OT LLC Board member P.Tsagaan: Shouldn’t rock the boat we’re on

Aug 30 • Companies, Economy, Featured, Interview, Mining, News, Politics • 18911 Views • No Comments on OT LLC Board member P.Tsagaan: Shouldn’t rock the boat we’re on

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This is a translation of NewsWeek interview with President’s Chief of Staff and OT LLC Board Member P.Tsagaan appeared on 30th of August, 2013.

We heard that you are resigning from the OT LLC board?

I haven’t given my notice yet. However, I am considering to give my resignation notice within today.

What is the reason of your resignation?

I have worked on OT LLC’s board for three years. In this period, all the mine development plans that was on paper became a reality successfully within the envisaged time-frame. The gigantic grinding mills of the concentrator is in operation since the 27th of December, 2012. The shipment of the concentrates has commenced from last month. As stated in the Investment Agreement, the open pit is in full operation mining over 100 thousand tons of ore. This achievement will be announced throughout the world soon. Isn’t it a good news? The underground development has already been started. In brief, I have served my duty.

My job has changed since I took on the position of a board member. After I became the Chief of Staff, there was a misconception that I am representing the President. After all, due to the new phase starting at the mine, a new person will suit better for the job.

How do you evaluate your role as a board member?

I think as members of the board, we served our duty well in the frame that is stated in the Shareholders Agreement and the company charter. Our historic goal was to complete the first phase of the mine’s development. The first phase is finished. However, the facilities was in place before the schedule, despite that, there was external forces that has delayed the operation. But, the operation commenced on time. Nevertheless, I am pleased with my contribution to the Mongolia’s economy, as it has another pillar to stand on. Oyu Tolgoi is one of the biggest developments of the century.

In the period of the first phase, I am also glad that we have amended the Shareholders Agreement decreasing the shareholder loan rate by 5%. The debt pressure for the country has been decreased by USD1.5 billion, think about it, it is as same as what we have raised by Chinggis Bond. It means we have saved a cost in the future.

Furthermore, after our consistent contest on increasing the Mongolian suppliers to the project, we now have an a procurement policy that is supportive of Mongolian businesses. The implementation has just started. Now, the preference goes to the national companies, then joint ventures, and lastly to the foreign companies. There are incentives for the local, Umnugobi companies. This is a better alternative than the uneconomical tax-money distribution. I would like to reiterate that we need pay attention to the implementation of the policy.

There were times when we had to use strong language in the board meetings, but we have made decisions on many critical issues of the project. I am not going to hide that there has been moments in my mind, not everything can be decided as we insist.  I would like to take this opportunity to wish all the best to the people I have worked with in the past.

Three of you have been under a lot of scrutiny when some people criticized you for not being a professional to take on the job. Was the job really that hard only the professionals in a certain industry can do it?

People have different opinions and perspectives. There is no occupation that is specified to work as a board member, but there are questions of competency. Besides my career as a public servant, I worked on boards of Erdenes JVC, and Monrostsvetmet. In short, I think my appointment was due to my experience from the previous jobs and roles I had.

There must have been a great deal of obstacles building such a big mine on a plain steppe. We started to discuss about the Tavan Tolgoi and CHP #5 at the same time. Still, we haven’t seen much progress on the latter two?

I would like to emphasize the cooperation effort and support the Mongolian government has given to the project’s development.  Of course, there were our infamous bureaucracy and arrogance in parallel with the immodest behaviors of expats working on the project along with other external pressures that we faced. Despite all these, we saw the completion of the first phase. This is a joint success. By the way, all the minutes of the board meetings are recorded in audio and written formats. Therefore, later on, when the minutes will be open as the project’s history, people may understand a lot interesting things.

Some people that is outside the project have understanding that the project is completely stopped. How is the reality?

The project is in operation. I have mentioned that the mine is fully operational in its open pit capacity. The open pit will enable us to mine the 20% of the resource. The other 80% is 1300 meters deep underground. It is called the underground which is the second phase. There will be tunnels built 5 meters in diameter, that is as long as the distance between Ulaanbaatar and the northern border. The mining method will be block caving. The ore will be conveyed on a hoist. There will be significant number of machinery and people working under the ground in the 30-40 celsius. In order to operate there will be a great demand of management, ventilation and precise technical schedule.

Many years will be spent to develop the underground mine. We are looking at 3-4 years till the underground mine commencement. The ongoing underground mine development has been halted by Rio Tinto’s decision that has been made in London after they imposed the decision on Turquoise Hill Resource and OT LLC. Once the development work has been halted, there will be job redundancies. But, the open pit will be in operation as planned.

What’s the reason for Rio Tinto’s decision? Was it the company could not perform their duty finance the project as an investor or Erdenes OT LLC’s Director Ts.Sedvanchig’s letter made an impact?

 

Financing and management duties are all undertaken by the investor. They have these obligations before Mongolia. It’s also true that the amount they are getting for the job is not small. Taking a loan from international banks and financial institutions is just one of the options to finance the project. Perhaps, it has something to do with their interruption on preferred shares financing plan. We can say that the Investment Agreement does not dictate us to finance the project solely by taking a loan. Also, it doesn’t prevent it.

There are conditions in the Rio Tinto’s loan term-sheet that our side cannot accept in any circumstances, and also contradicts with the Investment Agreement. It is not a secret that there are conditions that is forced on us to see only a single shape after drawing a picture with many edges and shapes.

We can conclude that Rio Tinto is playing a double game by making Mongolia look as a no-go for investors through their meaningless negative PRs. Alright, I do not want to get any more further on this subject. Therefore, we have no other choice to play the game. The letter from Ts.Sedvanchig is not the reason, but the excuse.

So, what is happening?

You have to ask themselves. Perhaps, they won’t give you an answer. It’s obvious that Rio Tinto is playing a chess on two sides in order to increase their profit from the underground mine. We cannot blame their motivations, but I very much regret that they are deforming our country’s reputation in process. The truth is that if we go to a court today, Rio Tinto will lose. However, we want to solve the issues without any legal dispute.

I don’t like the fact that our fishing partner is not letting us catch a fish after it got on a boat in order to expand its net and badmouthing us to the other fishers. Things might get out of hands. Things might swing back. God’s boomerang laws. I think Australians are well aware how boomerangs work.

When will the underground development will resume?

It will resume. But, it has a little to do with us. Rio Tinto doesn’t have the juice. They are considering to draw back what have they financed so far. It will resume after they have a chance to increase their profit from the mine. It is apparent that they are trying to shoot two or three rabbits with a single bullet.

It will be wrong to think that they are only waiting for the government representatives to meet them in London. As we say he who herded the camel knows its behavior (Similar to he knows the water best who has waded through it.), after three years of arguments and talks we have an idea about their behaviors.

Perhaps, the cease of the second phase financing by Rio Tinto is providing us with a chance to contemplate and comprehend about a solution.

 You have already decided to resign. After the few years of arguments and discussions, it is easier for you to find a language that they would understand.  Is there anything you would like to tell Rio Tinto?

I would like to say two things. I would like them to be reminded of the things I said in the board meetings. It will be needed. One big-time chairman told me once before his resignation that: “What you had said was true and rightful. If possible, I want to turn back the time for one or two years”. Secondly, by slowing the second phase of the project both sides will lose. It may look as if Mongolia is losing today, but in the long-term you might be the biggest one to lose.

What should we be aware of in the future?

Let’s work as if there aren’t any second phase for OT. Perhaps, the ceasing of the second phase is a chance for us to seek a different solution. Who knows.

In your opinion, how well is the Investment Agreement in terms of profitability for Mongolia?

The agreement should be in textbooks.

In what way?

You can say in many ways. Let’s end our interview. If there will be a time to write a memoir, we can talk further at that time.

Last question. Will you be involved in OT project?

I think I will be involved whether I want it or not. I will always be in favor of continuing the project.

 

Thank you.

 

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