G. Iderkhangai studies the draft mineral policy for 2013-2024 and finds it short on specifics. Parliament would do well to insist on several clarifications before approving such an important document.The recently prepared “State policy on the mineral sector” proposes to govern the Mongolian government’s basic course of action in the mining sector for a period of 12 years, from 2013 to 2024. The best people in the ministry of mining, related agencies and professional organisations came together to formulate the policy in quick time, after studying the mineral policies of 17 countries, specifically Russia and China.
Their approach was non-partisan and thoroughly professional. This meant that they gave serious attention to the views of even the former Minister of Mining, D. Zorigt, while at the same time, according to B. Batkhuu, Head of the Department of Policy Implementation at the Ministry, “not once did we look at the draft mineral law the President initiated”, as it would have been “wrong in principle to consider any proposed law when making policies”.
The Ministry presented the document to Parliament shortly before Naadam. Earlier, discussions at the Standing Committee on the Economy had elicited divergent opinions. M.Enkh-Amgalan thought too much government involvement was prescribed, while Ya.Sodbaatar found it vague and often unsupported by adequate data. The committee formed a task force and included five non-government organisations in it. Its job was to recommend measures to make the policy more rounded and coherent. The suggestions accepted by members of the committee were then incorporated in the draft policy before submission to Parliament.
It will not be correct to claim the present draft policy as something largely new, as it is mostly based on features of the geology and mineral sector policy in effect from 2000 to 2012. The basic idea is that the geology, mining and processing sectors should adhere to and be guided by a coherent and coordinated policy. We also have to remember that while the mineral policy proposed by former minister D.Zorigt was indeed too loose and too verbose, full of pious intentions, it contained several sound ideas. Maybe these could have been developed more profitably if only a good and well-remunerated team was available to carry on with the job. Something like this has now been done by the team B.Batkhuu led.
It may be recalled that the first significant step taken to quickly adopt a policy for the mineral sectorwas taken last spring by PresidentTs. Elbegdorjat the citizens’ hall, when he said, “No matter how much effort and time go into drafting a mining law, it will remain off track if it is not adjusted to the realities of the mineral sector, if it lacks vision, if it is not based on logic, and also if is not supported by a comprehensive government policy.” That’s when the professional team which had worked on the policy document prepared by the previous ministry began work on the new proposal. The initial assessment of the draft has been favourable, certainly with scope for correction and improvement.
One Ministry cooperates, the other notToday the structure of the Mongolian mining sector has changed dramatically. The Ministry of Mining is concerned with geological exploration while the Ministry of Industry and Agriculture is responsible for development of mines. When the work began, the Ministry of Mining promptly submitted inputs on their geological, exploration, and mining goals, and it is very easy to see from the draft that this was done with professional expertise.
However, it has been clear over the last few months that the Ministry of Industry and Agriculture did not see cooperation with the group as a priority. Only four vague submissions were made to the section titled “Parameters of production and industry”, and Batkhuu says they are still waiting for responses from the Ministry of Industry and Agriculture.
This is unfortunate as production and industry must be the basis for Mongolia’s development and clear goals and indicators should be specified to help plan the policy. These should reflect today’s situation as well as anticipate future trends in processing and enrichment, identifying what is likely to work and what not. Long-term market demandsshould be estimated, and export targets set for both raw materials and processed products, with an indication of the most profitable transport routes. As the Ministry of Industry and Agriculture is 100% responsible for mining production and industry, its failure on this front has been unfortunate.
The draft policy is helpful and quite detailedon minerals, coal and their related matters in geology, mining, and on coordination of the processing work, but there is little in it on uranium, petroleum and water use. This was noted at the first discussion at the Standing Committee on the Economy but members demanding their inclusion weret old by the task force specialists that this would not be possible as these matters have their own specific governing laws that are overseen and implemented by different government agencies. Both the Minister of Mining and the Minister of Law insisted on the need to have workable parameters for the proposed policy, and members of the committee were persuaded not to clutter it with contents of dubious relevance.
A noticeable feature of this policy document is that it shows little special concern for foreign investors’ interests. Indeed, the general tenor is that the tax and the legal regimens should be the same for domestic and foreign investors. One is naturally reminded of how the draft mineral law initiated by the President also calls for more support to domestic companies and proposes certain restrictions on and stricter oversight of foreign investors.
Strong support for explorationThe draft policy is clear that geological prospecting must be improved and strengthened and suggests several steps to achieve that goal. The government will increase the budgetary amount for exploration of the geological structure and locating mineral distribution. The draft also clarifies the standards and regulations governing geological work, including collating and processing information from different prospecting ventures, and even apportions responsibility for this duty.
In this context, the Head of the Geological Policy Department of the Strategy and Policy Planning Agency of the Ministry of Mining, B. Baatartsogt, has said regional studies made with government budget will include preparation of 1:50,000 scale geological maps in annually increasing numbers. These studies will be done from the surface to deep underground levels.
The government will gradually fund 1:200,000 geophysical studies all over Mongolia, based on which the underground structure will be studied and recorded at the same time as mineral and geological studies.Baatartsogt says special attention has been given to assign individual responsibility for overseeing research that the government budget will fund. The draft policy, he says, calls for setting up a national geological agency that would “prepare geological maps and create, maintain and update a database of sub-surface information, as also process and analyse all data, providing the government, non-government organizations and individuals with information.”
Baatartsogt says permits will be first granted in areas that can further develop the mining sector. The government will choose the land and exploration will begin. If something is found there, work will proceed and extraction can start in due course. Care will be taken that permits are granted and prospecting work encouraged in areas where infrastructure is relatively less developed, and where the population is small, for example the western, the eastern, the southwestern and southeastern regions.
One major new feature of the draft policy is the decision to keep geological and prospecting work 10-20 years in advance of actual mining work and the hope that enrichment and processing industries will follow in due course.
Funding issues left vagueSome still feel the draft document has ignored several important issues regarding geological and prospecting work. For instance, the Geological and Mineral document used from 2000-2012 proposed to cover 30% of Mongolian terrain in 1:50,000 maps, at a total cost to the government budget of MNT4-6 billion. The new document raises the area to just 40% and is silent about the budgetary outlay required.
Government funding is essential as foreign investors and domestic private companies do not usually do base-level geological prospecting and mapping, choosing to do only thorough prospecting. This is true everywhere, and all the more soon terrains as vast as ours. In many highly developed countries, it is the governments that fund thorough mapping also. It is not clear in the policy proposal what the amount of government funding for this work from 2013 to 2024 will be.
The old policy was also clear about which aimags and soums from the east and the Gobi regions would be brought under the mapping programme, but such specifics are now missing. Many feel a policy document prepared by professionals should have considered the current level of geological mapping work and then identify exactly where this work is now needed most and also indicate locations where new mineral deposits are likely to be discovered. It would also make sense if plans for infrastructure development are made according to these predictions, and of course to the government’s plan of action and its budget.
Strategic importance returnsArticle 3.3.2 in the policy document seeks to explain what the controversial term “strategically important deposits” is to be taken to mean. It says: Radioactive elements (U, Th), rare earth minerals, those with deep underground water, those with the ability to compete internationally and domestically, and some deposits with large reserves of gold, coal, metal, copper will be included in the group of strategically important deposits and will be prospected, mined and processed with the cooperation of the government. Of course, the total picture will emerge only when this definition is tallied with what the mineral law says.
An impression was gaining ground that the term “strategic deposits” was on its way out, but now it seems the Ministry of Mining is keen on registering more such deposits that meet the criteria now in force. A few months ago it was announced that 30 new deposits were to be given the strategic status by Parliament. This led to many foreign investors distancing themselves from Mongolia.
True, the number first talked about was 39 and now it has come down to 30. That will make a total of 45 strategic deposits. The Ministry of Mining has made known that Buuruljit and Hushuut coal deposits and rare earth mineral deposits, which were both explored and prospected with government money, are ready to be added to the strategic deposits list. Of the 15 mines that were in the first strategic deposits list, Oyu Tolgoi, Tsagaan Suvarga and the Tavan Tolgoi have received the most attention thus far. There are even those who believe that if these three are used in the right way that would be more than enough for Mongolia.However, the government is still fumbling with what to do with these three, sending contradictory signals at intervals. In the face of this uncertainty, investors are avoiding all deposits labeled as “strategic”.
The examples of Erdenet, Mongolrostsvetmet, and Baganuur have generally shown that government involvement in running mines breeds inefficiency and corruption, and leads to financial unprofitability. The opinion that we would be better off without legally identified strategic deposits was getting stronger but now this draft policy revives the term, to the surprise of many. Many feel its retention will keep an avoidable controversy alive.
Developed nations of the west have no such term. In Russia the concept is that of “strategically important products”. There is a body of expert opinion in Mongolia which feels that if it is essential to have fresh strategic deposits, the new ones should be picked on the basis of their importance to the local and national economies, of their anticipated contribution to the national budget and export potential. In that case, once a deposit fails to meet the criterion, it would be taken off the list.
In any case, there is no real justification for Mongolia to use, let alone stick to, a term that no other nation uses. The term“strategically important deposit” should have no place in a State policy document, and we hope Parliament will agree with professionals to rid the final version of the policy of this term.
Shy of specificsAs we mentioned earlier, the draft tackles issues relating to mining and processing industries vaguely and without much clarity. It appears professional experts from these sectors were not adequately consulted. Issues such as possible environmental impact or the need for regional development are touched upon, but more substantial points are discussed cursorily.
Let’s take coal as an example. In Mongolia today, licence-holding entities have the annual capacity to mine about 60 million tons of coal, but their output is only half that, and of this, 25 million tons are exported. The Head of the Exporters’ Association, D. Galsandorj, is surprised that the draft does not give these data, nor does it mention what the respective figures are likely to be in 2016.
Will we always export raw coal or will we add value to it prior to export? The answer depends on how much the government will invest on processing units, what tax incentives there will be for value-addition exporters, how processed products will benefit producers, etc., but one finds no reference to these in the draft. One also looks in vain for specifics on expansion of transport facilities.
One cannot talk about production and industrial growth without mentioning figures, present and projected. In the years to come, Oyu Tolgoi, Tsagaan Suvarga and Erdenet will dominate our copper sector. But the draft makes no clear relation between mine output and its enrichment, nor does it seek to assert what difference State policy will have on the process over the years during the term of the proposed policy. How much can we expect the government owned Erdenes Mongol Co. and its subsidiaries to produce, export, and earn?
The draft does contain the following statement: “Major mining, processing and infrastructural projects will be implemented. This will increase the state income. A ‘wealth fund’ will be set up and we shall invest suitable amounts in other sectors for their development. That way the country will reduce its exclusive dependence on the mineral sector, thus stabilising and protecting the economy.” Fair enough, but without any reference to the specific gains from the Darkhan iron plant being built with bond money or to the Sainshand industrial complex, the quoted sentences remain merely a statement of intent, arguably just an empty claim.
The previous policy document contained information on individual projects such as “a large iron plant will be built in the Darkhan-Selenge region, a coking unit and a chemical facility will be established in Sainshand, a phosphorous enrichment complex will be built in the Burenkhaan-Erdenet area, a nonferrous metal smelter will come up in Choibalsan city, and a copper plant in Erdenet”.The present draft says nothing about their status or progress or plans for others.
Surely we should be told how long it will take to fully develop the Tsagaan Suvarga deposit and what kind of support the government will provide in this. It will be one of our principal national plants and deserves State support. Such policy questions become even more important when we see little support from the government for Mongoliin Alt, even after the domestic company submitted a good feasibility report.
Selective restrictionsAs an expression of its views on nature protection and land rehabilitation, Article 3.5.2 of the draft policy says there will be restrictions on opening new mines with 1.5 percent or more sulphur emission and there will be no licence for those with a level over 3 percent. There is no mention of what lies in store for projects which have begun prospecting on the basis of licences that set no such conditions on mining and processing. Will similar restrictions be applicable in the case of uranium and shale gas?
And what will be our policy on shale gas? The initial international euphoria has now given way to serious concerns on the environmental impact of fracking. Are we planning to copy the US policy?The draft offers no answer.
Formulators of the draft sought to allay the misgivings of members of the Parliamentary Standing Committee on the Economy by assuring them that the perceived vagueness of many proposals will become clearer when seen in conjunction with planned related programmes.But it is doubtful if this will really be the case even as B. Baatartsogt of the Ministry of Mining says, “Mining and processing factories will have many sub programmes. All work pertaining to the geology, exploration, and reserves of a deposit will be in conjunction with these processing, mining, and industry subprogrammes.”
It is certain that the government will develop and implement programmes such as those on countrywide geological mapping, coal, metals, fluoride, rare earths, copper, minerals for construction material, the legal environment of the mineral sector, etc. Maybe, these sub-programmes will clarify some details of mining and processing programmes but that cannot justify the absence in the policy document of investment details in specific deposits of a specific region that is to be developed.
Indeed, these programmes had always been under consideration but the reason they were not implemented was that there was no clear idea of the required investment amount, and there was no adequate government support, nor foreign investment, nor private sector involvement. The draft gives no idea how this will change.
There are innovative ideas in the document, such as installing a one-window policy for mineral trade, a mineral exchange market, and providing systematic and organised training for all levels of a mining work force, etc.This last is expected to take care of one area of recent concern. Many mines, especially government-owned ones, now have non-professionals in leadership positions, a dangerous development. Professionals will be happy that the draft is emphatic about enhancing management and human resource potential.