BCM 2019 February Monthly Meeting Recap

BCM 2019 February Monthly Meeting Recap

BCM AND AMCHAM INTRODUCTIONS


From left to right: BCM Chairman Byambasaikhan Bayanjargal; Speaker of Parliament Zandanshatar Gombojav; Chairman of AmCham Oybek Khalilov


A joint Monthly Meeting was organized by the Business Council of Mongolia (BCM) and the American Chamber of Commerce in Mongolia (AmCham) on Monday, 4 March 2019 at the Shangri-La Hotel, with the newly-appointed Chairman of the State Great Khural (Speaker of Parliament) Mr. Zandanshatar Gombojav as the guest of honor.

The BCM’s purpose is to serve its members to ensure economic freedoms and property rights as enshrined in the Constitution of Mongolia are protected, by engaging with the public, its members, and the government.

AmCham and the BCM have worked closely in the past year, especially regarding corporate income tax and other tax reform issues.

Chairman of AmCham Mr. Oybek Khalilov congratulated Speaker Zandanshatar on his election to the highest office in the legislative body. 

AmCham strongly advocates for private sector-led growth. Mongolia’s economy today is highly dependent on exports; however, with its geographical location, natural resources, and well-educated young population, the country has huge potential to advance other sectors of the economy, noted Mr. Khalilov. Sectors with high potential include agriculture, tourism, finance, cashmere, renewable energy and ICT. AmCham Mongolia fully supports Mongolia’s initiative on the Mongolia Third Neighbor Trade Act to be discussed by the US Congress, which will advance bilateral commercial relations by boosting jobs, increasing duty-free exports of Mongolian cashmere products, and empowering women in Mongolia. Mongolia produces a third of the world’s raw cashmere. AmCham also advocates full implementation of the US-Mongolia transparency agreement.

 

SPEECH BY CHAIRMAN OF THE STATE GREAT KHURAL MR. ZANDANSHATAR

To start off, the Chairman of the State Great Khural (Speaker of Parliament) gave an update on the current economic climate. The government and parliament are making efforts to make the business and investment environment more stable and protect the interests of investors, he said. 

A brief update on the current economic situation:

  • GDP growth 6.9% in 2018
  • The Bank of Mongolia purchased 22 tons of gold
  • The government recorded a budget surplus of MNT 11 billion after 11 years of deficit

According to IMF’s Extended Fund Facility review, Mongolia’s economy is recovering, but we are aware of risks associated with commodity prices

The government has begun large-scale projects such as the oil refinery and the wastewater treatment plant.

This spring the Tavan Tolgoi railroads and other road projects will also commence.

The government has adopted the Three-Pillar Development Policy, which shall be the cornerstones of development:

  1. Governance reform through better accountability and effectiveness in the rule of law. Lawmakers are currently striving to strengthen the democracy through constitutional amendments. 
    “In other words, we are trying to build a great wall of democracy” in this region. Governance reform will be evaluated based on the World Bank’s Worldwide Governance Indicators.
  2. Economic reform through economic diversification
  3. Social reform – from welfare state to a productive society

“Listening to investors’ needs is an important part of our economic agenda to create a more predictable and stable investment and trade environment,” said the Speaker

The government has established the Investment Protection Council (IPC), which features a regular consultation mechanism and addresses grievances of investors. This is in part due to the transparency agreement with the US. This mechanism prevents the adoption of laws pertaining to business and investment without prior consultation with the private sector.

With assistance from the World Bank, the government is implementing Public-Private Dialogue (PPD).

Another project in the works is the “Digital Parliament Project,” which comprises three components:

  1. e-information – comprehensive information on current affairs and law-making process in parliament
  2. e-participation – an online forum facilitating two-way discussion on draft laws
  3. e-voting - introducing a mobile app with all Mongolian laws and government publications, and will soon publish an English version of the website and forum

The Speaker requests cooperation of the BCM and AmCham in assisting to build the capacity of parliament to translate draft laws and other government documents.

In line with investment policies, the National Development Agency and World Bank Group are working on investment reform mapping: comprehensive analysis and assessment of current investment and legal environment of Mongolia.

One-Stop Service Center for investors was recently established, providing foreign investors with legal and market information and assisting with registration of legal entities and residence permits. In the future, the center will also provide info regarding customs and taxes. 

The Speaker wrapped up by saying “To conclude, let me express my concern about the rule of law. I believe that laws on investment are much dependent on trust. The only guarantee of gaining confidence is to ensure that the laws and rules are clear and enforced. Each case must be handled according to the law without any interference. In brief, it is a matter of the strong rule of law. Therefore, it is essential that officials at all levels of office, all levels of public service strictly follow ethical standards and norms, be committed and accountable, and adhere to the principles of fairness and justice. That is why Parliament announced this year as the Year of Citizen-Centered Public Service. Taking this opportunity, I would like to assure that both parliament and government continue to pay special attention to continuous improvement of the legal and regulatory environment for investors.”

QUESTION AND ANSWER
 

Question from BCM Chairman Byambasaikhan: There has not been much news about the IPC recently. I understand there has been structural changes. Since you were the Chair of the IPC in the past, would you brief us on recent IPC activities and future plans?

Speaker Zandanshatar: IPC operations are continually improving, but we are planning to submit a new law on investment. An extraordinary session of parliament is planned for mid-March, during which legislators will debate the Law on Investment and General Law on Taxation. In the future, we plan to start an independent body for foreign investment protection. Before 2012, we used to have the Foreign Investment Agency, responsible for protecting FDI in Mongolia. The IPC’s activities have not slowed down and are improving.

Question by Jay Liotta from MahoneyLiotta: Mongolia made the choice in the 1990s to have an independent, private sector-driven economy. We have seen great strides in development since then, but in the last 10-12 years, we have seen an erosion of that with legislation making it difficult for private sector growth. Most recently, we have seen the growth of state-owned enterprises and a big drive for the state to create jobs. Has Mongolia given up on an independent, private-sector driven economy?

Speaker: Since the 1990s, Mongolia has been striving to establish democratic institutions in the public sector and a market-oriented economy. In recent years, Erdenes Tavan Tolgoi has been a big player in the economy as a state-owned enterprise, due to the commodity prices. In such a small economy, the contribution of major SOEs may look significant. Erdenet and ETT are paying almost 30% of the total tax income of Mongolia. That is why the role of SOEs is increasing. However, compared to China and other economies, the government and parliament are still eager to promote our private sector. Parliament is planning and extraordinary session in March, where we plan to discuss the Law on Concessions, Corporate Income Tax Law, and Personal Income Tax Law. These laws are aimed at supporting and promoting the private sector. Most importantly, we will create a 1% tax environment for small and medium-sized enterprises.
The government is set on issuing an IPO for Erdenes Tavan Tolgoi. There are also discussions regarding a potential IPO for Erdenet Copper.
The top priority at this moment is to ensure economic recovery and overcome the financial difficulties (debt burdens). That is why the role of government is increasing.
 

 

Question from Randolph Koppa of TDB: We see some pending legislation that causes some worry. With the 22 tons of gold purchased by the central bank, with the trade surplus, and increase in foreign investment, why would there be a consideration in the currency laws to control through the central bank the inflows of foreign exchange from exports, which would effectively dismantle the two-tier banking system?

Speaker: The central bank is implementing banking sector reform in cooperation with the IMF, and the government is also paying greater attention to money laundering to address suspicious cash flows. Recently we acknowledged that we don’t have sufficient information about export payments from overseas. On the other hand, we want to introduce have a liberal economy, but also want to control money laundering, so the question is how to strike a balance in these two things.

Question from Byambasaikhan: Parliament is currently is currently in the process of discussing amendments to the Law on Renewable Energy. This sector has been able to attract over half a billion dollars of real investment, and I understand that the current drafts in discussion will significantly change the system that allowed this private investment money to come in without any government guarantees purely on the back of strong power purchase agreements. Many companies are concerned that the change in rules will affect the flow of investment into the renewable energy sector. When is the Law on Renewable Energy going to be discussed or passed?

Speaker: It is a difficult question because I don’t know when the government will submit these bills on renewable energy. I do know that we are not capable of paying subsidies to renewable energy companies in these times of national difficulties. The government is debating this issue. On the one hand, we have to stick to our policy to support renewable energy; on the other hand, we have to calculate the financial burdens on the state budget.

Question from Chairman of AmCham Khalilov: In 2013 the US-Mongolia Transparency Agreement was first introduced, and was then ratified in 2017. What were the latest steps in terms of the implementation of the Agreement?

Speaker: I mentioned in my speech about the Transparency Agreement and digital forum. We are trying to form our legislative process during the extraordinary session in March. I would to cooperate with BCM and AmCham to translate bills and laws in accordance with the transparency agreement. Currently we do not have sufficient capacity in parliament to do this. Most importantly, we will introduce the e-parliament project, where will have e-information, e-participation and e-voting applications. In this regard, the business community, BCM, AmCham, etc. can participate in the debate concerning draft laws. Draft laws which get adopted will be available immediately in digital form; however, translations will take some time.

Comment and question from Chairman Byambasaikhan: Your proposal to work together with BCM is welcome, and we can establish a task force comprised of our members to work on this. You mentioned about constitutional amendments in the works. Lots of businesses are anxiously waiting for time frames, as we don’t want to have false expectations.

Speaker: Political parties and scholars reached the conclusion that constitutional amendments are necessary to strengthen our democracy. At this moment, most political parties, scholars, and civil society organizations are involved in this process. We also conducted deliberative polling, receiving 5.6 million opinions from 350,000 thousand citizens. For two years we did a lot of listening. We are now preparing a declaration for constitutional amendments, calling on all stakeholders to give us their comments and thoughts. After 2-3 years of hard work, we have almost finished drafting the constitutional amendments. These will provide better checks and balances of constitutional powers. I hope we will start discussions on constitutional amendments by May, and that is why we are calling an extraordinary session of parliament in March. In the end, parliament and the people of Mongolia will decide on these constitutional amendments.
 

Question from EBRD Country Director Irina Kravchenko: It sounds encouraging for international and private investors, and we would like to see results through these reforms announced. We understand the difficulties the economy has faced and are glad to see it recovering. Honoring agreements made in whatever sector is crucial for investment stability. There is some worry about changes to regulations regarding renewable energy, not only regarding new investments, but also old ones?
Also, how is the progress regarding the development of public-private partnerships? International debt is still high despite reductions. Are there any considerations in the government to push forward these structures? You have huge investment needs which cannot all be resolved through sovereign lending or soft loans and concessional loans.

Speaker: I would like to thank you Irina and the EBRD for the continued support for Mongolia through soft loans for the private sector. This spring, we start major railroad and road projects, so this year will be a very constructive year for Mongolia. Regarding public-private partnerships, we are now working with the National Development Association, which will submit to us a package of laws to support our business community. It will be the first law covering PPPs. There will be a bill on social responsibility, and we have already received a bill on professional associations. In order to have a united voice of business communities, we need to strengthen our chambers of commerce and professional associations.
The government and parliament are listening to the business community, but the business community need to unite their voices and consolidate opinions, sometimes advocating for contradictory things. The question of PPPs will be debated in parliament in the autumn session.
 


The BCM and AmCham would like to extend our appreciation to Speaker Zandanshatar, and to all the attendees of this joint special Monthly Meeting.

BCM 2019 January Monthly Meeting Recap

BCM 2019 January Monthly Meeting Recap

 

The Business Council of Mongolia’s monthly meeting was held on Wednesday, 30 January 2018 at the Shangri-La with BCM Chairman B.Byambasaikhan hosting for an audience of around 120 members.

Today’s meeting focused on the Mongolian resource sector and expectations for 2019.

This was the first Monthly Meeting of 2019. The BCM’s membership drive is going well, with a renewal rate of 73% currently.

The BCM would also like to extend congratulations to Vice Chairman Cameron McRae on the birth of his child.

2018 was a transformative year for the BCM. Some of the major changes include:

  1. In July 2018, BCM had a Board retreat, after which the process of renewing mission statement of the organization began. The mission statement now reads as follows: “To deliver value for the public, the members, and the employees by advocating economic freedom and property rights provided by the Constitution of Mongolia and protecting and promoting the common lawful interests of members for a fair, stable, and internationally competitive business environment.” (BCM Charter, Article 1.6)
    • To realize this Vision, BCM will strive for the following (Article 1.8):
      • To equip members with an information platform that provides up-to-date policy and business research, training and knowledge sharing
      • To develop and promote economic and sector policy recommendations through engagement with the BCM members, the government and the wider public
      • To provide networking and other services that support doing business in Mongolia
  2. BCM underwent restructuring in 2018, and on 16 January 2019, the Board of Directors, Executive Committee, and Working Group Chairs were newly elected. The Board of Directors now comprises 15 members, each serving for a term of two years. Click here to view information on each member of the Board of Directors.
    In addition, each Board member will also serve as either as Chair or Vice Chair of a Working Group as follows:
    1. Banking, Finance and Capital Markets Working Group
      Chair:    R. Koppa, TDB
      Vice Chair:    D. Hulan – Tavan Bogd Group
    2. Economic Freedom and Competitiveness Working Group 
      Chair:    D. Jargalsaikhan, Gund Investment/TUSS Solution
      Vice Chair:    E. Orchlon – Clean Energy Asia
    3. Energy, Infrastructure and Connectivity Working Group
      Chair:    E. Temuulin, PwC Mongolia
      Vice Chair:    Ts. Tumentsogt – Ministry of Mining and Heavy Industry
    4. Growth and Innovation Working Group
      Chair:    Tatsuya Hamada – Mobicom Corporation
      Vice Chair:    Jon Lyons – Erdene Resources Corp
    5. Resources and Environment Working Group
      Chair:    Armando Torres, Oyu Tolgoi LLC
      Vice Chair:    P. Gankhuu – Erdenes Mongol
    6. Tax/Legal/Ethics Working Group
      Chair:    B. Solongoo, Avinex LLP
      Vice Chair:    D. Munkhtushig – Rio Tinto Mongolia
       
  1. The BCM Secretariat has also been strengthened, with the hiring of three new Directors. They are:
    • S.Ganzorig - Director of Policy and Planning
    • B.Javkhlan - Director of Working Groups
    • D.Sayan - Director of Board Affairs

The BCM invites companies to renew membership and for new companies to become members. BCM is a platform, and how you want to use this platform is up to you without limits.

PRESENTATION BY THE CHAIR OF BCM’S GROWTH AND INNOVATION WORKING GROUP MR. TATSUYA HAMADA, CEO OF MOBICOM: “TOWARD SMARTER SOCIETY” 

Click here to view the full presentation.


In 2019, the BCM will operate six Working Groups. The Growth and Innovation Working Group is a new working group chaired by Chairman and CEO of Mobicom, Mr. Tatsuya Hamada. Mr. Hamada has been in Mongolia for three years, hailing from Tokyo. His expertise is in information and communication technology (ICT).

“Innovation” is a term with broad meanings. However, the Working Group will strive to realize three things: 1) to educate and inform business entities, the government, and the public of the potential opportunities and challenges for research and development; 2) to promote and advance the benefits of business growth and innovation in Mongolian society; 3) to enable organizations to grow and innovate, not limited to those sectors ordinarily thought of as innovators (e.g. start-ups).

Many start-ups are initiated by young people, often just after school or university. Unfortunately, they lack experience, knowledge, and resources. In that case, we would like to support them, thereby supporting Mongolia’s economy from the bottom-up.

The world is undergoing a digital transformation, with things such as AI, RPA, blockchain, Internet of Things, Fintech, Industry 4.0, and Omni Channel. Google AI has defeated chess grandmasters. Fintech has revolutionized digital finance.

As for blockchain, many people think it is related only to bitcoin and other cryptocurrencies. However, its applications are much broader than just coins, which are only a part of its massive potential.

7 key objectives:

  1. Digitalization of services, processes, and business operations
  2. Infrastructure, both physical and virtual
  3. Digital financial services "fintech"
  4. Information and data security (storage, protection, secure privacy)
  5. Resource efficiency (people, energy, water, etc.)
  6. Roles of investment and public policy
  7. Intellectual property protection

Actions to be planned for the Working Group:

  1. Intake of interested BCM members into the Working Group
  2. Education/awareness raising session in March
  3. Events for key objectives (BCM Summit, ad-hoc)
  4. Dialog, guidance, and advisory for governmental organs

As a first step, the Growth and Innovation Working Group needs members. Thus, any and all interested individuals are encouraged to reach out. The first meeting will be held very soon, at which the Working Group will discuss what areas to focus on. Upon deciding that, goals and objectives will be set.

PRESENTATION BY P.GANKHUU, CEO OF ERDENES MONGOL, ON THE “LEGAL ENVIRONMENT OF ASSET MANAGEMENT”

Click here to view the full presentation (Mongolian only).

Erdenes Mongol, established in 2007, is a fully state-owned holding company for major state-owned enterprises, including ownership of Mongolia’s 34% stake in Oyu Tolgoi through Erdenes Oyu Tolgoi. A full list of companies under its umbrella can be found in the presentation linked above.

Mining is responsible for 22% of GDP and 72% of foreign investment. It also accounts for 74% of manufacturing and 90% of exports.

In addition to operation of state-owned assets, the company also implements management of assets, especially of strategic deposits. Furthermore, Erdenes Tavan Tolgoi will also issue 2 million additional preferred shares by 2024.

Work was initiated by regulators to clarify the legal environment, with Erdenes Mongol providing comments on what needs to be fixed. BCM Board member Solongoo is also engaged in this effort, noted Mr. Gankhuu.

The biggest focus of operations right now is the IPO of Erdenes Tavan Tolgoi, which will be conducted on the Hong Kong Stock Exchange.

Erdenes Mongol’s strategic objectives for 2018-2023 include 4 points:

  1. Hold licenses for strategic deposits and act on behalf of the government regarding government-owned stakes in such deposits
  2. Undertake projects and programs in energy, infrastructure, logistics, and processing industries
  3. Implement prudent asset management, attract investment, and finance projects
  4. Implement good corporate governance and ensure sustainable development

Another important goal is to export more value-added products, instead of export raw commodities.

The government has issued a directive to Erdenes Mongol last year to establish an investment fund.

There have been many impediments to growth and development, many of which can be attributed to an unclear legal environment. The company has been engaging government bodies to make the law clearer, eliminate contradictions and overlaps.

Erdenes Mongol will also be the head company which will be in charge of a sovereign wealth fund, which has been talked about for many years, but looks to be finally realized. However, the bill and other questions of legalities are still under development by lawmakers. As such, input from business and the public is still being considered by lawmakers.
 

PRESENTATION ON “RESPONSIBLE MINING” BY MR. ARMANDO TORRES, CEO OF OYU TOLGOI


Oyu Tolgoi is the single biggest investment in the mining business in the world. “OT is a showcase of best practices,” said Mr. Torres. The Brazilian CEO has been working in the mining business for 29 years, in countries all over the world.

Mr. Torres also serves as the Chair of the BCM’s Resources and Environment Working Group. Based on the charter of the Working Group, there are three elements of focus: 1) Defining and understanding the concept responsible mining, and sharing best practices; 2) Advocacy – how we build a platform that advocates for business interests; 3) Public relations – how we work to educate the public and stakeholders.

There are six criteria in the Responsible Mining Index:

  1. Economic development
  2. Business conduct
  3. Lifecycle management
  4. Community wellbeing
  5. Working conditions
  6. Environmental responsibility

Mr. Torres went on to outline how OT fulfills each of these criteria at Oyu Tolgoi:

Economic development

  • The company has spent USD 8.7 billion in-country since 2010
  • Implementing the “Made in Mongolia” strategy
  • Largest private-sector employer in Mongolia
  • Top taxpayer two years in a row

Business conduct

  • The Way We Work is who we are at Oyu Tolgoi and Rio Tinto
  • The way we work outlines how we deliver both our purpose and strategy
  • We have fair and transparent procurement and HR policies

Lifecycle management

  • At least 75 years of future operation
  • Clear roadmap towards the vision.
  • Careful and professional planning in every area.

Community wellbeing

  • USD 6.2 million spent on sustainable, long-term projects in 2018
  • Spent USD 413 million on procurement from Umnugovi since 2010
  • Constructed critical infrastructure for Khanbogd soum, including water, power, roads, healthcare and education
  • Over one-fifth of the workforce is from Umnugovi Province

Working conditions

  • Safety remains top priority, with an All Injury Frequency Rate at 0.16
  • Safest operation in Rio Tinto, winning the 2017 CE safety award
  • With legislative change allowing women to operate haul trucks and work in the Underground
  • Encourage Inclusion and Diversity

Environmental responsibility

  • 88% water recycles, used 0.4 cubic meters of water per ton of ore
  • Has rehabilitated a total of 1,557 hectares of land
  • Approximately 70 thousand saplings planter per annum

Focus areas of the Resources and Environment Working Group

  • Share best practices in responsible mining
  • Business associations, the government, and NGOs to work closely together
  • Align with the Government of Mongolia
  • Communication framework to educate the public on responsible mining and an investment-friendly environment
  • Support the GoM at international forums and events to attract future investors
  • Focus national forums at sharing best practices and attract potential investors

The challenge of advocacy is to influence regulators and lawmakers to create an environment to success in business and investment. To do this, alliances are important. The question is, what are the groups that can support us in this goal of advocacy? “We cannot be like us and them. We need to move together as ‘we’”, Mr. Torres stated.

On top of success in business and attracting investment, we must relay messages of success to people both domestic and international. Mongolia has experiences to share in best practices, and we must also let the world know of the potential of Mongolia as well as the successes thus far.

PANEL AND Q&A

BCM Vice Chairman Randolph Koppa moderated the panel discussion, with the presenters coming back on stage to answer questions.

When asked when the OT underground mine will be commission, CEO Armando Torres stated that construction is expected to be completed in 2022 or 2023, with sustainable production starting in 2024. An audience member then asked whether Oyu Tolgoi will be one of the projects in Rio Tinto’s big push for more robotics and automation. Mr. Torres replied that before making a large investment in robotics and automation, the company will look to improve efficiency in other ways first. One such focus is on data management and digital transformation. He did note, however, that OT does indeed employ state-of-the-art technology in its equipment, especially ones involved in tunneling and blasting. Regarding the cumulative impacts of mining, as opposed to the impact of one company or project, the CEO stated that one way the company is addressing this is by sharing best practices as a foundation.

Regarding BCM Working Groups, they have worked well in the past to provide information to those who are interested in keeping track of developments in a particular sector or tax issues, and will continue to serve this important function. The number of participants in a Working Group will depend on the interests of the members. As for advocacy, issues that are important would be raised through BCM management and driven in a more centralized approach in cooperation with the Working Groups. For instance, in the past, we established a united front with other business associations to raise a unified voice to lawmakers. Members should be business leaders from member organizations who can add knowledge and drive to the Working Group.

The one strict prerequisite for joining a Working Group is that you must be a member of the BCM.

Working Groups are now more sector-focused. There will be target areas that each Working Groups will take up, which we will then advocate for as BCM to government or to the public. The Working Groups will do the thinking, writing, and recommending. The Executive Committee will decide on what the appropriate advocacy approaches are: whether we use IFIs, embassies, NGOs, etc. We will also look at what we need to do manage our social profile and get messages out to the public – how we can be influential.

Before heading off to networking, Dr. Oliver Schnorr from Euro Khan asked Mr. Gankhuu a poignant question regarding rare earth minerals and the notion that the government plans to nationalize deposits. There is an intergovernmental agreement between Mongolia and Germany to support extraction of rare earth elements. Dr. Schnoor asked what guarantees Mongolia can give to ensure that these investments will be safe and secure.

Mr. Gankhuu stated that “there is no nationalizing” and that the government wants to discuss how they it can cooperate with private companies. Licenses for operations involving rare-earth elements are all owned by private companies in Mongolia. There is an economic committee under the German-Mongolian intergovernmental commission that will work on rare earth elements and other high-tech investments from Germany. Mr. Gankhuu stated that he believes he will head up this committee. These internal issues will be discussed and resolved before the next meeting near the end of May. Finally, he reiterated that right now, the most important thing we have to work on is the legal environment.

 


The BCM would like to extend our appreciation to all the presenters and attendees.

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