About: Investment Agreement, Ivanhoe, Mining, Mongolia, Oyu Tolgoi
Barely has a new president been elected that the question of the Oyu Tolgoi Agreement makes front page news again.
The President’s recent comments on Bloomberg and 101 East about changing the basis of the agreement and the vague timeline he has given (three years) has sent cold shivers down the business community of Mongolia.
Does he not realize the importance of this agreement and the need for a swift conclusion to 5 years of strenuous negotiations?
Or does he realize only too well the importance of this agreement for the country and wants to make sure he gets it absolutely right? This is of course a very difficult and dangerous balancing act.
The Mongolian President is walking (or is being pushed) on a tight rope, his choices are either to delay the signing of the agreement, to make sure that it is as favourable to Mongolia as possible but risk losing and alienating the foreign investors and the Mongolian Business community or sign it now in its current form, kick start the economy, send the signal to foreign investors that Mongolia is ready for business but then be stuck with a potentially unfavourable agreement for decades to come.
Every year of delay is costing Mongolia huge sums in opportunity costs that will never be regained, it is also changing the perception of the country and its investors, Mongolia has gone from being the hidden Eldorado of the world to being viewed as a troubled child that is unpredictable and throws regular tantrums. The time has come for the child to grow up and assume its responsibilities.
The viability of the Mongolian economy depends on this project, this is the key that will allow Mongolia to grow into a strong regional power, be less dependent on foreign aid and improve the life of its citizens. The proposed investment amount for this single mine is over 5 times the current GDP of Mongolia. Its wealth creation will trickle down to all layers of society but more importantly will signal the start of Mongolia’s development. Beyond OT there are at least 5 other large projects in Mongolia waiting to start.
Those projects cannot be undertaken by Mongolia alone, it does not have the resources or the expertise to carry them out. A foreign partner is essential, is it better to have a trusted partner such as Rio Tinto or rather a Chinese or Russian mining consortium do the project? Which is likely to benefit Mongolia the most? Which will have the strongest ethics, transparency and accountability?
Sadly over the last 5 years the OT agreement discussions have moved from a stage of economics to one of politics, it has been blown out of all reasonable proportions and has come to symbolize the attitude Mongolia wishes to show to foreign investments. After years of patience, foreign investors are now voting with their feet, large offices are closing, expats are leaving and Mongolian businesses are feeling the pinch of slower economic growth.
Of course, the current economical downturn cannot be blamed on the Mongolian Government but the lack of recovery can. Mongolia is possibly the only country in the world that has a readymade solution to its financial problems. Sign the agreement, sit back and watch as foreign investments floods the country.
Better have an imperfect agreement that works and brings in revenues than a perfect one that can find no foreign investors to sign it.
To quote Peter Morrow’s (CEO of Khan Bank’s) closing remark during his recent interview to the Mongol Messenger: “If you ask me what is going to happen in the rest of 2009, you need to tell me if we are going to have an OT project or not. If we do the economic outlook is superb. If we don’t, it will be more of the same”.
About: Investment Agreement, Ivanhoe, Mining, Mongolia, Oyu Tolgoi
