November 26, 2008 – 12:42 am | by Amarsanaa |Mr. Do.Ganbold, the President of the Mining Association of Mongolia has his views on the draft appendix on guidelines of the negotiation making on the investment agreement of Oyu Tolgoi and Tavan Tolgoi.
Q: Working group, led by MP Kh.Badamsuren, is about to present its draft resolution of instruction guideline in investment agreement. What is your position being as the President of the Mongolian Mining Association.
A: Looking at the resolution draft. It can be said that it has much more positive and progressive ideas than the voices at the State Great Khural. I understand that even it is already late, but it can show its effect immediately when I saw a provision on working within the current effective law framework. But when I have a look at there were some provisions that were in conflict. Q: For example?
A: The first two points. At the first point of the draft resolution of Tavan Tolgoi, there is “…The agreement must be made within the current effective laws.” But in the second point, it said that to study and examine the Mongolian side’s possibility of acquiring 51% of Tavan Tolgoi deposit. What does it mean is that the first point rejects the second point. Because, according to the current effective Mineral Law of Mongolia, the State’s ownership is limited up to 50% of strategically important deposits, if the exploration budget was funded by the Government. Therefore, it can be interpreted that the second point is to study and examine the possibilities of breaching Mineral Law of Mongolia.
To develop such a resolution draft is tricky to determine whether it was made with purpose or in accident. Such an unclear situation or basically uncertainty creates burden and trouble for the investors not only in mining sector even in other sectors.
Q: So, the investors’ attitude towards the resolution draft is unpleasant?
A: Two types of suspicious things can be seen from here.
Q: And?
A: First, it was developed by absolutely under educated man and the second it would create total unclear condition in the future.
Q: Basically, the politicians are confident that once they have resolution draft, then the policy of the Mongolian State has become clear.
A: The general concept is not wrong. The most important thing is that the two points are conflict with each other. Therefore, it creates expectation within the investors that the agreement will be signed within the framework of legislation or the legislation might be changed or amended. As for the investors, every action must be made within the framework of the current effective legislation. Otherwise, it is very difficult condition to make an agreement that overrule the legislation and then change or amend the law afterwards.
Q: Once it was decided to summarize all the comments and legal effectiveness on the resolution within December 1 2008 and to propose it by December 1 2008. Isn’t it an opportunity? At least we won’t waste more time?
A: it is already obvious that it cannot be made before December 1 2008. It is true that the working group, led by MP Kh.Badamsuren, proposed its resolution draft within its given time. But it cannot bring the resolution draft and draft law together by December 1 2008. Actually, the budget is under fierce discussion and MPs have less time to adopt it. Moreover, its intention to adopt it before a New Year is impossible. Time will not allow, plus, it cannot be said an excellent work when it developed internally contradicting resolution draft.
Q: Was it bad resolution draft?
A: I didn’t say exactly this word. It is pretty impressive and advanced draft than it was discussed before. But it has relativity.
Q: Minister D.Zorigt for Mineral Resource and Energy said during “Discover Mongolia 2008 Forum” that investors should wait until November 15 2008, and then everything will be clear. Did investors believe in his word?
A: Once it was promised, they believed in it. But due to many factors and time strength, it was another example of “the Mongolians’ tomorrow never ends”.
Q: In the resolution draft, there was point about pre-payment and also the previous Oyu Tolgoi agreement draft had such a clause. Will investors agree now to pay pre-payment?
A: Personally, I believe that the Mongolian condition will become worse, because of reality. Investment environment has become worst ever. When it was ok, investors said that it can be solved, but now everyone knows about the situation. The commodity price fell by twice and the investment and financial capacity were fallen by same size. Therefore, we can demand the best solution for Mongolia when things were in favor for us. We don’t have that strong negotiation position anymore. Now we should negotiate based on the worst case. Actually, the draft agreement that was discussed about a year ago was the best alternative. But today, I cannot guarantee that investors might reject many of our requirements.
Q: MPs say that we agreed on Oyu Tolgoi project investment agreement. Now this proposal can be pursued and effective. Therefore, it means that investors agree to pay pre-payment from the income of the project.
A: It is not like that. Proposal has own time. That proposal was effective at that time. Business is all about the time, for example, a proposal will become impossible tomorrow, but another proposal that was impossible today will be possible tomorrow. It is not necessary to about market economy for those who don’t understand such easy logic.
Q: Can you answer me directly about the pre-payment of tax?
A: It is an absurd. What taxes can be levied and calculated on what basis? What will be the price and what will be the profit? Moreover, it is even tricky to believe in that even if the agreement is signed, there is a question about can it be fully funded within the first or two years. Actually, the Government of Mongolia should prepare for everything that depends from itself. Actually, it prepared, but it ruined itself. Now who is suffering the most, the Mongolian people! I warned many times that “Who will bear the responsibility, when the commodity price falls?”
Q: According to you, who is responsible for it?
A: Those who were against the truth and dying not to make this agreement. Now they have no words to say.
Q: Some of them are politicians and another is movements and demonstrations. Are these movements and demonstrations legally responsible subject?
A: Responsibility is reputation. But it is not to be fined or pay the penalty. Now, nobody listen to them.
Q: Do movements or demonstrations express their opposition?
A: No. Their lie was proven by the reality. Therefore, they have no word to say. Actually, nobody would listen to them anymore.
Q: So, nobody opposes it and the Government strictly decided to sign an investment agreement. But do investors are ready for it?
A: The parties must sit in the negotiation table. Otherwise, there is no need to develop resolution draft etc, wasting precious time with papers. Once the agreement will be made within the legal framework, then why need to adopt another resolution for it. When somebody issues resolution to make an agreement? It is not necessary. Investors are ready to sit at the negotiation table instead.
Q: In other words, there was the tendency of being humble, patient and easy-going when dealing with the investors. Isn’t it the Government is giving up from its position?
A: It is not the issue of one is winning and another is losing. It is just a principle o cooperating. It has been so long when one side expresses its cooperation interest and another side rejects it. Now it is the time to think about how we can cooperate when the situation is critical. But the politicians’ attitude is not business minded but driven by the political interests.
Q: World financial crisis is explained in two different ways. One say there is no effect of it in Mongolia, but another says that it severely affects Mongolia. What is you opinion regarding this two contradictory explanations?
A: If somebody says that there is no crisis in Mongolia, I would call him evil man and doing it with evil purpose. I hope that they say because they have no knowledge on it. At least, let’s have a look at the budget of next year. Very simply, if somebody’s salary is 1000 MNT today, it will be automatically 600 MNT next year. Isn’t it crisis? If it continue this way long, for Mongolia which has single pillar economy that based mostly on commodity export, the situation will be much worse. We cannot shrink this already settled expenditure. Mongolians have not that luxurious expenditure, our expenditure is very basic. What expenditure we will cut? Do we warm our “ghers” (Mongolian traditional housing) once in a day instead of twice in a day winter season? Of course, the budget must be shrunk and optimized in its best way.
Q: MPs agree on cost cut. But they acts in reverse, by providing goat and children money. Recently they have 1 billion MNT per each elected district.
A: I have no idea on what they have in their mind. I have no power and knowledge to explain on behalf of them.
Q: But they have to realize two deposits and raise money from them to compensate the expenditure.
A: If the negotiation on these two deposits start today and be adopted tomorrow, then it needs three years. If it was signed two years ago, Oyu Tolgoi had a capacity of 3.5 times bigger than Erdenet mine. Budget income decreased by two times, it means Erdenet’s income decreased by 2 times. If that construction of Oyu Tolgoi started, today Mongolia will not be in misery like today. Actually, the Government is to balance the opportunity and crisis over a period.
Q: People give their votes when they have trust in politicians. MP N.Batbayar had good reputation because he brought huge money to Mongolia. But today he says that next year Mongolia will be ok, but in year 2010, there will not be children money. What is your opinion?
A: We warned many times and opposed it. One day it will fall and when it falls, the situation will become much worse. We warned that when this time would come, there would not be an answer for it. Actually, they would have had answer much before, otherwise they should not say like it will be “OK”. It is not answer; he or she must give up from his or her MP seat.
Q: It is obvious that companies are selling their gold at the black market. Does your Association advise them to sell their gold to Bank of Mongolia?
A: If they accept our word, they would have sold their all gold to the Bank of Mongolia. But these people are for the profit. There can be some temples or charity organization that gives away 70% of its income to others. If investors are asked to become temple or monks, they would not. This is obvious. Even it is wealth beneath the ground and property of the State, but there must be some cost to excavate or exploit it. If there is appropriate balance of taxation, the economy goes wrong and it was proven by the history. But we are here to prove it again.
Q: What is your view towards the new minister for Mineral Resource and Energy?
A: I know him since the executive director of Erdenes Mongolia LLC. Basically, we share common understanding in the issues of how to develop this industry. Therefore, I believe that we can understand each other.
Q: How is the Government capable with acquiring some equity in the strategic deposits?
A: Even the top limit of 34% of acquisition is still hard for investors to accept. As for the Government of Mongolia, it will need to seek loan to provide its part. But there will be a question that does the Mongolian Government has capacity to bear such a huge amount of loan and its interest rate? For example, if the Government of Mongolia acquires 34% of Oyu Tolgoi, then it will not have tax income because of paying back its loan. Also no dividends. If the project’s budget is 5 billion US$, the Mongolia needs 1.7 billion US$. The government should decide whether to take so much risk in order to acquire 34% of it or gain about 50% of total profit after its production. It is not necessary to write or compose a fairy tale and re-write its plot in this situation.
Q: Another but important question; there was a hearsay about that the Grant of the Motherland which was the election promise of 1.5 million MNT would be provided as the profit of the strategically important deposits. Therefore, the Mongolian side is pushing to insert the clause of its ownership in the deposits.
A: Frankly, it is impossible.
Q: At the end of this interview, I would like to ask about the numbers of new investors in mining industry of Mongolia?
A: Almost no new investors took part in “Discover Mongolia 2008 Forum”. Only the solid and well established investors attended. They will not leave tat easy. Because, they are not like “moody wives”, changing their mind easily. They make calculation of copper price in the average of 50 years. But many Mongolians were suspecting them why to calculate copper price at 2700 US$ when it was over 8000 US$. Who is going to “eat” the difference? If the calculation is not like that international financial organizations would call it as “false calculation” and will reject to give loan. Mongolia lost so much opportunities and changes. Once we lost, we should think about to recover from it.