April 2015
April saw economic life in Mongolia on the boil. First to hit the pot was Rio Tinto CEO Sam Walsh, the purpose of whose visit was given as signing “some” document. Some reports said this document was a memorandum, while others gave a bigger and grander name, a “reconciliation agreement”. No matter how it is to be called, the document that Sam Walsh was eager to sign has 4 chapters and 53 articles.
The Mongolian section of this issue of the Mongolian Mining Journal is publishing the gist of the document, which was tabled at one of the political parties’ meetings at Government Palace. An accompanying article in Mongolian lists what Sam Walsh wants and explains why they would not be good for Mongolia.
A group of politicians led by the Prime Minister himself, however, would like the Mongolian Government to approve of this document and sign it. Opposition to this is growing among both DP and MPP members of Parliament. As a member of the National Security Council, the President is supportive of Sam Walsh’s offer, but he is too cautious to say anything publicly. Z.Enkhbold, Speaker and another member of the National Security Council, is by and large positive about Walsh’s proposal, but he wants some changes made, and the signing to be at the end of the year. Prime Minister Ch.Saikhanbileg’s seeming hurry to sign the papers is explained by his faith that this will help the country come out of the present economic crisis.
There is a similar disagreement among decision takers on the Investment Agreement on the Tavan Tolgoi deposit. This came to the surface rather dramatically right when the investors were about to pick up their pen to sign the agreement on April 6. Literally five minutes before the signing ceremony was to begin, Speaker Enkhbold declared in Parliament that any Minister who signed the Investment Agreement would face dismissal.
In its Decree No.34 in 2014 Parliament instructed the Government to announce an international open tender to operate Tavan Tolgoi, select the winner and begin work on the project. The one and only ground for Enkhbold’s pique was that he did not agree with the choice of the particular consortium. This had been well known from the beginning but, for maximum effect, he chose to play his card with a flourish at the very last moment. The Prime Minister accepted his challenge, but his immediate priority was to save his Government, so he opted for negotiations with the Speaker. This time, however, President Elbegdorj had spoken his mind. “Let the project move forward as soon as possible,” was what he said in a statement last year, and has repeated since.
With the rifts coming out, April has seen the whole country divided. Politicians, directors at ministries, businessmen, citizens of Ulaanbaatar and herdsmen in the countryside — all are eager to show which side they are on.
Who usually settles disputes in Mongolia? Now the State Great Khural is about to play the role of a judge. But what will be the criteria for the judging process? There can be no question that the most fundamental criterion should be if the decision complied with the laws of the land. The problem is that it is possible for everyone to interpret the laws to suit their own interests.
Since the Government is well aware of the unpredictable reaction of the 76 MPs, it tried not to discuss OT or TT at Parliament, instead trying to explore the option of getting the Working Group it set up to negotiate with the Investor Consortium to sign the TT agreement. The amendment to the OTIA would then be signed by Sam Walsh and the CEO of Erdenes Mongol, in his capacity of being head of a Working Group.
Statements by the Working Group are reassuringly clear that the TT Investment Agreement draft complies with the laws of Mongolia. Most people also appear to think that we should not obstruct the TT agreement from proceeding since 51 per cent of the consortium is owned by a national company. Despite such legal and popular support, the TT agreement might very well fail to receive the support of a majority of MPs, should they feel that their personal interests have been violated.
The main risk for the OTIA amendment is that it might no longer guarantee Mongolia’s 53 per cent share of the profit. Parliament is likely to take the OTIA amendment draft much more seriously as the survival of some fundamental principles in the Investment Agreement and Shareholders’ Agreement signed in 2010 are at stake.
Another topic we are emphasizing in this issue is the iron ore market. Iron ore is one of the main export products of our country and its price fell 50 per cent in 2013-2014. Macquarie has said that China’s steel consumption might grow a little by the end of this year. Another change taking place in the iron ore market is that China has become one of the top three steel exporters of the world. Our exclusive analyst’s column about the iron ore market and coke consumption should also be interesting reading.
The Mongolian Mining Journal’s focal topic of 2015 is “Safety First”. This issue of the magazine notes the legal reforms taking place and the occupational safety standards being enforced in not only the mining sector but everywhere nationwide.