Why Oyu Tolgoi deal is not one-sided www.theubpost.mn

The Oyu Tolgoi mine has been the subject of much controversy and division in Mongolia ever since the government inked the monumental 2009 Investment Agreement with Ivanhoe Mines, now Turquoise Hill Resources.

For the past decade, the agreement has been much scrutinized for being disadvantageous for Mongolia. The result has been growing resource nationalism among the public, which several political parties have used to their advantage to establish footing in the political sphere. The conversation on the Oyu Tolgoi agreement has been hijacked by those who polarize the issue by framing the agreement to be completely disadvantageous and unfair to Mongolia. But is the agreement as unfair as it has been made out to be?

The main argument used against the Oyu Tolgoi agreement is that Mongolia only owns 34 percent of a mine that is on Mongolian soil. In the eyes of the public, foreign companies such as Sailingstone Capital and Rio Tinto owning a majority 66 percent stake in Oyu Tolgoi through Turquoise Hill does not seem all that fair. Many hold the view that since it is under Mongolian land, it must be owned by Mongolia. When making this argument, people tend to overlook why Mongolia was able to leverage only a 34 percent stake in the company.

One of the biggest reasons why Mongolia owns only a 34 percent stake is that Canadian based Ivanhoe Mines discovered the mine in 2001. In 2000, Ivanhoe acquired the license to explore the Oyu Tolgoi site from BHP Billiton. At the time of discovery in July 2001, the mine was wholly owned by Ivanhoe.

Although there was speculation in the 1950’s that the area had a massive untapped reserve, ultimately Ivanhoe discovered the site using the exploration license provided by the government. As such, when negotiations began, Mongolia only had the leverage to demand a 34 percent stake, the minimum requirement for mines determined to be strategic.

If the government discovered Oyu Tolgoi using state funds instead of Ivanhoe Mines, Mongolia would have been in a position where it could demand a 50 percent stake in the mine while offering the project to large mining companies such as Rio Tinto. But that was obviously not the case. The reality is, if not Rio Tinto, the government would have needed to involve Glencore or BHP Billiton or any other large mining giant capable of financing such a large project. To date, Rio Tinto has invested seven billion USD in Oyu Tolgoi. The Mongolian government did not have the capacity to finance a project of this magnitude in 2001 nor does it have this capability in 2018.

The bottom line is that Mongolia had no other choice but to give up at least 50 percent of Oyu Tolgoi’s stake to a foreign mining corporation to even begin development of Oyu Tolgoi.

When negotiating the 2009 Oyu Tolgoi Investment agreement, the Mongolian side essentially had to choose between equity and royalty. Choosing royalty over equity meant that the 34 percent stake would be lower but the royalty fees and taxes paid to the government would be higher. This would have helped boost short-term revenue to Mongolia but hurt the long-term prospects of dividends from the mine. The Mongolian side ultimately chose equity, banking on the large dividends that will be distributed once the mine breaks even and becomes profitable. Mongolia’s 34 percent stake in the mine cannot be decreased under the Investment Agreement and the government can in fact increase its stake up to 50 percent after 30 years from 2009.

But time is required for Oyu Tolgoi to recuperate the initial cost of development at the mine. In addition, Mongolia took a share in the shareholder debt that was used to establish the company. Mongolia will pay off this share of debt in the future from cash flow from mine operations. Rio has made it clear that the earliest dividends will be distributed is in 2026, while the Mongolian government expects to receive dividends by 2032. However, a lot of that money will be used to pay off the share of debt totaling 1.7 billion USD at 6.5 percent interest.

The fact that Mongolia will most likely not receive dividends until 2032 and owes money has been a point of frustration for many who oppose the agreement. In response, Rio Tinto CEO Jean Sebastien Jacques explained that Oyu Tolgoi must first break even with the costs of developing the mine and become profitable before distributing dividends.

“First, in order to distribute dividends, a company must be profitable. More than seven billion USD was invested for the Oyu Tolgoi project and an additional five billion USD was invested for the development of the underground mine,” Jacques explained during his visit to Mongolia in January 2018.

“Every investor wants Oyu Tolgoi to profit as quickly as possible and to receive dividends. As I’m sure all of you know, the Mongolian government opted to not invest the amount required from a 34 percent shareholder and decided to cover this investment with its future dividends,” Jacques added.

Even despite the fact that Mongolia has not seen one cent of dividends, Oyu Tolgoi said has paid 1.5 billion USD in taxes, royalties, and other payments. This has made Oyu Tolgoi the biggest taxpayer in Mongolia for the last five years, since it began open pit mining operations in 2013.

Rio has banked on its forecast that both the price and demand of copper will skyrocket once the underground development of Oyu Tolgoi is complete. New technological advancements such as the use of electric cars will help drive demand, Rio says.

Another factor is that no other large copper mines will be turned operational in the coming years. This has allowed Rio to operate on the assumption that demand of copper will outpace the supply. Jacques said that Rio forecasts the demand increase of copper will coincide with the opening bell of the underground mine.

Despite being commissioned over nine years ago, the Oyu Tolgoi mine is still in its infancy, with the opening bell of the underground mine not due for at least another three years. While the case can be made that the Investment Agreement can be improved to better benefit Mongolia, it is baseless to say it is a completely unfair agreement. In fact, based on the position and leverage Mongolia had going into the negotiations, it can even be argued that the current agreement was the best scenario.

Field and research equipment presented to protected areas administration www.montsame.mn

Ulaanbaatar /MONTSAME/ As part of the German-Mongolian development cooperation project “Biodiversity and Adaptation to Climate Change, field and research equipment have been granted to eleven protected areas to strengthen their activities.

Family of British-Australian jailed in Mongolia fear he will not survive sentence www.theguardian.com

The family of a British-Australian man jailed in Mongolia over a soured business deal fear he will not survive his seven-year prison sentence, after the country’s supreme court upheld his controversial conviction.

After a trial last July that lasted just two days, Mohammed Ibrahim “Mo” Munshi was jailed and fined $15m over a coal deal struck between Gobi Coal and Energy, of which he was chairman, and a company owned by Chuluunbaatar Baz, a member of a prominent Mongolian family.

Munshi is the latest in a string of foreign investors to find themselves hit with arbitrary travel bans or prosecuted over business deals in resource-rich Mongolia, as local partners seek to seize assets or alter agreements.

Last month, Mongolia’s supreme court upheld his conviction, while reducing his original 11-year sentence to seven years on a technicality.

Munshi’s only hope for earlier release lies with an international arbitration application – a process that could take several months – or with a complaint to the United Nations human rights council alleging he was denied a fair trial.

Munshi’s son, Arif, told the Guardian from Perth, where Munshi’s children and elderly parents live, that they fear he will not survive a long prison sentence, particularly during Mongolia’s harsh winters. Munshi has already been hospitalised and the medications he requires regularly run out.

“Honestly, I fear for my father’s life,” Arif Munshi said. “He has several serious health concerns which are not being adequately treated. If the Mongolian authorities cannot provide the medications they saw fit to prescribe him, what hope does he have of maintaining his health?

“In the closed prison, he is housed with dangerous criminals including rapists and murderers. He lives in constant fear for his safety and his life.”

Arif Munshi has said he has been “disillusioned and disappointed” by the diplomatic efforts of the Australian government to assist his father.

He said he had understood that while his father’s trial and appeals processing were ongoing, governments were reluctant to intervene in, or publicly pressure, the judicial processes of a foreign country.

“But we are now at the end of the legal process and we are asking what can the Australian and British governments do?

“Given the lack of evidence and the total disregard shown by the Mongolian legal system for its own laws, is the Australian government going to do something to help? Can the Australian government honestly say that my father has been given a fair trial, or even a fair go?”

A spokeswoman for the Department of Foreign Affairs and Trade said the government was “providing consular assistance to a dual UK-Australian national serving a prison sentence in Mongolia, in accordance with the Consular Services Charter”.

Munshi’s Australian lawyer, Alisdair Putt, a former commonwealth and state prosecutor, and investigator in the International Criminal Court prosecutor’s office, said he does not believe Munshi received a fair trial or appeals process.

“There was minimal evidence presented at trial that could result in a conviction ... this matter should have been treated as a commercial dispute between two companies.”

Munshi’s dispute arose after Baz’s company, Monnis International, invested $10m in Gobi Coal’s proposed mining projects in the south-west of the country.

But when the global coal price collapsed in 2012, a proposed initial public offering was postponed, with the projects put on hold until prices recovered. Other investors acceded to ride out the price dip, but Baz reportedly demanded his money back.

Attempts at arbitration failed, and when Munshi visited Mongolia in 2015 he was hit with a travel ban and his passports were confiscated. The dispute dragged on until mid-2017, when Munshi was arrested, tried, convicted in a two-day trial and jailed. Gobi Coal’s licence over coal deposits was also suspended.

In court documents from the trial, Baz alleged he had been tricked into investing in the projects and defrauded of his investment.

Munshi has denied the allegations and said the case was a business dispute that should be settled by international arbitration, not by punitive use of the criminal justice system.

Court documents state that Baz repeatedly offered to abandon the criminal prosecution in exchange for some of his investment being returned.

Attempts by the Guardian to contact Baz have not been returned.

Both the Australian and UK governments have highlighted the use of travel bans as a tactic to settle commercial disputes in Mongolia, while the US state department has warned: “Investors and local legal experts have grown to fear what they call the capricious and arbitrary use of travel bans by Mongolian officials, sometimes at the behest of private interests, as a means to coerce foreign investors to settle civil and criminal disputes.”

Mongolia targets higher education quality assurance and accreditation to overcome skills mismatch www.bangkok.unesco.org

Around 40% of university graduates in Mongolia are unemployed and unable to find work in their fields. It’s a situation that Ms. Ts. Tsogzolmaa, Minister of Education, Culture, Science and Sport, attributes in part to a skills mismatch between education and the labour market and quality not keeping pace with quantity in Mongolia’s rapidly expanding higher education sector.

ADB to help Mongolia construct 34 schools and kindergartens www.news.mn

The Asian Development Bank (ADB) together with the Government of Mongolia signed agreements for three loans and one grant totalling USD 207 million to help improve air quality and the quality of life in Ulaanbaatar, sustain people’s access to quality education, and improve inclusivity by providing better opportunities for people with disabilities across the country.
Under the project, Mongolia will construct 34 schools and kindergartens for 15,000 children.

Mongolia signs cooperation agreement with Switzerland www.news.mn

Swiss Foreign Affairs Minister Ignazio Cassis is making an official visit to Ulaanbaatar from 4-6 April at the invitation of his Mongolian counterpart D.Tsogtbaatar.

MEINHARDT Infrastructure representatives work in Ulaanbaatar www.montsame.mn

Ulaanbaatar/MONTSAME/ Minister of Road and Transportation Development J.Bat-Erdene met authorities of MEINHARDT Infrastructure Pte Ltd on April 2 in Ulaanbaatar.

Mongolia Hosts Eighth International Mining and Oil Expo www.plenglish.com

Ulaanbaatar, Apr 4 (Prensa Latina) Mongolia's 8th International Mining and Oil Expo opened Wednesday at Buyant-Ukhaa sports complex, an event that showcases the latest technologies in the sector and seeks new investments.

Ambassadors with dual accreditation present credentials www.president.mn

Non-resident ambassadors of Nigeria, Spain, Iceland and Uzbekistan presented their letters of credence to the President of Mongolia, Mr. Khaltmaagiin Battulga on April 4th.

Mongolia established diplomatic ties with the Federal Republic of Nigeria on September 21st of 1971. Nigeria is the largest economy in southern Sahara.

The non-resident ambassador of Nigeria Baba Ahmad Jidda said “It has been 46 years since our two countries incepted diplomatic relations. Nigeria ranks at 1st in Africa and 6th in the world by oil production. Therefore, I think, Mongolia and Nigeria can cooperate on resource governance.”

President Battulga said Mongolia will be happy to learn practices of Nigeria which leads the world in oil exports.
Mongolia and the Kingdom of Spain established diplomatic ties on July 5th of 1977. Upon meeting the ambassador, Mr. Alberto Carnero Fernández, the President noted “When I had been working as the Minister for Agriculture, I visited your country and developed several agricultural projects in collaboration with Spanish specialists. A feasibility study was conducted on processing some 10 million pieces of hides using Spanish technologies and exporting the products,” and wished the Ambassador to attach importance to agricultural cooperation and seek opportunities to increase bilateral trade.

In response, Mr. Alberto Carnero Fernández thanked for the warm hospitality. He said “I will work actively to improve economic and commercial cooperation. I have met with several authorities on this matter. It is possible to cooperate in introducing Mongolia to Spanish technologies.”

Diplomatic ties were established with Iceland on June 4th of 1974. Within the scope of friendship and close cooperation, Iceland has been training Mongolian professionals in geothermal studies in the United Nations University (UNU) in Reykjavik, Iceland, on its own expense.

The Ambassador, Mr. Gunnar Snorri Gunnarsson said “Iceland has more than a hundred years of experience in exploiting its hotsprings, in other words, geothermal resources. It can probably be the most important aspect of cooperation between Iceland and Mongolia. Producing power using geothermal energy helped Iceland to become almost pollution-free. This is something that we can develop together.”

In response, President Battulga said “We are familiar with Iceland’s expertise in hotsprings and their management. There are about 300 hotsprings in temperatures from 40 to 98 degrees of Celsius in Mongolia. However, the management of hot springs hasn’t been developed adequately,” and wished the Ambassador to take initiative in exchanging practices and enhancing cooperation in this area.

After presenting his credentials, the Ambassador of the Republic of Uzbekistan, Mr. Bakhtiyor Saidov paid a courtesy call on the President of Mongolia, Mr. Khaltmaagiin Battulga. The Ambassador conveyed greetings of the President of Uzbekistan to the President of Mongolia, his family and the people of Mongolia. Noting that there are sufficient potential of enhancing bilateral cooperation, Mr. Saidov pledged to put maximum effort on improving cooperation. “Uzbekistan is interested in imports of processed and unprocessed meat products from Mongolia, and exports of dried fruit and other goods to Mongolia. This way, we can increased the bilateral trade turnover,” added the Ambassador.

President Battulga wished the Ambassador success in their works.

Innovation projects to receive grants www.montsame.mn

Ulaanbaatar /MONTSAME/ The Cabinet adopted a Procedure on Innovation Grant at its April 4 meeting.