National companies will be favoured but their exact role in developing Tavan Tolgoi is still undecided

B.Enebish, Executive Director of Erdenes MGL, which will be representing the Government at all talks on the Tavan Tolgoi deposit, talks to MMJ on the issues involved and where they are now.


Where do matters stand on the Tavan Tolgoi deposit?

Much work is going on about finalising the Tavan Tolgoi issue. The working group chaired by the Minister of Mineral Resources and Energy has presented reports on meetings with bidders, all of them top mining companies in the world. It has also prepared a draft investment agreement and preliminary selection recommendations. Our company is a member of the working group and is particularly active in preparing material and arranging the talks. All the material will soon be presented to the National Security Council and Parliament, and the next phase of the negotiations will resume. The Oyu Tolgoi investment agreement identifies Erdenes MGL as the owner of 34% shares on behalf of the Government. Now that Board members have been appointed, its first meeting will be held soon to discuss operation plans and the budget.


Are Erdenes MGL’s structure and organization similar to those in other state-owned companies like Chinalco and Roztechnology?

Erdenes MGL was set up mainly to represent the Government in the operation of strategic deposits. It has become the 34% shareholder of Oyu Tolgoi. The company also holds mining licences of Tavan Tolgoi and Shivee Ovoo coal deposits. Negotiations are now being held at the Government and Ministry levels with a Chinese party on implementing mining, energy and transmission projects based on the brown coal deposit of Shivee Ovoo. The projected investment will be at the same level as Oyu Tolgoi and Tavan Tolgoi. As we prepare for these three major projects, our aim is to be like a major national company, like the ones you mentioned. 

The Prime Minister has said that our relations with Russia, China, the US, Japan and Korea should be balanced. Does this make it more likely  that companies from  these countries will be chosen for Tavan Tolgoi?
 
The Government considered the merits of favoring national companies and asked the working group also to assess them. It makes a lot of sense to let our own companies have a part in this large project which includes mining, infrastructure development and much else. It will have to be determined which parts of the work will be allotted solely to national companies and which parts will involve their joint participation with foreign companies. Geopolitical considerations will certainly play a part in the choice of foreign companies, but where they are based will not be the main criterion. It will be the economic benefits they bring to Mongolia, the state of the technology they will offer and their international reputation in mining and marketing that are of most importance.    

Finance Minister S.Bayartsogt has said two foreign consortiums will be given the operating contract, but others have hinted at three. What will happen finally?

The number of operators will depend on how many parts the Tsanh, the main reserve, is divided into. As I said, the choice of operating company will be based on their technology and commitment to environment-friendly operation. They could also be expected to participate in infrastructure development.

All the 10 bidding companies have accepted that the Government would own 100% of the deposit and they will get a return on their investment from mining. Two Russian companies had formed a consortium which was among the 10. Are they now splitting because of the Government’s stand that a company investing on infrastructure should not be mining? If the infrastructure and the mining companies are from the same country, should they not be taken as one company?

Initially, there were three large Russian groups in the consortium that expressed interest in Tavan Tolgoi. Last year, Severstali withdrew from the consortium. Russian Railway is interested in the railway project. It is too early to speculate how they will be treated.


The Chinese coal company Erdos Chinglon is a late entry. When did it start bidding? Will a Chinese coal company  have extra leverage because Xinhua is building a railway towards our southern border?  

This company sent us a detailed proposal to participate and the working group has included it in its presentation to the Government. Many foreign and local companies have expressed interest.

Will the role of national companies be limited to being suppliers or will  they also be like the Mongolian companies already  working in Ukhaa Khudag mine? 

As I said, Tavan Tolgoi is a complex project. It is not yet decided if national companies will work only jointly with foreign investors or also independently on mining, infrastructure, construction and such projects. What is decided is that the Government will support a role for national companies.

What do you think of the demand from organizations like the Mongolian National Chamber of Commerce and Industry, the National Development and Innovation Committee, and the Mongolian National Mining Association that special consideration should apply to national companies to allow Mongolians to benefit more from Tavan Tolgoi?

We have to carefully consider how national companies can participate most extensively. There can be individual companies or consortiums. One thing should be emphasized here. Erdenes MGL LLC is a 100% state owned company. As owner of the mining license, it will participate as the main player. As it is a state company, the revenues of the company will be collected in a special state fund and used by Mongolians.

When will the selection procedures be ready?

The preliminary draft has been presented to the Government. Parliament will take the final decision. The preliminary selection will be made openly, on the basis of the criteria mentioned in the bidding document, and afterwards negotiations will be held directly with shortlisted companies on specific issues on the way to the final selection.

Many fear that a lack of coordination between the mining and the railway transportation parts of the project could prove to be disastrous. Have the Chinese sent any official proposal on the railway? What is the status of the discussion with them on transit transport?

Concerned Ministers were instructed in January to begin talks with both neighbors. They are in negotiation. It is true that there has to be agreement on the terms on transit transport and on using their ports.

Geologists warn that the geological structure of Tavan Tolgoi is complex and open pit mining methods should be mostly used. This means a lot of coal will be lost. What does the feasibility study say or will there be controversy here the same way as in Oyu Tolgoi?

True, the minable coking coal in Tavan Tolgoi is located deep underground, but the conditions are not as bad as in Chinese mines. Open pit operations will be used for many years. Discussions are being held on how best to exploit the deposit optimally.

Your company represents Mongolia in international mining events. Has there been any clear change in the foreign perception of the potential of the country?

The interest of foreign investors, banking and financial institutions in Mongolia has been increasing with the international financial recovery. This was clearly demonstrated when the Prime Minister attended an event at the Hong Kong Stock Exchange. Our dream of attracting large scale investment will soon come true. We have to take quick decisions as investors do not wish to wait. They move on to other regions in search of sustainability, clarity and a sound legal environment.