B.Enebish, Executive Director of Erdenes MGL, tells E.Saikhantuya how Tavan Tolgoi operators are to be selected, and how work will continue after the choice, especially in infrastructure development. Where do matters stand now, as 2010 nears its end? The advertisement for selection of strategic investors in Tavan Tolgoi was published on December 8, on the lines of Parliament Resolution No.39 of July 7, 2010. This says that one company or a consortium of foreign and/or local investors should be selected to work in certain areas of Tavan Tolgoi, and that the selection process should be open, and be based on conditions governing mining, selling, investment provisions, transit transport, port utilization and advance payment. The resolution makes it clear that the specific terms of the agreements on all this have to be presented to Parliament.
Which companies and/or consortiums are likely to be interested? I think most of the international companies and consortiums that took part in negotiations in 2009 and 2010 will wish to be considered. The range of cooperation is much wider now and the proceedings will be open.
What are the main criteria for the selection of strategic investors? There are three major criteria and each of these has many sub-criteria. The first is the capacity of the participant to mine on such a scale, to sell the output, to develop transportation and infrastructure projects, and to work in an environment-friendly way and take up reclamation programs. The area being offered is the Tsanh western part of the deposit which has around 1 billion tons of coal, of which 68% is estimated to be coking coal. The second criterion would be how each company proposes to technically implement the project. We shall insist on very detailed plans on the mining work, nature and use of equipment, sales strategy, development of infrastructure, coal washing facilities, power and water supply, reclamation, training for workers, safety measures etc. The third major criterion would be how the project will be financed. We would have to know clear details of the source of the investment, so that we can estimate how reliable this would be.
The Government will ask for advance payment before work starts, to be adjusted against future tax dues. The competing companies also have to make clear how it intends to pay this and what its terms will be.
When will the selection work begin and what stages will it go through? The last date for submitting all these details is January 17, 2011. The selection committee will consider everything carefully and make a short list. A working group appointed by the Government will hold negotiations with all who are on this list. If an agreement is reached, it will be signed between Erdenes MGL and the selected investor, and will cover the Tsanh area .
Do you plan to give the contract to one company or more?It is too early to say this. In any case, the short list will be a short list. It may even be that during the negotiations, all or some of the companies will choose to come together.
When do you expect the final agreement to be ready? This depends very much on the direction the negotiations take. If the bid winner asks for a guarantee, we could decide on a sustainability or investment agreement. As of now, we hope to have the short list ready by January 20. The talks will begin soon after.
What will be the broad rights and liabilities of the chosen investor? He will develop the mine and sell the coal, and will be responsible also for developing infrastructure facilities, either on his own or in cooperation. These will include power and water supply, railway and roads.
Erdenes Tavan Tolgoi will hold the license but will have no role in developing the mine and selling the coal. It will have the right to claim some part of the coal extracted or some part of the income from its sale, payable annually or quarterly.
All this is about the western part of the Tsanh of Tavan Tolgoi. What happened to the selection of an operator on the eastern part of Tsanh? This advertisement was published on August 30, and three companies made it to the short list: Leighton and McMahon of Australia, and a German company PBM. They submitted all the papers asked for within a given time but on review the evaluation committee felt these were not complete. So the whole process was cancelled and a fresh advertisement would appear shortly.
I would like to reiterate that the two exercises are separate and independent of each other. What we are looking for in the western part of Tsanh is an investor who will work on his own, while in the eastern part of Tsanh, an operator is to be hired by Erdenes Tavan Tolgoi to work on its behalf on contract. It could even be a Mongolian company, as long as we are convinced it is professionally competent. It will be paid for its work in developing the deposit but Erdenes Tavan Tolgoi will do all the selling and marketing. In the western part, the chosen company, international or local, will do the development and also sell the coal, along with developing infrastructure projects. Its involvement, in terms of both investment and profits, will be much beyond that of a contract operator.
We are in a hurry to begin work on all major deposits of strategic importance. Oyu Tolgoi is moving forward, and in Tavan Tolgoi Erdenes MGL’s own mine has already started operation.
When will you appoint the Executive Director of Erdenes Tavan Tolgoi? The company has been set up and the State Registration Department is working on all the registration procedures. Its board has been appointed and its first meeting will discuss the qualifications of the Executive Director.
Who are members of the board? They are 9 but I cannot disclose the names now.
When will the board meet?Very soon.
What is the status of the work in the eastern part of Tsanh? Digging has started and progress has been fast. We have already reached seams of coking or good quality coal. Export will begin very early in the new year, when our subsidiary Erdenes Tavan Tolgoi will take over the work.
At the moment we have 110 people at work at the mine site, around half of whom are heavy duty operators. The mine will have an extraction capacity of 2-3 million tons in 2011, 5-6 million tons in 2012 and 15 tons annually thereafter.