A.Gansukh, Adviser to Speaker of SGK is on Tavan Tolgoi draft agreement
Q: Can you update our readers on the main provisions of the agreement?
A.Gansukh: There are co-related agreements; Cooperation Agreement, Investment Agreement and Railway Concession Agreement in the draft proposal, one of them can’t be agreed separately. The main term of the agreement is 30 years, and can be extended another 30 years. Investor side inserted a clause on terms, …if the project couldn’t reach in its break-even before the end of the term, the agreement term will be automatically extended until the project break-even reaches. This clause is extremely dangerous proposal. This means the investor side can extend the agreement term endlessly according to this clause. The Government has no rights to control the terms, because the investor will decide when to invest, how to invest, investment calculations, coal production, how much to export and the selling price. Based on these arguments, the investor side can continue more than 60 years to run the project using this clause only.
Another view on negotiation progress is that the draft agreement breaches the following laws and regulations: provision 3.1.4 of Investment Law of Mongolia, the 39th resolution of SGK of 2010, 35/32 recommendation of the National Security Council of 2011, the Government Resolution 121 of 2012. Also this negotiation is “major transaction” for Erdenes Mongol LLC, hence the Government shall adhere the related clauses of the provision 88 “major transaction” of the Company Law of Mongolia.
Q: Upon realization of Tavan Tolgoi deposit, the biggest concern from the public is how to realize the shares owned by the people? What is your position?
A.Gansukh: The issue of protecting the interest of the people of Mongolia, who are the shareholder of “Erdenes Tavan Tolgoi” JSC, owning collectively 20% of the share (each 1072 shares), is unclear. If the above-mentioned breaches will be included in the agreement, any citizen can win a legal sue against the agreement. Plus, upon the agreement is signed, the Government has no right to raise issue and cash flow will go to outside. According to the draft agreement, some transactions and payments will be made in abroad. This will end our dream to increase the currency reserve of Mongolia.
Q: What is stated regarding the investment?
A.Gansukh: The investment estimation would be 4 billion USD. But investor haven’t made any investment commitment, instead, investment size will vary depending on the financial agreement and feasibility study. This clause says that investment size of 4 billion USD can be changed. Another strange proposal is that 1 billion USD investment in the construction of Energy Resource mine at Ukhaa Khudag will be included in this 4 billion USD investment plan. Ukhaa Khudag has debt worth of 1.3 billion USD. Its owners’ capital is 400 million USD. It is obviously wrong to evaluate such company at 1 billion USD.
Finally 4 billion USD investment schedule is unclear. Investor will decide the size of its production, price and pays 2% royalty. This will allow investor to control whole process and run the project without any control.
Q: How the railway issue stated in the draft proposal?
A.Gansukh: The draft agreement breaches provision 6.2 of the Railway Transportation Law. According to the effective law of Mongolia, railway shall be privatized to the state owned company or the company where the majority shares is controlled by the state.
In accordance with the 35/32 recommendation of the National Security Council of Mongolia 2011, Tavan Tolgoi – Gashuun Sukhait railway right is given to the Mongolian Railways. This can’t be changed and under such legal environment, planned railway rights can’t be transferred to the Consortium. Tavan Tolgoi – Gashuun Sukhait railway is a good project that can reach breakeven within 10 years and there is a calculation that Mongolian Railway can make profit of 2 billion USD. Mongolian Railway shall use this profit to fund the other railway projects in different directions. Mongolia shall use its discounted tariff benefited from the Transit Transport Agreement with People’s Republic of China.