PM’s Mineral Royalty Reforms in Mongolia

Prime Minister Luvsannamsrain Oyun-Erdene proposed to redefine Mongolia’s mineral royalties as direct contributions to a National Wealth Fund (NWF). Positioned as a bold move to ensure mineral wealth benefits all Mongolians — present and future — the plan taps into deep-seated frustrations over decades of resource extraction yielding little visible benefit to ordinary citizens.

But while the vision is compelling, the execution risks mirror familiar dangers: poor governance, political interference, regulatory unpredictability, and damage to Mongolia’s fragile investment climate.

Oyun-Erdene’s plan seeks to reframe mineral royalties — traditionally a state budget revenue source — as “National Wealth Fund Payments” in line with Article 6.2 of Mongolia’s Constitution, which mandates that natural resources be used for the benefit of all citizens.

The plan directs 50% of royalties to long-term savings (Future Heritage Fund), 5% to savings fund alongside dividends and special payments, 5% to national development, and 15% to local and regional projects. The ultimate goal is a balanced 33/33/33 split between future generations, citizen savings, and development spending.

Crucially, it also attempts to address a painful reality: while mining accounts for roughly 25% of Mongolia’s GDP and over 90% of its exports, many citizens feel excluded from the benefits according to the prime minister. The resulting resentment — a classic symptom of the “resource curse” — threatens both political stability and the mining sector’s social license to operate.

However, Mongolia’s history casts a long shadow. Past examples — such as the 2012 Strategic Entities Foreign Investment Law (SEFIL), abrupt OT Investment Agreement disputes, and sudden license cancellations for some — have left investors wary. The notorious “gap between paper and practice” remains a potent concern.

Passing a law is easy; implementing it transparently, consistently, and predictably is harder.

The Prime Minister has urged mining companies to negotiate on royalties under the new framework. But unless the process respects existing agreements and provides clarity on fiscal terms, it risks chilling the very investment Mongolia needs to realize its development goals.

Further, the American Chamber of Commerce in Mongolia has raised strong concerns.

AmCham argues that recent government actions, including attempts to partially nationlize strategic mines like Ukhaa Khudag, suggest a tilt towards state-dominated wealth creation at the expense of the private sector. They warn that increased state encroachment risks stifling job creation, innovation, and private wealth — all critical drivers of economic progress.

Several key data points raise important questions about the proposed reforms in mineral royalties. First, there is uncertainty about the royalty basis itself. It remains unclear whether the rebranding of royalties merely redirects existing payments into different funds or signals deeper changes to royalty rates and calculation methods.

Second, the allocation of only five percent of royalties each to stabilization and development funds appears modest, raising concerns that Mongolia may not be sufficiently insulating itself against future commodity price shocks or adequately financing critical national projects.

Capacity risks also loom large. Managing multiple sub-funds with strict, legally defined mandates requires a high degree of institutional competence, a quality that Mongolia’s public administration has historically struggled to consistently demonstrate.

Governance worries further complicate the outlook. Although a law establishing the National Wealth Fund has been in effect for over a year, there is little evidence so far of strong, independent governance practices being fully implemented.

For now, the fund will continue to be managed by the Bank of Mongolia in cooperation with Erdenes Mongol and the Ministry of Finance, with a more independent, international, and non-political management structure only expected to emerge after 2030.

Some members of Parliament have voiced concerns about weak fund oversight, politicized disbursements, and the persistent shortage of skilled, professional fund managers.

Meanwhile, violent opposition to mining — evidenced by the recent assault on Badrakh Energy’s CEO (French uranium miner Orano’s subsidiary) — shows rising anti-foreign, anti-mining sentiment.

Without a clear and trusted framework to demonstrate that resource wealth benefits everyone, this sentiment will only intensify, further destabilizing the sector.

The convergence of domestic and international concerns signals several risks. Weak governance or heightened expropriation risks could deter much-needed foreign direct investment. Short-term political pressures may lead to funds being diverted to cover budget deficits, undermining the long-term goals the government has outlined. At the same time, if local communities do not see tangible benefits, social grievances could deepen, increasing the likelihood of protests and disruptions similar to those already encountered by projects like Badrakh Energy.

In short, without ironclad governance and sustained political commitment, the NWF risks becoming another politicized piggy bank, not a true national endowment.

The Prime Minister’s vision — a new social contract grounded in transparency, fairness, and sustainability — is necessary and overdue.

Recasting royalties as explicit payments into a well-governed National Wealth Fund is a politically savvy move that could, if executed properly, align Mongolia’s resource management with world best practices.

But it must not become a semantic exercise masking deeper risks.

Mongolia must clearly separate royalty recalibration from reallocation. It needs to establish independent, transparent governance of the NWF with strict withdrawal rules. Authorities should communicate honestly with citizens and investors. They must avoid politicized actions against private companies and focus on negotiated solutions. Most importantly, they need to show real results from mining revenues, especially in building schools, hospitals, and roads in host communities.

Without these steps, the vision of a shared national prosperity risks devolving into another missed opportunity — and Mongolia cannot afford to squander another generation’s future.