Petrovis: Oyu Tolgoi chose us for reliability, not for political favors

The following is an interview with J. Oyungerel, Chairwoman of the Board of Directors at Petrovis LLC.

Translated from “Udriin Sonin” newspaper.

-Lately, there have been talks about making private companies state companies. You have recently made a statement about this; please share some of your thoughts on this.


-Considerable years have passed since we chose the road to a market economy. Mongolia is not an isolated country; it is one of many countries on earth. All the events happening today in Mongolia will benefit both Mongolia and its investors, and will eventually help Mongolia enter the world market through international stock exchanges.


We do not want to lose precious time competing against each other. It is both reasonable and possible to compete with companies from other nations. IPO released by Ukhaa Khudag coalmine proved that Mongolia has the potential to compete on the world market. Petrovis LLC, aiming to search and extract oil in Mongolian territories, established Petro Matad and listed it in the London Stock Exchange. Oil exploration demands the most funding and carries the most risk compared to other mineral resources. It means that we cannot fund this project without external funding sources. But getting funds from the stock exchanges is not always successful. Due to the world economy slipping, stock prices all over the world are going down. We are facing funding issues and will have to halt oil explorations if it persists.

Mongolia is beginning to take its position in the Asian market. As soon as we see light at the end of the tunnel, we will begin quarreling with ourselves and it is unfortunate that this mess we are causing is driving away our investors.

-What is the most important thing for a business?


-It is stability. More specifically, it is the stability of policies and politics. On other business factors, there is no assistance guaranteed from the Government. If they create a stable environment for the business sector it can grow much bigger. There are over 37 million companies in the world, and only 43,000 of them are large, multinational firms. They own 60% of all resources. This is a world trend. Out of those, only 147 companies hold 40% of total resources in the market. This is the market principle we chose for ourselves. Whoever is cunning, whoever finds and initiates the right project at the right time and finds the right funding will be successful.


But we will all stay small if we all decide to sit tight not doing anything significant. There are 62,200 economic entities in Mongolia. Only 100 of them make up 43.2% of total State taxes. From these statistics we can see exactly who and what is carrying the whole weight of the Mongolian economy on their shoulders.


-In your statement, you said that the Petrovis’s decision to sell its Mongolian Mining Corporation (MMC) stocks was to raise funds. Can’t Petrovis obtain a loan?


-Petrovis owns 11.4% of MMC, and sold 2.3%. It is not always possible to get loans to raise funds. We run operations by getting short-term loans from all of Mongolian banks. We repaired and replaced our large storages with the best of our abilities after NIC was privatized, but they are getting older. Oil business is a very important business with a huge responsibility towards society and must be carried out very carefully.



We must fund our safety and security as much as possible as we are always dealing with highly explosive materials. Since the Government began intervening with fuel prices, it is difficult to make up funding from profit.


The value of the monetary exchange rate is very risky to people doing importation businesses. Once the rate increases, a huge loss is brought upon the business. We have the will to start up and support small businesses. But then, we require a lot of investment.


-Today, everyone wants to have an independent source of fuel. What is the most realistic choice?
-Our company works with around 30 – 33% of the market. The difference between us and other fuel distribution companies is that we have always intended to be responsible for society and we try to reach as many towns and cities as possible. For many years, we have talked about having an independent energy source, and also talked for many years about building an oil refinery. Building a refinery means we will buy raw materials from other sources once again. So the most important thing is creating gasoline or any fuel out of raw materials within Mongolia. Just for this reason, several Mongolian private companies began research in 2007. It is a project about gasifying coal, then turning it into liquid. It requires large amounts of funding, very high-end technology and has high management requirements also. South Africa has one of these, and China is testing many more of them.


-Is it really impossible for Mongolian private companies to collaborate with fuel distributors on building oil refinery? Some researchers agree that on raw oil, there are alternative sources to Russia.


-In the future, there will be even more dependency on oil. Imagine what would happen to the oil refinery, which was built at a very high cost, when the raw material, or oil runs out? It is estimated that if this plant processes less than 2 million tons a year, then there will be no profit. The oil is supplied through a large system of channels and pipes. Thus, the most reasonable choice would be Russia, as China cannot supply oil as they are also dependent on import oils. Unless we receive the Russian guarantee of long-term oil imports, building an oil refinery, or any oil processing plant for that matter, is very risky.


-A number of people said that overall, a coal liquefying plant is unprofitable, and has a high operating cost. What can you say on this?


-Well, the reason for choosing coal is that Mongolia has abundant brown coal. We don’t export it, and it is very cheap. If the price of oil is more than USD 50 dollars, processing coal for liquid fuel is very profitable.



But it will require a lot of knowledge, experience, funding and preparation. We braced ourselves and agreed that, although it may be costly, we must somehow use the minerals we have in Mongolia.


-What is the progress on a coal liquefying plant project?


-Many Mongolian companies are working together on this. They are currently in the process of developing the technical and economic assessment. Previously, they developed a preliminary assessment. The final assessment takes a lot of time.


-When will Mongolia abandon its dependency on oil imports?


-I believe somewhere in 2018 – 2020.


-So can we understand that coal liquefying plant will be in stable operation by then?


-Yes, we can say that. It takes time to build the plant. Getting the funding, and also, just as importantly, getting the human resources is a huge job.


-You have said that the oil explorations in Dornod Province may face delays and halts. How is the funding going on over there? Exactly how much have you spent on this exploration so far?


-Petro Matad funded its oil explorations with over USD 60 million. This money not only consists of our money but also from the taxpayers of foreign countries. These are the people who believe that the Petro Matad project will be successful and their invested money will begin to rise. Last year, our stock prices went down significantly; we are facing funding issues.


-It seems that the oil sector is risky, and fuel distribution companies seem to have many difficulties and problems, too. Do you have any thoughts or plans to enter a different business to expand your operations?
-I have one big dream. I wish for Mongolia to be one of the most industrialized and developed countries in the world, with its companies being one of the biggest in the world. There is a saying that there is no need to shoot a rabbit while on your way to hunt an elephant. We have the opportunity to become an energy giant.



The energy sector includes the exploration, extraction and production of oil, slate and coal. We are using oil sale profits on these sorts of projects. But our money will be far from enough for huge projects like these.



That’s how we decided that we should sell our stocks and have it funded by others.


-People dislike fuel importers and distributors as soon as fuel prices go up. Of course, there are more problems besides this. Is it really true that instead of taking all this criticism and facing all sorts of difficulties, you have not considered switching to a less controversial business?


-Mongolian businesspeople have enough money in their lives to live happily. They do not even have to work.



There are times when they wonder why are there people suffering so much and getting such a headache from working so hard like that. But for people who are accustomed to work, it is very hard to sit around.



Envisage a project, a problem arises, find a solution; and it starts all over again. This gives a lot of psychological satisfaction. There are difficult projects that yield profit after a long time. Drilling operations in one location takes anywhere from USD 1 – 1.5 million, and if there is no oil, it all goes to waste.


But we cannot go dreaming and wishing so much. It is very dangerous for a country to be dependent on foreign energy sources. Working in a responsible sector such as energy, we have no choice but to struggle to find the right solution. Our politicians speak elegantly, and they write those words on their agendas. But in reality, they do not support the ones that are trying hard to do something out there; instead they try to tighten the policies. They are putting pressure on us by passing oil exploration and extraction policies that are impossible to implement and scares away investors and businesses. We demand to work in an environment with stable policies and with a definite development and growth goals. We want to do something that is in accordance with Mongolian development strategy. But our politicians, although making reasonable points and speaking serious pressing issues that are very true, are making decisions and running operations that are completely different from what they have said. Once the Government starts meddling with the business sector, things go wrong.


-Are you talking about Tavan Tolgoi?


-Yes, a big example is Tavan Tolgoi. Whatever they do or whatever decision they make regarding Tavan Tolgoi, someone is always against them, arguing. They have left many issues unchecked during their Cooperative Government. I don’t understand what the problem is. If Ukhaa Khudag was not given to domestic companies, it would still be an empty, deserted land.


Everyone knows what dedication and determination was put into its construction and development process, now the Government is saying that they should take the whole project back and give a share of its profits to those private companies. In my opinion, Ukhaa Khudag is the largest construction and funding project since we entered the free market system. By law, we are to own 49% of Tavan Tolgoi, but the Government has forgotten that it used pressure to take 96% of Tavan Tolgoi. Democracy and free market economies are about upholding laws. It is clear why the foreign investors are having doubts about Mongolia when the Mongolian businessmen themselves are wondering whether it is right to invest in Mongolia. I have controlled a state company during the darkest hours of this sector. From 1990 – 1996, there were almost no Mongolian monetary reserve, there were no products and goods in circulation; it was a time when we found it extremely difficult to make the transition to a market economy. But when I think about those days, I believe those days were ‘alive.’ Everybody at that time had the genuine determination to make it happen, to make the transition successful. No, I think, they do not know where they are going.


-Will you run for a State Great Khural (Parliament) position?


-I have no such interests. They do offer me the opportunity though, I used to receive offers, and I received one just recently. I have a dream and wish that I want to fulfill, I want to do these. It feels strange to sit there in the Government and run my business. It seems like I will ruin the business. I will also be in the public spot-light, constantly being accused of wrongdoings.


-The reason that a power plant is not being built at Oyu Tolgoi site has something to do with Mongolian People’s Party’s (MPP) support for Petrovis. There are also talks in the public that the party supports Petrovis on fuel distribution. What would you say on this?


-In 2013, Oyu Tolgoi will begin extracting and exporting minerals. I don’t know the reason they have not yet built a power plant. Once the mine is in full operation, there will a huge demand for electricity. I heard that they will first use electric power from China then later, they are planning to build a power plant themselves.


Right now, they purchase diesel fuel from us to use for their large machineries and vehicles. Oyu Tolgoi is a private company. They did not choose us to gain the favor of some political party. There are no mutual partnership between us and the Democratic Party (DP). The question of why Oyu Tolgoi chose us is another topic altogether. It is said that when one is in trouble, the others’ real personalities begin to surface. When Oyu Tolgoi was in trouble, we supplied them with fuel even on loans, taking great risks. Secondly, Oyu Tolgoi requires reliability. They request that we reserve a three month worth of fuel for them, and supply them with high quality fuel. We fulfilled those requirements, which is why they chose us.


I think Mongolians should stop living with great suspicion and jealousy of each other. Blaming someone with solid proof is a part of democracy.


-There are no guarantees of fuel shortages. How much fuel can Petrovis secure?


-We don’t have the financial capability to save up a large deposit of fuel. We only have reserves that will last two or three months.

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