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TACKLING ISSUES AS THEY ARISE IS BETTER THAN STUBBORNLY FOLLOWING A PREDETERMINED PLAN

D.Zorigt tells G.Iderkhangai that the first priority of his Ministry of Mineral Resources and Energy is to set up Erdenes Tavan Tolgoi and to see that it works as an internationally competitive company, belying popular fears that a State-owned entity will not deliver the goods.


How is your Ministry preparing for all the issues relating to Tavan Tolgoi that Parliament will be asked to discuss in the Autumn session?

The absolutely first job is to establish Erdenes MGL’s subsidiary Erdenes Tavan Tolgoi so that mining can begin without any further delay. The Government has other tasks like arranging for the free distribution of 10% share of Erdenes Tavan Tolgoi to citizens, selling 10% more to national companies at a nominated price, and offering another 30% on foreign and local stock exchanges. Apart from this, the present feasibility study on Tavan Tolgoi will be reviewed by international organizations and local experts. Once the revised study is ready, mining should start immediately.

State-owned enterprises do not have a reputation for efficiency and profitability. Will this be the same in the case of Erdenes Tavan Tolgoi?

Yes, that popular perception is there, and not unjustly so. However, we shall be guided by experience. We shall have better results if we follow international practice carefully. There should be transparency in selecting the management team, and professionals with international experience should be chosen. Once the team issues the public shares of Erdenes Tavan Tolgoi, the company will run well.

Of course, we shall have to lay the groundwork before that public offer. We shall be advised by international entities such as McKinsey on the best way to go to a stock exchange.

The impression has been created that selection of a foreign company to operate the mine will follow the Government of its country agreeing to some preconditions laid down by the Mongolian Government. How far are China and Russia from doing so?

Our Ministry has nothing to do with any such preconditions. Our priority is to start work on a project that will draw international attention and respect. Of course, the Government should study issues related to transit transport, advance payment and such things before offering terms to the investor. Preconditions will be discussed once the location and timing of the mining operation are clearer.

A transit transport agreement is very important for delivering the coal to foreign markets at the best price. How far are we from reaching such an agreement that offers benefits to us?
Parliament’s approval of the national railway policy has been a very important step. The proposed mega railway will allow us access to more sea routes and to choose the most competitive ones. The competitiveness of our exports will depend on what price we charge for them after meeting production and transport costs, apart from other costs. This makes cheaper transit transport facilities very important.

Will you clarify this a little?

The agreed transit transport tariff should be valid for a long term. The aim is to make our export commodities more competitive than Russia’s and China’s, so the tariff must be stable to enable us to plan for years together.

There are several other issues in transit transport. Will the coal be carried in open wagons?

You are right. Many things, big and small, will have to be solved apart from rates of transport when we negotiate transit agreements. Open wagons is one, export tax is another. We shall, of course, argue that anything covered by a transit transport agreement should be exempt from paying any export tax.

The railway policy applies to only domestic issues. Does it cover areas like accessing the most convenient ports for offering the commodity on international markets?

The choice of ports will never be easy for the Transportation Ministry. Our Ministry has no role in this.

What are you doing to determine the category of the coal?

Work has begun. A coal washing plant is being built inUkhaa Khudag, where Energy Resources is doing the mining. Washed coal is sold at a better price. We shall also use new technology to mix high grade coal with medium quality, so that better use is made of the deposit as a whole. Our policy is one of maximum utilisation, letting nothing be wasted. I do not see much merit in deciding everything beforehand and then sticking to it. We shall certainly have a general long-term vision and goal, but once we begin, there must be freedom to improvise, to respond to situations as they emerge. Deciding everything in advance is a sure prescription to failure. Personally, I’m happy to have an open mind.

International investors can be attracted only after an evaluation of the deposit is made according to international standards. Do we need a more thoroughly done feasibility study?

The first feasibility study of Tavan Tolgoi was done in the 1980s and this was revised once after 2000. This covered a large area of what is now Energy Resources’ territory. Erdenes MGL has also updated this. Thus we cannot say that there is no feasibility study of the deposit. But I accept that certain modifications will be necessary to work with an investor in a part of the deposit.

What about the reserves of Tavan Tolgoi? Are they confirmed?

They are. The figure was confirmed by Mongolian and Soviet experts in 1988. However, we shall carry out a comprehensive review of this and reach a figure attested by international standards. Quite some work has already been done to get the reserves updated according to the Australian JORC standards. There is a possibility that the final figure will place the reserves at higher than the presently accepted is 6.4 billion tons. Application of Canadian standards showed the reserves were over 7 billion tons, of which 3 billion tons were coking coal.

More exploration will be done, especially in the eastern areas of Shar Tolgoi and Bor Tolgoi, before arriving at the final figures to be incorporated in the feasibility study. As your journal is read by professionals, they will understand what I am talking about. When Erdenet began, the estimated confirmed reserves reserve at 8 tons was 4 million tons of copper and molybdenum. Later exploration put confirmed reserves at 8 tons and also indicated probable reserve. This happened after Erdenet had been in operation for 10 years. In the same way the feasibility study for Tavan Tolgoi can be updated by adding the confirmed reserve of Tsanh and Bor Teeg areas. Further exploration can always be made.

Parliament has not favoured the division of Tavan Tolgoi into two parts, instead asking Erdenes Tavan Tolgoi to fully own the entire deposit. In what way is this an improvement?

The Government has to implement whatever decision is taken by Parliament. The present decision gives us the opportunity to promote national entrepreneurs, and to set up a national company with international competitiveness.

Would the subsidiary status of Erdenes Tavan Tolgoi restrict its role and effectiveness?

No. It will have the same legal status as a license holder. Its board will be constituted according to law and it will abide by the provisions of the Human Development Fund law and other such laws. I repeat that Erdenes Tavan Tolgoi will become a company to be reckoned with internationally. We shall not make the mistakes we made earlier with State-owned companies. Its shares will be assets to the people. It will be run efficiently and transparently and will be a model of prudent corporate management.

You say 30% of the company’s shares will be offered on foreign and local stock exchanges. Can our poorly developed stock exchange keep pace with foreign stock exchanges?

The first shares will be offered to Mongolian nationals and business entities. A similar practice was followed by the Australian telecommunication monopoly company Telstra. Limting foreign participation to 30% is also nothing new. But yes, our stock exchange has to be expanded and upgraded. The Government is in the process of selecting a management team to develop the stock exchange to an international level.

Has Parliament laid down any guidelines on how to choose from among the international bidders for Tavan Tolgoi?

Parliament has said the investor in Tavan Tolgoi should be selected through an open bid. The revised feasibility study will be given to the foreign consortiums and then they will be asked to make open bids. This does not have to be very soon. First, the national company has to be set up and begin mining operation, and then shares offered on local and foreign stock exchanges.

Parliament has said the agreement with the investor in Tavan Tolgoi will be for 15 years, not 30. How wise is this?

Parliament will review this when it receives the draft investment agreement for discussio

How difficult will it be to adopt international standards in urban planning, construction of factories, developing infrastructure etc.?

Parliament has emphasized the need to adhere to international standards. This is a basic requirement if Mongolia is to be like some other countries with rich mineral resources like, for example, Canada, Australia, or the Arab states. Of course our Ministry does not have the responsibility for all the work. But as far as we are concerned, we have noted our similarity with Canada and Australia regarding the primacy of natural resources, the political system and population density Our Ministry will be preparing a feasibility study of major strategic deposits according to international standards, with help from the World Bank, which will soon name its consultant. Not that we have no experience of preparing perfectly adequate feasibility studies on our own, particularly in mining. But we plan to take no chances with international acceptability.
Not all mining camps in the country meet international standards. This has to change. We also do not have satisfactory regulations on taking over mining operations from a company if the need arises, and on closure procedures. It may take two years to bring all this up to international standards. The other related ministries responsible for road and urban development etc. also will have to comply with international regulations.

Let us move to a personal aspect. Congratulations on being included among those who made the most impact on the nation’s economy in the first half of the year in an opinion poll jointly conducted by MMJ and the Press Institute.

Thank you. The sector for which I am responsible has made me a subject of media attention.

What recent decisions have had the most impact on our economic development?

The Concession law is one of the most important, and I must thank the head and all members of the working group who initiated this law. This law will lead to a major improvement in the economic legal environment. Several banking laws have been very bold, like the recent one amending the Government guarantee to bank depositors.

The initial steps on Tavan Tolgoi are also important. The Parliament resolution will prove to be instrumental in starting mining there. And of course, the railway policy has to be mentioned. Politics finally gave way to economics and Mongolia now has a truly 21st–century policy.

What significant decisions failed to have the desired effects or have created public confusion?

The compensation law comes to mind. I would not go so far as to say that it has been unsuccessful, but it has resulted in a lot of confusion. It is not clear who should apply for compensation and also who should pay it. The principles behind the law are important, but the implementation mechanism has been unclear. It is also a pity the draft on structural changes in the banking sector was never submitted to Parliament.
A draft setting out terms for foreign investment in specific strategic sectors has been pending before Parliament since last year. Its legal content is very good, protecting against unwanted foreign participation in strategically important sectors and allowing the State a larger share in ownership. It is modelled on Australian and German laws and its adoption would be a big step in the development of our strategically important sectors.

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