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New railway move ensures TT will not be derailed

19th of 4, 2012
By L.Bolormaa

Work on the Tavan Tolgoi project continues to progress, belying talk that it is in limbo, and despite efforts by vested interests since 2008 to halt it through trying to take control of the whole railway construction work. 

It is as well to remember the background. On December 6, 2008, a partnership agreement was signed by the Mongolian Ministry of Road, Transport, Construction and Urban Development and Russian Railways Union, calling for work to begin on establishing the Infrastructure Development Company. This was to be a joint venture, with both sides putting in USD1.5 million. (Some Russian media erroneously put this at USD1.8 million.) The amount on the Mongolian side was to come from Erdenes MGL and Mongolian Railway SOSC. 

The peak of the world economic crisis in 2008 found the Ulaanbaatar Railway Association in the red as it had less freight to carry. Russian Railways Union, too, was running at a loss. It began laying off some employees and asking some others to go on unpaid leave. At that time, V.Yakunin, its president, visited Mongolia several times, making tall promises every time. He pledged to make every effort to provide more freight for Ulaanbaatar Railway to transport and called for widening areas of partnership. Eventually Infrastructure Development was registered in Mongolia in the spring of 2009 as a Mongolia-Russia Joint Venture Company (JVC).

That summer, the then Russian Prime Minister, V.Putin, visited Mongolia and expressed high hopes about the future of the new company. In the time that S.Bayar held the office of Prime Minister in Mongolia, two more agreements were reached to set up two Russian-Mongolian joint ventures. One was to build a base structure to transport southern Gobi’s minerals and another one to establish a 50-50 joint venture in the Mongolian uranium industry.

In 2009, before the Oyu Tolgoi Investment Agreement was signed, Yakunin was quoted in the Russian media as confidently saying, “We will own a certain percentage of Mongolia’s Oyu Tolgoi and Tavan Tolgoi exploration licences by virtue of our stakes in their infrastructure development. The projects are worth up to USD7 billion.”

Vitaly Morozov, called “Meat” Morozov by Mongolians, was appointed CEO of Infrastructure Development JVC. His work as head of Buryatmyasoprom Company had earned him considerable influence in the Russian Ministry of Agriculture when A.Gordeev was Minister. Mongolians were wary of his credentials because of his record in the meat business here. Now this man represents Russia in the Tavan Tolgoi negotiations. L.Khangai, a former Mongolian ambassador to Russia, was appointed Morozov’s deputy in the JVC, indicating the importance authorities inboth countries placed in it.

Some time later, Yakunin requested the Russian Government to sanction the USD1.5 million investment in construction of the railway. The State Duma held back its approval. No confirmed account of what subsequently happened is available. One version says the Mongolian Government was ready with its share of the capital investment, but another contradicts this. What we do know is that with the resignation of Prime Minister Bayar, interest in Infrastructure Development waned and the JVC was quietly forgotten. Most Mongolians were happy and relieved at the death of this particular dream.

A country’s railways are a major national security concern. Every country controls its main power line, as also major communication and other infrastructure facilities. Mongolia should and would do the same but Ulaanbaatar Railway remains 50 percent owned by Russia. Its technology and equipment are all from the last century, but the Mongolian side had to refuse America’s Millennium Challenge funds for their renovation as Russia put its foot down. Fresh from that experience of a great opportunity lost, Mongolia was not at all keen to share the ownership of the new railway project with Russia again.

If the Government of Mongolia had persisted with Infrastructure Development JVC, it would have had to share control over the 1100-km railway from Tavan Tolgoi to Choibalsan via Sainshand. Russia was upset at Mongolia’s lack of enthusiasm and felt worse when the Government made it clear that mineral deposits in the southern Gobi were not up for grabs. The Russian unhappiness at this turn of events led to the imbroglio over the first international bid for Tavan Tolgoi.

The Government took several clever steps to pre-empt any move by others to checkmate national interests. Even as the Mongolian-Russian JVC was established, Mongolia created its very own Mongolian Railways SOSC. The bilateral agreement allowed Russia to have joint control over the railway construction, but Mongolia made it clear its new State-owned company would be responsible for moving material and equipment, commercial freight and maintenance of tracks. The first director of the company was an experienced railwayhand, A.Batbold, who has been helped by other professionals such as MP R.Rash.

in Salkhit. Here, too, a private company is taking the risk of investing in a field often considered uncertain. This confidence will have a positive impact on other sectors as well.
Yes, a new Mineral Law draft is being discussed but I wouldn’t say more on this, lest I should create any misunderstanding. Wait until the first draft is ready to be debated in public. Certainly businesses need a peaceful environment to work in. But I will not say anything more as even a small statement could lead to unnecessary speculation.

Two laws passed on the budget give more authority to local governments, including the right to take initial decisions on mineral deposits. Do you foresee any conflict? For example, what happens now that the Citizens Council of Umnugovi aimag is not enthusiastic about letting water from Balgas Red Lake to be used for Tavan Tolgoi work?

With our centralised system, revenue from mining doesn’t seem to reach the local residents. Even if it does, it can be used unwisely. I will be honest about Umnugovi aimag. They are not using the budget wisely. With so much money, they should be improving their infrastructure and power stations, not buy houses and big cars and give apartment loans. Their priority should be providing electricity to soums that don’t have it. They also need to improve roads and develop businesses.

On the other hand, it is also true that all the money does not reach them.  I’m definitely not against giving authority to the locals. We can talk about responsibility only when they have the authority. But some aimags are using the money for the wrong purpose. The Citizens Council of Umnugovi needs to let local residents know more and decide before the election whether their officials have spent the budget prudently. The kind of discussion and debate that takes place in the State Great Khural should be replicated in aimags, especially where there is now much more money. Officials there must explain how they are spending the money and how they fix priorities. The budget stability law can succeed only when local citizens openly ask blunt questions and force the authorities to spend only after a debate, if not a consensus.

As for mining projects, they will work only when the locals offer support. The local government must exercise its new authority only after discussions and explanations. For example, if the Citizens Council is against use of the water of Balgas Red Lake, it should be told there will be no power station. No power station means no industrial park and no factories. What is our future without industrial growth? Or does the council prefer to keep digging the coal, without ever processing it? This kind of discussion needs to take place.

Only then will residents of Umnugovi understand that using the Balgas Red Lake water will not be harmful for the environment as they fear, as there is enough water to meet the needs of both mines and residents. It will not be effective for us to say from Ulaanbaatar that the decision to use the Balgas water is right. It must be locally explained, debated and understood.
One reason why the Oyu Tolgoi project has popular sanction is that its pros and cons were discussed threadbare for almost five years.

Surveys by foreign organisations say Mongolia is now much more transparent in its mining industry and is the second most transparent country in Asia. But inside the country, there is still suspicion of the sector. Why should this be so?


Foreign surveys focus on big projects and it is true that our record with major projects is clean. They take care of the environment and observe labour laws. The needle of popular suspicion is aimed at the small mines that are seen as contaminating the water and destroying pastureland. This is true of both foreign and Mongolian companies. Indeed, it is the latter that did the most damage in places like Uvurkhangai.  We must devise ways to ensure that both monitoring and assessment by the Ministry of Environment and the Professional Inspection Authority are more effective. They do have the legal right to stop operations of small mines that violate the law. Our Environmental Law is not that bad. We just can’t implement it well.

But the Environmental Law reads like a list of prohibitions.
We have to clearly state what cannot be done and what the penalties are for breaches. The problem is that we ignore violations and then order companies to stop operating because they harmed the environment.

Not all the blame rests with the mining companies. Sometimes they are not aware of the harmful effects of what they do. We should improve the inspection process to give it more teeth. The work should be entrusted to trained professionals. Local inspecting officials must have, and be seen to have,more authority to enforce the rules at an early stage and then take stern action against persistent offenders.

However, Yakunin knew how important control of the construction is, and wanted to make sure he would have the final say on supply of iron during construction, thus retaining a grip on the pace of work when laying the tracks from Tavan Tolgoi to Sainshand. Infrastructure Development was supposed to float a tender and select the builder. The JVC would own 25 percent of the company chosen which will hold the remaining 75 percent. Yakunin’s plans came to nought when he did not get his USD1.5 million from the Russian Government. In the meantime, Mongolians stopped being extra nice to him for they had started talking to China regarding the investments.

This happened in the spring of 2009, when Infrastructure Development was still an active proposition. Kh.Battulga, Minister of Road, Transport, Construction and Urban Development, held a meeting with Lu Dungfu, China’s Deputy Minister of Railways, to explore possibilities of cooperation in building the railway. This meeting was around the time when Yakunin was interacting with international investors in Ulaanbaatar. It was also the time when delegates from a consortium that consisted of 11 major Korean companies arrived in Ulaanbaatar to offer cooperation in the railway construction. They had made the first offer the year before to Prime Minister Bayar and followed it up at every subsequent opportunity. They also had a work plan ready and I remember representatives from nearly 20 companies from South Korea had visited Mongolia to make an on-site study of the project.

It is clear that many companies and/or countries are interested in building the railway which will transport an enormous amount of Mongolian minerals over a long time. Among the alliances that have been made, one of the most interesting is a China-South Korea joint company that was registered in Hong Kong under the name Mongolian Railway Infrastructure. Its investors are China’s Dandong Port LLC and South Korea’s Moric-Korea LLC. Moric stands for Mongolian Railway Infrastructure Company.

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