TAVAN TOLGOI TO STAY UNDER STATE-OWNERSHIP

Ulaanbaatar, /MONTSAME/ Mongolia's government prefers that the Tavan Tolgoi coal deposit, one of world's leading deposits, with its quality and reserve, remains under 100 percent State-ownership for exploitation. However, the government wants to have foreign operator companies execute the extraction, transportation and marketing activities.
Prime Minister S.Batbold heard an introduction of Tavan Tolgoi project's working group February 2 and gave a duty to maintain Mongolians' preference for 100 percent ownership of Tavan Tolgoi and study a version to make operating companies execute extractions pursuant to a principle of profit sharing while working-out the project to exploit deposits and negotiate with foreign companies interested in investments.
According to preliminary measurements, the Tavan Tolgoi deposit has been estimated to have 6.4 billion tons of coal. Nine mining licenses covering 71,754 ha area were currently issued, most are owned by the state-owned company Erdenes MGL Company. In accordance with a resolution on basic principles and guidelines for co-exploiting with foreign investors, which was passed by parliament in December of 2008, the government's working group worked out a project to exploit the deposit and started its first talks with companies interested in investing in the deposit.
Eleven companies from China, Japan, Brazil, Republic of Korea and Russia expressed their interest to take part in the Tavan Tolgoi Project. The second talks with companies are to be held February or March. D.Zorigt, Minerals and Energy Minister said issues of geopolitics and economic security are considered while selecting the project's investor.
He also noted that it is significant to increase reserve estimations for negotiations because the reserve size is possible to rise. Russia's GIPROSHAHT Institute worked out a preliminary Feasibility Study to exploit the Tavan Tolgoi deposit in 1990 and estimated that the deposit has a total of 6.42 billion tons, of which 1.8 billion or 28 percent is coked coal and the rest--4.6 billion or 72 percent--is coal for energy. It is believed that the volume of the coal reserve in Tavan Tolgoi's Tsankh field that is considered to have greatest reserve is likely to increase due to extractive technology.
A general qualification requirement is submitted to establish an agreement with internationally well-known professional mining operator-companies with state-of-the-art techniques and technology and financial capability. The Minister Zorigt said while selecting the investor, it is intended to request higher advance payments than it was for the Oyu Tolgoi deposit and put in a stipulation to invest for railroad construction along with intending to put in specific conditions depending on which country's company. For instance, companies of two neighbors will be demanded to create a condition to freely transport through territories of Russia and China and follow a discounted tariff. For a Japanese company, a condition will be put to cooperate with international bank of the country.
Satisfying preparations by creating a legal environment to exploit the deposit in 2010, it is intended to extract coal and sell in 2012; therefore, a selection of an investor and establishment of agreements are quickly needed to succeed within the first half of 2010. The Premier Batbold said,“Tavan Tolgoi project documents are necessary to be ready by spring session of parliament. Talking about exploiting the Tavan Tolgoi deposit has taken a long time; however, there is a relatively short period to complete drawing up the project. There are many issues essential to be accurately resolved. Open discussions should be conducted and the right, useful version for Mongolia must be found.” Among the matters necessary to be discussed, are the issues of infrastructure and railroad.
It is required to construct a railroad so as to export coal from the deposit in Omnogobi Aimag and it is uncertain about which route the railroad will be constructed. The Minister Zorigt mentioned that two versions are in talks to build a 264km railroad in route to Tavan Tolgoi--Gashuunsuhait--China or a 370km railroad in Tavan Tolgoi--Sainshand--China. The Prime Minister said a decision needs to be made by parliament after government discussions.
For energy supply, a 100 megawatt-capacity power station will first be established. Further, it is intended to be expanded to 300mWatt and 600mWatt, to provide energy to the deposit as well as the gobi region. Energy lines have started being stretched to Mandalgobi, Oyu Tolgoi and Tavan Tolgoi.
According to the water reserve study, it is possible to consume subterranean water of Balgas Ulaan Lake, 65km from the deposit. It is considered necessary to search for an additional water to this resource with 465L/sec reserve. “Indirect and direct efficiency of the project is to expand the railroad network, have a new power station, provide 12,000 people with jobs in the first phase of the project, provide 4,000-5,000 people with permanent jobs when it starts operating at full capacity, as well as to develop a new town and village. At its present value, USD5.6 billion will come from the project within 30 years.”
The working group co-worked with two consulting companies to draw up Tavan Tolgoi's project. Now, it decided to hire a mining and economics advisor from the World Bank.
Prime Minister instructed the working group to work out a master plan on developing value-added production such as concentrating coal and establishing an industry for coke, chemistry and steel, and introduce it to the government.