“Growth must not be mistaken for true development”

Known for his incisive analysis and independent views as well as for the no-nonsense way in which he expresses them, Byambasuren Dash, the 17th Prime Minister of Mongolia, tells N.Ariuntuya what he thinks of what is presently happening in the mining sector.

How do you see things as they are at present?

It’s been more than 20 years since Mongolia adopted a new social system. We have passed the most difficult period of the transition and adopted laws and regulations governing our life under a new dispensation. In the old days, Mongolia could not see beyond the restrictions of socialist fellowship, and was for all practical purposes a satelliteof the USSR. The democratic revolution let us into the wider world and we have been mingling with others for the last 20 years. With a new social structure in place, Mongolia now has to ascertain the path of true development and accelerate its progress.

As I look around, I feel we don’t understand the difference between growth and development that well. People say the economy grew by 10 per cent, but that doesn’t necessarily mean we are developing. Growth is more like getting wealthier by earning more, but development means being able to produce things. Just digging out the minerals and exporting them is not development. This we used to do earlier, too, and now we are just doing more of it. The number of excavators increasing from 10 to 100 is not development.

The world in general has a positive view of Mongolia. Recently, a former UN Secretary-General, Kofi Annan, exhorted Arab countries to “Look at Mongolians”. The results of a peaceful revolution such as ours will take time to be clear but it is now accepted anywhere in the world that Mongolia’s commitment to democratic development is unwavering and its people value their independence and rights. Our media might not have noticed this, but last September, the UN Security Council formally recognised the nuclear-weapon-free status of Mongolia and its members called upon all other countries to respect Mongolia’s independence and territorial integrity. As far as I know, there is no other country whose independence and territorial integrity has been affirmed by all five members of the UN Security Council. This declaration takes away our worries, brought about by our location between two giant neighbours.

Mongolia has to react to events outside its borders. Both Russia and China are now members of the World Trade Organization. This opens up two markets for Mongolia. We like to make excuses saying that we are landlocked, but these two markets should be enough to occupy us before we can even reach the ocean shore. Both Russia and China will now have to lift all trade restrictions.How we take advantage of this will not only define the current situation of Mongolia but also determine our future development path.

Do you agree with the general perception that mining is the main engine for Mongolia’s development?

Several things have to be considered before jumping to that conclusion. Mongolia has three principal resources. First is our territory and agriculture. This should assure us of self-sufficiency in food no matter what happens anywhere else.

The second one is mining. We are fortunate that our land is so rich with minerals, and their economic value is shown by how the Erdenet factory alone sustained Mongolia in the hardest period of transition after 1990. However, these resources are natural,and are finite and non-renewable, good for one use. Besides, mining is always risky business. Also, the economic worth of raw, unprocessed minerals is perforce limited. Because of their size and volume, commercially efficient movement of mineral products requires a high standard of infrastructure. Also, we do not have too many options when it comes to finding a market. We could mine 20 million tons of coal from Tavan Tolgoi a year, but there is nowhere else than China to sell them.

Russia has enough resources of its own, and doesn’t need to buy from us. If we export that 20 million tons of coal to other countries through Russia the transportation cost will be much higher than that of the coal itself. China does not have enough port facilities to help us in ocean-borne trade. So China is the only viable market for our raw minerals. The risks of remaining the raw material attachment of a country are considerable, and the foundation for smooth development can be laid only when we have processing industries based on mining.

The third resource we have is our people’s innovativeness and technical skills. These have to be properly used and in diverse ways, not just in increased mineral extraction. Our development needs equal utilization of these three resources. Emphasising the role of mining and making it the leading sector will surely be counterproductive.

It is naпve economics to imagine that digging out our minerals resources will make for sustainable and meaningful development. Yes, with the money from selling resources a country can live well. The oil states in the Middle East have shown this. The Sultan of Brunei distributes $3000 to each citizen every year. But this is not a good idea.

How do you see the current situation in the mining sector?

It is as if foreign wolves are attacking the sheepfold. When a local wolf makes a raid, it is happy to take away just one sheep. But wolves from somewhere else kill and wound at random, and the scene is one of widespread carnage. This pretty much is the current situation in the Mongolian mining sector. The environment is under severe threat. We need a much firmer State policy in this regard.

One feature of mining is that we have no say in its physical location. Usually natural resources are found in isolated areas where there are few people and no infrastructure. This makes matters more complex and the State needs a clear policy on how foreign investors are to work in such places.

There have been times in history when we treated the environment harshly. When the industrial revolution began, people dug holes in mountains to get the ore, left them gaping, and polluted the rivers. Only when the realisation dawned that we were headed for greater destruction, did we start living with a philosophy to protect the environment. The Earth Summit in Rio de Janeiro in 1992 was a watershed event. Leaders from 178 countries attended this Summit and signed the Agenda 21 action plan to ensure sustainable development. Sustainable development doesn’t mean there will be constant growth; rather, it means stable development that is able to overcome the most negative forces. I was there to sign the convention on behalf of our country. However, it has never been implemented in Mongolia.

Let’s take Zaamar as the closest example. It is just like the surface of the moon now. Likewise, in Umnugovi aimag, where mining started in 2003, Gurvantes soum is no longer a place for people to live in. There is Arkhangai aimag, too. All these show what a problem it can be if there is no State philosophy behind mining, or if mining is done without considering life itself. It is the gest danger that people are digging the resources and sending them abroad and at the same time damaging nature and destroying people’s living environment. This cannot be fixed in even thousands of years. This is especially true of gold mines. Rivers are polluted and there is a lot of soil damage. In Tavan Tolgoi and other places, mining companies operated without solving transportation issues which resulted in great loss to herders of Umnugovi as their livestock was badly affected. This is a national disaster. And there is no escaping the fact that mining is at the root of all this.

That is not to say that there should be no mining. But the industry should have its ethics. There is not much time left to act on this understanding. We made a mistake, and we have to admit it and take corrective steps. We cannot afford to continue on the same path. The great damage to the environment mining causes has to be considered even though it earns money for the country and is less labour-intensive than many other sectors.

What examples did you have in mind when you said, during discussion on the revised draft of the Minerals Law, that we have to learn from our past mistakes?

Ever since the opening of Erdenet on December 14, 1978, Mongolians have been debating the best ways to run the mining sector. My view is that our gest mistake and failure has been in not being able to move beyond the stage of exporting raw ore.

In 35 years, we have not been able to build a copper processing plant next to Erdenet.In the 1980s, when copper price was $1500 on the world market, we sold 35 per cent copper concentrate for approximately $270. If we had a copper smelter, Erdenet would have doubled its income. This was true when Erdenet was established and it’s still the same today. In the 1980s again, nearly 60 tons of white silver was exported along with the copper from Erdenet. This was just a byproduct. We now talk about operating the Asgat silver mine, which is located 3000 metres above sea level with perpetual snow.

Asgat will produce no more than those 60 tons of silver. There was more. Every ton of copper concentrate would yield 4 grams of gold and all that gold left them country for free. It was the same with other mineral elements like selenium and tellurium. It is only recently that we have been able to put a value on the rhenium found in molybdenum. If we processed perthite, we could have met our iron needs completely and even produce sulphuric acid to process the phosphorus. But until now, we have been exporting them raw. This is one lesson to learn.

Mining requires a lot of money, with the initial investment especially large. The Erdenet factory was built at a cost of 800 million transferable rubles, one ruble taken to be equal to $1. This covered everything -- the railway, the power line, the processing plant, the water supply system and the township. During initial negotiations, Mongolia claimed 7 per cent royalty, asking for payment to begin when the initial investment was recouped, but the Soviets didn’t agree.

Until 1990, Erdenet operated at a loss. It used to get a grant-in-aid worth MNT932 million or $300 million at that time’s exchange rate from the State budget. In 1991, the agreement was renewed under new terms. The royalty between 1978 and 1990 was determined to be 9 per cent, and the loan Mongolia took for its share of expenses was to be adjusted against the royalty. From 1991, the royalty was reduced to 6 per cent because until 1990 high grade ores had been mined and after that only low grade resources were extracted.

This is a clear example of the importance of getting the terms right from the very beginning. Now, because Mongolia lacks enough funds, it is interested in drawing foreign investors. And the investors are interested in working in Mongolia as well. We have to think about the interests of both sides when preparing a contract and calculations have to be made with care, otherwise the loss for us can be too great.

Using up our nonrenewable resources has to be compensated by the development of another kind of national resource, comprising advanced technology, knowledge and skill. Mongolia profits much more if it has processing technology of its own. This does not mean we shall not sell coal to China if it wants to buy. But we have to acquire technology in return for our coal. If China is interested in buying copper, we shall sell half as concentrate and process the rest. The country that buys our concentrate should help us in getting the refining technology. The State policy has to be clear on this.

Alreadyin the 1990s I wrote in my book that we have to focus on processing raw minerals in Mongolia. Export of raw minerals is justifiable only when we need money urgently and immediately. There has to be a popular debate on the matter. I also think Mongolia will miss a lot if we don’t join the Extractive Industries Transparency Initiative.

We have to learn not only from our own mistakes but also from others’. The sad thing is that we don’t have the ability to do even the former. What is worse is that we don’t see that we failed. People proud of their mistakes should only be called fools and Mongolia can’t afford to be one of them.

You have been critical of the OTIA. Do we have things to learn from Oyu Tolgoi, not just Erdenet?

Let alone agreeing with the boast that the OTIA was a great success, I see it as a classic example of how a country’s national interests can be trampled. I remember that I came across Friedland’s formulations on the internet on January 5, 2005. I passed it on to the Prime Minister, heads of the Standing Committees of Parliament and the Secretary of the National Security Council of that time. The agreement finally reached did not change any of the main concepts in that document. 

The State of Mongolia does not appear in the agreement as the true and rightful owner of the mineral resources, but comes across as a supplicant begging for funds from the investor. No wonder we failed to secure fair terms, for if you negotiate as a beggar, the other side will call all the shots, that’s for sure. So they put in terms that favour them.

Take for example how the agreement is valid for 30 years and can be extended for two terms of 20 years each. Who of our signatories will still be there after 70 years? You don’t set time periods for an agreement, or for a law. Every generation has the right to regulate its own life in its own time. Even the Constitution can be for only a person’s active lifetime. Our Constitution was passed in 1990 by leaders with their social outlook still affected by a socialist conscience, natural at that time. That Constitution is an agreement between the State and the people and seeks to regulate social life for those people’s generation, for about 20-30 years. That Constitution cannot regulate the life of all Mongolians forever. We have already begun to see the flaws of that Constitution in this regard. Therefore it was wrong to have a commercial agreement for 70 years without any change in taxation and other terms.

Article 9.10.3 of the OTIA says the income from export and sales abroad would have to be kept in foreign banks. That means Mongolia will have only the figures of how much ore was exported and for what amount while the actual money will be utilised by an overseas bank. Effectively, this keeps Oyu Tolgoi separate from the domestic Mongolian economy.

This economy is now based on animal husbandry, small industries and trade, all of which are regulated by our own laws. Beyond these are entities not subject to these laws -- oil plants, coal plants, and iron and molybdenum plants. Now we also have Oyu Tolgoi which is subject to Friedland’s laws. This not merely weakens the Mongolian economy, especially the national currency, but is very likely ultimately to lead to the destruction of Mongolian national independence. Yes, the OTIA does pose this great risk.

Serious talks on the OTIA were preceded by the creation of a lobby, in or around 2005, whose goal was to influence State policy, particularly in regard to the tax system and regulatory practices in the minerals sector. It was successful in reducing income tax for large companies from 40 per cent to 25 per cent. This is just one of the many things that the owners of mines including Oyu Tolgoi gained by influencing decisions of the State Great Khural.

The Minerals Law was passed in 1997, a time of great economic hardship, when Mongolia badly needed foreign investment. There were strong rumours – and they remained rumours --that Morrison and Phillips were coming to Mongolia. The law was amended in 2006 to incorporate provisions that have harmed Mongolia in many ways. For example, royalty for every mineral, including gold,was fixed at 5 per cent, even though Centerra Gold, which ran the Boroo deposit here, was paying 18.1 per cent at its Kumtor mine in Kyrgyzstan. Back in 1916, when Mongolia under the Bogd Khan government made the country’s first agreement ever with a foreign mine, Mongolor Co. was taxed 20 per cent. But today we have settled for only 5 per cent.

Under this agreement, seen by some as a “wonderful one”, Mongolia is giving away all its resources and being left with a great debt. Yes, we do get some tax and other money, but when we adjust this agains tour loan repayment schedule, we see that we shall be free of debt only in 2030. Is this what a profitable agreement should be? Not at all. Mongolia, Rio Tinto and Ivanhoe Mines need to understand this truth.

There are innumerable cases where we violated laws before signing the OTIA. We granted the licence when exploration work was still continuing and the resource amount had not been approved. The agreement was made before the Technical and Economic Report was complete. We keep falling into traps foreign investors lay for us simply because Mongolia doesn’t have a comprehensive mineral policy. This must change.

We agreed to have as partner a man named Friedland, even after the world media had reported a lot about him, and his record of bringing destruction to wherever he worked. He had easy access to the President, members of the State Great Khural and the Prime Minster and met all of them a number of times, played a few camel polo games in Umnugovi aimag, and thus got what he wanted. The agreement clearly shows how Mongolia lost and Friedland won. The amount of land he owns under licence is 134,000 sq km. I have heard that Friedland boasted to people he held more land than the State of California. But Umnugovi aimag is only 108,000 sq km, so what exactly did he mean?

What do you want the agreement to be like?

We shouldn’t go so easy on it. We need a State policy that is transparent to the public. That we surrender to vested interests doesn’t refer to foreigners only. There is a long list of nationals who own mines and who destroyed the environment and worked economically inefficiently. The State policy should regulate when and how to operate a mine.

Let me take Oyu Tolgoi as an example. According to what they said, OT will extract 504,000 tons of copper from concentrate every year for ten years, working out to 2.5 million tons of 20 per cent concentrate, 90 tons of white silver and 20 tons of gold. After the deposit was discovered, the resource amount was approved to be 32 million tons of copper and 1200 tons of gold. And let’s say we determined how to operate the mine by State policy. If we export the concentrate, nearly 2 million tons of dirt will be loaded from Mongolia every year. If the concentrate is of 20 per cent, that means 20 per cent of that load is copper and the rest is dirt. And because the amount of gold and silver is not that much, only 90 tons and 20 tons respectively, it will only be 2 trains. So what is the use of loading all that dirt and spending a huge amount of money to transport it? The result will be damage to the environment and no benefits to Mongolia.

It would have been much better if we had said, “Make the investment, and we’ll buy the product.” Indeed, the current Mineral Law does give Mongolian consumers first right to all mineral products in the country. If we smelted the copper within Mongolia, 7,000 people would have worked at the OT mine and 10,000 more at the smelting plant. We could have separated the gold and the silver as well at the smelting plant, thus reducing transportation costs. A cable factory can be built easily next to the smelting plant. This would lead to more jobs.

Instead of pursuing this option to open updevelopment opportunities, we chose to focus on owning 51 per cent of the OT mine and ended up getting 34 per cent. The originally estimated initial investment amount went up from $2.5 billion to $4.7 billion and has now become $7 billion. Our 34 per cent share of $2.5 billion would have been $800 million while that of $7 billion is $2.5 billion. As we have 34 per cent ownership, we are in debt to pay for our share of the investment. We are left with no profits as the other side gradually increases the initial investment amount. This increase also means pushing back the time for repayment, rise in our debt burden, and more delay in earning unencumbered profits. It will be 2021-2022 at the earliest before the share of the initial investment is reimbursed and all debts are cleared. This is what Cameron McRae also says. By that time, the best grade resources will already have been mined.

This predicament is entirely of our own making. Our policy from the beginning should have been to insist on building a smelter in Mongolia, saving on transportation costs and volume. Infrastructure would have developed, again creating more jobs. If we had said to the investors, “You’ll be in 100 per cent charge of mining the concentrate and we’ll be in 100 per cent charge of the smelting plant”, we could have built a copper processing plant for Oyu Tolgoi with $2 billion. 

At the time of the OTIAI collected information from foreign companies in countries such as Canada, Italy, Russia and Japan, and found that a smelter for all the copper in Erdenet would cost no more than $600 million. If we had used the loan from the OT investors to build a smelter at Oyu Tolgoi, our revenue would have been much higher and repayment of the debt would not have been such a burden as now.

On the other hand, we need to correct the structure of the current decision making mechanism concerning the use of mineral resources. We have one ministry and one agency plus the Prime Minister. And the Government is the one that negotiates with the foreign investors. Actually, the Government needs to determine the policy and monitor the process and another state company needs to make agreements with foreign companies in the name of the Government. An agreement should be between companies. By making itself a party to an agreement – and a poor one, at that -- with Friedland, the Government gave it an unnecessary international status.

Lastly, all the ways to change that agreement is closed. This needs to be changed, even if that means passing fresh laws. I strongly feel we need to change the current tax environment and stop collecting 78 per cent income tax like Sweden and Norway do and reduce it to 45 per cent. We need to legalize the policy to process the raw minerals within Mongolia instead of chasing after share ownership. The Minerals Law must make it mandatory to process all the raw minerals within Mongolia and allow export of raw materials only if it is found necessary to increase income.

The resources of Mongolia don’t only affect Mongolia. It will affect the region. Mongolian mineral resources are one of the main economic factors in Asia. Therefore, we need to maintain long-term, sustainable and clear cooperation with the neighbouring countries. We need to learn to establish agreements and negotiate. The main thing is to implement a policy that develops the technology rather than focusing only on raw minerals.

I am sure you have seen the new draft Minerals Law. What do you think of the changes?

Many things in the draft strike me as positive. For example, it proposes that there will be no new deposits with strategic importance, but the present number of 15 can be reduced. I have always seen this special classification as actively encouraging illegal activity. We surely have more than 15 deposits, including two or three gold and copper mines as as Oyu Tolgoi, that can make major contributions to the economy of Mongolia. Similarly, the Khushuut and Tevsh coal mines, the Undurtsagaan and Ulaan-Uul tungsten deposits, and the Mungun-Undur white silver deposits are by any standard.These are at present not deemed strategically important deposits, and there is no need to change this.

Not listing a mine as one of strategic importance allows the owner greater freedom of action. If we can’t properly utilise the special status, it is better to do away with the classification altogether. It makes more sense to declare the entire mineral sector as a strategic sector, not just focus on a few deposits.

I also endorse the suggestion to limit the term of a stability agreement to the period needed to recoup the initial investment. There is no need for longer agreements, except in cases where one of the terms would be pre-payment of royalty during the whole term of the licence. An example of this is in the USA where Peabody is the miner concerned.

But some of the draft proposals should be reconsidered. For example, the terms of operating a mine need to be more detailed. The present division of the Tavan Tolgoi deposit is not logical. If the mine is to be utilised fully, we need to have a balance by mixing different coal grades and calories. There has to be more coordination. Energy Resources LLC has built a road where other deposits’ trucks cannot ply. Should there be five different roads then? If we adopt a comprehensive policy on social issues, we could build townships with housing, schools and hospitals for all workers in Tavan Tolgoi, just like in Erdenet. If the responsibility is left to different mines, nobody will take the initiative. The OT agreement also is silent on this.

There is no mention of mining royalty in the draft. Maybe there is a plan to have a separate law on this, but the concept could be introduced in the Minerals Law, setting the minimum rate at five per cent or so. I feel that our current concept of royalties is at least 150 years behind the European approach to and methods of evaluating natural resources. I think people see this as a normative tax rather than the price for which we sell national treasures.

Royalty rates should be different at, say, Tavan Tolgoi, Shivee-Ovoo and Baganuur, because of their different resource quality, location and transportation facilities. Some are open mines and some are concealed. Some have to carry the coal a long distance and some not. Some have high calorie coal and some low. It’s the same with other minerals. One gold mine may extract 3 grams of gold from a cubic metre of dirt, while another may get only 0.1 gram. This is why royalty rates should be different. We can’t make just one rate chart for everybody.

The entire regulatory system should be given a shake-up and streamlined. We don’t even have detailed information on what’s being sold to whom. The Law on Foreign Investment is right in requiring permission from the Government before transfer of a licence. Choosing a partner is a economic, political and geopolitical issue.  Issuing a mining licence to a company of a major consumer country company leads to great risks and restrictions are justified. When a Chinese company wanted to buy Rio Tinto’s shares, the Australian Government didn’t agree, because the company is from a consumer country.

Last year, we nearly lost Ovoot mine. Two-three days more, and it would’ve been somebody else’s today. Some argue that foreign investors are losing trust in Mongolia because of this incident. It is natural that someone caught while acting crazy will scream. No problem would have arisen if he had taken the right path from the beginning. Our mistake was in not being firm from the outset.

The new law must minimise the harmful impact of mining on the environment but some articles in the draft do seem ridiculous. Does prohibiting any mining activity within 100 metres of a herder’s camp mean it is all right to use heavy machinery just outside that restriction? In an urban context, 100 metres may seem a distance, but in the countryside it’s not even enough space to tie your horse. With all the dust and dirt coming from the mining activity, the pasture will be destroyed around the area. Such issues need to be regulated carefully. If the herder’s family is to be relocated, the compensation must cover the future as well as the present. The family should be able to return to the place after the mine’s closure, so total rehabilitation will have to be ensured. Disallowing   mining within a 100-metre radius of a herder’s camp solves no problem. The restriction extends to 200 metres in Gurvan Tes soum, Umnugovi aimag, but with explosions on all sides, life is quite difficult for the herders there.

The likely harm to rivers and river basins cannot be overemphasised. We cannot afford pollution of our waterways, or their drying up or change of course. These are complicated problems and have no easy solutions, but it appears the passing of the long-titled law has made us more aware of the need to find a way out.

Some articles in the draft go only half the way. Imposing a fine, as the draft often recommends, achieves little. A fine is basically permission against payment. Violations of the law mean a fine equal in amount to 100 times that of the minimum wage. This works out to around MNT14 million, which is nothing for a mining company. This is a clear invitation to impunity and cannot be accepted.

Many feel the Law on Regulating Foreign Investment and now the draft Minerals Law will result in scaring away foreign investors and it is the wrong time to place such restrictions. How do we balance national interest with foreign investment?

Have we got a clear understanding of the nature of foreign investment? Some see foreign investors as coming here to work for Mongolia’s benefit, while some others see them as nothing but wild predators interested only in their own profit. Neither view is true. Big companies with global reputation do fair business with honesty. There is nothing wrong in foreign investors making money here as long as their work meets Mongolia’s development needs. The two goals do not have to be mutually exclusive and a proper balance is possible.

One thing is non-negotiable when we allow foreigners in: as owner of the natural resources that are to be mined, Mongolia has the inalienable prerogative to set the terms and conditions for their exploitation, and foreigners are welcome only on our terms. Of course these terms have to be fair for both sides. If the interest of investors and the country are to coalesce, both sides have to be flexible and fair. Any agreement reached under duress will come to an unhappy end sooner or later, and the intractable partner will lose its reputation internationally.

Is it really better to adopt a State policy first and only then pass laws that further the policy?

What is imperative is that there should be no contradiction between specific laws and the general policy. The laws have to reflect the principles behind the policy and help in its implementation. And, of course, neither policy nor law can go against the dictates of national security. Both the President and the Prime Minister are obliged to make sure of this.

The draft Minerals Law seeks to make processing, including setting up a copper smelter, legally mandatory. Do you see this as a positive move?

Erdenet exports nearly 120,000 tons of copper every year. OT’s exports will probably reach 500,000 tons. It might take longer for the Tsagaansuvarga mine to start exporting because its copper is lower grade and its geological conditions are difficult. That is enough to sustain a smelter. We need to start processing coal as well, not just the copper. Let’s make coke from the coking coal and export it. Let’s make cables from copper. There are byproducts also, such as sulphuric acid and iron that can be extracted from the perthite from Erdenet.

The draft separates mining and processing licences, making a company eligible to apply for a processing licence only after it fulfils certain conditions set out in its mining licence. I approve of the requirements but think they need to be further clarified. I hope it is understood that even when a processing licence is issued at an area where mining is already taking place, the two operations need totally different technologies.

We cannot get proper value for our resources until we solve the railway transportation issue. And we are merely losing time on this. What do you think of this problem?

Railway is a strategic issue. Mongolia is dependent on Russia as it doesn’t have an iron plant and so can’t make the rails. The Russian policy was to leave us with just one railway line. We should have realised this a long time ago and started building our own railway. It’s been a costly failure for us. We cannot make proper commercial use of the mines as we don’t have a railway. The only way to get over the lack of adequate transportation facilities is to process the OT and Erdenet copper concentrate on site.

Then there is the question of gauge. If we’re seeking a port in the Pacific Ocean through Russia, then we need a broad gauge railway, but to move things through China, a narrower gauge would be better because then we won’t have to load and unload as tracks are changed. Here again, we have to make sure that everything to do with the railway service inside the territory of Mongolia remains totally and directly under Mongolian control. We cannot accept any possible Chinese demand that if Mongolian exports are carried over the Chinese railway system, it will send its trains to our country, and not let Mongolian trains run in China.

We have to remember that railways are a major concern of national security and the State policy that is in force can be changed only by the National Security Council. It will be imprudent to put pressure on the NSC.

Our problem is that running the State and the Government has become an amateur performance. It is common to appoint to high offices people with little knowledge and experience of the sector. They use their position to further their personal business agenda. That’s why I refer to them as amateur artistes.

The Government issued a bond, and the money was expected to finance major construction projects, but no decision has been taken so far. How would you utilise that money?

The matter is complex. The foreign currency reserve of Mongolia has reached $2.7 billion, which is more than enough to make the Mongolian economy independent. Foreign trade ran up a deficit of $2 billion, but our reserve is enough to pay 50-60 per cent of our annual import bill. We should have been able to finance by ourselves most economic development needs, but the major political parties prepared overly ambitious agendas as part of their election campaign, to dazzle the voter. Between $30 billion and $50 billion would have been needed to implement the Mongolian People’s Party’s action plan and $30 billion for the Democratic Party’s.

Everybody seems to have forgotten our Mongolian saying, “You should stretch your legs only as much as the size of your blanket permits.” What do we do with investment that we can’t digest? This is called growth addiction sickness. We just talk about rapid growth but this leads to nothing that is truly beneficial to Mongolia. We choose to dig out all our resources, leading to an increase in the number of diggers and we say this is growth. But where is any true and sustainable benefit for the country? What shall we do with such growth?

Following the election, the new Government started talking about bonds and the suggestion was approved without delay. Did we pause to wonder who would buy the bonds? Our foreign currency reserves are kept in banks abroad, and there is a suspicion that these banks are using this – meaning our own -- money to buy our high-interest bonds. Our deposits yield 1 per cent interest but we shall now be paying the bank 5 per cent interest on bonds they bought with money in our account.The interest we pay will of course come from the currency reserve. The joke seems to be clearly on us.

There is another thing that surprises me in all this. It may be all right to take loans for things that we don’t have the capacity to produce, but why do we need loans for things that we can do ourselves? For example, we’ve been exploring our oil ourselves for many years and there is nothing to stop us from processing it. But even today, we cannot lay hands on our oil. Back when P.Jasrai was Prime Minister, an agreement was made which said the oil drilled in Mongolia by an American company cannot be refined here. That licence was later sold to a Chinese company. So the crude goes to refineries in China and then we beg China to sell us our own oil. Similarly, we are now talking about building an oil refinery in Darkhan which will be fed by crude from Russia. That is no way to reduce import dependency.

No real purpose will be served if we spend the money earned from the sale of bonds on such things. I personally suspect that politicians are trying to finance their own business plans under the pretext of building oil refineries. That will indeed be very sad.
I also do not understand why the bonds were issued in November, months before the construction season begins in Mongolia. With no use for the money for such a long time, paying MNT270 million every day as interest becomes a double burden.

And, finally, they say that the projects are not yet decided. But why not? We have been talking about the fifth power plant for Ulaanbaatar for years. Can that not be one of the projects? How about copper refineries? We can easily build one at Erdenet. When I was in Taiwan, I was taken to a cable plant of the Linhue Group. Probably they showed me the plant on purpose. It’s small but with enough capacity to smelt Erdenet’s copper. We are certainly able to build such a plant.

In my opinion, Mongolia should spend the bond money on, first and foremost, oil refineries, copper smelters, ferrous metal plants and power generating units. The next priority is construction material plants. Delay merely adds to our debt burden. I can make a fair guess on who will be interested in buying our debts then, but I shudder to think what the quid pro quo would be for Mongolia.