“Mongolia and investors are ready to discuss the future as equal partners”

As in previous years, Discover Mongolia-2011 International Investors Forum, held during September 8-10 in Ulaanbaatar, was hugely successful in presenting to the world the whole gamut of opportunities opening up in Mongolia as the mining industry in the country develops extensively. P.Ochirbat, a mining professional who was the first President of Mongolia and was Chairman of the Organizing Committee of this year’s Discover Mongolia, talks to G.Iderkhangai on the present situation in the sector.


What were the main features of the forum this year?

Our motto was “Mutually profitable cooperation in the mineral sector” and the thrust of the discussions was on how to determine the best ways to utilize the opportunities for such cooperation in several areas. Earlier, we just used to urge foreigners to invest in Mongolia. The present forum went beyond that and focused on how to ensure the investment would turn out to be profitable for both the investor and the country.

The investor must of course get appropriate returns but this profitability must take into account the maximum benefit to the economy of Mongolia at minimum cost to the environment. There were discussions on not only environmental rehabilitation of the area under extraction, but also on how to improve the general condition of the region. Mongolia will continue to be attractive to investors, but we are no longer begging them to come and invest here, and are instead ready to discuss the future as equal partners. Maybe one day soon, it will be the investors who would beg to be allowed in!

But before that, foreign investors have to be reassured about the sustainability of the legal environment, especially the Minerals Law, so that they can formulate long-term business plans.

Did the forum discuss the principles of responsible mining?

Yes, it did. It was one of the seven main topics. Responsible mining and following proper extraction principles are now de rigueur worldwide. Minimum harm to the environment is not a demand limited to Mongolia. The financial part of a mine’s operations, including all heads of expenditure and how the profit is made and then distributed, must also be transparent. A private company can no longer claim immunity to scrutiny. It is now internationally accepted that the extractive industry must uphold the rules of responsible mining and principles of transparency. Both have a wide scope, with stress on guaranteeing safe working conditions. A company’s reputation will not stem solely from its production level, but also by how it has protected its workers from occupational hazards or industrial accidents.  

Companies working in Mongolia should be concerned with the overall development of the whole area where they operate, and not just environmental recovery. Miners in the Gobi region are expected to take measures to diminish the wind volatility, arrest desertification, and improve water supply and vegetation conditions. That is what responsible mining is all about. Operational plans submitted by foreign investors must include details on all this, and should be clearly spelt out in the production expenditure. It will not be enough to say in a very general way that the company will do the necessary rehabilitation.

The absence of infrastructure is a major concern of investors. How did the forum address the issue of infrastructure backwardness?

The problem is indeed acute. We expect 45 million tons of coal to be exported from Tavan Tolgoi annually, but the present infrastructure capacity can handle only up to 10 million tons. We have only ourselves to blame for this lack. We had enough time to build a railway from Tavan Tolgoi to the Chinese border. The Government policy was bad and led to decisions that impeded infrastructure development. There was no external pressure. Secondly, we also could build a 1,200-mw power plant but the Government had no clear policy and showed no sense of urgency. There has been an extraordinary lack of good sense displayed so far.

Plants in the private sector are working very fast and are forced to do everything on their own even as the Government provides no power and there are no electricity lines. In two years, Energy Resources built an open pit mine, a concentration plant, a power station, a paved road and living quarters, addressing all infrastructure issues except the railway.

This is what one company has done. Adjacent to it, the infrastructure issue in the main Tavan Tolgoi complex remains unresolved as precious time passes by. We need a consolidated and comprehensive infrastructure policy. There should not be four power station and three branches of railways.

Another important need is to develop a modern living environment in the south Gobi around the mines, like what was done in Erdenet and Darkhan. What are the chances of attracting investment to build townships, and not just to facilitate extraction of minerals?

I see little chance of another Erdenet coming up. That was possible in the socialist days, but now market principles will govern all such programs. Current norms of urban planning should be followed and Mongolian companies should construct apartments to be sold to the mine workers. The mining companies may offer soft loans to their employees and can deduct small amounts from salaries as repayment. Utilities such as electricity, heating and water and public facilities such as schools, hospitals and sports complexes should be funded by the Government from the huge revenue from Tavan Tolgoi and Oyu Tolgoi.  I see the Government, the private sector, and individuals coming together to build a modern town in Tavan Tolgoi.

You referred to foreign investors’ desire for a sustainable Minerals Law. Do you think we shall ever have this, given the wide ranging and often contradictory suggestions for major amendments to the present law during the Fall session of Parliament?

Laws are meant to be amended as situations change, but they should not be revised as often as they usually are in Mongolia. It does seem that amendments to the Minerals Law will be made during the Fall session, but I have not seen the favoured concept as yet. However, the Minerals Law does not have to be the Mining Law. The latter can also be named the Mineral Resources Law. I have written about such laws prevalent in a number of foreign countries and discussed their salient points. Professionals can help draft an appropriate Mining Law for Mongolia based on them. We need to have a law that regulates all aspects of the mining sector.

A professional committee at the Ministry of Mineral Resources and Energy is working on these lines, but amendments to the Minerals Law should not be delayed as we wait for the new law.

If we do adopt a Mining Law, what happens to the Minerals Law?

I think it will become part of the Mining Law. Actually, the goal of the present Minerals Law is to develop the mining sector with foreign investment, by dismantling barriers and facilitating easier operations. The interests of all parties have to be balanced to make it a fair law.

Why are our laws short-lived? Is it because problems arise during implementation?

Generally speaking, our laws are passed without any serious study or discussion. The best example of this is the “law with the long name” on prohibiting exploration and mining in certain areas. There was no consideration of how the regulations would be enforced or of the likely consequences, most of which appear to be negative. The principle behind the law should have been pressure to achieve results during the period when the exploration licence was valid, and if nothing was found, there would be no compensation. That is a natural risk explorers take. If anything was found, how that mineral deposit was to be developed would be considered separately. However, the law did not make such fine distinction and the Government revoked 254 licences with a hammer hand.
    
Companies exploring under licence would have left the field on their own if they did not find anything worthwhile but once their licences were revoked, they all claimed compensation on the ground that their operation had been halted unilaterally. This is a valid legal claim and there is no way the state can dismiss it. If the Government had not shown undue haste, companies that failed to find anything before their licence expired could not have claimed any compensation. In any case the criteria for fixing the amount of compensation have to be different in the case of companies which had found nothing with little time remaining of the life of their licence from those whose work had led to the discovery of deposits.