ICMC

After continued negotiations for the better part of the decade the Oyu Tolgoi Investment Agreement has finally been signed by the Government of Mongolia, Rio Tinto and Ivanhoe Mines Mongolia.

There have been numerous false starts to finalizing the OT agreement this summer. It was rumored that it would be signed before the Naadam national holiday held each summer on July 11-13. An Extraordinary Session of Parliament was held in late August which modified or repealed several laws that paved the way for the signing of the Agreement followed by report that it would be signed by the end of September. Well, September came and went with no movement.

The stars finally aligned, literally and figuratively, yesterday, October 6, 2009 as senior members of the Mongolian Government hosted senior officials from Ivanhoe Mines Mongolia Inc and Rio Tinto International Holdings. October 6 was chosen as the signing day because according to Buddhist lams it is an auspicious day on the Buddhist calendar.

One can only guess what conditions would currently be in Mongolia if the agreement had been signed five years ago and Mongolia had been able to take advantage of the commodity boom.  Hopefully the long wait will be worth it with great changes to both the country and the people of Mongolia hopefully being realized.

I am personally very excited to see what this means for Mongolia’s business community.  With an estimated $30 billion to be generated in tax revenues over 50 years Mongolia is in an enviable position to be financially able to drastically improve the lives of the Mongolian people.  To that effect, Mongolia is setting up a sovereign wealth fund that will be run by professional managers, according to Bloomberg.  The aim of the fund is to disburse a part of the profits from mine sites to everyone in Mongolia, either through cash or non-cash means.

Following up on my previous two-part blog on difficulties and challenges of doing business in Mongolia, this blog will focus on why some expats may experience difficulties because of the way they think things should be done in Mongolia but aren’t.

That’s Not How We Do It

A major difficulty I see foreigners dealing with here, especially as managers of companies, is their wanting to run their companies according the legal system they are familiar with.  While we are all guilty of saying “Well, in the US we do this” or “In the UK we do that” unfortunately this just does not translate well to doing business in Mongolia.  The legal system in Mongolia is undeniably a product of the Soviet system, and while Mongolian lawmakers have pretty much rewritten most laws since the transition nearly 20 years ago, the major influence on many of the politicians remains the Soviet Union.  So while it is easy to fall into the mindset of “that’s not how we do it in…” you will only end up driving yourself mad thinking that way.

Laws in Mongolia can be extremely different from what we are used to.  For example, the Labor Law in Mongolia is extremely employee friendly.  The employer cannot really dictate anything to the employee as everything must be mutually agreed upon.  There is also no at-will termination, and based on Supreme Court interpretations of the law it actually leans towards lifetime employment.  That can be difficult for many foreign HR people to get their heads around.

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Following up on Part 1 of some challenges to be prepared for when working or doing business in Mongolia, here is Part 2. This list really focuses on more practical things that many people who have worked in foreign countries may have already experienced, such as occasional electricity or internet outages or translation issues.

Electricity and Internet Outages

As I have already mentioned above, Mongolia, like many developing countries, has at times issues with electricity. This is due, in no small part, to the construction boom that has been going on for the past several years, but which came to an abrupt halt almost exactly a year ago. Mongolia is a very centralized country, with virtually everything coming through UB before being sent out into the aimags, and electricity is no exception. Of course is doesn’t help matters when all of the power plants are also located in the capital city.

Because of the huge surge in demand for electricity, mostly from new apartment and office buildings throughout the city, electricity outages are prone to happen. That said, more often than not they are caused by construction crews not really knowing what they are doing and cutting through the line. Power outages are occasional, but when they do happen they can last for a half a day or longer. My advice…have some good old fashion non-computer work on hand, or a laptop with a long battery.

Internet outages similarly occur.  Internet outages seem to occur more often but usually last for shorter periods, usually ranging from ten to 30 minutes. Internet service interruptions are sometimes caused by problems with lines from China or Russia but are usually a result of someone cutting through the line. If the intertubes are an absolute necessity for you Mongolia’s internet service providers are offering better and faster service every day and USB modems are available from several ISPs. Read the rest of this entry »

Some Realities of Doing Business in Mongolia

When attempting to talk up a place for investment, tourism or attracting people for some other reason the difficulties of a country is often downplayed or completely ignored, and Mongolia is no exception. At many of the numerous investor’s conferences that pop up here in Ulaanbaatar or in Hong Kong, London, or New York I think many panelists simply pay lip service to the fact that some aspects of doing business here are just plain difficult while ignoring the reality of the situation.

While I believe Mongolia has much to offer an investor or business person, in the interest of full disclosure I would like to present some of the difficulties of doing business in Mongolia. I was originally going to make this two parts, with part one will focusing on the way things actually operate in Mongolia and why this might make things difficult and part two focusing on why running a business may seem difficult to expats because things don’t work like they think they should. But it kept growing so now this is going to be part one of an unknown number in a series . Read the rest of this entry »

ULAANBAATAR, MONGOLIA – Along with the sounds of groaning children, school bells and homework assignments being handed out on this traditional first day of school in Mongolia, there can also be heard a quiet sigh of relief due to reports of the imminent signing of the Oyu Tolgoi (OT) Investment Agreement.

An unnamed government minister has said in The UB Post newspaper that he expects the Oyu Tolgoi agreement to be signed within two week’s time by both sides.  While we have all heard this time and again during the past five years of negotiations, it looks like these words may actually come to fruition this time.   In the past the Investment Agreement has sought to alter current laws in order to make the agreement more favorable to one side or the other.  The current incarnation of the agreement complies with all current Mongolian Laws, thus making it much more likely to be accepted by the Government. Read the rest of this entry »

The basic framework for the Oyu Tolgoi Investment Agreement is now much closer to being finalized after the Government of Mongolia agreed to pass amendments to four laws, including the repeal of the controversial Windfall Profits tax, the Corporate Income Tax Law, the Water Use Law and the Road Law.

Following is the transcript of the Power Point presentation that we have posted on SlideShare.  Please note, this is for informational purposes only and may not be the final version signed.

Oyu Tolgoi Investment Agreement presentation slideshow:

http://www.slideshare.net/icmcmongolia/oyu-tolgoi-investment-agreement-mongolia

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Wednesday, August 26, 2009

According the today’s edition of The Mongol Messenger, an English-language newspaper in Mongolia, and several other sources amendments to four laws were approved yesterday by the Mongolian Ikh Khural, or Parliamnet, in a bid to increase the likelihood of the Oyu Tolgoi Investment Agreement’s passing.  An extraordinary session of Parliament was convened last Wednesday, August 19, in order to discuss these possible changes to Mongolian law.

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August 18, 2009

Chinggis Khan died this day in history, in the year 1227.   The cause of his death remains a mystery, with some claiming he succumbed to injuries sustained after falling from his horse due to fatigue and injury from battle, while others claim he was killed in battle by the Tanguts and still others say he was killed by a Tangut princess taken during a battle.  Chinggis’ place of burial remains a mystery as it is said anybody who crossed the path of the burial procession was killed.  It is alleged to be near his birthplace in Khentii Aimag, in the east of Mongolia.  His successor to lead the Mongolian empire was Ugudei. Read the rest of this entry »