June 2015
Decisions expected to have been taken by the government and Parliament in the first half of2015 would be vital for Mongolia’s economic development but some of them are yet to be made (at the time of writing), keeping the fate of some projects uncertain. The government’s stand on some of these is known, but whether it will have its way is an open question.
The government and Rio Tinto have finally agreed on developing the second phase of Oyu Tolgoi after prolonged negotiations, with this journal’s previous issues covering and analyzing the positions of both sides. However, corresponding progress on an agreement between the government and investors in Tavan Tolgoi was dramatically stalled at almost the last moment, when Speaker Z.Enkhbold called for a review of the negotiations and the terms of the agreement reached. It was on April 6 that Z. Enkhbold ruled that all this must be discussed in Parliament, and not be left to the government alone, and since then Mongolians have realised how deeply divided senior politicians are over how to develop the coal deposit.
Political factions squabbling over mega projects is not new in Mongolia, but the present tug of war, with parliamentary elections due in 2016, is making it obvious that the differences are not really over party policy or political belief. Rather, it is a proxy war among business groups eyeing the mega money that mega projects will generate.
Let me give you an idea of how these groups want to grab the spoils of, say, Tavan Tolgoi.
You may have heard of ‘fictitious firms’, the term used for companies that show no clear assets or business. Established simply to be used as conduits for dubious financial transactions, they usually describe themselves as offering “financial consulting services”, or help in “capital raising”. As mega projects appear on the horizon, with billion-dollar investments in sight, such companies start proliferating.
The first one relevant to us made its appearance in 2012, bearing the name “Mongolian Railway Infrastructure”, established in Hong Kong by Mongolia, with promises of investment by Dandong Port LLC of China and Moric Korea LLC of South Korea. The then Minister of Road and Transportation, Kh.Battulga, asked B.Batzaya, CEO of Mongolian Railways JSC, to sign anagreement entrusting the new company with managing all railway tracks in Mongolia. Moric (Mongolian Railway Infrastructure Company) was to be responsible for transportation and thus for renting and purchasing of all moving equipment. Nobody cared to notice that this ‘Korean’ entity was an unknown name in Korea itself. Thus was begun the murky process of money laundering in the name of raising capital for profitable projects.
No wonder that the race is on to set up such firms for the Tavan Tolgoi mega project.
The TT coal basin has eight deposits, with Erdenes Tavan Tolgoi holding the licence for seven of them, bearing Nos MB 011953, MB 011954, MB 011955, MB 011956, MB 016881, MB 016882, MB 016883. The latest controversy is mainly on the two squares of West and East Tsankhi and also the Ukhaa Khudag deposit square of Energy Resources LLC.
Two and a half months after the Speaker’s move, it was agreed that the other five licences held by Erdenes Tavan Tolgoi will go to Japanese companies, in return for agreeing to build a 1300-km railway to the east. This condition will be included in a Parliamentary resolution, thus making it part of state policy, and giving the green light to politicians to raise the capital. Even though no resource estimate of these five squares has been made, nor has there been any work on preparing a mining plan, preliminary negotiations on building the eastward railway were arranged and held, only to enable a new resolution to be submitted to Parliament.
Another move by the political group was to ensure that 51 percent share of the 267-km Tavan Tolgoi-Gashuunsukhait (TT-GS) railway will be held by state-owned Mongolian Railways JSC. Their interest is not in finishing construction early, but they are keen on having control because this railway will make the most money and thus appeal most to investors.