Mine
Managing resources: UB seminar shares experiences
2016-04-04
B.Tugsbilegt
Since boom-bust-boom cycles are normal in commodity markets, it is essential for resource-rich countries to manage their underground wealth prudently, through good times and bad. Some countries have done this more successfully than others, and Norway is taken to be among the best of them, while Mongolia realises it has not been particularly successful in fulfilling its potential. Organised jointly by the Ministry of Foreign Affairs of Mongolia and the Oslo Center of Norway, a seminar titled Sound Management of Natural Resources was held in Ulaanbaatar on 16 and 17 March. Representatives from Timor-Leste, the Kyrgyz Republic, Norway and Mongolia attended the seminar to share their experiences and to exchange ideas for the future.
Fishery is still more important for Norway than oil sector
In his keynote address Einar Steensnas, who has been education minister and also minister of petroleum and energy in Norway, gave an account of how his country has turned its oil and gas sector revenues into a permanent blessing. Much of these was put into a Petroleum Fund set up in 1990. It was later renamed the Norway Pension Fund which was worth $755 billion at the end of 2015, making it the world’s third largest pension fund after the ones in the US and Japan. It is thus taken as one of the best examples of how a country has used revenues from its extractive industry.
Norway has 82 oil and gas deposits and exports, including pipeline fees, annually fetch $90 billion or 23% of the Norwegian Government’s income. It is the 10th largest exporter of oil and the third largest of gas in the world but its greenhouse emission rate is much lower than others’ in the league, as Norway started following strict environmental standards early on and has also had a carbon tax system in place for years.
The discovery of Norway’s first oil field in 1969, at Ekofisk, was a surprise for its people. Even geologists in general were then not expecting to find oil. Norwegians were unprepared for this bonanza, but they knew and understood that the gains it promised came at a risk. Leaving complacency side, Norway kept fishery as the base of their social order and also of the economy of the country, and it has remained so, ahead of the extractive industry, in people’s mind and economic importance, Steensnas said.
The State owns 67 per cent of Statoil, the company that manages all oil projects, while another State-owned company, Petoro, is responsible for grant of exploration and production licences. The government bears the cost of all exploration work and thus it is taken to be fair that the total tax rate for the oil sector is 78 per cent. Even this apparently high rate does not discourage private companies from investing in Norway.
One surprise for Mongolians in Steensnжs’s speech was the revelation that Norway’s major parties are agreed on a consensus on policy in three major areas – foreign affairs, the pension fund and oil and gas. This ensures stability regardless of the political situation.
Steensnas was quick to reassure his audience that it has not always been smooth sailing for his country. Norway also made mistakes and met with failures as it went about developing its oil and gas sector from scratch. But they put all this experience to good use and as a result Norway is today seen as one of the best examples of good management of natural resources.
East Timor wants to lessen its dependence on oil revenue
The International Monetary Fund has found East Timor to be the country most dependent on its oil revenue. East Timor, as Timor-Leste is commonly called in English, is the 15,000-sq-km sovereign half of an island which it shares with Indonesia, with Australia as its other close neighbour. After 500 years of colonisation by Portugal and then 25 years of Indonesian occupation, East Timor became independent in 2002. Oil deposits in East Timor are around the coast. Some of these are planned to be extracted with Australian cooperation, and some are already being worked by international companies. Some exploration work has also started.
Mr. Alfredo Manuel da Cruz Valerio Pires, Minister of Petroleum, represented Timor-Leste at the seminar. He revealed that East Timor used to extract 100,000 barrels of oil per day, but following falling prices, this has been reduced to 40,000. Lower prices also brought down in 2015 the annual revenue from oil from between $1.8 billion and $3.7 billion in earlier years to $1 billion. East Timor established a Petroleum Fund for the future generation in 2005 and it has accumulated a capital of $16 billion. Almost all the Government’s expenses are met from this fund, and East Timor is seeking ways to manage the fund better so that the capital is not depleted too soon.
Currently estimates of deposits vary between 6 billion and 8 billion barrels, which is sought to be increased by further exploration in sea and on land. Human resource development is an important part of this programme. For the last eight years, the country has been sending people abroad for study and training, and now has a total of 500 geological experts. The country has been ranked third globally by the Extractive Industries Transparency Initiative.
In a bid to lessen its overwhelming dependence on oil, East Timor aims to diversify its economy even as it plans to set up a plant to liquefy natural gas, and an oil refinery and to construct pipelines to Australia. According to the Minister, East Timor could export to Australia goods and services worth $50 billion to $70 billion.
Kyrgyzstan has strategies for development of mining
Zilaliev Teksherbekovich, Director of the State Agency for Geology and Mineral Resources, represented Kyrgyzstan at the seminar. Describing the opportunities and problems faced in his country’s mining sector, he said 490 deposits and more than 800 occurrences have been identified. These are in gold, coal, tin, antimony, tungsten, mercury and copper. The National Strategy on Sustainable Development for 2013-2017, and the Mining Sector Development Strategy for 2015-2035 are expressions of the State policy in the mining sector. Their main goal is “dynamic and diversified development of the mining sector through the balance of interests of the state, investors and local communities for the sake of the future generations’ well-being and safety of the environment”.
The mining sector accounts for 8.35% of Kyrgyzstan’s GDP, and 31.8% of the total number of investments. Gold, antimony, uranium and copper mines are already operating, while oil, tungsten and tin mine projects are expected to begin soon. Altogether 1,950 special licences have been issued of which 234 are for prospecting, 741 for exploration and 968 for extraction. Non-metallic licences number 879, with coal accounting for 316 of them, gold for 319, oil and gas for 61, and other metals together for 91.
Mongolia among top 10 countries with gold, copper and coal
The presentation by the Minister of Mining, R.Jigjid, dealt with the strategy behind the development of Mongolia’s mining sector. This drew the attention of other participants, and there were a number of questions from Kyrgyz and East Timorese delegates. Jigjid said the share of Mongolia’s mining sector in the country’s GDP is 18%, in exports revenue 79%, and in budget revenue 21%. Geological mapping on a scale of 1:50000 now covers 34% of Mongolia’s total area and this would soon rise to 40%. Some 1,950 deposits of 80 types of mineral resources, and more than 8,000 occurrences are currently identified all over the country. Mongolia is among the first 10 countries in the world in their copper, gold and coal reserves. In absolute terms, Mongolia has 2,493 tons of gold, 117 million tons of copper and 175.5 billion tons of coal. These are just the identified reserves, and many parts of the country are yet to be professionally explored.
In 2015, a total of 1,835 exploration and 1,494 extraction licences were issued, covering 8.9% of the country. At the moment, there are 300 mines actively operating, and Mongolia has 50,000 workers in the mining sector.
Among the conclusions to be drawn from the presentations at the seminar, a major one was that continued development of mineral resources in the participating countries called for availability of highly skilled workers in the next generation. Another was that countries like Mongolia and East Timor have spent more of their resources revenues than they possibly should have, while Norway has been more careful about saving and providing for the future. This is a global phenomenon, as studies conducted by the Oslo Center have found that almost all 81 countries in the developing world that are largely dependent on income from their mineral resources, have found themselves in economic difficulties. The seminar should give young countries like Mongolia, East Timor and Kyrgyzstan the confidence to change their ways, and treat their mineral resources as capital to be used for the future.