The recent appointment of Dr. Ya.Dolgorjav as Executive Director of Erdenes MGL LLC raised eyebrows as he is not a mining professional, and was now put in charge of 15 strategically important mines. His last job was as Ambassador to Cuba and he had earlier been, among other things,a professor at the National University of Mongolia, Rector at the Academy of State and Social Studies, Dean at the Academy of Management, Director of State Management School, an MPRP Committee Director, and policy adviser to the President of Mongolia.N.Ariuntuya talks to “the outsider” to seek his views on several burning and sensitive issues.Did the appointment surprise you? What do you see as the main challenges of the new job? Yes, this job is quite different fromthe others I haveheld, but I see this is an advantage that I am here without any preconceived notions. I shall be guided solely by the legal framework when major policy decisions are made, and the daughter companies that will be in charge of different projects and mines structured. Having said that the appointment was a surprise, I must add that behind every surprise, there is a hint of inevitability.My previous appointment ended just when Erdenes MGL needed someone at its helm to set in place regulations and start operations according to the Law on the Human Development Fund, issue shares to the people of Mongolia, and separate itsmanagementfrom that of its daughter company Erdenes Tavan Tolgoi.
It is my guess that I was considered for the job because I had spoken of the need forhuman resources development in Mongolia long before there was any talk of distributing among the people the benefits of economic growth, and of putting to productive use the huge revenues expected from mining. What could be popularly seen as a disqualification is actually my gest qualification for the job. True, I have never held any mining-related licence or owned shares in a mining company, and am a comparative stranger in this field. But the fact that I have no axe to grind is my strength. I am free to put the people’s interest ahead of everything else.
As for challenges, there has been nothing specific so far. Each day and every step can be seen as a challenge, though.
It’s actually only days since you started. What have been your first impressions? Please share with us your idea of what needs to be done in the near future and further ahead.
More time is needed to be fully acquainted with the job, and I shall learn as I work. You must be knowing the saying, “If one wants to learn how to swim, one must get into the water first.” Mongolians do not have deep or long experience of all the business of international mining, investment, collaboration etc. We shall have many occasions to be careful of complexities,wary of confusion, and to strive to realise our goals.
As for the immediate priorities, we need to strengthen Erdenes MGL LLC as the parent company, formulate the collaboration procedures and agreements with the daughter companies, identify necessary amendments to the company laws according to the guidance given by Parliament and the Government, expand the operations of the company to conformto the Human Development Fund Law, deal with the issue of distributing shares to the people,and of transferring State-owned shares of other strategically important mines to the company, and much more. These have to be accomplished in a way that Erdenes MGL will be seen as a model for companies owned by the people. Our guideline is a recent statement by Prime Minister S.Batbold which said, “We will support companies and entities that are owned by the people and the system of oligarchies will be changed.”
Have you visited mine sites?
I have not yet managed to make the time for this but I have held meetings with senior managers. As for now, I’m making myself familiar with structures and systems by going through papers. I have met with the Mongolian representatives onthe board of Erdenes Oyu Tolgoi, another newly established company, and with the Executive Director of Oyu Tolgoi LLC, MrCameron McRae. The State owns 34 per cent of Oyu Tolgoi and, therefore, it is necessary that we have a proper understanding with OT LLC. One of our directors, G.Temuulen, looks after issues regarding Oyu Tolgoi. We give much importance to the views of experienced professionals and specialists. Of course, the issues will not be handled only by them, we shall need generalists. I think our company’s success will depend on proper collaboration between specialists and generalists. I certainly value the inputs of professionals on certain aspects of the company’s operations, but I don’t think I need go to college to get a degree in mining.
Neighbouring countries have several companies that operate on a global stage, like China’s Chinalco and State-owned Rostechnology in Russia. There is general expectation that Erdenes MGL will become as as them. How do you see the future of Erdenes MGL, and will it generally work in the same style as these?
The two you mentioned do not operate in the mining field alone. They are business directed companies that make investments in new technologies and innovations, and undertake research work in their field. Our main mandate is tocentrally accumulate the revenue from strategically important deposits, and to create a stable and permanent corpusthat will be put into the Human Development Fund.
I am positive about the company’s future, and overall we have been doing well. There is a long way to go, and we shall not be there in one day. Two deposits have been handed over to two affiliates of ours, daughter companies so to say. The next step for us is to determine the State’s share of the strategic deposits, then collect the dividends and keep that money in the Human Development Fund. Our HDF is similar to the Stability Fund in some other countries. That way, if the company’s contribution to the country keeps to the schedule, it will become a huge investment company.
As of now, Erdenes MGL is answerable to three bodies -- Parliament, the Government and the State Property Committee. We also depend on them for many different things. As laws and regulations become more established and are followed, this dependence will be restricted to really issues, and the role of Parliament and the Government will be that ofseparate monitoring authorities. In time, we shall enjoy more independence, but in the current unstable policy and legal environment, we have to depend onthem for too many things. The transitionis a normal process, even though such independenceisa new conceptto all of us in Mongolia.
What work will you take up first?
We shall be meeting with those who hold the licence on some depositswhere exploration was made with State funds, such as the Tsagaan Suvarga copper mine, the Burenkhaan phosphate mine and Asgat’s silver mine to discuss how much share will be owned by the State and other related issues.
There are several other things on the anvil. For example, new ways of collaboration with the Erdenet factory and Baganuur Company will be discussed. Arrangements have to be finalised on setting upa power station near the Shivee Ovoo brown coal mine whose licence we own. Details of supplying coal to the 5th power plant of Ulaanbaatar have to be worked out. All these will see an expansion of the company’s operations.
Henceforth, according to the Human Development Fund Law, income from the State-owned shares of other strategic mineral deposits will be deposited in the Fund through Erdenes MGL. We shall also handle all financial, accounting and administrative issues relating to distribution of shares to citizens. This will be a lot of new work for us.
The exact status of the State’s shareholding and other involvement in other strategic deposits is somewhat vague. Will separating the two major deposits by establishing daughter companies create an opportunity to gain access to these other deposits?
That is true but there is more to this. As for Tavan Tolgoi, its structure has becomemore flexible and better organised following creation of a daughter company. But there are other companies and deposits, where things may not be as clear cut. Tavan Tolgoi was owned by private parties and it was returned to the State. Owners elsewhere will demand compensation for investments they have made. The terms of negotiation on this and modalities will have to be decided. This will take time. We shall compute the fees they paid, theamounts invested on additional exploration etc. The amount initially invested by the State will be subtracted from this. The private sector did a lot of work and the monetary acknowledgement of that is a complicated task and will not be achieved in haste.
What are the deposits where Erdenes MGL has a share? Do you own the exploration licence on any of these?
We transferred the exploration licence on Tavan Tolgoi and 34 percent shareholding in Oyu Tolgoi to our daughter company. Now we own 3 licences of Shivee-Ovoo coal mine.
There is criticism that Erdenes MGL remains a closed shareholding company while its daughter companies are open ones. Do you plan to effect any change?
Daughter companies of Erdenes MGL cannot be called open shareholding companies. Erdenes Tavan Tolgoi was actually established as a shareholding company by the 39th decree of the State Great Khural in 2010. That same decree asked the Government to work on re-structuring Erdenes MGL according to the Constitution and the Law on Human Development Fund. Now the State Property Committee is at work on this.
Government Decree No.350 in 2010 issued guidelines on distributing to the people of Mongolia part of the share that is owned by the State. We are now exploring ways of transferring to the State-owned Erdenes MGL the shares held by whoever is the legal owner of the licence on a strategic mineral deposit so that they can then be distributed among the people according to the Human Development Fund Law. Once Erdenes MGL LLC is identified as the legal entity owning the licence, followed by a re-structuring of the company, it will operate 100 percent under the State, and will control the State- owned shares of the exploration licence holder company. This severely restricts any chance ofmaking Erdenes MGL LLC an open shareholding company.
According to the Human Development Fund Law, every citizen of Mongolia will have the opportunity to own preferential shares in Erdenes MGL LLC.
There seems to be a lull in the process to select a consortium to do exploration work on Baruun Tsankhi of Tavan Tolgoi. What is the status right now?
Discussions on Baruun Tsankhi were started last spring, as spelt out in the guidance issued by Parliament. A team led by a member of the Government is negotiating with the interested investors, companies from China, Russia, USA, Japan and South Korea. The talks are going on, and our company is responsible for arranging the meetings. Things are taking somewhat long because of the political compulsions involved. However, our daughter company is hopeful the opening ceremony of Baruun Tsankhi will be held soon, maybe in the middle of April, without waiting for the choice of investor. We can start removing the surface soil, and once this begins, there will be pressure to take a quick decision.
Initial plans regarding the Erdenes Tavan Tolgoi IPO on international and domestic stock exchanges have been abandoned.What is the situation now?
Erdenes Tavan Tolgoi is working on this. I understand the IPO on the Hong Kong Stock Exchange has been deferred for a while. Work is on to meet the requirements of the London Stock Exchange and of investment banks and the advisory companies.
In case we cannot have the IPO on a foreign stock exchange, we shall do it on the Mongolian Stock Exchange. As we did once earlier, we canraise some fund by entering into advance sales agreements. That is a viable option. An IPO is not the only way to access funds, but it is the one we prefer. However, Parliament is where the decision will be taken. Whatever happens, we shall still be able to raisecapital.
Since you are new onthe scene, how do you rate the whole process so far?
My individual opinion is irrelevant here. A State-owned company has to follow whatever the Government decides. The people’s representatives are, in principle, the best custodians of the people’s interests, and we cannot go against the law and the guidance issued by Parliament.
My general opinion is that we have worked really fast. Starting work on two mines is a great accomplishment considering the fact that we had only a few years to prepare ourselves. However, similar quick adjustments on the legal side may prove to be more of a challenge.
I lack firsthand experience in this special field but my general international experience has been that when a law is enacted, the attendant procedural regulations should also be made clear. This has not happened in our case, and with the regulating acts not clarified or in place, there can be conflicting delays, setting back progress. Itcan be dangerous entering a global market where the mechanism has been long honed to perfectionand you have only a very general law to guide you.
There was some talk about establishing a water companyto be called Erdenes Us. What happened?
I have heard about this. The most worrisome issue in Erdenes Tavan Tolgoi is water. The Red Lake of Balgas is the only water reserve we have. In the socialist days, it was estimated that the speed of the water flow there is 540 litres per second, but recent tests putthisat only 150 litres. In that case, the water is definitely not enough. There is a proposal to draw water from Orkhon and Kherlen rivers. Another option is to connect small springs and draw water. We must understand that while our copper and coal reserves have to be explored, we must also tackle the water resource problem head on and not just hope for a solution to come up. When B.Enebish was the Director of Erdenes MGL, Ts.Badrakh, Director of the Government Water Authority, made certain recommendations on structural improvementthat look great to me.
Water is a problem not just inMongolia, but in China, too. That country has 25 per cent of the world population but only 7 percent of the global clean water reserve. Modern science has discounted FriedrichEngels’s statement thatlife is merely protein bodies. Water is now taken to be as important as protein. Global warming has made adequate water a global concern.
Heat is also a problem. Energy depletion eventually means loss of heating. Fortunately, we have huge reserves of coal, as against countries that are running out of coal. We should be able to produce abundant solar and wind energy also. Another energy source we have is uranium. Exploration of uranium is going well.
Just because we have resources in plenty does not mean we can be profligate in their use and exploitation, especially where water is concerned. There will be water shortage when we start washing the coking coal. We need to think ahead and take wise decisions. Life in Mongolia is set to change when all the mines are put into operation.
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