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Government submitted the draft Investment Agreement on Tavan Tolgoi deposit to Parliament and a draft parliamentary resolution on some issues to exploit the Tavan Tolgoi deposit. The groups of parties in Parliament discussed the documents on June 7 and supported them in principle. The Government drafted a project to possess the deposit by dividing it into two parts.
For the first part of the deposit, it proposes to establish a 100 percent state owned company based on the deposit with coal reserves of 3.5 billion tonne and distribute equal shares to 2.7 million citizens; however, for the second part, it has a proposal to select domestic and foreign investors to exploit the remaining 3 billion tonne of coal. It is interested to mobilize domestic and foreign investors in order to resolve issues including transit shipment, advance payment, infrastructure establishment as well as the funding required for them. Minerals and Energy Minister D. Zorigt highlighted that as Tavan Tolgoi deposit’s license and field are only under state ownership, it is impossible to put the license on pledge or sell it. “A 100 percent state-owned company named ‘Erdenes MGL’ was established for Tavan Tolgoi coal deposit. A specific company for Tavan Tolgoi deposit exploitation will be established under coordination of Erdenes MGL and distribute the company’s shares to 2.7 million citizens pursuant to the Human Development Fund. Actually, it aims at inspiring national companies to become big companies so that it can be competitive in regional and world levels. For this reason, not only distributing shares to Mongolians, but Erdenes MGL Company also considered it necessary to become a large company to be competitive in the world arena and capable to raise money from the international capital market. Another part will remain under 100 percent state ownership and foreign and domestic operators and marketing companies of extraction will be available to participate in this part. For reasons that the license and even fields are completely under state
ownership, the government’s basic goal is to protect the deposit under
state ownership from going astray.” The tender document to select investors was submitted to parliament.
“The 100 percent state-owned company will be established and liable for 3.5
billion tonne of coal reserve of which 2.7 million citizens will receive equal
shares of not less than 10 percent of the company’s capital in accordance
with the Human Development Fund Law. This share will be different from
the practice of previous privatization. Then, failed industries were privatized
and their shares were distributed to all citizens in the form of certified pink
and blue-colored papers to receive their dividends. But it was not friutful and only provided around Tgs3000 to 4000 as a dividend over 20 years. The share of Tavan Tolgoi will actually be and useful for life and will create a condition for every citizen to be an owner of capital.For instance, if the 3.5 billion tonne coal deposit is operated under modern management, it has the potential to annually process 15-30 million tonne of coal for worldwide supply. A certain part of it will be coked for domestic use. In accordance with the Law on Mineral Resources,
not less than 10 percent of the deposit will be traded at Mongolia’s stock
exchange. Not only the 35,000 business entities registered in Mongolia, but
individuals will also be available to take part in this process. Members of our group consider that any of individuals or businesses will not be given preference on this principle and they all will have a right to get shares from the stock market under equal conditions,” said D. Lundeejantsan, head of the MPRP Group in the Parliament. The government estimated that there will be a net profit of USD 5.5 billion if 15 million tonne of coal is extracted annually from the Tavan Tolgoi deposit and be able to supply the market for a period of 30 years. The parliamentary Standing Committee on Economy made a decision on June 8 that a draft investment Agreement of Tavan Tolgoi deposit needs to be discussed in parliament. First of all, the Minerals and Energy Minister reported that the exploitation of Tavan Tolgoi coal deposit aims at respecting national interest, supporting domestic entities and lets all citizens possess shares. The Minister noted that a key purpose of Tavan Tolgoi’s exploitation is to ensure Mongolia’s participation in world market policy on coked coal and setting a tariff, and export products to neighbors and third countries. He said that the government intends to divide Tsankh field of Tavan Tolgoi deposit, which will be first used in two parts; one for domestic businesses, and another for foreigninvested businesses or/and Mongolian companies that incorporated to the businesses. The draft agreement states that by permission of the Government, an investor will invest and cooperate in extracting, concentrating, processing and transporting coal and other infrastructure projects based on a contract established with Stateowned Company. Moreover, the investor will be liable for the total investment, all expenses required for extraction, storage, concentration, production, shipment and trading as well as spending on training national personnel and related fees. Along with it, the investor will be responsible to establish a plant for concentration . For the time being, nine companies and consortiums from eight countries have offered their proposals to exploit the Tavan Tolgoi coal deposit. It is available for other companies to send offers and recently, more two companies put forward requests. The investor company will be selected according to their qualifications including financial capability, experience, capacity to produce value-added products, the volume of investment for railway construction, and advance payment,” answered the Minister to the question by MPs. Minister D. Zorigt mentioned that although construction of a railway is a separate matter, it is a key issue to exploit the Tavan Tolgoi deposit and it is necessary to consider either economic profit or political and geopolitical issues. The government pays attention on transit shipment to reach Russian ports and China’s Tianjin port. While drawing up the draft agreement, the government received assistance from internationally well-known German ‘Deutsche Bank’, JP Morgan and Canada’s consultancy company which is experienced to give advice in the mining sphere. Now it is necessary to intensify water exploration. It is possible to extract annually 15-20 million tonne of coal from the deposit in the scope of study and if there is sufficient water, it will be possible to extract more. source: The Mongol Messenger
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