D.Bathuyag: The state does not work arbitrarily
-On taking office you said you would review all exploration and extraction licenses. Many companies complained. How has the work progressed?
-My appointment is for four years and I got the job about two years ago. One of my main tasks is to follow the Prime Minister’s instructions to put the whole license issue in order, within the law. When I came, there were 5,187 exploration and mining licenses covering 48.2 million hectares. Since then, the state has taken back over 21 million hectares. At the moment, we have 3,155 exploration and 1,134 mining licenses. The number of mining licenses is on the increase as exploration licenses are converted to mining ones. The number of exploration licenses might fall as we review the 3,155 of them from the legal point of view. Investors, foreign or domestic, must clearly understand that they have to follow Mongolian laws. This is our only principle and it is not that the state issues or revokes licenses arbitrarily. Companies have a responsibility to abide by the law of the land and we are checking on how they have been doing this.
-What are the expected positive effects from reducing the number of licenses?
-This is a separate issue. It is for the Ministry of Mineral Resources and Energy to examine the possible impact of having fewer licenses, how this will benefit or harm the mining sector, and then decide on what the policy should be. The effects on the mining sector of what we have so far done are not apparent.
People have a wrong notion that all the land in Mongolia is being dug up and exploited and given away to foreigners. In fact, only 17.1% of our territory is under exploration license and 0.3% under mining license. If anything, Mongolian territory is underexplored. Another related issue is that of reserves. There is no reliable estimate of how much we have of what. Studies are on to determine the gold and coal reserves. Once this is done, the state will determine what to do with it and through whom.
-President Elbegdorj has suspended the issue of any new license and also transfer of license on grounds of national security. How have foreign investors reacted to this?
-Following up on the initiative of the President, Parliament has suspended both activities until December 1, 2010. This is consistent with our work of cancelling licenses held illegally. Investors usually do not complain, but they do watch if the implementation is as strict as MPs wanted the law to be. What is most important is that regulations should be stable and consistently enforced. I don’t think the country will suffer any real financial loss because of revocation of exploration licenses. The license fee collected in a year is around MNT30 billion.
One big issue for us is to determine who is paying for the exploration. According to law, only the investor should pay for it. It is imperative for us to have a proper policy on natural resource exploration which is essential for our economic growth. If there is no private capital for exploration, it has to be done by the state, either from the budget or through foreign loans. Only properly done exploration work will allow us to know what we have and then to register the resources. Exploitation is the next step.
-The law says that a license is issued for a period of three years, and can be extended for two further periods of three years each. Companies still risk failure, even with a validity of 9 years. How practical is it to now ask companies seeking a license to bid for it?
The earlier principle was “first come, first served”. The current system calls for bids only when the territory sought is mineralized. All other territories can be given to the first comer. Whether this system if right or wrong will be determined by a working group and an expert team focused on the improvement of the legal environment. Many mistakes have been made since the introduction of the market economy in Mongolia, but many good and correct decisions have also been taken. We want to do everything correctly, starting from how and to whom to issue licences. Will all companies, foreign and local, seeking a licence, be granted one?
-The debate over the law on revoking licences for any mining work near river basins and forests does not go away. What do you think of the law?
The law is good, in both concept and content. It is a mistake to assume that we shall reach the the peak of development only if we allow indiscriminate expansion of the geological and mining sectors. The law has also yielded good and unexpected benefits. For one, the country now has a clear map of forest areas and of water sources and flow. This is a huge achievement. It is true that implementation of the law can be a complicated process and the compensation liability will be huge. It can also mean that companies will not reclaim any area when they are forced to stop mining operation, on the ground that they made no profit from the work.
-With Erdenes Tavan Tolgoi LC starting to move the soil to prepare for mining in Tavan Tolgoi, it appears that your term as chairman of the MRAM will be marked by the start of operations in two major strategic deposits. What are your thoughts about them?
On Oyu Tolgoi, I do not belong to either of the extreme camps, to say the agreement was the best we could expect, or the worst we could fear. It was a landmark for our geological and mining sectors, and only time will tell if several details in the agreement will work or not. I wish all Government efforts to use the revenue to train thousands of Mongolians into becoming world class professinals do succeed.
-That the Tavan Tolgoi reserves are still somewhat unclear is not an important issue as the usual practice is to start work on a deposit with a fair idea of its reserves and then determine their exact extent as work continues. A feasibility study and a business plan should be made on the basis of what we know now, and the reserves can be revised during exploration. They are likely to increase and this is possible in the case of Oyu Tolgoi also. We should have a positive outlook. Production at Tavan Tolgoi should begin as early as possible, as nobody can accurately predict coal prices. What will happen if China and Russia increase transit transport rates? There are still many aspects that remain unresolved.
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