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BCM Mongolia Newswire Highlights: President, Minister, Deputy Speaker on mining, mining and mining PDF Print E-mail
Sunday, 05 October 2008
Business Council of Mongolia News HighlightsBusiness:
Western and Tinpo resume talks on failed deal; Deputy Speaker hints at private stakes in Oyu Tolgoi; Rio Tinto not to cede control of Oyu Tolgoi; 57 gold mining companies pay windfall tax, 15 do not; Leighton Asia’s first mining contract in Mongolia; Polo Resources finds more coal at Val site; Green Resources working on new-technology power plant; Entrepreneurs in Bo Hai forum eye mining sector; Canadian-built demonstration homes draw large crowds; Copper prices plunge, gold glitters.
President says investors must get 51% shares, but for 25 years only; “Wealth share” plan impracticable, if not harmful, says MNCCI chief; Minister stresses need to balance national and investor interests; Russian petrol imports cheaper since September 15; Government drafts economic guidelines for 2009; Budget deficit rises; Working groups to review trade union demands; Apartment prices fall; Teachers want more money; Refresher training center for tourism teachers.
Bayar addresses UN, pleads for more market access; Coalition partners face each other in local election; South Korea eyes Mongolia for North's refugees; Money a problem for 2010 census; Turkish Prime Minister coming; Renewal season for foreign organizations; Rights group wants protection for North Korean workers in Mongolia.

In his speech opening  the Autumn session of Parliament on Wednesday, President N.Enkhbayar said he respected and personally supported the decision of the MPRP and the DP to form a joint government, but many “in Parliament and outside” are confused and only “time will show if the move was really wise”. His worry was that the “joint government will lead the two parties to decide everything by themselves”.
The President suggested some economic goals, among them a 12 percent rate of growth, increasing GDP per capita to US$5,000, decreasing poverty by 16 percent, keeping the unemployment rate in the working-age population under 2 percent, and lifting 30 percent of the total population into the middle-income group.

He said the new mining policy should create “a win-win situation for both parties”. About the unresolved issue of ownership share in all these projects, he said the Erdenet Company would be a good model to follow. Cooperation was essential for mining exploration, as Mongolia did not have the resources to “go it alone, without foreign investors”. Only they can provide the enormous financial outlay, technology and experts. “Initially investors will own 51 percent and control investment policy, even as they bear the risks. It is common practice. This can continue for 25 years, and from the 26th year, the Mongolian state will own 51 percent,” the President said.
Machinery and infrastructure cannot physically disappear. “Therefore,” President Enkhbayar said, “I think there will be no negative impact on the national interest and national security if we apply this practical and proven option.  Even in the 25 years when investors will own 51% of the project, Mongolia’s share of the revenue, including dividends, royalty and taxes, will exceed what it would get from a 51% ownership.”

Calling for an attitude of understanding and cooperation, the President warned that investors must not be scared away. Failure to begin work on the various mines projects is costing Mongolia a minimum of USD 1 million a day or USD 2 billion a year.

D.Zorigt, Minister of Minerals and Energy, feels it is imperative for Mongolia to have a stable legal environment to allow investors to operate without having to worry about frequent amendments that affect plans and prospects. It is simple, he said, that a safe passage is possible only if the boat is not rocked. This applies all the more to the minerals sector, as initial investments there have to be big, especially in deposits of strategic importance. Before it embarks on spending billions of dollars on a project, any company has the right to ask for some sort of guarantee that the rules of the game will not be changed.
This does not mean that the interests of Mongolians have to be overlooked while offering stability and sustainability to satisfy investors’ requirements. Indeed, any government has to accord top priority to the concerns of the people of Mongolia as they are the ultimate rightful owners of their country’s natural resources. The challenge before everybody right now is to devise an agreement that balances the interests of the people with those of investors, one that will see to it that these are not presented as mutually incompatible.

The Minister granted journalists the right to suspect the motives of people holding public office. “You can check out on me thoroughly. I strive to work in a most transparent fashion,” he said.

The government may seek to give domestic, private investors a stake in the Oyu Tolgoi project, according to Gavaa Batkhuu, Deputy Speaker of Parliament. He said in an interview in Washington last week that Mongolia should participate in the project through royalties and private investment. Lawmakers may also seek legal guarantees that mining companies, Rio Tinto included, produce finished products such as cable or wire.

“The government should not be involved in equity investment, but once production begins, revenues will be shared,” Batkhuu said after hosting a lunch for officials from Rio Tinto and other potential investors. “After that it's up to the government to distribute the money equally to all Mongolians or in the form of shares to private investors.”

The companies and the government are unlikely to conclude an agreement in the next parliamentary session, which runs from October to February, because both sides will be resuming negotiations from scratch and will have to craft a new draft agreement for lawmakers to debate, Batkhuu said.
Rio and partner Ivanhoe Mines Ltd. have sought approval for Oyu Tolgoi for five years at a time when emerging-market governments are attempting to boost their share of profits from mining ventures amid years of commodity price gains. Mongolian lawmakers have been deadlocked, with some seeking the royalties as soon as possible to spend on infrastructure and alleviating poverty, while others want to hold out for better terms.

Kathleen Ambrose, Rio's Washington-based principal adviser for government relations, said the company's position hasn't changed since a September 2007 statement that Rio fears ongoing investments in the project will be cut “significantly”' in the absence of a satisfactory agreement.

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