foreign investment into strategic enterprises continues to rapidly advance in the parliament, government approves draft concession agreement for MMC’s railroad base structure

All Mongolian global equities

BILL TO CONTROL FOREIGN INVESTMENT INTO STRATEGIC ENTERPRISES CONTINUES TO RAPIDLY ADVANCE IN THE PARLIAMENT

EVENT

According to official website of Parliament of Mongolia on May 10,2012 (http://open.parliament.mn/index.php?option=com_content&;view=article&id=4868:2012-05-10-10-13-37&catid=589:2009-06-15-11-21-44&Itemid=967),

United session of Parliament has made initial reading of bill on regulation of foreign investment in enterprises with strategic significance.

Members have voted on about 30 formulations of principal difference and supported. Authors of the bill took back clause to change “one third” into” fifteen” in clause 6.1.1( possible referring to stake above which government approval is required).

Members also viewed it would be proper to pay attention during final reading to proposal by MP D.Zorigt that approval procedure should not have red-tape.

Also members supported proposal that Economic Committee should deliver a proposition regarding some principal issues to Security and Foreign Policy Committee.

The bill has been transferred to Security and Foreign Policy Committee for preparation for final reading

IMPACT

Negative. It is becoming more difficult for foreign investors to do business in sectors of strategic significance , namely, mineral resource, finance and banking, communications.

RECOMMENDATION

  • The bill has even higher likelihood of being speedily approved
  • Exact regulations and implications of this bill for investors and especially regarding globally listed companies with assets and operations in Mongolia will be fully understood after the bill becomes a law and its publication
  • We re-iterate our recommendation to investors to continue further diligently research implications of this bill

MONGOLIA MINING CORPORATION (975 HK)

GOVERNMENT APPROVES DRAFT CONCESSION AGREEMENT FOR MMC’S RAILROAD BASE STRUCTURE

EVENT

According to Government of Mongolia on May 9, 2012 (http://open-government.mn/read-1427-.html ) ,Cabinet meeting today has discussed and supported in principle draft concession agreement to build, use and transfer to state property base structures for railroads with routes Sainshand-Tavantolgoi(225km) and Ukhaakhudag-Sainshand (225 km). State Property Committee has been assigned to have “Erdenes Tavantolgoi” company participate to ensure state participation and supervision in the concession.

It has been decided to transfer state’s 51% stake with charge during construction and operation of railroad base structure and without charge after agreement finishes into state property, include national investors and ensure opportunity to cooperate and float certain share openly to citizens through Mongolian Stock Exchange.

Prime Minister has reminded to that it would be proper to make a business  the agreement with Russian side of providing tariff discount for transit transportation and have fair competitiveness.

According to Mining Mongolian Corporation on May 10, 2012,( http://www.mmc.mn/upload/2012-05-09_e_00975ann-20120510.pdf)

“According to media reports, the Government of Mongolia (the “Government”) at its regular session held on 9 May 2012 resolved to commence construction of railway base infrastructuresnetwork which includes the base structure in the direction of Ukhaa Khudag (“UHG”) mine toGashuun Sukhait (“GS”) border point under concession arrangements, with, among other things,conditions that 51% ownership of each of the entities by which the interests in the infrastructure are held be transferred to such entities owned or controlled by the Government for free of chargeor for compensation depending on the time period as specified in the concession arrangements.

In  an  interview held  after  the  cabinet  session, Mr. Dashdorj Tsedev,  the Minister of Road,Transportation, Construction and Urban Development of Mongolia, informed the media that theGovernment has resolved to grant concession to construct railway base infrastructure from UHGmine to GS border point to Energy Resources Rail LLC, an indirect wholly-owned subsidiary ofthe Company.

The Company will issue a further announcement to inform the public and its shareholders on the progress of the concession once the concession agreement and other required documentation with relevant governmental and regulatory authorities have been formalized.”

IMPACT

Positive. There is continued progress in MMC’s railroad project. Also in view of developments regarding control of foreign investment in enterprises of strategic significance it would certainly be favorable condition that MMC is majority Mongolian controlled company.

RECOMMENDATION

•           We recommend investors to research BOT contract and its implications for the company