Biography from garments to oil

ZGM DAILY

2018-06-19 08:38 GMT+8

The first western investor since 1928, when the foreign investors were chased out of Mongolia, was “Temuujin Mench” of Great Britain in 1992. This was a small and medium sized garment factory. Purpose of this investor was to use quota of garments given for Mongolia as an additional bonus for joining the World Trade Organization and to export Mongolian- made products to the USA.

Just several months after commissioning the factory, an uprising started. They demanded an equal distribution of its revenue among all workers. As a result, the equipment were vandalized and thrown out of the window. Police did not lift a finger to intervene. In other words, Mongolian state did not protect the property of others. “Temuujin Mench” quickly withdrew from Mongolia. They set up a factory in Inner Mongolia and expanded further, opening many branches. Since then, several garment factories from China and South Korea came to Mongolia to use the Mongolian garment quota; however, none of them succeeded.

The first Chinese restaurants opened in Mongolia were intimidated until they were closed down. The Editor-in-Chief of a tabloid newspaper that organized the intimidation and pressure of the “Temujin Mench” has acquired an accommodation and even built a house for himself. Two women who participated in the act also benefited a lot from this. They were glorified in the media and were awarded as “patriots”. At the peak of the transitional period, inflation increased to 300 percent and unemployment skyrocketed. Many women, who were employed by the factory that were earning hard currency, hit the streets. What was the lesson? Calling out and inviting foreign investment is a deception and the Constitution, which says the property of all forms will be protected by the state, is a lie. Come on in! and when you do, we will destroy you. Many people observed Mongolia as a dangerous place for investment and a fertile soil for acting ”patriot”, which can be very profitable.

This is the same herd that flattered foreign colonists and slandered each other, while the colonists plundered, insulted and robbed the country for almost 400 years. By 1996, hard currency reserve of the State was around USD 6 million (which is now USD 2 billion) and consolidated budget of the State was USD 250 million (now - USD 7 billion) and GDP per capita was USD 350 (now - 3779) and Mongolia was considered one of the poorest nations in the world. Erdenet copper mine, which was the only source of cash flow (a.k.a cash cow) for the country, was operating at loss because of the plunge in copper price.

Main advantage was cashmere; however, cashmere production was less than three thousand tons, which is not sufficient. International aids and donations, financing of international banks and financial institutions were a key source for livelihood of the nation. Take the case of Japan for example. Between 1990-2000, Japan granted USD 1 billion soft loan for Mongolia. It was clear to everybody that this country was not able to get out of its sinking hole without foreign investments. Foreign investment is a domestically unable assets brought from abroad and used for profit generation; and thus, it is mutually beneficial for both parties. Countries compete with each other over potential investments. Today, the country that attracted the most foreign investment is the US. The People’s Republic of China made an effort for over 35 years and is now ranked 2nd. Different states of the US competes with each other over investment too. Main trick to attract foreign investment is to provide favorable conditions for the investors, as well as to guarantee stable legal environment.

It is impractical to build a refinery for the sake of a “spittle” of an oil

The Parliament passed several laws specifically for this. One of them was a law to establish a stability agreement with anybody that invests more than USD 20 million. Experts complimented the 1993 Law on Production Sharing Agreement and 1997 Minerals Law as one of the top ten regulations in the world. However, investors were still ignoring Mongolia. Mongolian wealth was not explored and studied. Exploration of the wealth requires considerable investment. It is said that the geological industry first spends huge fundings for exploration and “takes a rest” to raise fund for mining operations. During this period, no financing were able to be found for exploration.

In 1997, only USD 100 million was spent for geological exploration in the whole world. Commodity price plunges when the production activates. In 1998, an ounce of gold was USD 240 (it is now over USD 1300 as of last week), copper was USD 1350 dollars (It surpassed USD 8 thousand couple of years ago, reaching almost USD 10 thousand). Nobody wanted to spend money in a place nobody explored during this time. After begging for a long time, a small company called NESCOR came to Mongolia to explore gold in Zuunbayan of Eastern Gobi region. In 1988, a famous American geologist William C.

Penttila determined that a cavity land area with a capacity of six billion barrels exists in Mongolia after analysing satellite images. This cavity may contain water, oil or natural gas. There was also a chance that it could be just empty. When he came to Mongolia and informed about the potential oil deposit in Mongolia, our authorities laughed at him and said “Russians already proved that there are none”.

In 1991, Penttila brought two junior companies named “ Nescor” and “Soco”. Junior means small company that takes risks to explore minerals, undertaking all geological processes to sell the findings to a larger company who can mine and use the minerals. From these juniors, “Soco” decided to try its luck in Eastern steppe. It was a risky step since each drilling costs about USD 1 million. By 2000, they have spent around USD 150 million.

They discovered first oil findings in 1998. President of Mongolia Ochirbat Punsalmaa sprinkled his deel (traditional Mongolian clothes) with oil in excitement. The owner of “Soco” Edward T. Story was happy. He was working enthusiastically to find large reserves and transfer the deposits to global giants. He established a Mongolia-North American business group and lead it himself, and was almost “in love” with Mongolia. However, when the company found a small amount of oil, Mongolians suddenly changed their behaviour.

Exploration lease was increased by 20 times after 2000. They suspected about his shipment of crude oil, which was merely around 50 thousand tons, to China for refinery. On the other hand, it is impractical to build a refinery for the sake of a “spittle” of an oil. Mongolians began pressuring him when he could not find American giants interested in a deposit that does not have any proven reserves. It is said that Ed Story was crying when he told about his misery to the Mongolian Ambassador.

USD 150 million is a huge debt for a junior company. The debt equalled Mongolia’s state budget at the time. He was courting with a Chinese state-owned enterprise (SOE) Daqing and sold the deposit for half of its price and ran away. Since Daqing is an SOE, it can ignore losses. Socialist economy? After over a decade of drilling, they determined that the oil of Tamsag basin is 3 thousand meters underneath the earth. In another words, it is very costly to produce oil. Currently, they produce 400 thousand tons of oil and if refined, half the production will be end products. However, Mongolian oil demand is over a million tons.

They are operating at loss; however, the activities to push them out has already began. The fate of “Nescor”, which came to work in Zuunbayan oil field ended in an even worse tragedy. Production sharing agreement means investors will be responsible for all expenditures and, if they find minerals, it will be shared, according to its principle. Mongolians did not want to conclude such “exploitative” agreement with Nescor. Surely enough, there are much more oil reserves underneath the crusts within Mongolia!

Mongolian side borrowed half the investment required for the exploration from Nescor and pledged to payback from future production. This was the original concept of the Oyu Tolgoi agreement concluded later. They ignored the fact that they have to share the risk if no oil is found. By 1996, Mongolia ended up with USD 8 million of debt in this way.
• It was clear that Mongolia was not able to get out of its sinking hole without foreign investments.
• Experts complimented the 1993 Law on Production Sharing Agreement and 1997 Minerals Law as one of the top ten regulations in the world.
• Mongolia ended up with USD 8 million debt due to Zuunbayan oil field agreement with Nescor, which is the predecessor of the concept of OT deal.

At that time, the total hard currency reserve of the state was just over USD 6 million. Former PM Enkhsaikhan Mendsaikhan pressured to change this agreement into production sharing agreement as a way to avoid ending up with debt. According to the Production Sharing Agreement, investors take full responsibility. After revising the agreement, the owner of the “Nescor” company died in an accident. The heirs did not want to deal with Mongolia again. There are thousands of miseries and problems in Mongolia covered under “no idea” and “cannot” phrases, emotions and patriotic disguises.

A system where no one is held accountable for their actions has been established and is a chronic disease in Mongolia. There is a country called Central African Republic. This country, a former colony of France, has a population of 4 million, and has a territory as large as Ukraine. It also has huge reserves of diamond, oil, bauxite, uranium and is one of the poorest countries in the world. Mining was never developed there and only a single diamond mine, which was used by the French, became a battleground for rulers of various generations to fight with each other.

A man who staged a coup declared the country as the Central African Empire and proclaimed himself as the emperor. Western investors were afraid of investing in this country with unstable politics. If they invest in this country, the locals would fight amongst each other, plundering the investment and overthrowing the government, creating chaos and mayhem. Therefore, nobody dares to take their natural resources.

Recently, naive Korea and China invested in its natural resources, which became the reason to the overthrow the next government. The new leader announced that all agreements concluded with foreign investors will be reviewed in order to set justice. No matter how thorough they reviewed the agreements, probably nobody will ever go there now. There is an internationalist song which goes something like “regardless of skin color, we all bleed the same”. Kyrgyzstan is the “most democratic” country among the Central Asian republics of the former Soviet Union.

It is also the poorest. The GDP per capita is less than USD 1 thousand. Kumtor, the highest elevated gold mine in the world, is the only source of revenue for this country. Canadian “Centerra Gold” invested in the development of this deposit, which has 350 tons of gold reserves (compared to this, Boroo Gold mine has 40 tons of gold and Oyu Tolgoi deposit has 1000 tons of gold reserves) since 1994, and the mine was commissioned in 1997. Since the mine is in harsh mountainous terrain, the investment was costly.

Kyrgyz people concluded an agreement to own 66 percent stake and to payback from future profits. At that time, when the price of gold was low, this became a heavy burden. Therefore, they revised the agreement so they could own only 16 percent and increased the tax. However, gold price began to pick up. This resulted in a coup took place, establishing “justice”. The Kyrgyz ownership was increased to 34 percent. Colorful revolution! The new president began to take advantage of Kumtor gold mine along with his relatives and brothers. Another rebellion and another coup d’etat. And this time, a colorless revolution.

Kyrgyzstan earned about USD 2 billion from Kumtor mine, shared and benefitted. The authorities had the bigger pie, stealing the profit. If it was not for the mine, this country would have starved during the transitional period. With the surge in gold price, the dispute got worse. An emergency commission to review the Kumtor was set up. Patriotic members of this commission comprised of the parliament members demanded full nationalization and confiscation of the mine. Since the Kyrgyz government realized that they cannot operate this mine, which required advanced technology, they said “no” and were nicknamed as an Uzbek hybrids that sold their motherland.

As result of these, the company’s stock value in the international market plunged to USD 500 million from USD 1.3 billion, almost to one third of its value, and the country was ready for the next revolution. It is bad for Kyrgyz people. The Kumtor mine was in ping pong and affected the country’s development; however, none of those revolutionaries and patriots were held accountable. They call this democracy. Our people call graves “Khirgisuur”. There is a lake called Khyrgas. They say Kyrgyz and Mongolia are brothers with common origins.

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