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Mining The Resources
Minding the future
Policy and politics

O. BATNAIRAMDAL: 100% digitization of the licensing process is a completely new step digital and transparent exploration license issuance is a major reform

G. Iderkhangai, a columnist for the Mongolian Mining Journal, spoke with O. Batnairamdal, Deputy Minister of Mining and Heavy Industry

High-level visits that took place in July and August were important for the mining sector,. Shall we start the interview from there?

During the visit of Russian Foreign Minister Sergey Lavrov and Chinese Foreign Minister Wang Yi, we mainly discussed projects and programs related to the mining industry. The visit of Lavrov coincided with the time when we were negotiating with the Russian company Rosneft about A-92 gasoline, and we successfully managed to close the deal. It is important that gasoline A-92 will be supplied steadily to consumers at the current price until the end of this year. By simple calculation, we managed to save 110 billion MNT on fuel in April and May. We will probably continue saving until the end of the year. As part of our New Recovery Policy, we have prioritized the development of port capacity . In connection with the visit of Chinese Foreign Minister Wang Yi, we finalized the issue of linking Gashuunsukhait and Gantsmod border crossings by railroad, and agreed to establish a long-term coal supply agreement with the Chinese government . All the lost opportunity cost for the mining industry is due to logistics issues and lack of border development. In 2019, prior to the spread of COVID-19, Mongolia extracted more than 50 million tonnes of coal and exported 37 million tonnes. However, limited border and transportation capacity impede export growth. There are 3.5 billion tonnes of coal reserves at Tavantolgoi deposit, and 1.3 billion tonnes at Shivee Khuren mine. 95% of Mongolia’s coal exports pass through Gashuunsuhait and Shivee Khuren border points If the railroad had started operating in 2017 as planned, we would have made more than $10 billion. In other words, the lost opportunity cost for export is $4.9 billion and $7.7 billion for transportation.

Does the contract for long-term deliveries of coal have specific dates, and what issues should be specifically addressed in the contract? How long is the “long-term coal supply contract” is and what would be the key issues?

We can not say anything specific yet. There is a possibility of supplying 50-70 million tonnes per year from Mongolia to China. In my opinion, when it became clear to the Chinese side that the export railroads would be finished very soon, both sides decided to sign a long-term contract for coal.

According to the reports of the major investment banks, the global economy is divided into pre and post COVID era. How mineral sector will be affected by the global economy in the future?

Researchers say that although China strictly adheres to a “Zero COVID” policy, its economy has surpassed pre-COVID levels. But other countries have not been able to reach their pre- COVID levels. Thus, China’s economy has been able to grow faster than other countries. According to the World Bank’s survey in June 2021, the world economy was predicted to grow by 4.1% in 2022. However the expected growth has dropped to 2.9%. In the next two or three years, global economic growth will not exceed 3%, and the situation is not expected to improve. There are expectations that the world economy will suffer due to inflation and it would particularly affect the price of minerals.

Average of 700-900 trucks have crossed the border through Gashuunsukhait in the past two monthsIn other words, exports have tripled compared to the same period last year. I’m sure it was a positive impact to our country’s foreign trade balance. This had a significant impact on the growth of our country’s foreign trade balance, didn’t it?

Coal and copper account for almost 80% of our foreign trade balance. Improved exports of coal and copper concentrates have a very positive impact on the foreign trade balance. As of 4th of August, 2.3 million tonnes of iron ore were exported accounting 45.8% of the total 5 million tonnes that were expected to be exported.. Additionally, Bank of Mongolia already purchased 50.9% of the gold that were planned upon. On the other hand, only 15.6% of oil were exported out of 3,420,000 barrels. Mongolia exported 85.6% of zinc out of the initially planned 100,000 tonnes, and exported 29% of fluorspar out of the 650,000 tonnes.

How is the progress on electronic issuance of the exploration licenses?

Mineral exploration is the industry that suffers most from corruption and bureaucracy, not only in Mongolia but all over the world. Reforming this sector and making it 100% digital and transparent was not easy. Even the development of licensing regulation faces many challenges. Organized demonstrations were held by non-governmental organizations and on Sukhbaatar Square. Not to mention the licensing discussion was withdrawn from the cabinet meeting. But this year the issuance of a special license was 100% digitized in a completely new step. We will work to overcome any difficulties in moving the licensing procedure into an open and electronic format. If you look at the digitization procedure, you will see that it is a big change. Previously, more than 100 signatures were required to issue single license. In each of these cases, different errors and problemsarose. We plan to fix all problems related to the human errors. More than ten years have passed since www.tender.gov.mn was launched. Licensing can also be done through the site. We will not back down from the goal of digitizing all government activities within the framework of the New Recovery Policy. Local problems should be looked at from different angles and the right solutions should be found. I don’t think that companies oppose the granting of exploration licenses, in any way. Stakeholders whose interests are affected in the area must work together to find solutions. In the long run, a campaign against information imbalance is necessary. This is not even a problem that the government can solve alone. Australia also faced similar problem. When three herders come out and speak, we must consider whether or not they can represent all herders. Less than 3.4% of Mongolia’s total land is used for mineral exploration and mining. This is a very small figure. Compared to national parks, protected areas, and land for special needs, mining occupies much smaller area.

One of the main tasks of your ministry is the bill on the Sovereign Wealth Fund. It will be discussed at the autumn session of Parliament. Can you provide information about this bill?

To explain this bill, let me reference a very interesting study that I found while reading a book. The GDP per capita in Mongolia is about $4000. Between 2009 and 2013, the Oyu Tolgoi agreement was made, and the economy grew rapidly. At that time, our GDP per capita grew 2.5 times and reached $4700. Since 2013, it has not exceeded $4,000. When a country’s GDP per capita is lower than $4,000, people can only able to invest in basic necessities such as clothing and food. If it exceeds $4000 dollars, the country can develop more rapidly. Beyond mere consumption, the country can begin to focus on its infrastructures and start building more roads and railroads etc Having reached the higher stage of development, the country can begin to invest inarts and education. Currently, we are stuck on the road to progressive development. To progress, we must implement megaprojects. If we fail to do so, we remain stuck at this stage of development.

So how do we start investing in mega projects?

Mongolia doesn’t have enough resources to invest in mega projects. Foreign investment has to come in somehow. However, foreigners demand that the government participates in these projects and share the risks. A mega project will take at least four to seven years. For example, if the total investment is one billion dollars,governmenthave to invest and share 15-20% of the total risk. However, we do not have a mechanism for investing on behalf of the government. This is where the Sovereign Wealth Fund becomes crucial. . When we talk about funds, we oftentimes refer as welfare. However, this fund should be divided into two types: a future heritage fund and a development fund. Thus, the idea is for Erdenes Mongol LLC to work as a mechanism for financing mega projects on behalf of the state in accordance with the principles of the Sovereign Wealth Fund and the Development Fund. Thedraft law has already been developed and approved by the two key ministries. Now it is in the process of being introduced to the ParliamentIt will be presented to the Parliament in autumn session.