A stability agreement must be marked with transparency, both during the talks before it is signed, and after, during the years of implementation.
Is the Tavan Tolgoi agreement now being discussed at various forums of Parliament truly transparent or does it conceal more than it reveals? One cannot but note that so far the discussions leading to the approval of the proposed draft agreement have been silent on its economic and financial aspects; instead, the debate has focused on the political aspect concerning whether to make the agreement at all and how many operators there should be. What are the economic attributes that are being kept under wraps?
Robert Friedland uses the analogies of the height of the Eiffel Tower and the size of Manhattan when describing the Oyu Tolgoi deposits. The depth of the reserves, he says, is double the height of the Eiffel Tower. This way of presentation is very realistic and persuasive when Friedland’s goal is to attract investors. But his presentations do not stop there. On one such occasion, just days before the Oyu Tolgoi investment agreement was finalised, Friedland also said, “Ivanhoe Mines will have to fund Mongolia’s share of the investment as 34% owner. This we will be doing by buying Government bonds for USD250 million. When they mature after five years the Mongolian Government will pay the company USD287.5 million.” This was a succinct “presentation” of the economic aspect.
Its economic content is an essential part of an agreement and the benefits of the agreement cannot be assessed without a detailed idea of that. There will always be secrets during negotiations and both sides have a right not to reveal them, and some provisions may also be considered too delicate for public revelation, but transparency demands that much of the final product should be available for public discussion. This transparency cannot be met by just putting the Tavan Tolgoi agreement on the website of the Ministry of Finance. The public has a right to know how the negotiations were conducted and the terms were reached.
In that way, the draft agreement on Tavan Tolgoi that is in the hands of every MP and journalist is not transparent. The numbers that are put in the spaces covered by three dots are the most important part of the draft and are, at the moment, missing. There is no clarity on most of the essential economic components, such as the extent of the reserves; water consumption estimates; amount of advance payment, and also of how much will go to the environment protection fund; the anticipated average price of the coal; the extraction schedule; logistical options; shipment methods, location choices, rates; capacity and ownership of the port(s) considered; the types of coal to be extracted: and prospective markets. In their absence, how can we evaluate the potential benefits of Tavan Tolgoi in a realistic way? Almost everything to do with the competitiveness of the massive coal extraction project ends with the tantalising three dots. Everybody is free to imagine what they want.
The political decision on general principles is likely to be made soon, giving the go-ahead to the Government proceeding with the agreement. The MPs will be seen as having done their job. Neither they nor professional experts nor industrial analysts have been able to do any realistic assessment as they have no numbers or figures to judge or to compare. How then can we call the agreement transparent? How shall we reach a conclusion on the likely economic benefits, if we are told nothing about the type and quality of the various coal samples; how they will be sold and to whom; the comparative prices in the likely markets of China, South Korea or Japan; also the other terms and conditions for the sales? For example, the price of Tavan Tolgoi coal is likely to be decided in Shanghai on quarterly and bi-annual bases. Who will be the shrewd trader or broker to ensure the best price for us? Have we also identified different types of buyers for different classes of coal?
If Erdenes MGL is to be the equity holder of Tavan Tolgoi, how does it imagine it can do all the research and study? As 100% owners of the deposit, Mongolia is free to choose the operator(s), but the more important issue is to ensure that Tavan Tolgoi yields the highest value to the nation. Do we have locally available skills and resources to monitor the contractor’s operations? How many of us can claim expertise in coal transport logistics or in selling coal in the highly competitive international market?
We urge the Government to be more forthcoming with the economic attributes of this national treasure. Let independent analysts review and dissect the datawithout political compulsions. We must also be assured that adequate measures are in place to enforce compliance after the agreement is made. Ratification of an agreement is not an end in itself; it is just an important milestone on a long journey. What checks will be there on management of the project according to the agreed terms once extraction starts?
Any project is an aggregate of interdependent economic indicators. Controversy, compromise and consensus marked the chequered course of the Oyu Tolgoi agreement but in the present case of Tavan Tolgoi, specifics are missing. We have only been offered an outline traced by politicians. Analysts and experts look for the essential and basic details and see themselves facing a series of dots.