On 17 May 2012, the Parliament of Mongolia adopted a comprehensive revision of Mongolian environmental laws. The adoption of these laws will have consequences for companies operating in mining sector.

  1. INTRODUCTION

The mining sector plays an important role in the economy of Mongolia and accounted for over 28% of GDP, 30% of government revenues, and over 84% of export earnings in 2011. It is thought that it will become the major force of economic growth for the development of Mongolia in coming years. However, the increasing level of mining activities also raises, among others, issues of environmental protection and restoration. Although a comprehensive Mongolian environmental regulatory regime existed, and the Minerals Law covers licence holders' obligations towards the environment, the government did not consider it to be adequate in practice. Attempts had been made to resolve this issue on a piecemeal basis by adopting several measures in last few years, such as increasing water abstraction fees, imposing stricter environmental obligations on mining license holders and requiring the deposit of environmental restoration "bonds". Further, in July 2009, Parliament adopted the Law on Prohibition of Mineral Exploration and Mining Activities in areas in the Headwaters of Rivers, Protected Water Reservoir Zones and Forested Areas to address environmental concerns.

The new environmental legislation replaces 18 environmental laws with 8 laws and introduces 2 entirely new laws. The purpose of the review was to reduce duplication and improve the quality of regulation, ensure responsible, environmentallyfriendly and sustainable development, improve economic efficiency, introduce international standards in environmental auditing and the "polluter pays" principle, increase public participation in environmental decision-making, and secure funds for environmental protection.

  1. ENVIRONMENTAL PROTECTION

Amendments to the Law of Mongolia on Environmental Protection introduce the "polluter pays" principle and collective management of natural resources.

2.1 "Polluter Pays"

Polluters are now liable to pay compensation for damage caused to the environment and natural resources. The amount of compensation payable is dependent upon the natural resource which has suffered the damage. Natural resources in Mongolia are all to be assessed by private environmental assessors based on procedures which are currently being formulated by the Government. Following this assessment, each type of natural resource is to be assigned an intrinsic value. This value may differ from region to region, for instance water resources may be more valuable in the Gobi than in other areas. Upon damage being caused, an assessment will be made by an environmental inspector and a fine of 2 to 5 times the intrinsic value of the resource will be levied on the polluter. Compensation is payable within 14 working days of the decision. If payment is not made within the specified deadline, such decision may be enforced through the court bailiff's office. Based on our reading of the law, there is no opportunity to appeal the decision of the inspector.

2.2 Introduction of a concept of environmental audit

There is now a requirement on any organization whose activities involve the use of natural resources at their own cost, to commission an environmental assessor to conduct an environmental audit every two years, and to implement the recommendations proposed in such environmental audit. In addition, ad hoc audits may be required, although these will be at the cost of the requesting authority.

As users of natural resources, mining and petroleum companies would need to comply with these provisions. There are no express sanctions for noncompliance set out in law.

  1. ENVIRONMENTAL IMPACT ASSESSMENTS

Parliament adopted a revision of the Law of Mongolia on Environmental Impact Assessment ("EIA Law").

3.1 Plans

A person proposing a project which will have an impact on the environment must now:

  1. inform and report on the implementation of environmental management plans to the local population, local government, and other stakeholders within the deadline specified by the Ministry of Environment; and
  2. prepare and submit to the Ministry of Environment a restoration and closure management plan for mining and petroleum projects not less than three years prior to proposed closure.

3.2 Financers' obligation

Banks and financial and investment institutions are now under an obligation not to provide any funding, loans and financial assistance to projects which are harmful to environment, society and human health. This provision seems to be an attempt to introduce the Equator Principles into Mongolian law, but the provision is uncertain and vague. There are no objective criteria for what would be considered "harmful", nor is there any link to the "polluter pays" principle in the Law on Environmental Protection. Whilst there are no express sanctions imposed for non-compliance for violation of this prohibition, please see section 3.4 below.

3.3 Public participation requirement

The EIA Law requires that in preparing an EIA report, the project sponsor must include minutes of meetings at which local people who are to be affected by a proposed project were consulted. The EIA Law authorizes the relevant minister to adopt detailed regulations on such public participation.

3.4 Sanctions for non-compliance

The EIA Law imposes stricter sanctions for noncompliance with certain provisions and requirements thereunder, being:

  1. termination of activities that are being carried out without a proper environmental impact assessment and confiscation of any income arising from such activities;
  2. suspension of activities in the event of breach of requirements set out in the environmental impact assessment report, and imposition of monetary fines ranging from MNT 3,510,000 to MNT 4,212,000 (US$2,660 – $3,190);
  3. revocation of a mining license for failure to adopt an environmental management plan, for non-compliance with such plan or for failure to submit compliance reports, and imposition of fines ranging from MNT 3,510,000 to MNT 4,212,000 (US$2,660 – $3,190).
  1. USE AND POLLUTION OF WATER RESOURCES

The laws on water use have been revised, consolidated, and new laws adopted. The Law of Mongolia on Water dated 22 April 2004 ("Old Water Law") has been replaced with a revised version of the Law of Mongolia on Water dated 17 May 2012 ("Water Law"). The Law of Mongolia on Fees for Use of Water and Minerals Water has been consolidated with other laws on the use of natural resources and is replaced with the Law of Mongolia on Natural Resources Use Fee dated 17 May 2012 ("Natural Resources Use Fee Law"). On 17 May 2012, the Law of Mongolia on Water Pollution Fees was newly adopted to introduce fees payable for pollution of water resources ("Water Pollution Fees Law").

4.1 Water resources licences

The use of water for industrial purposes requires a user licence and an agreement with the relevant authorities. The initial term granted for such licences has now been shortened to 10 years from 15 years.

In the event that usage exceeds that permitted under the licence, the user must pay increased fees of up to 50 per cent at the relevant tariff as a penalty. The Government will approve regulations relating to the calculation of such penalty fees.

4.2 Monitoring

All water users must have equipment installed to measure water use, and where usage exceeds 50 cubic metres per day, users must install equipment that monitors use throughout their operations and appoint a water use manager.

4.3 Abstraction and discharge

A licence is required to discharge water from an industrial operation, and users are obliged to remediate discharged water to the applicable Mongolian standard.

Abstraction of water from rivers, streams and other bodies of water may only be undertaken by means of abstraction pipes, and the diversion of natural water courses is prohibited.

4.4 Stricter sanctions for non-compliance

Under the Old Water Law, the administrative sanction for non-compliance was a fine of up to MNT 200,000 (US$150). The Water Law now includes stricter sanctions for non-compliance ranging from monetary fines of up to MNT 7,020,000 (US$5,300) to revocation water resource licences.

4.5 Water Use Fees

The Natural Resources Use Fee Law revises the fees payable for use of water in mining operations which are calculated on a cubic metre basis. Depending on the type of activity, a fee is payable on the basis of a percentage of the intrinsic environmental value at the resource is payable.

Under the Water Law, the Government has the authority to determine the intrinsic environmental value of water resources for each region or river basin. Currently, governmental resolution # 302 dated 26 October 2011 sets out the intrinsic environmental value per river basin in amounts ranging from MNT 800 to MNT 2651 for surface water and MNT 1510 to MNT 9440 for sub-surface water. The fee will be payable on a monthly basis and the user also must submit an annual report for water use fees.

4.6 Water Pollution Fees

To implement the "polluter pays" principle in terms of water resources, the Water Pollution Fees Law introduces fees payable by entities and organizations that pollute water resources and sets out the maximum and minimum amount of water pollution fees per polluting substance type:

Click here to view table.

The Government will set the specific fees payable in each water drainage basin taking into account the volume and quality of the water resources.

Water pollution fees are payable quarterly to the relevant tax authority within 20 days of the first day of each quarter.

  1. CONCLUSION

The Mongolian Government is clearly making an attempt to ramp up environmental protection in Mongolia, and this round of revisions does reduce legislative duplication and indicates what direction the Government will take in the future in this area.

However, a lot of the drafting is either vague or left to be developed by Government agencies at a later date.

Also, it is unclear whether the Mongolian environmental industry, which is only just beginning to develop, will have sufficient capacity in terms of the technical ability, independence and impartiality of environmental assessors and inspectors. The introduction of the subjective concept of "intrinsic environmental value" brings further uncertainty in respect of calculation of fees.

As is common in such jurisdictions, a "wait and see" approach will need to be adopted by operators in terms of implementation, and we will provide further updates when implementing regulations are issued by the Government.