Action plan must mean action, not just plan

17th of 10, 2016

The Mongolian Mining Journal /September 2016 -094/


Recently the government’s action plan for 2016-2020 was approved by the Parliament. The government will now prepare a comprehensive plan to implement the action plan, and get this approved at a government meeting. The actual implementation will begin only then. The action plan lists the five main directions where the government intends to be most active. The people have given the ruling party an absolute majority in Parliament, and the government is aware of its responsibilities. Its priority is to fulfil the party’s campaign promises and also to bring the economy out of the present serious crisis and make it stable.

We at the MMJ are most concerned with the first two of the five thrusts of the action plan, respectively titled Special Policy to Overcome Economic Difficulties and Policy to Ensure Sustainable Economic Development. The major role in both has gone to the mineral sector. This was made clear when at a recent meeting with representatives of the mining and energy sectors, the Prime Minister disclosed that of the MNT26 trillion earmarked for projects to be implemented in the next four years, MNT12 trillion would go to projects in these two sectors. Indeed, one article in the Special Policy calls for intensification of operations in the Erdenes Mongol and Oyu Tolgoi projects and putting Tavan Tolgoi and other strategically important deposits into the economic cycle. This is just one specific reference, but the general tenor is unmistakable: the development of the mining sector will be centred on a few deposits, which will be made to contribute significantly to the economic recovery. The biggest support to the government will come from Tavan Tolgoi and the article “TT miners must unite, for themselves and for Mongolia” in this issue gives the latest on the situation there.

The following 17 articles in the Policy to Ensure Sustainable Economic Development detail the work to be implemented in the geology, mining and heavy industrial sector.

The basic goal of creating an attractive environment for investment in the geology and mining sector and ensuring the sustainable development of the mining sector, and of improving the competitiveness of Mongolia in the international mineral commodity market will be achieved by the following means.

2.60. Support the sustainable development of the mining sector by extending the work on geological mapping, general prospecting, air geophysics, geochemistry, hydrogeology, and geoecological studies.
2.61. A national geological survey and national geological information database will be established according to international standards to make dissemination of information easier.
2.62. To create an investment-friendly environment in the geology and mining sector and to cooperate in implementing mutually beneficial projects and programmes.
2.63. To keep State involvement in the mining sector at an appropriate level and to further develop the cadastral registration system and make the process of licence allocation faster and easier.
2.64. To increase utilization of oil resources by intensifying exploration and extraction work.
2.65. To implement Article 3.1.2 of the State Policy on the Mineral Sector, which wants artisanal miners to work as a legal community and to strengthen the related regulations.
2.66. To prepare a long term plan for infrastructure development in the mining sector and improve coordination between sectors for this.
2.67. To establish a unit for mining-related research and to create an investment-friendly environment in the mineral sector.
2.68. To prepare the legal environment for using secondary mineral resources and to take the quality of mine reclamation and mine closure to international standards.
2.69. To arrange for the funds required to implement the programme Gold-2 in cooperation with Mongol Bank.
2.70. To increase gold extraction, and to make it legal to buy gold from artisanal miners.
2.71. To increase the extraction of oil products and to build an oil processing plant.
2.72. To support the project on establishment of a copper concentrate smelting and refining plant.
2.73. To facilitate building the metallurgical complex in the Darkhan and Selenge region.
2.74. To support setting up a coal washing and deep coal processing plant and a coal-to-gas plant.
2.75. Support projects to build liquefied fuel, and other fuel and lubricants plants.
2.76. Steel manufacturing and assembling plant would be developed.

Meeting with investors

The new government has set up a council to protect investors’ interests under the cabinet secretariat. A working group will also submit a report on the issue. This group has been given the responsibility to keep a watch on issues with potential to harm investors’ rights, including illegal pressures on them by state organizations, bureaucratism, needless investigations, and unilateral decisions. It must be said, however, that barring the SouthGobi Sands case, there have not been too many such instances. The important thing is that it will be seen as a step towards regaining the lost trust of investors.

The Ministry of Mining and Heavy Industry is planning to invite potential investors to a meeting to find out their attitudes about Mongolia. Both investors who have already left Mongolia and some big investors who have never been in Mongolia will be invited. The government is likely to improve the legal environment after hearing their views at the meeting.
The Parliamentary election results raised hopes of political stability among investors. However, the government’s failure to amend the tax system is seen as a setback to such hopes.

At its peak, foreign direct investment was $4.4 billion but it is now zero because of the fall in mineral commodity prices and unstable political conditions. The action plan announced by the government led by J.Erdenebat says it wants to create an investment-friendly environment in the geology and mining sector and to cooperate in implementing mutually beneficial projects and programmes. But such pious expressions of intent may not be enough. Investors are carefully watching for signs of actual changes in policy. This is true as much of foreigners as of domestic investors and companies. Barring such words in the action plan, there has been little clear indication of how the government will treat the mining sector. 

This sector is special in that investments here are long-term and require stability. This stability is promised regularly, but in reality it has been quite elusive. Every new government adopts a new policy and surprises investors. This time, too, investors are being careful and observing how things unfold.

On several occasions Mongolia has undone previous mistakes, the most important instances being adoption of the new investment law, resolving the anomalies around ‘the long named law’ and the 106 licences affected by it, settling the Oyu Tolgoi underground mine financing, and paying compensation to Khan Resources. Unfortunately, these have not been enough to dispel investors’ misgivings.

They find Mongolian laws are not bad, and match those in developed countries, but they are not sure of long-term stability. That way, even changing bad laws could be seen as a negative message.  It is more important that the current legal situation is kept stable and opportunities of investment are expanded.

More exploration

At the moment, there are not too many projects to attract investors to Mongolia. So what can the government do?
Much of the Mongolian terrain has not been geologically studied. Who knows what lies underground, waiting to be ‘discovered’ and excite investors?  Only detailed geological study and exploration of virgin territory can open up opportunities for big investors to grab.

Some analysts and observers feel that the commodity market is ready to enter its next growth cycle and the bigger mining companies are waiting to make investments in exploration projects around the world.

There was a flood of investment in our geological sector after the Oyu Tolgoi discovery in 2001, and reached $2 billion at its peak. It dried up when licence allocation and licence transfer were halted in 2010 and is yet to pick up. Feeling the pinch, the government made some amendments to the Mineral Law and then resumed licence allocation after identifying possible exploration sites, and also changed the licence allocation system, making it more transparent. But there was not much change, as one third of the total applications for a licence was rejected by the locals.

The Ministry then prepared a draft law last spring which gave the local authorities the right to veto a proposed site before the state could offer it to an explorer. The new Minister of Mining and Heavy Industry, Ts. Dashdorj, has said the amendment would be passed without delay. There is some concern among licence seekers that getting the locals’ permission will make the process much longer, but in general the idea has been welcomed.

Gatsuurt gold mine

As the action plan wants to increase gold production, it is no wonder that the government wishes to see work start at the Gatsuurt mine. It is a major step to build bridges with investors and is expected to make a significant contribution to economic recovery. In his speech at Discover Mongolia, Kh. Badamsuren, Deputy Minister of Mining and Heavy Industry, said a decision would be taken soon on the fate of the project that is expected to contribute $200 million to the foreign exchange reserves of Mongol Bank.

Investors in Gatsuurt have been awaiting a decision for long, and would not mind doing so for a while longer if it leads to return of trust. The project first got stuck almost just before extraction was to begin. The next time when hopes of a resolution rose among investors and business people, progress was stalled by the Parliamentary election.
Badamsuren revealed that the ministry, the investors and producer organizations are working together on preparing an agreement on Gatsuurt . “We shall expedite the work, and resolve all issues of production and of processing technology in time for production to begin in 2018,” he said. That sort of a clear statement raises real hope all around.

Mine closure law

Minister Ts. Dashdorj said at Discover Mongolia that Mongolia would before long have a mine closure law that meets international standards. This could be a game changer and could end up by filtering out of the sector all but serious entrepreneurs. Companies are likely to oppose the proposed move to have a guarantee fund where money for the ultimate closure would have to be deposited, but our regulations have to follow international norms and principles. Companies in Mongolia have to learn that a legally enacted law stands supreme, and there can be no question of disregarding it. Work on the draft began under the previous ministry, and should be ready before long. More information on the issue can be found in the article “Proposed closure law will end irresponsible mining”.

Refinery plants

That minerals-related heavy industries are now under the mining ministry is a positive development. Another good thing is that the government has decided to continue with discussions on some heavy industry projects from where they were left by the previous government. This continuity indicates stability and will save time. Plans to build a copper smelter, an oil processing plant, and a metallurgical plant have been on the anvil for many years, but little tangible progress has been seen as one government replaced another. Talks are taking place on building a coal chemical and coke plant based on the Tavan Tolgoi deposit.

The then government took a decision in February this year to build an oil processing plant and a pipeline. The Minister of Industry announced that work on a plant with a capacity of 2.5 million tons per annum would begin in 2016 itself. If that capacity is found to be too ambitious, with our resources of over 300 million tons of oil and reserve of over 40 million tons, we can certainly build a 1.5-million-ton facility, according to the Ministry of Mining and Heavy Industry. The location will be decided after considering raw material resource, prospect of growth, possible distribution networks, and funding could come from soft loan(s) from foreign governments. Present indications are that the oil refinery will be the first processing plant to be built and should be ready by the end of 2018.

The planned metallurgical plant will be an extension of the Darkhan Metallurgical Plant and use iron ore resources in the region of Darkhan and Selenge. At full capacity, it will annually produce 500,000 tons of pig iron and 300,000 tons of cast iron.
The OT investment agreement stipulates that if and when Mongolia wants to build a copper smelter, Oyu Tolgoi LLC would submit  an economic study on the whole matter. This the company submitted to the Ministry of Mining and Heavy Industy in early September.  The smelter will be supplied with domestically produced copper concentrate from various sources. The ministry will pass on the study to a working group, which would also assess the feasibility of having a smelter in Erdenet, as has been proposed by the Erdenet Mining Corporation.

A unit on copper smelter established under the previous government was headed by the present Deputy Minister, Kh. Badamsuren. In his speech at the Discover Mongolia conference he asserted that work on a smelter “will be completed within the term of this government”. Its initial capacity will be around 500,000 tons, when Mongolian copper concentrate export would be around 2 million tons. “In time, 50 per cent of the total export should be smelted in our country”, he said.

This is a brief account of how things are expected to move in the coming years and shows continuity of policy rather than change. The fundamentals of most of these projects were decided in the past, with implementation getting stuck mostly because of the political situation. The first years of a government always bring some risks but it is heartening that the present government has realized these are goals that must be achieved. The Mongolian People’s Party knows it must fulfil its promises to the people, who voted it to power because they were fed up with the incumbent government’s mistakes and internal bickering. Now it is for the MPP to show that it has learnt the lesson of the election and that the action plan will lead to intensive action, and not just stay plans on paper.
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