Friday, June 26, 2015




  • An investor interested in developing a project in Mongolia involving an investment of more than MNT 500 billion (~ US$ 284 million) may seek to enter into an investment agreement with the Mongolian Government.
  • The regulations set out the process for applying for, negotiating and executing an investment agreement and describe its required content.
  • The regulations do not apply to certain agreements to be entered into under the Minerals Law, the Petroleum Law or the Nuclear Energy Law.
  • While the regulations provide welcome detail on the process for entering into an investment agreement, certain requirements should be noted by investors, in particular:
    • the requirement to provide a feasibility study and environmental impact assessment report at the investment agreement application stage; and
    • the possibility that the Government may be entitled to re-negotiate the investment agreement if there is a departure from the feasibility study.


On 21 October 2013, I reported on the introduction of Mongolia's new Investment Law, which regulates foreign investment in Mongolia (the Law). The Law's introduction was seen by many as an indication of the Government's desire to re-establish Mongolia's status as an attractive investment destination. The Law was enacted after a period of uncertainty attributable to earlier legislative reforms and proposals that were not generally regarded as supportive of foreign investment. Following the Law's introduction, key Mongolian political leaders, including the President of Mongolia, have actively sought to attract renewed investor interest in Mongolia through several high-profile visits to Hong Kong, London and New York.
The Law provides that for large investments of more than MNT 500 billion (equivalent to approximately US$284 million), if requested by an investor, the Government may enter into an investment agreement to stabilise the environment in which the investor will be carrying out its operations. The Government has recently passed the regulations in order to govern the process of entering into an investment agreement under the Law.


The regulations do not apply to the following kinds of agreements:
  • an investment agreement in the nuclear energy sector as contemplated by the Nuclear Energy Law;
  • a deposit development agreement under Article 5 of the Minerals Law; and
  • a production sharing agreement under the Law on Petroleum.
Accordingly, these agreements will continue to be subject to the provisions contained in the applicable legislation.


The regulations set out the process of applying for, negotiating and executing an investment agreement. The regulations also describe the content of an investment agreement and how it will be monitored once it is signed.


An investor who intends to invest more than MNT 500 billion may apply to the State Central Agency in charge of investment, known as the 'Invest Mongolia Agency' (the Agency), for an investment agreement. The Agency was established by the Law to implement and administer the Law.
An investor's application must include certain supporting materials including:
  • Background information on the investor, its operations and its other projects.
  • A feasibility study to be approved by the State Central Agency in charge of the relevant sector in which the investment will be made.
  • If the applicant is a State-owned entity, a copy of the permission required under Article 21 of the Law.1
  • An environmental impact assessment report (the EIA Report).
Given the substantial time and cost involved in developing and finalising a feasibility study and an EIA Report, the inclusion of these documents as requirements at the application stage should be noted by investors, particularly as there is no guarantee that the application will be successful, or if an investment agreement will be executed. This contrasts to some other jurisdictions where there are fewer prerequisites to obtain the security of an agreement with the State.


The regulations do not specify a timeframe within which the Agency will review and respond to an investment agreement application. It would be useful to investors if the Agency published some guidance on the expected timing for dealing with applications.
The regulations prescribe several grounds on which an application may be rejected by the Agency, including the following:
  • the operations of the applicant or the nature of its proposed investment may breach Mongolian national security;
  • the proposed investment is not profitable or will have a negative impact on Mongolian State budget revenue or fiscal policy;
  • the investment amount is determined to be less than MNT 500 billion, based on a review of the feasibility study or other relevant application materials; and
  • the operations of the applicant will have a significant negative impact on the environment.
It is not clear how the first and second grounds for rejection would be applied in practice. As they are potentially very broad grounds, it would be helpful for the Agency to provide guidance to investors on how it would apply these criteria.
The regulations are silent as to whether an applicant may re-submit an application if it is rejected. Again, it would be helpful for the Agency to provide guidance on this point.


If an applicant is successful, it will be invited to negotiate an investment agreement with a working group established by the Agency. The working group may retain independent advisers to assist it with the negotiation of the Investment Agreement.
Once a draft is agreed by the working group and the investor, the draft must be submitted for approval by the Minister for Economic Development. The Minister will then submit the draft to the Cabinet. Upon Cabinet approval, the Minister will be authorised to sign and execute the investment agreement with the investor.
The regulations do not describe the process which applies if the Minister or Cabinet fails to approve the draft of the investment agreement or include any timeframes within which a ministerial or Cabinet decision must be made.


The regulations set out the content of an investment agreement and include many of the provisions that an investor would expect to see in an agreement of this kind.
Some of the more important provisions that are required under the regulations include:
  • the terms of tax stabilisation and other regulatory or financial support from the Government;
  • the mitigation of adverse health and environmental impacts from the investment; and
  • the project's contribution to regional development.
The regulations also require the inclusion of a provision which describes how the investment agreement will be 'revisited' in the event of any change to the underlying feasibility study. The provision implies that if a project does not develop in accordance with the estimates contained in the feasibility study, this may be a trigger for the Government to re-negotiate the investment agreement. There is no qualification on the nature of the change, so potentially minor changes might be treated as a trigger.
In practice, the development of a project inevitably involves a departure in some respects from the estimates and program contained in a feasibility study. If all such departures were to constitute a trigger for re-negotiation of the investment agreement, this will create substantial uncertainty for investors. Investors (and their financiers) will likely require further guidance from the Government and the Agency on this issue.


Following entry into an investment agreement, an investor must report on its investment activities.
The Agency is responsible for monitoring the implementation of an investment agreement, and must notify the investor if any violation or breach is detected. The Government retains a right to terminate an investment agreement if an investor fails to comply with its obligations.
Disputes under an investment agreement must be resolved in accordance with the agreement and the Laws of Mongolia. As dispute resolution by Mongolian courts is not mandatory, a foreign investor may seek to have disputes resolved by international arbitration, which is generally the preferred dispute resolution mechanism sought by foreign investors in Mongolia.


The regulations represent a positive step by the Government to re-stimulate inbound direct foreign investment. The availability of investment agreements is necessary to facilitate significant capital investment in Mongolia, particularly in the infrastructure sector. However, certain content of the Regulations should be noted by investors. Specifically, the requirement to provide a feasibility study and EIA Report at the application stage and the potential for the Government to re-negotiate the investment agreement if there is a departure from the feasibility study.
The regulations may be enhanced by the release of guidance materials to clarify the uncertain provisions.

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