Эрдсийг эрдэнэст
Ирээдүйг өндөр хөгжилд
Ирээдүйг өндөр хөгжилд
Mining The Resources
Minding the future
Minding the future
When talking about market destinations, by focusing only on north-east Asia, we tend to overlook Europe. For instance, Germany needs coking coal. It may look too distant; however, it is not something impossible to bring coal to Germany. Geopolitically, Germany may not look as appealing, yet, economically, it does make a sense to export coal to Germany. Focusing on geopolitics only, we might limit our potentials only to the region whereas we can broaden the spectrum of play if we start looking from geo-economics point of view.
In geopolitics we see our two immediate neighbors as our partners. A third neighbor can be any country other than these two, and it is not any particular a country. This could be the US, or Japan, or Germany, or any other country. If we let only Russia and China in, it might get more complicated for Mongolia to manage some of the very delicate economic issues. A third country from beyond Russia and China is, therefore, going to be a party, a neighbor with unquestionable adherence to the free market principles. Russia does not have a long history of market economy. Both Russia and China have allowed for state monopoly in their economies. Rules of game are different in these two countries when it comes to private businesses. One can still question the full synchronization of market economic relations in both Russia and China. Therefore, we could allow a representative of an established, mature market economy be a part to Tavantolgoi deposit development.
MMJ: We expect the Government to hold a limited tender bid. What are the principles of such a tender and how different is it from an open tender?
Mr. Ochirbat: Asia and the Pacific region may turn out to be the markets for the TT coking coal. Perhaps, a tender bid to be announced for companies and firms from these regions, which have long been expressing their interest to partner on TT, is what they call a limited tender. In other words, it is a bid among just a few interested parties such as Peabody, an American company, or some Chinese or Russian companies. These companies should be highly competitive, own advanced and sophisticated technologies and can secure reliable markets. We can have them compete for the best offer, select the best one or even have them all cooperate and be parties to the same project. In contrast to the limited tender, an open tender allows all to participate in the bid, which opens room for just any lucky company win the bid. For instance, a company from Brazil may win. Of course, that doesn’t mean that a Brazilian company would mine coal and take it away to Brazil. An open tender bid may not explicitly expose any particular advantages of a participant, or opposite, may conceal a disadvantage or a weakness. For instance, South Korea may win the tender bid, however, Korea lacks both technologies and experience. Korea never sold coking coal, and the world market doesn’t know Korea as a seller. Korea may have capital, may have money. Having won the bid, Koreans would look out for a partner – “well, we wanted to develop a mine in Mongolia, would you be a partner?...” Do we need someone who speaks on our behalf win the bid? Therefore, we have to eliminate any chance for an accidental winner by announcing a limited tender.
Another complication with an open bid is that since it’s open, for sure many private companies will participate. But what if the states enter the game? It’s hard for an average private company compete with a power in a tender bid. Almost certainly, states would win with offers. I doubt private companies command both money and chances to compete with powers. Would it be a level playing field? Therefore, we have to look very carefully into various aspects and implications of open and limited tender bids.
MMJ: The Government is to select a consulting firm to advise Mongolia in drafting agreements to develop the Tavantolgoi and OyuTolgoi deposits. What criteria should the Government apply in selecting such an entity?
The consulting firm, I believe, should be an internationally recognized and professionally competent third party without any conflict of interests of any of the parties to the agreement. This is the main criterion. Internationally reputable and specialized in consulting should be a must qualification.
MMJ: Should the Mongolian state/government dominate in the “Mongolian side”? Or better the “Mongolian side” is represented mainly by Mongolian companies?
To my mind, better Mongolian companies take the lead. This is an economic activity. Imagine the Mongolian government runs a business jointly with some foreign company. There are many factors that need to be considered. The Mongolian Government, the Mongolian state should not let itself sink so low. The form of the Government’s participation is clear; the government is the owner of the asset. The assets, the minerals in Mongolia’s subsoil are owned by the State. And as such, in its capacity of the owner of the asset, it rents its assets through mineral titles, the licenses. The state, as the owner of the asset, may inspect, or exercise some control over the status of its leased assets. You may not exclude a situation where the state would need to have a say about the deployment of the asset. For such cases, the state may secure some room for participation through the “golden share” principle. It doesn’t necessarily need to commit money to buy shares to be able to participate in the decision making process.
Without paying any money, without holding shares, just as a lessor, the state may still retain some right to exercise control and participate in certain decision making. There is nothing to hide anyway as the EITI, the Extractive Industries Transparency Initiative, is now a globally adhered principle. See the books, exercise whatever supervisory powers you have and charge your taxes. That is it, a sufficient state participation, fair enough. I am not saying the Government should stay away at all, it may stay near, in a distance, only the form of its participation is different. With companies, the situation is different. Companies will work more aggressively, in the same rhythm and tact. State participation does not mean simply stationing a representative, or pushing to invest 30 or 50 per cent of the needed investment. Mining intrinsically is risky. Why to push to invest into a mining project where someone else is willing to assume all the risks, and when we are not affluent with money. On the other hand, if we do have money, why not use it for other sectors, such as education, science, infrastructure, light and heavy industries, you just name it. Take, for instance, infrastructure – do we have a decent road in Mongolia? Railroad – a single narrow line, nothing else. Air transport – only few old shabby planes, which fly on unpredictable schedule. Why not fix all these messes with the money we have in abundance, if we really do. Why not build decent aerodromes in provincial centers, transport freight and cargo by plane to these local airports from where trucks would deliver the goods to their final destination. Mongolia just doesn’t have enough infrastructure for our wild wide countryside. If we only have money, let’s use it for infrastructure.
I doubt there are many investors willing to invest in roads in Mongolia, because this is not a profitable business. But if we manage to build the necessary infrastructure, there might appear many investors willing to build plants and factories closer to or based on the infrastructure facilities we prepare in advance. Once we have the essential infrastructure, it will be much easier for us to plan the location of the future plants and optimize marketing. Without resolving such fundamental issues, what is the point for the government to mulishly yearn to invest when the investors are pleading to build, operate and share the profits?!
MMJ: A study has shown that some 4 billion USD would be needed to develop the infrastructure for the megaprojects. How do we select the investors into railroads and energy? For instance, is it appropriate to grant Russian and Chinese companies such rights and licenses?
Any company which offers the best conditions should be let in. Who can build a power plant with best technologies and at least costs? If Russia and Japan want to build a power station, we should choose Japan. Why? Because Russia’s technologies for thermal powerstations are obsolete since long ago. Russia has been building nuclear, hydro-, oil and gas-fed stations lately, without paying much attention to enhancing the hard-fuel (coal)-burning stations. In Russia some 500 people operate a station within a certain level of installed capacity, whereas a station with an equal capacity is run by 35 people in Japan. Japan deploys high tech and full automation. Therefore, we should let in those who have higher productivity with lower costs and advanced technologies.
Of course, it is critical to consider the companies’ commitment and the ability to meet the ecological standards for infrastructure development. These days countries are increasingly concerned about emissions from incomplete combustion of coal. A high capacity powerstation would, of course, emit more. Who can build a station with least emissions, who has such a technology which meets the international standards? Is it China, or Russia, or Japan? Nationality doesn’t matter. Level of technological sophistication, ecological security, cost-effectiveness should all be considered seriously. Only some 40% of the total calorific value of coal is captured in powerstations, the remaining 60% is lost. There are many stations which burn coal fully and even use the ash. If a partner wants to build this type of stations, we should welcome.
Take now, for example, paved roads. Because of extreme temperature amplitude in winter and summer, Mongolian paved roads are torn out quickly. But there are already many different technologies which pave roads even on swamps. If such best technologies are to be introduced in Mongolia, we should not discriminate the investors against their nationality. Infrastructure is a common good – once it’s built, anyone can use it. Russian railroad gauge is wider whereas China’s gauge is narrow. Because of the two standards mismatch, wagons are placed on Chinese narrow gauge railroad at Zamyn Uud. To eliminate this extremely time consuming job, why don’t we let both types of railroads be laid in Mongolia. Why not Chinese railroad stretches up to Tavantolgoi? We will ship coal back to China on the same road! Let both Russian and Chinese railroads be laid in Mongolia.
MMJ: Your thoughts on the so-called “Grace of the Nation” cash give-aways?
Mining will generate huge cash-flows, which eventually will be distributed throughout the economy through the central budget. A portion of this income could be spent, say, for science and education. It’s especially important to spend money for Research and Development (R&D) which would necessitate putting in place an extensive net of laboratories and research institutions. This would supplement the education system for practical application of theoretical knowledge students obtain indoors.
Mining revenues could also be spent for supporting industries to promote export diversification. The Oyu Tolgoi resources will be depleted in 50-60 years but Mongolia will need to sustain her economy further on. Life will go on as if there wasn’t Oyu Tolgoi at all. More deposits would perhaps be discovered. If we can’t build a huge mining complex, at least we could save our money in foreign banks and earn interest. Or, we could invest abroad and earn our return from that investment. South Korea has about 40 billion USD debt, but it has invested abroad about the same amount. Then, should it be worried about its debt? If Korea is asked to pay back, no problem – it would pay from its earnings from investment abroad. This is the way how money is treated – it is generated and multiplied, be at home, or through foreign banks or through the net of international financial institutions. Money is spent to generate money and is not just given away.
Everyone would be happy to receive a grant from his/her “graceful nation”, nothing is as easy as to spend that grant out. One day Oyu Tolgoi’s resources will be exhausted, and your 1.5 million will be over. You clearly remember you received it, but can’t really tell where this money had gone. Therefore, this grant is unacceptable. When you hear the word “grant”, you assume that it has to be granted, bestowed by a super someone. Say, by president, or a khan. Mongols like talking about the Arabian countries a lot - “well, in Kuwait they do this way, that way”. In Kuwait the sheikh, their khan, owns everything. In Mongolia our wealth, deposits and resources are owned by the state, which in turn is owned by the people. Their khan collects all the profits as he is the owner. This sheikh is generous and graceful as he grants his mercy and gifts to his people. In Mongolia, will the president give out that 1.5 million tugrugs as if from his private funds? But this is not his wealth, this is Mongolia’s wealth. Therefore, that “graceful grant” bears no sense at all.
It was just an unabashed game of words by some people who were simply craving to become MPs. As if they were going to give people the money they were to make by themselves. And the gullible voters believe their chit-chat and elect them. The short-sighted, unethical crooks cheat the people to earn access to the Parliament. How much will they promise in the next election? It was like an auction – one promising a million, and the other one escalating the bid to 1.5 million; one promising a hundred thousand for newly weds, and the other instantaneously picks it up promising five hundred thousand. Is this ever comprehendible?!
MMJ: Do we have a clearly formulated, bold national policy for mining at all?
There definitely should be a state policy. What constitutes that policy? First and foremost, the state should know how much of which minerals we have in what parts of our country. We always believed that we were endlessly rich in minerals. Rich, true, but we don’t know how much of what we have and where. Take, for example, coal. We have plenty of coal throughout Mongolia, but precisely how much is buried where is known only to the God. So the priority is to develop a pool of geological knowledge on our endowments, and then decide which minerals to use first and which ones to leave for some time in the future.
Gold, copper, silver are hot metals now. But soon the rare earths will be hunted. Information technologies will need them badly. Today the demand is manageable with existing stocks. So why bother to develop rare earths now, could read a rationale of the government when defining the country’s minerals policy. Or, should we build huge mines with high capacities with short mining age, or instead develop a medium scale one and extend the lifespan of the plant for decades? In such a manner, a visionary policy guidance is needed, which is absent in Mongolia today. Look at other countries – Canada publicly declared and very clearly states its policies in mining and minerals, Russia adopted a law outlining the major features of its state policy, and look at ourselves – we haven’t determined what our policy will be, but always say we are the richest in minerals.
Some of my friends say that some people deliberately spread a message that a country with rich mineral endowments never develop, that a minerals-rich country is cursed and dies because of the “Dutch disease”. But the “Dutch disease” in Mongolia is, in fact, that very process of spreading the ill-willed message that we are cursed, that we will never develop. A symptom of the “Dutch disease” is the nation-wide promise of 1.5 million tugrugs give-away – what we make is used up instantly and is not devoted for development. Holland made tremendous amount of money from natural gas, coffee and flowers. Coffee price was skyrocketing as the key coffee producers lost harvests, and that made Holland a fortune owner.
Holland discovered a rich natural gas deposit, which greatly enhanced Holland’s asset position. There were times when the Dutch people cultivated some very strange but beautiful flowers. Whole Europe was enjoying Dutch flowers. Even in the remotest corners people were ordering flowers from Holland, and even delivering bouquets by planes, Holland made profits. Time passed and the demand for Holland flowers subsided and was made even worse due to some epidemic breakout in flora. Coffee business in other countries gradually leveled up with Holland. The price for oil is volatile anyway. It turned out that Holland’s exports comprised of only three products – coffee, flower and gas, and they had totally ignored other industries. As the trio collapsed, the economy drew to a fall. Dutch disease is caused by reckless consumption of what you make. And it’s not true that a resource rich country is cursed. If resources are used unwisely, then the economy is troubled. It is not the resources to be blamed for misfortune, it is our own inability to use the resources effectively, and that inability may even lead us to crisis. Life has always been going on, even when the minerals wealth was not discovered.