Mongolia eases restrictions on foreign investors

ULAN BATOR (REUTERS) - Mongolia has passed a law aimed at reviving foreign investment by easing restrictions on investors in key sectors such as mining and by providing greater certainty on the taxes they must pay.

The new regulations take effect on Nov 1 and replace two previous laws, including one that imposed restrictions on foreign investments in strategic sectors after state-owned Aluminum Corp of China (Chalco) made a bid to take control of Mongolia-focused coal miner SouthGobi Resources in 2012.

Investors and analysts said the new law was a step in the right direction following more than a year of uncertainty over investment rules, which many blamed for a slump of 43 per cent in overseas investment in the first half of 2013, on an annual basis.

Economic growth in the sparsely populated and landlocked country is heavily tied to its vast copper and coal resources, and reinvigorating foreign investment has been a top priority for its government.

"Without a doubt, it is a very positive development," said Mr Sam Spring, chief executive of Mongolia explorer Kincora Copper.

Under the new law, which had been on the cards for a few months, private companies will no longer need government approval to invest in the so-called strategic areas of mining, telecommunications and banking. Although firms that are at least 50 per cent state-owned will still need the go-ahead from a new agency.

The law also gives investors five to 22 years of "stability"on value added tax, corporate income tax, mining royalties and customs duties. That means they will pay tax rates that apply when an investment is made for those periods.

The new investment law protects investors from expropriation, allows profits to be taken out of the country, and reaffirms the right to arbitration, Mr Sereeter Javkhlanbaatar, head of foreign investment regulation and registration in the economic development ministry told Reuters.

While the new investment law marks a step forward, Independent Mongolian Metals & Mining Research analyst Dale Choi said three key issues - the fate of an underground expansion at Rio Tinto's Oyu Tolgoi copper mine, uncertainty over 106 mining licences, and revisions to a rivers and forests law - still need to be resolved to restore foreign investor confidence.

Centerra Gold needs revisions to the rivers and forests law in order to go ahead with its Gatsuurt project, which has been on hold since 2010.

Kincora Copper is among an estimated 11 foreign companies and 67 Mongolia groups affected by uncertainty over the status of mining licences.