G. Batsukh: Mongolia earns more than the investors in the form of taxes, royalties and other fees despite only owning 34 percent of Oyu Tolgoi
The following interview is with G. Batsukh, Chairman of Oyu Tolgoi LLC Board of Directors.
-There are rumors that the Mongolian members of the Board of Directors left during the meeting and there’s a chance that they will not come back to next meetings because of disagreements with other members. What is the reason for this?
-The meeting was held just as it should be and it is normal for meetings to be postponed. As for the recent meeting we discussed Oyu Tolgoi’s budget for 2013. We decided to hold another meeting because three Mongolian Board members did not agree to certain terms of the budget. Other than that they did not do anything like that – leaving a meeting or boycotting. The Board of Directors will assemble again for a meeting and discuss and resolve other important matters. It has been three years since Oyu Tolgoi LLC was established and two years since it’s Board of Directors was organized. Since then there have been absolutely no incidents involving abandoned or forcefully postponed meetings.
One of the distinctive features of Oyu Tolgoi Board of Directors is that it consists of nine English, Australian, American and Mongolian members who have world-class knowledge and skill in economy, business and politics. Previously, a former Governor of State of Massachusetts (USA) was part of theBoard of Members which shows how experienced the members are.
-How close do the three Mongolian members work with the Mongolian Government?
-The state-owned Erdenes Oyu Tolgoi LLC represents the Government. So the three Mongolian members take the Government’s direction and strategy through Erdenes Oyu Tolgoi. I would like to say that the three members – N. Bagabandi, B. Ganbold and P. Tsagaan are doing a great job at fulfilling their duties to protect and ensure the interests and benefits of Mongolia. They truly prove themselves to be great representatives of our society.
-Are ideas or rather opposition circulating among the public with regard to; the increase in the Mongolian share of the project, increasing Mongolian profit of the project or to make changes to the Oyu Tolgoi agreement. How do you take these ideas?
-The 34:66 percent is the result of an agreement signed between the Mongolian Government and investors back in October of 2009. I will not say that this agreement is a perfect one. This is the first agreement Mongolia made with investors that are exceptionally skilled and experienced in their sector, so there are both wins and losses for Mongolia in this agreement. It is a difficult challenge to win everything in one sitting. As for the percentage of ownership the Government and concerned Ministries are discussing the matter. This is not a decision that Oyu Tolgoi LLC or its Board of Directors can make but a decision for the Mongolian Government and the investors. We are only in the first phase of the project – construction was just finished and the concentrator is now in operation. We will now definitely see if Oyu Tolgoi project is profitable. It is not wise to talk about how much share we want from the project when the project has not even produced any minerals yet. We all know that the public has a lot of expectations for Oyu Tolgoi. Mongolia earns more than the investors in the form of taxes, royalties and other fees despite owning 34 percent of Oyu Tolgoi.
-The concentrator is now in operation – how will this affect Mongolian economy?
-To finish the Oyu Tolgoi project, the Oyu Tolgoi facility must be completed. It should consist of an; underground mine, open pit mine, concentrator and processing plants.
With the concentrator, we will be able to process the ore so it can be exported. Everyone has been spending money on this project but starting now we will be making profit. It is special because the latest and most advanced; mining, exploitation and management technology in the world today are being installed and utilized in Mongolia. Specialists from 44 UN States worked day and night with Mongolian engineers for the past three years to put this facility in operation. Once the processing plant is in operation it will produce value-added products that will have positive economic impact on Mongolia through taxes. The Oyu Tolgoi project is also directly contributing to the creation of a whole new generation of Mongolian engineers and technicians.
-To which countries will we be exporting the minerals to? What are the transportation methods?
-To have maximise profit and we need to cut expenditure in every operation. Transportation cost is the highest expense in mining. The closest market we have is People’s Republic is China (PRC). Aside from China being very close to Mongolia and greatly cutting transportation costs, China is the world’s largest consumer overall. We are also in relations with copper smelters in; Japan, Korea, Sweden and Australia. Currently, there is a road from Oyu Tolgoi to the border of PRC which will be in operation by [this spring.] The transportation tender was announced between Mongolian companies, the winner is not declared yet.
-Will there be a city built for Oyu Tolgoi, just like we did with the Erdenet mine (Erdenet City, the capital of Orkhon Province)?
-When we are running a project as large as Oyu Tolgoi, we cannot leave behind important matters such as people. We plan to have our workers to live comfortably with their families. We made researches and planning to build a city which connects directly to Khanbogd sum of SouthGobi Province (Umnugobi Province). But of course, we plan first and build much later, meaning it will require a certain amount of time before it is built. City planning requires a lot of other work – environmental research and demographics. The construction will probably begin sometimes in the next two years.
-What is the population of the planned city?
-The city would have 15,000 to 20,000 people, the current population of Khanbogd included. This city will have everything the population will need – kindergartens, hospitals, cinemas and schools.
-How are the workers trained?
-Although not in the agreement itself, Oyu Tolgoi LLC renewed 5 vocational training centers and established three new vocational training centers in Nalaikh, Dalanzadgad and Darkhan. We planned to spend USD 146 million on vocational training through five years.
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