MP KIh.Narankhuu has his opinion regarding the mining industry and its recent development.
Q: Information of the working group was heard to the Standing Committee on Economy. Being as the Minister in charge of the Mineral Resource, what is your position in this environment?
MP Kh.Narankhuu: The working group presented its conclusion in the time of establishment of Coalition Government and new environment of crisis.
The Mineral Law of year 2006 was good law that is suitable for the situation. We issued the law that is much free that can attract foreign investment when the copper price was 1560-1750 US$. But many angel investors that are not serious in developing project, but are serious in raising making money on the mining projects, poured into Mongolia. It was one of the main reasons of stirring such a mess. It created negative feeling in the society. Also those many investors disappeared when the commodity price feel. In other words, the situation is resumed as it was in year 2006, so we don’t’ need to amend the Mineral Law of year 2006. We don’t need to change it when we didn’t see the result and effect of the law. But it is really important to realize Oyu Tolgoi and Tavan Tolgoi in to the economy circulation. We need to prepare the investment agreement that can work best in the Mineral Law of year 2006. The State Great Khural can give chance to the Government of Mongolia to work flexible and effective. We don’t need to waste time to wait for the better opportunity.
Q: Are the well known investors interested in Mongolia when the mining situation is so hard?
MP Kh.Narankhuu: Major investors are not interested in short term benefit. They calculate their profit based on the average of many years. Rio Tinto, the third in the world with its mining operations, could calculate its average profit based on 3000US$ per ton.
It is good for Mongolia to cooperate with the major investors that are accepted in the world. There are many American companies that are still interested in Mongolia. If there will be political trust, then we can overcome 70-80% of all obstacles. The establishment of Coalition Government is the start of the establishing trust and cooling down of the raised tension and emotion.
Q: Copper price was predicted as 3400 US$ per ton. But there is a trend of even worse than this. Do you have calculation on it?
MP Kh.Narankhuu: In year 2001, average price of one ton copper was 1560 US$. It was 1580 US$ in next year and reached 1760 US$ in 2003. Isn’t it so less than today? At that time Erdenet has profit of 6 million US$ and both sides shared 4 million US$. I used to dream of 2000 US$ for one ton of copper. Therefore, today’s price is not that low.
When the price is increased and gaining more profit, we imposed so much tax on it. Therefore, windfall tax of 68% must be flexible. The outcome is positive when changing the limit of windfall tax for gold commodity up to 850 US$.
Q: Budget is the headache for the Government. Do you agree with that we are receiving payback of our costly budget structure when we have some profit?
MP Kh.Narankhuu: It is the responsibility of politicians. It is harmful for the state when the political parties are competing with each other with promises that are much bigger that the economy’s capacity. It is hard to refuse from ones promises. Also it is burdensome for the Government with the extended budget. It is not the deadlock. We can get some advance payment from the investors. Such experience exists in the world. We should not cut the expense that is already established, but we shouldn’t expand it also. Extra income must be directed into the investment. We cannot spend much all the time, but it is time for shrinking our “belt”.
Q: Do you have regrets on the failure of building copper smelting factory next to Erdenet factory when the copper price was high?
MP Kh.Narankhuu: Of course, I regret on the possibilities that we can have copper smelting factory with windfall tax income of one year only. There are two projects on it. Erdenet has huge administrative structure because it is joint venture of two governments. In order tom implement the project, it requires to get comments from 6-7 ministries of both countries. It is time wasting procedure that officials are changed in Russia when we wait for their comments and once we get their comment, then our officials are changed in here.
If this issue is decided, it will show its profit very soon. If the copper smelting factory is in operation, many people will have workplaces and number of taxpayers will increase. There is an example of Erdmin, copper cathode producing factory. Producing cooper wire is 2-3 times profitable than producing copper concentrate. If the technology processing level is advanced by one step, the production will increase 2-3 times. Erdenet produces 120 thousand tons of copper in metal in each year. If there is a smelting factory for this copper, there will be many side factories built in Mongolia.
Q: Does the Government have the will of building this factory?
MP Kh.Narankhuu: Both sides talked about it many times and both understand clearly that there must be a smelting factory. There are two projects. We have an option to choose one of them. I hope its decision will be made in next year.
Q: The ownership of the state is the main discussion issue between politicians. Can the investment agreement of Erdenet JVC be sample for it? Its split of 50/50 changed into 51/49 later.
MP Kh.Narankhuu: It was said that not less than 51%. Now, there is small chance of talking about it. It is better to negotiate that the state ownership will start from 34% and reach up to 51% later. The working group has such position. We shouldn’t see everything as for today. The capital will be invested into Mongolia, therefore, we have the advantage. It is not comfortable to talk about ownership issue when the issue of investors is concluded yet. Major investors will not leave their investment within few months. It is better to move gradually. We need more policy that can see far beyond. If we can see far and act accordingly, there will be many cities like Erdenet. The most important thing is to see far future. We should learn and gain experience from this crisis. If we can establish well founded services, businesses and industries then we will not that easily affected by the crisis.
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very visionary lawmaker, good comments. Gov or state is keen to acquire equity or share of these mining projects to secure its involvement!