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http://zgm.mn/post/643/

Arnaud Soirat: OT agreements are not renegotiable (Part 2)

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http://zgm.mn/post/643/

GM Daily had the opportunity to sit down with Arnaud Soirat, Rio Tinto’s Chief Executive of Copper and Diamond, about the company’s future. The first part of the interview, which covered the stanceon the current turmoil around the Oyu Tolgoi (OT) project, was published on June 14th issue of ZGM Daily. Scan the QR code to read the first part of the interview.


How do plan to contribute to solving social problems of the workers on-site? It has been widely debated that a town near the site will be solution to many problems such as divorce?

-Yesterday, I went to visit Khanbogd town and I am very impressed by the work that has been done. I am sure that you have read in the newspaper where politicians are saying nothing has been done. Maybe you should ask them a simple question. “Have you gone and seen them by yourselves? What has been done?” Because, when you go, it is impossible to say that Rio Tinto has done nothing. It is not true at all. Actually, we have already done a lot. We have helped building the key infrastructure for a town. We have built the water treatment plants and we have visited the veterinary clinic, which is going to help the herders have healthier stock in general. We have built schools too. So, we have built lots of infrastructure, which are the enabler for the town to grow. The town has already grown quite a lot. Compared to ten years ago, the population has been tripled. But we are not a real estate business. Our job and purpose are not to build a town. We can be a catalyst, but the government and private investors have got their own roles to play.


-You have said the investment agreement and the UDP are the foundation of your investment. Some populists are stating, they might want to renegotiate the agreement. What does that mean to the company? Also, the election is coming up in two years, which significantly increases the risk of that actually happening.

-We are prepared and waiting to invest in the country. Because waiting is the right thing to do for the country, for Mongolian people and for shareholders. But we cannot invest if we do not have stability. Therefore, those agreements cannot be renegotiated. They have been negotiated in good faith. We need those agreements to be honored, first to continue investing.

I am convinced that within the existing agreements, there are many more things we can do together. For example, power. We are committed to building a power station in Mongolia, using the coal from Tavan Tolgoi that will supply electricity to OT. That is the commitment that we made in the investment agreement. Yet, we cannot do it on our own. We need permits. We need the Government’s support. Currently, we are having difficulties to get the support of the Government. This is a great example of how, within the existing agreement, we can create more value for the country. We do not need to renegotiate agreements to do so.


-What does it take to create more value within the existing agreement?

-We are currently buying power from Inner Mongolia, which is equivalent between USD 120-140 million per year. So, if we were to build a power station, then this money will stay in the country. If you look at the very strong priorities that we are giving to employ more Mongolian people and to give more of our procurement contracts to Mongolian companies, 85 percent of our contracts are with Mongolian companies. We are, right now, contributing to the diversification of Mongolian economy. Also, we are encouraging “Made in Mongolia”. More of this is creating huge amount of value for the country. So, my point is that these agreements are foundations, on which very reputable international banks and international organizations have lent USD 6 billion. If those agreements are renegotiated, the whole foundation of the lending will collapse. There is an incredible strength in the culture. People are very smart, adaptable and creative. When we give opportunities, entrepreneurs are seizing those opportunities to create new businesses. So, diversification is already happening. I think the parliamentary working group has got the key opportunity to actually explain better to Mongolians why those agreements are good agreements and what we can do together to create environment for us to continue investing.


-Does the many things include a copper cathode factory in the foreseeable future?

We had a commitment to study about a potential copper smelter in the country, which we did. We gave our study to the Government, around August last year. As for the commitment we made in the agreement, the analysis shows that it will be very difficult for the investor to invest in a smelter and get some money back out of it. Mongolia has a geographical situation such that it would be very difficult to have a profitable smelter. So, we gave the conclusion to the Government that we are not interested in investing in a smelter. However, if the Government were interested for strategic critical reasons, for example, to create jobs, that is up to them to invest if they wish so. We have given the commitment that would be selling copper concentrates to local smelter at the international market price to enable that smelter to import.


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Land valuation methods change after two decades

​Land valuation reform to take effect starting from January 1, 2019​

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Cabinet has decided to reform land valuation /by ratings and districts/, baseline assessment, percentage and amount of payment. The resolution will take effect starting from January 1, 2019. Minister of Construction and Urban Development Badelkhan Khavdislam informed, “The intrinsic values of land were set 21 years ago in 1997. After the transaction into the market economy in 1991, several laws on land and privatization were issued. Hence, it is necessary to amend these old laws. With the land law of 1997, the land valuation was divided in four regions, namely Khangai and Altai mountains, steppe and plain regions, and were categorized in three types of cultivation, pasture and hay-field.”

Land valuation will not burden the public

He added, “Ulaanbaatar city was following a single valuation of MNT 440 million per hectare until now. The reform divides the above mentioned four agricultural regions into 31 areas in the same three categories. Ulaanbaatar city lands are divided into three categories based on location, such as central, outskirts and connection to socially infrastructures, and are split into 16 regions. Also, 17 purpose of use were determined to set land values. For instance, the price will be different depending on the purpose and for budgetary organizations and private entities in each 16 regions.” The officials informed that several surveys and consultative meetings were held with each levels of local bodies to determine the intrinsic price. Land value of some areas are expected to be halved, while more fertile areas and regions connected to social infrastructures will be much expensive. “The valuation will not burden the majority and land prices will not increase except the ones in the central area connected to the infrastructure and social services,” highlighted Mr. Badelkhan Khavdislam.

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Government seeks dual-listing for Erdenes Tavan Tolgoi IPO

​Cabinet plans to offer 30 percent stake of Erdenes Tavan Tolgoi through a dual-listing​

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According to the Minister of Mining and Heavy Industry Sumiyabazar Dolgorsuren, the Cabinet issued a resolution on intensifying the development of Tavan Tolgoi residual deposits during its regular session yesterday. The resolution to improve economic circulation of the deposits were presented to the Parliament. The Cabinet presented the draft to the Mongolian People’s Party group in the Parliament and received its approval and was ratified by the National Security Council on June 14. If the Parliament approves the bill within two weeks, the preparatory works of Erdenes Tavan Tolgoi’s IPO, which is expected to offer 30 percent of its stakes, are in plan to be completed within 180 days. The working group, which is formed by over 40 staff of Ministry of Road and Transport Development, Ministry of Finance, Ministry of Energy, Ministry of Mining and Heavy Industry, Erdenes Mongol and Erdenes Tavan Tolgoi, is currently drafting documents on renewing the feasibility, integrated resource report, projects on water supply, electricity grid, auto road and railways of Tavan Tolgoi deposits. For instance, the resource estimation is expected to be increased by 7.4 billion tons with the JORC code. Authorities informed that the USD 5.7 billion appraisal of the deposit conducted in 2011 can be revised as a result. “Within the frames of intensifying Tavan Tolgoi residual deposits, the Cabinet is holding talks and exchanging views with international exchanges and investment banks; for example, the Hong Kong, Tokyo, New-York, London and Toronto exchanges have sent their respective offers. There are rumors that state-owned enterprises are inefficient. I think we are obliged to demonstrate the public that the Government can be a good manager. The President, Parliament Speaker and Prime Minister share the same view that the Tavan Tolgoi residual deposits have to be aggravated,” remarked Mr. Sumiyabazar Dolgorsuren. He added, “Since there is a risk that the stock price will plunge, we are being careful to launch the IPO at the domestic stock exchange. Thus, we view that it is rational to launch a dual-listed IPO.”

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EMC labour union opposes illegal appointment

Labour union demands wage raise over paying Standard Bank debt​​

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The Labour Union of the Erdenet Mining Corporation (EMC) held a press conference on the recent actions of some authorities, namely the directors responsible for the factor and social affairs, appointed by the board, which was also formed despite ban by court. According to the Head of Labour Union, for the last few months, the workers have been protesting the repayment of the loan issued by collateralizing the company’s stake, demanding the people responsible for collateralizing the EMC's stake to the Standard Bank of South Africa to pay the debt and increase the workers’ wage instead.

People appointed by the board allegedly broke into the union's office

However, the recently illegal board has started dismissing the people who issued the demand, informed the union. The board also forbid the heads of the labour union to enter the factory for about half month. Labour Union alerted that the people appointed by the board have attempted to steal the union’s stamp by breaking into their office. They have started a lawsuit against the board. Head of the union remarked that political pressure and high cost bids have been disclosed thanks to the Law on Glass Accounts, and the company’s net profit was increased as a result. However, the union criticized that the company became non-transparent and several political appointments took place since the nationalization of EMC. Earlier this year, Administrative Court revoked the Cabinet’s decision to nationalize EMC and suspended the board, which is fully formed by the Cabinet members. Nevertheless, the suspended board held meetings and decided to alter the structural organization of EMC, which is a clear violation of Mongolian law.

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Mongolia proposes to establish permanent organization for Northeast Asian mayors

​Northeast Asian Mayors' forum discuss opportunity to improve air quality in Ulaanbaatar​

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At the initiative of the Ulaanbaatar City Mayor Batbold Sundui, the third Northeast Asian Mayors’ forum is taking place under the theme Low Carbon City Development: Improving Air Quality and Reducing Greenhouse Gas Emissions between June 17 and 19. Northeast Asian cities play an important role in the world economy and are responsible for 30 percent of greenhouse gas emissions of the world. In accordance with the 2015 Paris Agreement on climate change, every countries are obliged to make effort in reducing greenhouse gas emissions. The Parliament of Mongolia approved the related documents in 2016, setting a goal to cut greenhouse gas by 14 percent by 2030. Opening the forum, the Mayor Batbold Sundui remarked, “One quarter of the world population live in the Northeast Asian region. Urban areas emit 60 percent of total greenhouse gas; thus, the best urban development policy is to adapt low-cost technologies that can reduce greenhouse gas in the short term.

Population shift from rural to urban areas is becoming the key cause for air pollution

Since Northeast Asia has been the center of technology and innovation, I have no doubts that the cutting edge technologies that minimizes natural resources consumption introduced here in Ulaanbaatar will be an ideal example for other cities. Due to the geographical location, vulnerable ecosystem and economic system that is highly dependent on weather, Ulaanbaatar is heavily affected by the climate change. As a result of desertification, drought and dzud, the population shift from rural to urban areas is becoming the key cause for unplanned expansion, environmental and air pollutions. Hence, I propose to make this forum a permanent organization and recommend to establish a Secretariat.