Pay your taxes and prepare for an environmental inspection

2019 | August | 021

The Government is on a campaign to audit mining companies in order to weed out and cancel “shady” licenses. The Prime Minister’s statement to confiscate natural resources from oligarchs and re-allocate them to the people has been realized. As a result, residents and “ninjas” have begun to attack the areas with canceled licenses wielding buckets and shovels. A so-called head of the ninja association is proudly declaring that citizens digging these areas is a form of equal distribution of resources. However, as a business owner, if you underpaid your taxes even by 5,000 tugrugs, or polluted the environment even for a little bit, or haven’t submitted or complied with your Environmental management plan, you better start preparing for an inspection from environmental and tax inspectors and the GASI!

It’s safe to say the inspection announcement followed the cancellation of licenses for Salkhit silver deposit and South Gobi Sands coal deposit. The two companies were faced with a protest for illegally obtaining and transferring their licenses and evading taxes. Ultimately, the licenses were canceled after the Prime Minister’s involvement.

The company that owns Salkhit silver mine had its license canceled on charges of not paying taxes, while South Gobi Sands was charged with environmental non-compliance. Such cancellations will likely happen again in the future. Inspections and “tempers” of the state environmental inspector of the province and the specialized inspection agencies are about to get stricter.

no one calculated the adverse impacts and found a solution to fix them.

As of the first half of this year, 1684 licenses or 57 percent of the total 2945 minerals licenses in effect are operations licenses, with the remaining being exploration licenses. The Cabinet established a working group to review how existing operations and exploration licenses were issued and look into document forgeries and law violations during the issuing of licenses. The “fear of boss” culture prevalent among government agencies will surely act as a whip in this situation.

The working group is composed of the Minister of Justice and Internal Affairs, Minister of Mining and Heavy Industries, Head of the Cabinet Secretariat, and the Minister of Environment and Tourism, and is led by the Deputy Prime Minister. Tserenbat, Minister of Environment and Tourism, has commented “the working group led by the Deputy Prime Minister will review the issuance and conditions of mining licenses and issue an assessment. If any illegal activity is identified in the process of issuing licenses, the license will be canceled”.

Industry people are divided on this issue. While one side sees this as an attack on the mining sector and business owners, pushing populism too far, others are supporting the move. They’re saying it’s time to impose order on irresponsible companies who fostered years of license trading, illegal mining and poor track record of environmental practices. However, there’s a justified fear that legally and responsibly operating companies may become collateral damage during this inspection.

The justification for cancelling 23 licenses owned by 19 companies is provided in clause 56.1.5 of the Minerals Law, which states that the Mineral Resources and Petroleum Authority shall revoke a license on the grounds “the State central administrative agency in charge of the environment has decided, based on a report of the local administrative bodies that the license holder had failed to fulfill its environmental reclamation duties”.

In effect, Mongolia has only two grounds for canceling a mining license. The first is on the grounds of failing to pay the license fee and not reaching the minimum defined capital expenditure for explorations. The second ground is Article 31 of the Law on Environmental Protection or in other words, failure to fulfill environmental obligations. The license holder has a mandatory obligation to ensure Environmental Impact Assessment and Environmental Management Plans are prepared and followed. Non-compliance will result in canceling the license.

Authorities use this classic “cop-out” method of canceling mining licenses of deposits where the reserves have been determined and the operations have already started, in an attempt to resolve chronic issues in the mining sector and gain public support at the same time. Unfortunately, no one calculated the adverse impacts and found a solution to fix them. After the gold mining license of Altaigold company operating in Tsenkher soum, Arkhangai province was canceled, videos of residents breaking into the company’s premises, beating up the employees, stealing gold and digging holes have been circulating the internet. In another viral story, a man introduced himself as a resident of Gurvan Tes soum at the Tost and Toson Bumba Range’s public discussion event and started crying and pleading against digging up his land. A leaked video revealed that he was, in fact, a former ninja at Khuren Shand mine that basically neighbors South Gobi Sands who had its license canceled.

Examples such as these prove that the Prime Minister’s attempt to score points from the public is bearing unexpected consequences. No one can predict what happens next. We have learned the hard way what happens after deposits and licensed areas previously protected under private ownership are emptied with the State’s permission. There are plenty of cases, from Nalaikh to Gatsuurt, on what happens after deposits with proven reserves are left without any control. Most recently, everyone saw how hundreds of ninjas vandalized the area around Noyon Mountain after fake news circulated that Gatsuurt’s license would be terminated. Any places under no one’s control and without an official license-holder will naturally collapse under the hands of ninjas. One can hope the Mongolian government realizes that the policy of “resources to the people” also includes protecting the resources from the people.

Indeed, article 6.1 of the Environmental Protection Law of Mongolia states “The land, its underground resources, forests, water, animals, plants and other natural resources shall be protected by the State and the authority of the people and the land, its underground resources, their wealth, forests, water, and animals, unless owned by citizens of Mongolia, shall be the property of the State.” If the Government fails to take any action against cases like in Tsenkher soum, ninjas will only continue breaking into [canceled] licensed areas and cause environmental damage.

The Government would not want to tackle the issue of illegal manual miners, granted it wants to collect election votes. However, this should be the most relevant topic if the Government is implementing State policies.

Prime Minister U. Khurelsukh:

We have to fight hard against those who disrespect our land resources and other properties of the State and conduct illegal mining activities by abusing their powers. I am not referring to the honestly working and wealth-generating business owners. Please separate them from the oligarchs who stole the Mongolian people’s wealth.

Pay significant attention to protecting the environment. We must show them that the State has an iron fist. We need to show how oligarchs who violated the law are powerless in this matter. As a country, we must fight against uncontrolled mining. We must protect our motherland. If necessary, mobilize the army or the police. Let the military go and protect the lands. Let’s put those lands under state protection. Why do we feed soldiers? For them to protect the country. Otherwise, several thieves are plundering the lands. A Four-Minister working group led by U. Enkhtuvshin has been established. Each license issued in Mongolia will be reviewed. We will check which ones are legal and which ones are not.

D. Sumiyabazar, Minister of Mining and Heavy Industry

The action we took at Tost and Toson Bumba mountain range is not directed against only one individual or entity. We are covering in general. We will investigate and take actions on issues related to all companies, including a case where a former Governor obtained a license. We will impose strict measures. Many issues are now resolved as a result of cleaning up and fighting against illegally issued licenses under Prime Minister U. Khurelsukh’s newly established Government. We will fully support entities who operate within current legislation, respecting the core interests of Mongolia and cooperating with local and Government authorities.

Ts. Tserenbat, Minister of Environment and Tourism:

In February 2018, we sent out an official letter on ensuring legal compliance and implementation to 202 entities. This is an official notice to enforce their environmental protection and rehabilitation obligations under article 31 of the Environmental Protection Law and articles 38 and 39 of the Minerals Law, warning severe actions against any illegal activities.

If entities truly conducted their operations according to the law, they are entitled to file a complaint. However, we will investigate any environmental crimes committed by entities in order to receive compensation for their environmental damage, and act according to the law by issuing an official request to determine the extent of the damage.

Related investments and funds will surely not be born by the Government of Mongolia according to the law. In the future, entities who committed illegal activities and created environmental damage will be taken to court.

“Southgobi Sands” licenses canceled

On August 21, the Mineral Resources and Petroleum Authority canceled several operational licenses in Gurvan Tes soum located in Arkhangai and Umnugobi provinces. It is especially applying to the coal deposits in Gurvan Tes.

The cancellation of two operating licenses under South Gobi Sands is related to the border dispute at Tost and Toson Bumba natural reserve. The border zone defined under Resolution no. 66 on “Receiving certain areas under state protection” approved in 2012 by the Citizens’ Representatives’ Council of Umnugobi province included the operational licensed area of the company. However, the Government resolution no. 91 approved in March 2017 excluded this licensed area when defining the borders of the Tost and Toson Bumba mountain range natural reserve, as protested by the local administration, residents and NGOs.

Following this cancellation, the Government expanded the borders of the natural reserve and received an additional 153.4 thousand hectares of area under state protection. This means the border was re-defined according to the Government’s initial proposal to define Tost and Toson Bumba’s borders based on the 2016 study report by the Ministry of Environment and Tourism and the Geographical and Geo-Ecological Institute. There’s a clear picture here that the newly defined boundary only excluded the two canceled licensed areas of South Gobi Sands. 

The border boundary of Tost and Toson Bumba natural reserve connects to one of Mongolia’s major coal export basin - the Nariinsukhait coal deposit cluster. The cluster includes operations by major companies such as MAK, Chinghua MAK Nariinsukhait, Usukh Zoos, and South Gobi Sands, etc. 30-40 percent of the country’s coal exports Asia Mining Magazine come from this basin area. 

Interestingly, the operating licenses held by companies such as South Gobi Sands, EAИ, Khairkhan Tolgoi Coal, Umniin Goviin Bayalag, Nitro Siberia Asia and Mongol Chadal International Energy who were not included inside the border boundary were canceled. Some of them obtained their licenses just in the last 3-10 months. As for South Gobi Sands, three of its six coal licenses in Umnugobi province are now canceled. However, the Ministry of Environment and Tourism still haven’t given a clear explanation to the public regarding these cancellations. 

Expressing his position on the matter, D. Sumiyabazar, the Minister of Mining and Heavy Industry, remarked that “this isn’t an action against only one particular individual or entity” and added “We will fully support entities who operate within current legislation, respecting the core interests of Mongolia and cooperating with local and Government authorities.” If this is truly a responsible, official government statement, a highly visible press release containing the actual justification and reasons behind the cancellations, and providing a clear dividing line between the good and the bad. Otherwise, the Prime Minister is publically spreading the notion himself that all mining business owners are outright oligarchs. 


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