N.ENKHBAYAR: We have to accept the market economic principle

The delay in creating the legal environment for developing the deposits of strategic importance such as Oyu Tolgoi and Tavantolgoi costs us huge economic and financial losses.

The essence of the issue rests in determining the share of the Mongolian party and the share by the investors to lead to a win-win situation for the both parties, and often this issue has become a topic of debates and disputes. Confrontational positions on this issue will not do any good. Then what are the solutions? We do have our own experience to derive lessons from. When we put into operation the Erdenet mine, a Mongol-Russian joint venture in 1978 the initial investment, equipment and technologies and the skilled labor was fully borne by the Russian side, for which it held 51% of the plant, and over time, after 25 years, in 2003, when the Mongolian Government successfully resolved the “grand debt” under extremely favorable terms for Mongolia, we secured the 51% for Mongolia. In those years Erdenet evolved as the major contributor to Mongolia’s development and prosperity, which will further remain a fruitful source for Mongolian people.

I propose and urge the Parliament and Government of Mongolia to abide by this principle to ensure the win-win situation which equally accommodates the interests and benefits of both the investors and the host country so as to implement the larger mining deposits. Particularly, the Tavan Tolgoi deposit contains, by inferred estimates, 6 billion tons of resources, and experts indicate that only 30 million tons of these resources would be enough for 200 years, and by far generous assumptions to use 60 million tons, 100 years needs will be met. It is a reality to admit that Mongolians are not capable to develop this deposit at our own as the development of the deposit would entail initial capital investment, introduction of advanced technologies and supply of highly skillful, professional labor. Therefore, there is no other way as to engage large investors with their financial, technological and human capital in this large-scale development.

The investor would want to calculate the returns in his investment and control his investment expenditures. He would definitely want to recover his investment and earn profits. And this is fair and legitimate.  Therefore, we have to accept the market economic principle by which the investor holds 51% at the initial stage to run the investment policy and bear the associated risks. Any large mineral deposit of the size and scale of Tavantolgoi requires huge investments, and if we follow the Erdenet model, the experts estimate that the investors, under existing taxation regime, would be able to recover their initial investment and reap profits within 25 years.
However, from the 26th year and onwards, Mongolians will become fully able to hold 51%. It’s clear that the plans and their facilities, built on Mongolian territories will not move anywhere. Hence, I believe, no serious threats or ramifications are posed for Mongolia’s national interests and security if we decide to adopt this internationally recognized and tested policy option. Calculation of overall economic benefits clearly indicates that Mongolia will earn more than 51% of profits under any phase, even when the investor holds the 51% of the project in the initial phase and pays royalty, taxes, fees and other due payments. Under the phase of an investor holding 51%, Mongolia could resort to using “Golden Shares”, a mechanism by which we could exercise control and regulation, without violating the Investment Agreement, within the confines of the policy to ensure the country’s national interest and security. I believe that avoiding discouraging investors before they make investment, and seeking understanding and cooperation once they are in Mongolia will be beneficial for all. As researchers and analysts prove every single day we lose by sitting idle costs Mongolia, our people very much. We keep loosing at lowest 1 million USD a day and 2 billion USD at greatest.