The Second Annual Mongolian Investment Summit in Hong Kong

I recently returned to Ulaanbaatar after attending the Second Annual Mongolian Investment Summit in Hong Kong on October 30 and 31. By all accounts, the mood there this year was far less ebullient than the year before.

Mongolia’s enactment of the Foreign Investment Law this past summer, coupled with post-election concerns about the status of the Oyu Tolgoi Investment Agreement have markedly dampened enthusiasm for Mongolia among foreigners here. Suddenly, Myanmar is the destination on everyone’s mind.

That said, it is not as though the Mongolian government and business community are not still actively seeking engagement with foreign businesses. Mongolia has billions of dollars of infrastructure projects in the pipeline. And, one representative of a prominent broker/dealer is (not surprisingly) upbeat, telling me that now is the time to be buy stock shares in Mongolia’s publicly traded companies.

You can find the electronic versions of a number of very well done presentations from this Summit here and here

Though unabated enthusiasm for Mongolia is unwarranted, doom and gloom about foreign investment in Mongolia also does not make sense. There is already much talk here of liberalizing Mongolia’s Foreign Investment Law and the Oyu Tolgoi project recently cleared a major hurdle with the announcement that the electricity supply agreement has been

Mongolia’s Parliament is scheduled to debate the Oya Tolgoi investment agreement live on television next week and it will be interesting to see how this shapes the tenor of public discussion.

I expect the mood of foreign companies seeking to do business in Mongolia will soon improve. Mongolia is a country still working out its approach to large-scale foreign investment. For this reason alone, there will be many ups and downs for foreign investors. I have been here long enough to realize the best strategy for foreign investors is to ride them out.

 

Construction Industry Contracts in Mongolia

With construction and infrastructure developments in Mongolia booming as they are, one has to wonder a bit about the state of construction law here and, in particular, Mongolian dispute resolution,. This is my long-winded way of explaining why I am starting a string of blog posts on the subject of construction contracts in Mongolia.

 

I am working with a consultant advising a Mongolian project developer involving contractual forms produced by the International Federation of Construction Engineers (more commonly known as FIDIC, an acronym for the French translation of the name, Fédération Internationale Des Ingénieurs-Conseils).

 

FIDIC is best known for its range of Standard Conditions of Contract for Construction, Plant and Design-build, EPC/Turnkey Projects and Design, Build and Operate projects. FIDIC also publishes the Client/Consultant Model Services Agreement together with the Sub-Consultancy Agreement and the Joint Venture Agreement. Both the Multinational Development Bank and the World Bank use FIDIC’s MDB Harmonised Edition of the Construction Contract.

 

One of my clients is developing a Mongolian translation of one of the shorter FIDIC contracts, known as the “Green Book.” These particular contracts are intended to be used in smaller construction projects.

 

One of the challenges for FIDIC contracts is that while they are for the most part used as is, there are key provisions that need to be understood in the context of the specific local jurisdiction. This is particularly true of Mongolia,, which has a Civil Law tradition

 

Using FIDIC contracts as a contracting framework requires understanding your dispute resolution options. FIDIC agreements provide detailed steps for resolving the nearly daily ration of contractual problems that arise from construction. If a dispute escalates beyond the first level of contractual provisions for resolution, binding arbitration may be required.

 

On larger projects, the cost of arbitration and dispute resolution can support going to forums where experienced dispute resolution specialists are already available, such as Hong Kong, New York, Singapore, Geneva, Stockholm or London. However, for a smaller scale project, local Alternative Dispute Resolution (ADR) solutions will usually make better sense.

 

I’ve been talking with an arbitrator at the Mongolian Arbitration Center, and he tells me that he’s not aware of any construction disputes having been brought to them. So, it will be necessary to educate Mongolia’s arbitrators if one hopes to advance the state of construction contracting. In Mongolia.

 

In my follow up posts, I will discuss other issues that are likely to arise from “importing” FIDIC contracts into Mongolia, and developments in local ADR for construction.