Problems with the super consortium

Everything has been very quiet since the Government announced its selection of investors in the strategically important Tavan Tolgoi deposit. Ch.Khurelbaatar, minister and head of the cabinet secretariat, has said the Government is awaiting the response of President Ts. Elbegdorj. He may be justified in taking his time, as the issue is too important to brook any hurry, and there are too many conflicts of interest.  

There are two policy documents that govern the progress on the deposit. The National Security Council issued a set of guidelines in May 2010 and then there is the 39th Order of Parliament, passed in July last year. Both were published in the MMJ. The problem is that the two documents meant to direct policy are at times contradictory. The most glaring example of this is that while the Parliament order says only one consortium shall exploit west Tsankhi, the NSC guidelines recommend that any decision on west Tsankhi shall equally meet the interests of Mongolia’s two neighbours, and of the country’s third neighbours. That way the Government decision to ask the selected investors to make one consortium among themselves is right, in that it meets the interests of five countries.

But does this make the decision a feasible or  a practical one? Has the world ever seen anything like this projected super consortium? Can any arrangement really satisfy, equally and simultaneously, the interests of Russia, China, USA, Japan, and South Korea? And what about Mongolian interests? Have we carefully considered if they are best served by letting one single body take responsibility for extraction, transport, marketing, and selling  the coal?

One appreciates the problems the Government faced and continues to face in the circumstances. Complications have beset every step of the way, as understanding of the guidelines and ground realities has continued to vary. It is believed that in April, the Government finally made up its mind to deal with only Russia, China and the USA, and asked them to involve or otherwise deal with Korean and Japanese companies. We are not sure how this has been or is planned to be done.

The latest situation is that Peabody, Shenhua and RZD will deal with one another more than any of them with the Mongolian Government. The three super powers were to be given a share of 40:24:18 over the deposit. The remaining 18 percent was for the Mongolian Railway, a state-controlled company. It is small and has got the job of building the railway to Choibalsan which will send Mongolian coal to the north. It has no capital of its own and has to take a loan to do any work. Russia has taken advantage of this and has formed a joint venture Infrastructure Development LLC, which will absorb the 18% of  the Mongolian Railway and thus make the total Russian share 18% plus 18% or 36% . Mongolians are unhappy that the solution did not come from the Mongolian Government’s working committee but was offered by foreign investors. Companies of Russia, China and the USA are ready to proceed on the assumption that their respective share is 36%, 40% and 24% but will the Mongolian people, the National Security Council and Parliament accept it? 

One MP who is a member of  the working committee told MMJ on condition of anonymity that the negotiations had been “very tough” with six powerful companies of super six countries in competition. Only Peabody, the MP said, was competing on pure commercial/business grounds. “All the rest were representing their countries and this made things extremely complicated.”  The governments of China, Russia, South Korea and Japan made no secret of their support for companies from their countries.

What will be the next step for the Mongolian Government which owns 100% of the Tavan Tolgoi licence? We believe the three members of the National Security Council have three different views on the investor’s agreement. The Prime Minister is all praise for the present decision, but Parliament Speaker D.Demberel is reported to have expressed the view that it is “always better  to measure seven times before cutting”. With the economic situation comfortable and revenue coming in, he thinks there is no need to rush to begin exploiting Tavan Tolgoi. That is why the view of President Ts. Elbegdorj becomes of crucial importance. Several comments he has made indicate he is not happy with the present “international selection”. The head of state is not a member of any political party and thus can claim to represent the non-partisan view of the Mongolian people. He has the additional advantage that he can speak plainly, as he does not have to face the electorate next year.     

It is likely that the present decision will not stand, and the working committee will come up with something new. The ground is being prepared for new demands to be placed on the investors for more responsibility in  infrastructure development.  Our next issue will cover the entire infrastructure development program, and later we shall publish the plan of how to implement the projects.

Mongolians would prefer to measure seven times before they cut.