The Mongolian Mining Journal /Oct.2020/
G.Yondon has brought a lifetime’s experience of working in senior positions in the mining sector to his new charge as Minister of Mining and Heavy Industry. This gives him an insider’s understanding of the importance to properly develop the sector. The pandemic was a baptism of fire, and in this interview, he tells G. Iderkhangai about how things are improving, and about the policies that would direct the path the sector takes in both the short and the long terms.
What priorities did you bring to your new responsibility and what has emerged from your meetings with various groups of stakeholders?
As Minister, I involved all staff in preparing the Ministry’s component of the Government’s Action Plan 2020-2024 and the Main Directions of Development of Mongolia 2021-2025, and thanks to their initiative and hard work, both were ratified with few changes by the parliament in August. Now that the road map is clear, our priority is to devise the execution strategy and follow it with care.
We have started visiting mines and plants to learn firsthand what the situation in every place is. We look at their urgent problems, exchange views and find the best solutions. Everybody would be allocated specific tasks and there would be regular monitoring of work and progress. We have already made two visits to the mine of Erdenes Tavan Tolgoi to identify the best place where the Tavantolgoi-Gashuunsukhait and the Tavantolgoi-Zuunbayan railway routes should intersect, and also to take decisions on the coal processing plant and the power plant. The final decisions would be jointly taken by the Ministry of Road and Transport Development and the Ministry of Power.
In addition to this, I was in the team led by the Prime Minister which recently visited the Darkhan Metallurgical Plant and now we have to decide on where the proposed steel plant would come up and how it would be provided with power. We have had meetings with ambassadors of India, China, Australia, the US and the UK, as also with representatives of the UN and the European Bank for Reconstruction and Development to explore ways of cooperation. They all want to know what measures would be taken to make conditions fair and favourable for investors. Some concrete proposals were also made. For example, some ambassadors were ready to try to bring in investment in exploration, while some wished to be involved in projects to process copper concentrate and develop the metallurgical industry. The international organizations suggested support for programmes to develop eco-friendly, transparent and responsible mining. The US and the Australian ambassadors offered to cooperate with the National Geological Service. We shall study these proposals and see which have the best potential from the point of socio-economic efficiency and mutual benefit.
How do you get exports to rise?
We must increase output at the large deposits and their exports, to get more benefits for society and the economy. The two railway projects will be very important for them. As Erdenes Tavan Tolgoi funds their construction, I have, as Minister, travelled along the route of both railways to see for myself the progress of the work and the conditions under which it is being carried out. As has often been said, commissioning of the Tavantolgoi-Gashuunsukhait route will make it possible to transport up to 30 million tonnes of coal a year, and the transport costs would go down by at least $20/t from what it is now. Taken together, the two would bring over $600 million to exporters. u
The Tavantolgoi-Zuunbayan railroad would help carry Tavantolgoi coal to the northeastern areas of China, where there is a lot of heavy industry, and also to sea ports, before going to other countries. There are 37 mining licences along the Tavantolgoi-Zuunbayan railway route, and as they come into production, all should avail themselves of the railway services.
The new procedures at the border, introduced on August 5, have shown very good results in facilitating the export of mining products. How was this achieved?
Under the new procedures, called the Green Gateway, truck operators stay overnight in China, not far from the border. Our two countries have agreed on what preventive measures they have to take against any possible spread of the Covid 19 virus. They stay in hotels closed to the Chinese, but which have to be run according to pre-determined standards. Our ministry prepared a detailed plan to reorganize the border crossing procedures and this was discussed and approved by both the State Emergency Commission and the Government, with the understanding that these are temporary measures to be observed only as long as the pandemic lasts. Things are indeed working well, with significantly larger volumes being exported through more border points.
What progress has been made in the execution of the Government’s Heavy Industry Development Programme 2019-2023?
The programme is aimed at not just supporting the coal sector, but also at creating the basic conditions for enabling production of value-added final products. However, it is impossible to develop heavy industry without solving the issue of water in the Gobi region which is our mining hub. We hope to soon have a high-powered working group consisting of representatives from the central administrative organization tasked with implementing priority infrastructure projects, local community leaders, and the private sector and this will review and resolve urgent problems.
The Action Plan of the government includes specific projects in the heavy industry sector. Among these are a copper concentrate processing plant and a plant producing cathode copper from oxidized ore in Orkhon aimag, and plants producing steel items and an oil refinery in Darkhan-Uul, Orkhon and Dornogovi aimags. Over 90 percent of our exports are products requiring little technology. We must focus on producing domestically processed and value added items that are of greater worth in foreign markets.
The Constitution says natural resources are “state public property”, but your predecessor at the ministry once said that the ministry does not favour the “public” part. Will you take up a formal position on this?
Many, including law makers and commentators on the Constitution, feel the amendment has not really changed anything in a substantial way. There is hardly any difference between “state public property” and “state property” and “public property”.
What is now important is that we quickly prepare a draft law on the national wealth fund, clearly indicating how a part of the income from the minerals sector can be saved for later use.
What about the Erdenes Tavan Tolgoi IPO, especially now that Erdenes Tavan Tolgoi Mining, the company created for the purpose, stands liquidated?
I think that it was right not to proceed with the IPO, given the circumstances at the time. Now two railroads that would carry Tavantolgoi coal are under construction, and the deposit would also have a power plant and a coal processing plant. All this would increase the value and competitiveness of the Tavantolgoi deposit, making it more attractive to investors. I think an IPO would be more successful if it is issued after some good progress has been made in these construction programmes.
How do you expect foreign investment in the mining sector to return?
The mining sector accounted for 75 percent of the country’s foreign direct investment (FDI) as of the end of 2019. FDI in the first quarter of 2020 fell by 2.1 percent y-o-y, but this was more for macro-economic reasons than for the state of the mining sector. Several things have to be done to attract investment in mining, the most important of which is to offer investors an unambiguous and stable legal environment in which to work in Mongolia. With this in mind and with support from the GIZ, the ministry put the more important laws in the mineral sector through a toothcomb and found that there are 267 duplications, 150 contradictions and 150 ambiguities. A draft law to be rid of these anomalies is ready to be submitted to the parliament. In addition, we are reviewing regulations so that licences are obtained more easily. That would give a boost to the geology and exploration sector.
The National Geo Data Program provides geological and exploration data and information to investors. With support from the Government of Australia, we have developed MonGeoCat, an online catalogue of geological studies and reports that meet international standards. Its success is indicated by the fact that so far, 5,045 people from 68 countries and 15,800 users in Mongolia have accessed it 144,000 times.
All this should encourage investment in the geological and exploration sector and also reduce risks.
We cannot put large deposits into economic circulation and build processing plants without foreign investment and advanced technology. We shall take certain steps to plug this crucial gap, such as opening up more areas to product sharing agreements, ensuring that local authorities give more attention to implementing laws and resolutions and decisions taken by competent authorities, and encouraging them to develop mutually beneficial relations with mining companies. We certainly appreciate that local citizens’ attitude to mining is an important criterion for investing in any area.
Some $10 billion worth of ore will not be extracted from the underground mine, which would also start operations later than planned and cost more to develop. How does all this fit in with last year’s Parliamentary resolution calling on the government to ensure that Mongolia gets more benefit from Oyu Tolgoi?
We are committed to the successful implementation of the Oyu Tolgoi project. Right now, the company is preparing a fresh estimate of the deposit’s reserve and also a fresh feasibility study. The reserve estimate will have to be approved by the Mineral Resources Council before it can be registered at the State Reserve Fund. After this, the feasibility study would be discussed by the Mineral Resources Professional Council (MRPC). An experts’ team has been authorized by the Ministry to seek more information on the fresh reserve estimate and it would submit its findings to the MRPC. Until then, we cannot express any opinion on the issues you allude to. Disputes over both the Investment Agreement and the Dubai Agreement are now pending before the Administrative Court of Mongolia and the London Arbitration Court respectively.
Resolution #92 of the Parliament enjoined the Government to hold fresh negotiations with the investors. A working group was set up for this by the Prime Minister in 2019, and a sub-working group to render support to the working group was established earlier this year.
The current government’s decision to establish the National Geological Service has been welcomed by all and that an experienced professional has been appointed to head it has met the expectations of the sector. How did everything proceed so smoothly?
It was in January this year that the Parliament decided to establish the National Geological Service as an implementing agency at the MMHI. This was done and 35 positions were created in the NGS. Their basic functions and responsibility are to process data on the geology and mineral resources in selected areas, to conduct geological studies of underground water, to assess effects of possible natural disasters and geo-ecological threats, and to give geo-ecological and geo-technical recommendations and suggestions about infrastructure routes, the subsoil, structures on the ground as also to provide future clients with data and information on geological studies and mineral resources. Of course, it should have at its head experienced professionals and we are happy that Dr O.Chuluun, who has abundant experience in working in all fields of the geological sector, is its Chairman, and the Vice-Chairman is B. Uyanga, who is on track to receive her PhD in geology from Harvard University, and has also studied how international organizations work.
Construction of the oil refinery is going on well. But do we have enough oil reserves to feed it? No new oil field has been found since the discovery of Toson Uul XIX, Tamsag XXI and Block 97`PSC in 2010. Shall we now see fresh and intense exploration work?
The Toson Mountain, Tamsag and Zuunbayan-Tsagaan Els deposits are not able to produce to capacity because of shortage of power and also because of delay in allowing the operating companies to bring in from outside as many trained workers as they want. As for new finds, Petro Matad has finished all phases of its exploration programme in Matad-XX, and we now have to wait for its report to the MRPC on the reserves established.
Incidentally, the MRPC has been restructured. It now has five sub-councils and will have considerable more involvement of non-government organizations.
There is widespread demand for restoring the system of granting exploration licence on the basis of applications, with the present bidding process seen as favouring a few companies which have money. What is the ministry’s position on this?
As of today, the number of exploration licences is 974, but we expect this to fall to 400 or even less before long, as most licence holders do not have the financial resources to do proper exploration work. The sector is in a difficult situation. The bidding system was introduced in December 2017 mainly to stop granting a licence to people who were not serious about exploration but would sell the licence for a profit. Unfortunately only 90 licences have been issued under the bidding system from 2018 until today. Our priority is to make sure that licences are obtained in a transparent way. If that is found possible under the application system, we shall review the present practice. We want to do things in the right and fair way.
The Action Plan is clear that the whole process of granting mining licences would be made open and that any licence obtained illegally or held without observing the law would be cancelled. Do you think it is possible to do this?
A licence is regulated under the Minerals Law, the Law on the Subsoil, the Law on Common Minerals, the Law on Nuclear Energy and a set of environmental laws. The ministry and the Mineral Resources and Petroleum Authority try their best to enforce the various regulations in these laws but there is always a perception of lack of transparency. We have established a Department of Electronic Policy and Information Technology to restore trust among citizens. The idea is to do everything online and reduce the human involvement in the licensing process, thus eliminating corruption and bureaucracy. The act of revoking a licence is regulated under Article 56 of the Minerals Law, and The Mineral Resources and Petroleum Authority is not loath to use it against offending companies.