Researches

Contracting in Mining Sector

Authors: Tuvshintugs B, Khashchuluun Ch, Manlaibaatar Z, Dulguun T, Unurjargal D

Source: Economic Research Institute

Keywords: contracting, mining, natural resources, economic development, foreign direct investment

Date: 2018-12-15

Most foreign direct investment into Mongolia are directed into the mining sector due to the investment attractiveness of natural resources. Projects in the mining sector has several impacts on the host country. First of all, due to the sheer size of large mining projects, the socio-economic impacts pertaining to social responsibility, management of displacement, issues of water and land usages and provisions of local employment opportunities are significant. Secondly, mining projects spillovers into other sectors such as energy, infrastructure and transportation which requires additional investments. Third, due to the complex nature of mining project financing and magnitude, the repercussions on the country’s finances are sizable. Therefore, it is crucial for the host country to enter into a well-developed contract which considers all direct and indirect effects.

This study aims to study the legal and policy framework of Mongolia, specifically the Oyu Tolgoi investment agreement, in entering into agreements with mining companies and to compare this with international practices of mining investment agreements. Part of the review process is identifying the ways to increase the benefits received by the host country, which includes analysis of the fiscal benefits to the government such as royalties and taxes, equity arrangement, local procurement of goods and services, infrastructure, maximization of employment opportunities, community engagement, social and environmental issues such as land, stakeholder groups, and water. By analyzing the advantages and disadvantages of the current contracts in Mongolia, it will assist in identifying the clauses needed for subsequent agreements as well as the changes that need to be made in Mongolia’s mining sector and institutional environment.

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