Mongolia passes watered-down foreign investment law

ULAN BATOR Fri May 18, 2012 9:39am BST

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ULAN BATOR May 18 (Reuters) - Mongolia's parliament passed a controversial law aimed at capping foreign ownership in "strategic" industries like mining on Thursday, but investors expressed relief that the legislation was weaker than first anticipated.

The bill has been watered down considerably since it was first drafted by a group of backbench MPs alarmed by a decision by Canada's Ivanhoe Mines to sell its 58 percent stake in coal miner SouthGobi Resources to the Aluminum Corporation of China (Chalco).

The law stipulates that foreign investors are allowed to own a maximum of 49 percent of companies involved in the mining, finance, media and telecommunications sectors before being subject to scrutiny by a government panel.

But it only applies to deals valued at above $75 million, or ones involving state-owned companies like Chalco.

Aspire Mining, which owns the Ovoot coking coal mine and rail project in northern Mongolia, said the new law would provide more certainty for investors in Mongolian resources.

"The only impact for us is in terms of adding a layer of time in the approvals process," Aspire managing director David Paull told Reuters.

He said it was not likely to limit potential funding sources for Aspire's mine and rail project, expected to cost a total of $2 billion.

"If there's a foreign SOE (state-owned enterprise) in the funding structure, we will need to have that approved... It's really about finding the package the Mongolian government's comfortable with," he said.

Stakeholders said they were encouraged by the way parliament responded to the concerns of foreign investors about the law.

After the bill's first draft appeared, Mongolia's private sector banded together to lobby parliament, criticising the failure to define key terms like the "minerals" and "finance" sectors and its catch-all provisions about what is "strategic".

"The FI (foreign investment) Law bill caused an overwhelming coming together of the business community including key Mongolian entities affected as well," said Jim Dwyer, executive director of the Business Council of Mongolia. "I never have seen anything like it over the last 10 years."

Among the improvements was the reduction of the number of strategically important sectors to just four, headed by mining, he said.

SouthGobi, whose planned sale to Chalco first prompted lawmakers to act, declined to comment on how it would be affected by the new law.

SouthGobi Resources' licences are now believed to be suspended, but the company said it has not received any official notification.

According to Xinhua news agency, citing local media, the office of SouthGobi Resources' Mongolian subsidiary, SouthGobi Sands, was sealed off by authorities pending an investigation into corruption. (Reporting by Terrence Edwards in ULAN BATOR and Sonali Paul in MELBOURNE, Editing by David Stanway)

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