Mining Minister of Mongolia: Economic conditions will depend on the mining sector

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This is a translation by Business-Mongolia of the interview appeared on NewsWeek No.026 on 27th of August, 2013 with the Mining Minister Gankhuyag D.

Issues around Oyu tolgoi project has been a hot topic lately. Can the government and Rio Tinto find a common language? Is the underground mine really unprofitable for us? Is it possible to disclose the terms of the loan agreement?

The talks are still going on. Two sides agreed on solving the problem by negotiating it. The foremost issue is to make a decision on project financing or additional financing. We briefed the parliament on the matter last February. Thus, it is not an entirely new circumstance. The board and shareholders of OT LLC has a duty to make a decision on these matters in a timely manner. Last month, we agreed that the sides will not make press releases or public announcements on matters that has not been solved and agreed by two sides. The purpose is to preserve our reputation on both sides. Decision made by OT LLC and its’ decision making structure must in compliance with the relevant laws, and of course has to satisfy the win-win end result.

For example, the agreement becomes valid after Mineral Resources Authority accepts the Feasibility study submitted by investors. The profitability schedule of the project is reflected on the Feasibility study and the financial model. Therefore, it is rational that two sides will give attention on preserving the schedule.

There are people say that how will the economy get better when a person who always opposed the OT agreement becomes the Mining Minister.

Criticizing and opposing have a different meaning. It is true that I held a position that parliament resolution must be realized. My position resulted amendments in Shareholders Agreement that the state’s 34% will not be diluted, and decrease in shareholder loan. The Finance Minister stated that the decrease added over a USD1 billion in future earnings. This is the truth.

There maybe many people who interested in making me look like a person who is allergic to foreign investors. However, I am not that kind of person. The talks on additional financing and cost overruns of the initial investment has been going on for a quite long time. As both member of parliament and cabinet member I have different roles. A MP has a duty to draft and initiate laws, and monitor and control it. In the other hand, cabinet member has a duty to implement parliament decisions. I hold the principal of abiding law.

Director of Erdenes OT LLC Ts.Sedvanchig has been resigned because of OT related issues. What was the letter about? According to him, the letter was written by the Prime Minister’s request. Then is the PM also has to bear a responsibility over this?

The content of the letter was about the additional financing. It is common that shareholders have disagreements on many array of issues. However, we have to be clear on one thing, a director of a company cannot express a position of the government. Ts.Sedvanchig himself has also expressed his stance on this.

Coal export and foreign investment has been decreasing. We talked enough about the causes. Thus, is there a solution to this?

There aren’t anything insolvable in the universe. It is true that the mining sector is suffering. Comparing to the last year’s same period the actual mining of coal is 90%, export is 70%, and revenue is about 40% due to the 40% decrease in coal price. Price was good in 2010 and 2011. We enjoyed a good window of opportunity when there was a flood in Australia which disrupted their export. Perhaps, there was a small bubble.

Therefore, the” government for change” is meeting the revenue creators to seek every possible solution. We are confident that we will have results. It is also true that our main exports – coal, silver, copper, molybdenum and iron ore prices fell by 13-40%. It’s simply related to the demand factor. However, the situation is not as dim as it is being perceived by some. As end of half year, the planned revenue collection from the mining sector is completed by 75.5%. Investors make their investments on highly profitable, and stable businesses that has stable market prices.

The FDI has been decreased by 43% overall, and mining sector by 32% from the previous year. The 85% of the FDI goes to mining sector in our country. Therefore, we have a duty to work very hard and fast to improve the situation. The reasons are of OT’s completion of the first phase, and in connection with implementing the Law on Prohibition of exploration, mining operations in the areas of water and forest reserve, the parliament and cabinet issued the second resolution covering over 1300 licenses. We witnessed a significant decrease in investment because of this.

I would say yes to the need of implement the “long named law”. However, there are issues on method of implementation and compensation issues. Furthermore, the time has come for revising the Strategic Investment Law. Currently, resource dependent countries are facing similar issues like us, fall of export revenue and increase in foreign currencies. On top of these problems, we distributed the pre-payments from our buyers to the public in the previous years. If the government for change hadn’t foreseen this and issued a bond in a short period of time, we would have faced a real crisis.

Tavan Tolgoi is stopped. Development of Oyu Tolgoi is also halted. What was the reason for all these? Why the government can’t find a common language with Rio Tinto?

Tavan Tolgoi is still operational. It even increased the export target from 2.5 million tons last year to 7.5 tons. In relation to that relevant agreements are being made. A lot of work is being done to decrease cost. In other words, by exporting threefold coal from last year we will overreach our revenue target. To increase the value of Tavan Tolgoi JSC, a decision has been made on building a railroad and a powerplant from the bond fund. Also, the meetings on finding a good operator company is still in process.

Concentrator of OT is in operation and exporting their copper concentrates. Also, the working group on finding and verifying the Feasibility study and cost overrun calculations is working day and night. The OT LLC board has made a decision to halt the underground development due to the unsolved issues on additional financing. But, I mentioned that the sides are keen to talk. We have to solve the outstanding issues quickly.

Is there a strategic policy on developing the coal sector? Is it because we could not articulate a sound policy the coal sector is falling?

The sector didn’t have a policy for a long period of time. By the initiation of the president relevant parties drafted a “Government policy on mining sector” till 2024. Also, we are drafting policies on projects that involve rare earth minerals, iron, and spar. I think it will be completed soon.

We heard that there are talks on forming a company with OT LLC’s 34% and Erdenet JVC’s 51% called “Mongol Copper”. Can you please elaborate on this? You have also mentioned that the company will be able to raise capital from international equity markets?

This was my idea. However, it’s not new. Highly industrialized companies raise capital to fund major projects. For this reason, Erdenes MGL LLC was formed in compliance with the Law of Human Development Fund. Ministry of Economic Development is doing the relevant studies.

Is it true and amendments will be made on Strategic Investment Law?

The plan is to change into an Investment Law. It will be discussed at the parliamentary special session. The main mission is to create a stable environment for depending on investment size.

Are confident that the foreign investors will return? Some are saying that Mongolia can be developed without foreign investment?


I am confident. We have to be optimistic of the future. There aren’t any country that has been developed without investment. To form an appropriate trade balance we need to increase export revenue, and create a stable environment policy for quality investments. In a nutshell, our main purpose it to lay a foundation of competent investment and business environment in a short period of time. Our proximity to the biggest economy is an advantage for us.

What is your evaluation on the current events as a person who is leading the sector?

We can say that we have laid out the 4-year plan on the paper. Our ministry is doing an excellent job as a team. Wealth generators are also  doing their best. It is important that all of our citizens to understand that in the coming few years our country’s development will depend on mining sector. We have a need to develop a mining sector that is transparent, responsible and mutually beneficial. Also, we need to engage the public to direction that excludes misunderstandings about the sector.The government and our ministry will work in cooperation with the wealth generators.


There is a sufficient  legal environment for the oil industry now. The parliament already begun discussing the Petroleum Law. The supply of petroleum is not depended on a single supplier like before. In the past the customs price of petroleum increased frequently, but now it depends on the market price. The interest rate has been decreased and there is a 2-month protection from the currency volatility.

Also, the law on giving a tax break support for coal liquefaction and oil shale extraction industries has been approved. It will give us the opportunity to become an oil exporter in the future.

And of course, we have immediate problems such as transporting coal and iron ore by vehicles which causes environmental damages, and increases the cost. The study proved that these costs are two times more than what it costs in Australia. We need to tackle the transit shipment issues to increase our competency. We need to strive on add value on commodities we export. If we wash our coal it will save us on transportation cost and at least USD10 will be added as a value. We need to implement latest technology, innovation and management methods to increase production and profit. The government, the ministry and the companies are working to tackle these issues. Thus, we will have a possibility to increase the export revenue by two fold in 2016.

Some of the Directors of Mineral Resource Authority are being investigated on illegal license issuance charges. There was a rumor that you are also involved?

I read the materials sent from the head of MRA to my attention. I understood that Civil Court revoked the case to get further information, then made a decision, and the decision is being implement by the MRA’s relevant officers. Changing the status of a license or making changes is solely a responsibility of MRA. Therefore, the ministry has no relation to this. Relevant law enforcement agencies are investigating the case, and it will be apparent what was right or wrong.

 

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