The 17th and the latest inter-governmental meeting between Russia and Mongolia in Moscow had a long agenda and ended with several decisions to enhance collaboration between the two nations. These included some issues of importance in the mining sector. S. Bold-Erdene talks to vice minister of mining, O. Erdenebulgan, to find out more.
What were the main issues taken up at the meeting, and how did the talks go?
The meeting was very successful. The two sides had agreed during the preparatory stage that discussions would be restricted to issues more likely to be decided and implemented. Thus the talks were realistic with an air of urgency. Much of the spadework had been done on both sides, so negotiations were smooth and agreements were easier to reach and solutions quicker to find.
As far as the Ministry of Mining goes, the environmental, geology and mining sectors will work in close collaboration with corresponding departments in Russia’s Ministry of Economy. The partnership will be divided into four basic areas: geological prospecting and research, fuel and energy, increasing the profitability of joint industries, etc. An important example of the partnership will be preparation of 1:1000000 metallogenic maps for prospecting work in Mongolia. They will help determine mineral distribution, structural origins of geological and tectonic formations across the country and thus help decide on approaches.
We shall continue with the international project ‘3-dimensional structure and metallogeny of North, Central and East Asian geology’ and shall prepare 1:2500000 geological and mineralogical maps. Studies under the project will be extended to deeper underground areas.The Mongolian government has allocated money in the budget to fulfil its international obligations.
In the old days, both the former USSR and Mongolian governments regularly spent considerable amounts and collected an ample amount of valuable information on the Mongolian geology and mining sector. Much of this is still held at some of the Institutes in Russia, and after years of trying to reach an agreement on access and use of the information, this time were solved the issue by agreeing on joint use of the information.
This will save us money as we shall not have to do a fresh geological prospecting and study of areas already done. Now, Zarubezhgeologiya of Russia and our Minerals Authority will have to decide together on which kind of mineral to mine first and how. We must be proactive and use the information wisely. We also agreed to send students to Russia to study geology, professionals to receive special training and arrange for regular exchange visits between scientists and researchers.
What sort of proposals did the Russians make?
They made several, including old and regular ones such as conducting metallogenic surveys in border areas, prospecting for sustainable deposits of rare earth minerals, organising joint expeditions, prospecting for and evaluating coal, uranium, copper, and molybdenum deposits, assessing water resources, and supplying equipment and material for use in our mining and geological sector.
This time we finally managed to make them understand that they can come and work in Mongolia only on the basis of fair competition, and not expect any special privilege from the Mongolian government. The Russians have understood that their best bet is to take us as partners in projects where they have an edge.
Today, as a result of a change in the government attitude,the private sector is the main actor in the mining industry. The State no longer wishes to get involved in everything and will never put pressure on a private company to collaborate with any Russian company. The equipment supply business runs on purely competitive principles, and contracts are awarded to those who offer products of the highest quality, using advanced technology and promising reliable service. That’s it. Mongolian companies are buying stuff made in Belarus and firms from Poland are also actively seeking a market. We are free to choose products from different countries according to our needs and preferences. We cannot be expected to give any special advantage to Russian companies.
But we have to work with Russia in the areas of fuel and energy. What was discussed at the meeting about this?
This remains an issue of the utmost importance for us in that last year we imported 1.2 million tons of petroleum from Russia, which is approximately 70% of our consumption.
We insisted at the meeting that Russia should price its petroleum products at market rates. The Russian side accepted the logic behind our demand.
Was the market price that different from what Russia charged?
Yes, it was. After many discussions last year with Rosneft, it is now clear that there will be changes in the purchase contracts.
Let me clear a possible misunderstanding. It is true that the government does not import these petroleum products but fuel availability is a matter of strategic importance and the government must be involved in the process and also play a regulatory role. That is why the government joined the private sector and Mongolbank in all the prolonged discussions with Russia on stabilization of fuel prices.
There was a time when we didn’t even know how much we paid for what we were buying from Russia. Mongolia joined the WTO in 1997 but Russia joined only last year. Now both countries have to follow WTO rules in their mutual trade. In November 2012 we found out that one ton of AI 92 fuel at the border cost $1,380, when the global price was between$1,050 and $1,100. We were paying almost $300 more per ton. We didn’t even know how long it had been like this. We made it clear any fresh agreement would be based on mutual consent, and Mongolia will specify the amount it would buy only after the price was known.
We said we would follow any of the accepted world indexes as a base price, and negotiate the final price after adding tax, processing costs and a margin of profit to this. After four months of tough bargaining, when our petroleum authority displayed a very high level of professional competence, an agreement was signed in April which vindicated our stand.
Despite the MNT falling against the USD, we have kept the price of fuel stable, but this may change with time. When the economic situation improves and the exchange rate stabilises, we could fix the price of petroleum according to world rates. In that case, retail prices in Mongolia could go up or down, following the movement of world rates.
This issue was finally resolved at the inter-government meeting. This was one of our accomplishments.
What about joint ventures?
We wanted to get the Asgat silver deposit under operation as soon as possible. We talked to Rostecnology, which laid out very clear terms for partnership. We found these very reasonable and we accepted them.
The Russians also said they looked beyond Asgat and wanted Mongolrostsvetmet to begin operating profitably, and to update both products and equipment to make this possible. They also want new mines to be opened. The Russians felt that with the State Property Committee making all the decisions on the Mongolian side, politics and not business sense was always to the fore. This must change to allow the company to issue an IPO and raise funds. Russia’s large banks are willing to provide loans to our joint ventures.
We promised to look into the matter. What the Russians are saying has some truth to it. Take Erdenet. It is the world’s 10th largest producer of copper concentrate, but in a global context, its competitiveness is declining every year. It may soon be that they will be operating at a loss. The Russians want the Mongolian government to transfer its shares in these joint ventures to companies, so that everything can be run on sheer business principles, without any politics. They solved this problem themselves a few years ago. The State Property Committee of Russia used to own 49 percent of the Erdenet mine, but they now belong to ‘Rostechnology’, a state owned business entity.
Does that mean our share in Monrostsvetmet will be transferred to Erdenes MGL soon?
The 100th resolution of the government calls for all government owned shares in mining companies to be transferred to Erdenes MGL, and we are currently implementing this decision. The process will soon pick up more speed.
Once Erdenes MGL is part of the management, Erdenet will work like a proper business. It could build a copper smelter and produce other value added products, and take loans to finance its activities. Mongolrostsvetmet now owns a deposit in Bargilt. This can be turned into a stock holding company. It is not a very good thing for the Government to get directly involved in business, but a State owned company can be as competently run as any other. It can also be an arm of the government helping regulateany sector of strategic importance or national interest.
To go back to Asgat, is the deposit ready to be mined? And to whom will it belong?
The feasibility report for Asgat has been completed, so it is ready to be mined. But we must have a company first to run it. The Russians will keep Asgat with Monrostsvetmet as it is, but we are likely to transfer our share in Monrostsvetmet to Erdenes MGL.Besides Asgat,Mongolrostsvetmet also owns a fluorspar plant in Bor-Undur. We would have to review our options in the JV.
How did the Russians react to our proposal to let the oil and natural gas pipeline connecting Russia and China go through Mongolia?
We want this as a major mid- and long-term project to be implemented by three neighbouring countries which connect Europe and Asia. The proposal had been presented to China at our bilateral committee meeting and they were interested. Our plan is to build a five-pronged link that will connect China, Mongolia and Russia. We shall have a power line, a railroad, an auto road, and oil and natural gas pipelines. Transit through Mongolia could be very good for Russian trade with China. Now we have formally presented our interest to have Mongolian involvement in such movement of goods. Of course no decision will be taken immediately, but we must continue pursuing the matter.The Chinese government is very interested in the proposal for the oil and natural gas pipeline. The good thing is that all parties are agreed that as neighbours, we need to work together and not think of our own short-term interests.
We also talked about railways and discussed renovation of Ulaanbaatar Railways.
Do you think there will be agreement on building oil and natural gas pipelines between Russia and China through Mongolia?
We have formally submitted a proposal. Getting an agreement is much more work.
Mongolia plans to build its own oil pipeline to China in the near future. Last year PetroChina drilled 5 million barrels of crude. This is too an amount to be moved by road. Similarly, the increasing volume of coal exports makes transport by railroad imperative. We have agreed with China in principle to start building the oil pipeline from Tamsag to China this year, but there will be much to do before work can begin.
During the visit of our prime minister to China, a memorandum was signed to allow China to buy methane gas processed from Mongolian coal. This will be a new product and a new market for Mongolia. This too will require a pipeline. These two China-bound pipelines could be part of the Russia-China pipeline network. This would benefit all three countries. That much is clear but agreement will not come in a day.