L.Bolormaa
Things have begun to stir at Tavan Tolgoi. Ya.Dolgorjav, newly appointed executive director of Erdenes MGL LLC, says in an interview with the Mongolian Mining Journal published in this issue, “Our daughter company is hopeful the opening ceremony of Baruun Tsankhi will be held soon, maybe in the middle of April, without waiting for the choice of investor. We can start removing the surface soil, and once this begins, there will be pressure to take a quick decision.”
But we should not hope for much immediately. The future of exploration at Baruun Tsankhi will depend upon the buyer, the same as was the case at Zuun Tsankhi, when its coal was pledged to China against advance payment. In an interview, D.Zorigt, Minister of Mineral Resources and Energy, clarifies the situation. The following is part of what he was asked and what he answered.
What needs to be done to make progress on the investment agreement on Tavan Tolgoi? For instance, what should be promised to China and Russia? The Tavan Tolgoi deposit is operating in full swing. Over a million tons of coal has been loaded at Zuun Tsankhi. A washing plant will be built soon. Work on the technical and economic evaluation of the power station is on, and talks are being held on road and railway issues. We are on the move. We are now discussing how to bring foreign investors to Baruun Tsankhi, another part of the Tavan Tolgoi deposit. Some question the need for foreign investors, wondering why we cannot do it ourselves. Even MPs have asked the same thing. Another concern is that our coal will not command an international price until we are able to take it to markets beyond the seas, like Japan and South Korea.
The issue of transit transportation can be resolved only through negotiations with China and Russia. China is our gest market and Russia has been our longtime partner on the railway. They are both very important for us, and we need their cooperation. We equally value “third neighbors” like Japan, South Korea, and the U.S., and would like them to be our partners in development. Now, finding the best way to collaborate with all of them is a difficult matter. We are working on it, but the path is not smooth. Just promising something to one or all of them will get us nowhere. One way or another we will find a solution, but none is within our grasp yet.
Russia has got a new President and China, too, will have one soon. Could this lead to tougher conditions from our two neighbours?Our goal is to have an agreement that will benefit all sides. At the moment we are not there. We are on a see-saw, still seeking the finalequipoise.
That is what the Minister said. What formwill this equipoise take?We are not sure what calculations were used when the Government came up with a deal giving China 40 percent, the US firm Peabody Energy 24 percent, and Russia and Mongolia 18 per cent each. There was just an announcement one sunny day. It is widely believed that China was allotted 40 percent in return for its promise to keep buying Mongolian coal. In the case of Russia, unhappy with an allotment of just 18 per cent share, that country has since offered to give us a 65 percent discount on transit transportation rates applicable to countries in the old Commonwealth of Independent States.
Peabody Energy keeps reminding us that it is the one of the world’sgest mining companies and has the best technologies to undertake exploration work. As such it thinks itdeserves more than 24 per cent, and stresses the need for the three major partners to hold equal shares. They also point to the unamuous and unequivocal statement contained in the Mongolian Concept of National Security,“The share and amount of the investment from any foreign country should not exceed one third of the total foreign investment (in Mongolia). Any foreign state owned company’s investment should be limited and investment from neighbouring and developed countries should be in balance on strategically important sectors.”
Russia, China and the U.S. have realised that they need to negotiate among themselves where this balance lies. The Mongolian Government’s decision to begin removing the surface soil at Baruun Tsankhi is anudge to the investors to instill a sense of urgency to these negotiations.
What have the investors been up to?We have only some stray indications. For example,Grande Cache Coal, a Canadian metallurgical coal mining company, made an announcement on March 1 that final arrangements have been made to allow its sale to “1629835 Alberta Ltd.”, a company indirectly jointly owned by Winsway Coking Coal Holdings of China and Marubeni Corporation of Japan. Winsway now handles 35 percent of Mongolia’s total coal exports. It is a partner of Peabody Energy. Even more interesting is that to buy the Canadian company, it pooled its resources with Marubeni,which has been interested in TavanTolgoi from the beginning. We can only guess what the ultimate motive of every player in this deal is.
This shows that interested people don’t just sit idle when we think talks on the investment agreement have been stuck for the last six months. The U.S. Department of Commerce has opened an office recently in Mongolia, and people like Mr Donald Rumsfeld are visiting the country to lobby for American businesses in Mongolia. The same firm, Woodmont International, is looking after the interests of Peabody Energy as well as representing the U.S. Department of Commerce office.
Russia hasn’t quite figured out how to deal with the many companies from Japan and South Korea that are its associates in the bid for Tavan Tolgoi. Japan and South Korea are keeping an eye on what Russia plans. When China, Russia and the U.S. finally sit at the table, it is likely the initiative would be taken by Peabody, which would mediate between China, which others think has got too much, and Russia, which thinks it has got too little.
The Mongolian Government removing the surface soil at Baruun Tsankhi could be a gentle reminder to those at the negotiation table, but we lack a firm political leadership to defend Mongolian interests in Tavan Tolgoi. Russia, China and the U.S are well aware of the fact that S.Batbold’s Government will have nothing new to offer in the time left before the election.
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