Mongolia's new energy law

A PETROLEUM law passed in Mongolia is aiming to boost foreign investment in the sector through a more hospitable business environment.

Andrew Snelling

The law passed and was made effective on July 1, with petroleum companies in the region given the opportunity to review and comment on the legislation.

A number of incentives will be available to companies as part of the law but will not apply to previously signed production sharing contracts.

Exploration licences will be for eight years, with the option to extend twice by two years, while the production period of 25 years will have two possible extensions of five years.

The PSCs themselves will have the option to be signed and approved by the government within 180 days, by company request, which must meet exploration contract commitments and discuss the production sharing terms.

Australian company Wolf Petroleum has exploration licences in the Baruun Urt and Jinst blocks in Mongolia and is planning to apply for a PSC this year.

Royalty payments to the government will be at least 5%, while companies will be exempt from customs duty, value-added tax in the first five years and income taxes from oil sales.

A cost recovery program will also be run, under which 100% of exploration, operation, development and production costs can be recovered.

Companies may also seek permission to build pipelines for transferring produced hydrocarbons.

It is hoped the new law will minimise bureaucracy and create more competitive market conditions.