The fate of foreign investors will be decided after the summer of 2012

The Mongolian authorities have begun to review large projects for the development of the country's mineral wealth, in which foreign investors, including Russia, participate. Ulaanbaatar announced its intention to change the terms of the agreement for the development of one of the largest gold-copper deposits in the world, Oyu Tolgoi, and at the same time is reviewing the results of the tender for the development of the Tavan Tolgoi coal deposit, in which a consortium led by Russian Railways participated. According to Kommersant's sources in the Mongolian leadership, the reason for the attack on investors is the flaring struggle for power in the country on the eve of the parliamentary elections scheduled for June 2012.

The conflict between the Mongolian government and foreign investors over the Oyu Tolgoi oil field became public on Sunday. Cameron McRae, director for Mongolia of the Australian-British holding Rio Tinto, spoke about it. “The most important thing for investors is a sense of predictability and stability in the country where they operate,” he said. “An unstable environment in which agreements are forced to be changed creates a sense of uncertainty.”

A sense of uncertainty gripped Rio Tinto last week when Mongolian Mining Minister Zorigt Dashdorj said Ulaanbaatar intended to renegotiate the terms of the Oyu Tolgoi agreement. This agreement was signed in 2009 by the Mongolian government with the Rio Tinto consortium and the Canadian Ivanhoe Mines, which owned the Oyu Tolgoi license (48.5% of the company is owned by Rio Tinto). Under the terms of the agreement, Ivanhoe received 66% of the field, 34% went to Ulaanbaatar. Now, according to Minister Dashdorj, Ulaanbaatar wants to get 50% - this demand was made by 20 deputies of the Mongolian parliament, who wrote a letter to Prime Minister Sukhbaataryn Batbold on September 7. The current version of the agreement states that Mongolia will be able to increase its share in the project only after 30 years.

The agreement concluded in 2009 was the result of long negotiations that lasted six years. According to Rio Tinto, the deposit is one of the five largest in the world and within ten years will be able to produce 450 thousand tons of copper and 330 thousand ounces of gold per year. According to Bloomberg calculations, at current prices, proceeds from the sale will be $4 billion a year. By 2020, production at Oyu Tolgoe could provide 20% of Mongolia's GDP. Rio Tinto notes that the new requirements of the Mongolian authorities may delay the launch of the field, planned for 2013.

Mongolia's conflict with Rio Tinto coincided with another similar story - the cancellation of the results of a tender announced by Ulaanbaatar to develop the world's largest undeveloped coal deposit, Tavan Tolgoi. In July, the country's authorities announced that three tenderers would develop its western section: the American coal company Peabody, a joint venture between the Chinese Shenhua and the Japanese Mitsui, as well as a consortium led by Russian Railways (see Kommersant on July 5). However, reports have recently appeared that the Mongolian authorities are reviewing the results of the tender (see Kommersant, September 20).

Claimants for Mongolian resources are at a loss as to why Ulaanbaatar's decisions are so inconsistent. “They wanted to outwit everyone, but realized that they had outwitted themselves,” a high-ranking source in the Russian government told Kommersant. “Recently, the Mongols have been approaching us and hinting that new results of the tender for Tavan Tolgoi and for Russia will soon be announced they will be more pleasant."

As Kommersant's interlocutors in the Mongolian leadership explain, the main reason for the delay is the difficult internal political situation in the country. “Decisions on such projects are first approved by the government, then by the security council headed by the president, and at the final stage by parliament,” explained a Kommersant source in the Mongolian government. “Now these three forces are negotiating among themselves, but cannot agree ".

Kommersant's sources in Ulaanbaatar explain the conflict within the Mongolian elite with the upcoming parliamentary elections scheduled for June 2012. President Tsakhiagiin Elbegdorj heads the Democratic Party, and Prime Minister Batbold heads its main rival, the Mongolian People's Party, which controls the parliament. Now both forces are fighting to appear in the eyes of voters as defenders of their interests in dividing the raw materials pie. Under these conditions, Kommersant’s interlocutors at the Russian Foreign Ministry admit, no real decisions on the fate of major projects like Tavan Tolgoi can be expected until the end of the elections.

Alexander Gabuev

Mongolian mineral resources are closed for elections