Ongoing mining disputes hurt growth

By Paulius Kuncinas
Regional Editor, Oxford Business Group

Following recent disagreements between the government and major international mining companies, Mongolia is taking steps to reassure investors. It has proven difficult, however, to convince some parties that these disputes are not indicative of a deeper conflict building between the present leadership and the foreign firms that are extracting minerals.
In mid-March government officials said that the disagreement with multinational mining firm Rio Tinto on key points relating to cost overruns, the feasibility study for phase two of the Oyu Tolgoi copper-gold mine, and the employment of Mongolian workers would not delay the start of production, which is scheduled to take place at the end of June 2013.
“The Mongolian government and the investor both [want to] highlight the importance of production starting on time,” Dorjsuren Javkhlanbold, a senior official at the Ministry of Mining, told Reuters.
In a further bid to calm investors, the government also announced in March that it will ease the recently introduced legislation on foreign investment. Legislation currently requires that any deal worth more than 100 billion MNT (71.9 million USD) and involving the transfer of more than 49% of a Mongolian company to a foreign group is referred to parliament for approval. Referring to this legislation, Luvsanvandan Bold, the minister for foreign affairs, said on March 21 that the threshold would be raised to 1 trillion MNT (719.7 million USD).
“There will be changes in the law in the near future so that the international community and investors will be happy,” said L.Bold.
Such steps are likely be condemned, however, by politicians who believe major international firms such as Rio Tinto are taking advantage of the country’s resource wealth. Under its original deal with Rio Tinto, signed in 2009, the government was granted a 34% stake in the Oyu Tolgoi project, which will rise to 50% after the first 30 years of operation. Pressure from opposition politicians, however, saw the government attempt to renegotiate this in October 2012, as well as attempt to increase the size of royalty payments, but a revised deal was not reached.
When the massive Oyu Tolgoi copper and gold mine comes on stream in 2013, it is set to double the size of the economy. Meanwhile, the equally giant Tavan Tolgoi coal deposit, which is estimated to hold some 6 billion tons of reserves, will also play a significant role in economic expansion.
The coal sector has also seen some disputes. Earlier this year state-owned Erdenes-Tavan Tolgoi (ETT), the firm that manages the Tavan Tolgoi coking coal mine, said it wanted to renegotiate its deal with the China Aluminium International Trading Company (CHALCO). CHALCO responded in January that it would seek legal redress if a decision was made to alter the agreement signed in 2011. The agreement between the two firms saw the Chinese firm lend ETT some 350 million USD, which the Mongolian company was required to repay with Tavan Tolgoi coal, for a set price per ton.
Meanwhile, CHALCO had planned to make a 926 million USD bid for SouthGobi Resources, a Canadian firm based in Mongolia, but abandoned its proposal in October 2012 after strong suggestions that the government would not approve it. The firm also cited uncertainty over the regulatory environment as a cause for abandoning the proposal.
Critics say that to ensure its citizens benefit wholly from the resource wealth, the country must build capacity among its human resources, ensuring there is sufficient scope for its people to take on more than unskilled jobs within the mining sector.
“There is a significant need for techno-economic based capacity building and associated technology awareness training to be provided, covering the efficiency and environmental impacts of clean coal and alternative technologies,” wrote Andrew Minchiner, Principal Associate at the IEA Clean Coal Centre, in March 2013. “This is necessary both to assist the nation in its near-term development plans and also to build up the national capacity from a longer-term sustainable perspective.”
Indeed, unless the country is able to strike a proper balance between nationalist sentiment, protecting its resources and keeping foreign investors happy, the basis for healthy economic assessments for the near term could be significantly impacted. To ensure continued prosperity, Ulaanbaatar needs to improve its ability to communicate, as well as take a more inclusive approach to dealing with international mining firms.

Short URL: http://ubpost.mongolnews.mn/?p=3490

Posted by on Mar 31 2013. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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