MP Z.Enkhbold: Time of ignorance on the capability of the Mongolian State, Mongolian companies and Mongolian engineers should end
MP Z.Enkhbold, Chairman of the Standing Committee on Security and Foreign Policy, shares his opinion on the latest issues on the Mongolian politics and economy. business-mongolia.com picked business and economy related parts only with consent of interviewer. Special thanks to journalist Ganchimeg of National Post newspaper.
Q: Some people say that Oyu Tolgoi agreement was not that good, but the following agreements such as Tavan Tolgoi could be better. Can there be such lack of seriousness in building an agreement on important projects?
MP Z.Enkhbold: We simply shall not make mistake in making Tavan Tolgoi agreement. We learned many lessons from Oyu Tolgoi. “We” is whole Mongolia. We have become serious and experienced mining experts. We made profound discussion considering ROI, ROI terms, open pit and underground mines, and other sophisticated mining technologies. The Mongolian society has received full and life-based lessons about mining issues. Thanks to such findings and knowledge we gained, I think, we decreased our future mistakes.
For example, my principle on Oyu Tolgoi was supported by the parliament. I think it was May or June of last year. This rejected draft had many tax redemptions and waives for Oyu Tolgoi and even its sub-contractors. If Oyu Tolgoi is half of the Mongolian economy, then half of Mongolia would be waived from tax, leaving petty benefits for the Mongolians. Therefore, I strongly crtisized the draft agreement and the State Great Khural supported my principle. After this, a new draft not allowing tax exemption and waive was proposed and adopted. Obviously, I don’t agree with those who think that rejection makes better version. Oyu Tolgoi is huge, but it shall pay tax like any other companies of Mongolia. Same treatment for everyone. This project doen’t need exemption redemption or waive. If it was far from it market, mining condition is difficult and intense development of infrastructure is required, such redemptions can be applied. Therefore, the last version of draft agreement has many improvements.
Investors informed that it can’t cpmply with regulation and requested the State Great Khural to decrease some of its quota on construction of Oyu Tolgoi. Oyu Tolgoi LLC can’t provide 9,000 workplaces for the Mongolians and asked provide 3000 workplace in Ulaanbaatar, another 3000 workplaces at the site. It was accepted by SGK, but I think it’s wrong to hire 3000 people for sweeping street in UB. MPs of Democratic Party shall ask question from related bodies, why 3000 people will sweep street with the minimum level of salary instead of receiving over 500,000 at Oyu Tolgoi. Companies shall reach their word and promises when they were signing the agreement.
It looks like small issue, but it shall decide 3000 families living.
The second, another unclear issue that needs urgent fixing is that increase of the Mongolian share at Oyu Tolgoi from 34% to 50% as soon as the initial investment is recovered. But it was instated in the agreement that after 30 years, the Mongolisn share shall reach up to 50%. But break even point reaching time is four or five years of contructing factory and 3,6 years after the construction of factory. 8,6 years is the period of reaching initial investment recovery time. Between these time, there are many options of time; 10 years, 15 years, 20 years, 25 years and 30 years. Investor side made statement that initial investment recovery time is 8,6 years, but SGK stated that the Mongolian side ownership shall increase up to 50% when the investment is recovered. Our standing committee working group made order to correct this mistake. Minister for Finance, who made the agreement, said that it can be re-negotiated.
Q: I don’t want to make parliament confrontation, but there is a lack of certain voice of oppoisiotn at the parliament. But leaders say that this coalition is formed in order to achieve decisive step towards future of Mongolia. What is your opinion?
MP Z.Enkhbold: Let’s recall outcome of election of 2004 and 2008. In 2004, the parliament has no majority. No party gained 39 or over seats. Therefore, coalition government is required according to the Constitution. But in 2008, MPRP with 45 seats invited Democratic Party in its coalition Government. The ionvitation was discussed by the National Council of the Democratic Party. My speech and my opinion is still the same as it was two years ago. If loose in the election and receive power, why we need to hold election? We’d better have single party regime. Majority shall reach its promises and opposition shall control their acts.
Q: Unfortunately, not many MPs have same voice with you. Only few MPs are warning about it.
MP Z.Enkhbold: We can’t become majority within the Democratic Party group.
Let me speak of Tavan Tolgoi issue.
Tavan Tolgoi is world class deposit. It has 6 or 7 billion tons of coal. 40% of it is coking coal, main coal for steel industry. Therefore, over 15-16 companies from over 10 countries are approaching and interested in the project. When we are talking about Tavan Tolgoi, we should consider creating of workplaces. It closely related in railway issue. If we build narrow gauge railroad and invite Shenhua of PRoC for the operation, it will mine, transport with minimum cost and make bigger profit margin in its own side. We can’t blame these companies, they are for making profit. This is the easiest way. If the Government chose this path, it will be the worst choice.
Of course we need money, but when we are talking about it, we always concern on election promises of 1 and 1.5 million MNT. In order to reach election promises, there are some people who want to immediately accept narrow gauge railway. In this case, tax revenue will drastically decrease. If China utilize Tavan Tolgoi only without mining other projects, Tavan Tolgoi supply 2 years of Chinese consumption. China’s coal demand is 3 billion tons annually. If we carefully select those offers with steel industry, we can secure sustainable mine with minelife of 100-200 years.
What is the involvement of the Mongolian side in the mine with life of 100-200 years. First, we should decide whether we will follow easy cash or secured and sustainable future. As for me, I prefer workplace creating projects.
Lets take example of comments made by Posco Company, South Korea. It said that it is wrong to ask importing coking coal from Mongolia. If we buy or involve in Tavan Tolgoi project, we have to transport through China or Russia and then import steel from Australia. Using iron ore and coking coal we produce steel far car factory or ship building companies. Instead , let Huyndai produce its car steel in Mongolia, buying coking coal from Tavan Tolgoi and iron ore from Darkhan.
It is feasible to transport expensive load or product than cheaper ones. The closest sea port from Mongolia is 1000-3000 km. Therefore, tansporting value added produect can make sense for the economy development of Mongolia.
In short, energy coal worth of 50 USD, through China or Russia, cannot compete with Australian coal. Instead steel, worth of 5000USD can easily bear that much risk and transportation cost.
We should encourage these companies build coking coal factories and even if possible steel factories and let them sell steel instead of raw coal or iron ore.
Let me share my dream; Japan, Korea, China and India build their two factories in Choibalsan and two in Sainshand. Mongolia will connect them with its railroads and promise them to fully supply their raw materials. They will not need to involve in Tavan Tolgoi, Tavan Tolgoi will be mined by the national companies. Raw material will be delivered by the national logistics companies. Coking coal price quote is world market. Mongolia is small to negotiate and deal with Russia and China in building transit transport agreement. Therefore, let these countries build their agreement with China or Russia.
We can build German factories in the west. Coking coal factory of TyssenKrupp’s biggest car factory is located in China. Our coal went to Tianjin from Tavan Tolgoi and then has become coking coal, transported trhough Mongolia and Russia back to Germnay. Starting 2010, China increased its coking coal export tax by 40%. Now German factory is not feasible. Its coking coal cannot compete in Europe, when transport to Germany. Thjerefore, why TyssenKrupp cannot build it factory in Khovd? In this case, we build railroad connecting Tavan Tolgoi – Khovd – Bayan-Ulgii and Germna side will be responsible for transportation through Kazakhstan and Russia.
We can mine Shivee Ovoo, Baganuur, likewise, we can sort and wash coal. Therefore, Mongolia and its partners shall agree on the labour splits and schedule. When we agree on the schedule, we should give them production minimum level, like 5,000,000 tons of coking coal.
Mongolians all know about Erdenet. Erdenet’ sales revenue reached even a billion USD when the copper price was high and promising. Revenue of over a billion USD is considered as big company in the world. But if foreign factories will be built in Mongolia, its production easily reach a billion USD. Therefore, I want to establish 10 Erdenet from 10 countries of the world in Mongolia.
The biggest obstacle for this dream is narrow gauge railroad planning, supported by several MPs. If we build narrow gauge railroad and invite Chinese coal companies, this dream will become bubble. Because, no companies can compete with them. We can transport using trucks, without building narrow gauge railroad next 15 years. If we transport by trucks, today, 1000 trucks are in operation. Next year, due to increase of coal production capacity, number of trucks can reach 10,000. If we wash and sort energy coal of $50-100, we can create 20,000 truck drivers’ workplace in the market. 20,000 truck drivers need town, town needs support, service depots and so on.
We can easily convert our workforce export into the domestic workplace. Those youg people who are queuing all day long at the labourforce sending agency for $1000 per month, can make it in own country, in gobi.
If we can’t to supply the Chinese market with cheap coal, we can build this railroad. If we want to establish workplace in home country, we should postpone building of narrow gauge railroad at least 10-15 years. All in all, I didn’t say we don’t need narrow gauge railroad, all I want to say is we need build it when we need it. During these 15 years, we should host steel and coking coal factories of over 10 countries. After that, we secure 90 years of progress and economy perspective. In this case we will no longer rely on one factory operation, one commodity surge, allowing us mass spending, and slump, pushing us begging money for the budget. The development of Mongolia will be stable.
Q: Why coking coal and chemical factory can’t be built at Tavan Tolgoi?
MP Z.Enkhbold: The biggest problem is water. We will give locations with favourable technical and ecological conditions for the foreign companies and we will build wide gauge railroad connecting them with supply. We will sell them our coal, give them minimum production quota and condition of workforce, Mongolians to be employed, their salary and so on. I see future of Tavan Tolgoi like this way. My position on the railroad issue remains as it was. I am expressing my opinion. There are two wyas for it: if we want to become raw material of China, we should build narrow gauge railroad immediately. This decision will keep sending our youth to Korea and Shenhua will be richer. It is mining company, therefore it will not worry about the Mongolian workforce and allowing value added production in Mongolia. In reverse, we can cooperate with metallurgical companies of China. Their main purpose is to supply its companies with coal and they will buy coal higher price. There will be big difference with whom to partner. If we cooperate with miners, no value added production will stay in Mongolia. If we cooperate with processors, value added production will stay in Mongolia. Value Added Production is salary.
Q: Mongolians are working on Tavan Tolgoi project. The latest was Mongol 999 Corp. Some call them 1000 shop owners’ Corp. What is your opinion?
MP Z.Enkhbold: If Mongol 999 is open joint stock company and combine all the Mongolians who want to invest in Tavan Tolgoi, it can work. 1.6 trillion MNT of saving is deposited in the commercial banks of Mongolia, if Mongolia will not seek its internal capacity. Most of Mongolians are agains of giving away its ready to mine project to aliens. We shall do whatever we can do. We shold strive to impove our capacity systematically and step by step, instead of giving away its open pit ready to mine deposit to Shenhua. Therefore, I believe Tavan Tolgoi can be mined by the local companies. Build joint stock company, attract people’s investment, announce IPO at the foreign stock markets, buy equipments and machineries using the fund, the state build production split agreement with its domestic miner, if the state invites factories of those 10 countries, grant right to “Mongol 999” Corp. supply those 10 factories with its products.
I think “Time of ignorance on the capability of the Mongolian State, Mongolian companies and Mongolian engineers should end”. Mongolia has been training and preparing engineers for 60 years. Now Mongolians operate Erdenet factory, Banaguur coal mine, Shivee Ovoo. Yes, we have some disadvantage of introducing modern technology and know how. But we can hire foreigners in this part. At least we must show that we can handle open pit mine.
If we reject someone saying you are not ready come abck again in 10 years, will that man learn skill? If don’t train ourselves, we can’t hire Russians and then Chinese forever. If we stay as it is, our people will become drunkards drinking ₮1.5 million of MPRP election promises. Cureent SGK decides whether to get world standard salary or not. Railroad issue decision making results workplace creation issue. When deciding faith of Tavan Tolgoi, we need to choose whether to support national companies or foreign companies. Oyu Tolgoi and Tavan Tolgoi have huge difference. When Oyu Tolgoi deposit was explored, we didn’t know there was thah big deposit and foreign companies spent big amount of budget for exploring the project.
But Tavan Tolgoi is explored and studied back in Socialist era. It is only needed to be mined and sold. We need to convert this project into toll of creating workplaces and attracting investment of foreign companies. Otherwise, if we follow will of those coal “changes” (traders), we will lose the golden opportunity to progress into the next level of economy and industrialization.
Q: Does the pink (MPRP is red and Democratic Party is Blue) parliament aware of it? You are warning that the future of Mongolia is heavily depends in the current SGK.
MP Z.Enkhbold: There are three major issues: Tavan Tolgoi, railroad and 100 thousand households. If we grant the right of only 130 million ton of Tavan Tolgoi reserve to the Ministry of Roads, Transport and Urban Development or immediately start mining of Tavan Tolgoi and transporting energy coal to the south, we can solve all infrastructure issue via trucks and road transport. Nowadays, building roads using budget funding is total disaster. Using Tavan Tolgoi coal, we can build 1000 km road, connecting all centres of aimags with paved roads by 2012. We don’t need to have such many ger districts. We have full capacity of living in comfortable apartments. If SGK approves three policies on these three issues, many of our troubles and challenges will be solved. Private companies can do it. Energy Resource can do it, “small Tavan Tolgoi” can do it.
Q: Private business always shines and state business always looks gloomy, isn’t it?
MP Z.Enkhbold: State business never goes forward. “Erdenes MGL” company, ownes 70-80% of the state owned Tavan Tolgoi, has no property and zero revenue. But “Tavan Tolgoi Trans” has become the biggest tax payer first time from the domestic companies and Boroo Gold took the first place. The anomaly of dominating spirit and beverage companies has ended. Creating and exporting companies are prevailing.
Q: Is the current parliament aware of the its destined duty? Accoring to you, there is little hope that Mongolia can make better solution.
MP Z.Enkhbold: I am pushing those who are on the other side of my position. The Government works well. Even I am not in favoiur of non-standard Government, against the Constitution, the railroad concept and 100 household program, alternate name is “Smokeless Ulaanbaatar”, were well developed. Now I expect Tavan Tolgoi would be good one again. I was introduced with the first draft during the Security Council Meeting. There were many corrections, and developers accepted it. Prime Minister, former businessmen, understands and agrees on the transportation alternatives. It was all about whether to create 2 locomotive drivers workplace or 80 truck drivers’ position.
Therefore, the Government brings the railroad to the south in the second phase. The second phase means after the first phase, which I was clearly explaining, when those dozen factories are built. But MPRP group made comment and to combine these two into one. Hence the Standing Committee on Security and Foreign Policy made closed meeting and hearing on railroad issue. Majority of the Standing Committee are from MPRP, but our members decided not to combine and to discuss again at the party groups.
I can see many MPs from MPRP have logical thinking.
Q: Do want to say that the Government works well?
MP Z.Enkhbold: Only on three programs. I didn’t say that in general.
Q: There are many party members think that the Leader of Democtraic Party shall be changed. What is your opinion? You were runner up for the Leader of the party. But it was dull and symbolic competition?
MP Z.Enkhbold: No, I competed seriously,l using all my efforts. At that time majority of our National Countative Committee members believed that coalition can assure good implementation of the Democratic Party policy.
Q: But you didn’t have that much desire or will?
MP Z.Enkhbold: What can I do, I made statement of pushing those who believed in coalition. I said that majoirt should remain majority and minority should remain minority.