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| Barun Roy: A Dubai in the steppes? | | By throwing open its mining reserves to foreign investors, Mongolia is hoping to fight widespread poverty |
| Barun Roy / New Delhi Sep 10, 2009, 00:26 IST |
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Among the steppes and ranges of Mongolia, a new wind of hope is blowing. This Alaska-sized, landlocked country wedged between Russia and China where horses, camels, sheep, and goats roam and over 30 per cent of the 3 million population are still nomads and half the people are among the world’s poorest could become a Dubai in the next ten years or so. At least that’s the expectation after the country’s Parliament recently passed a landmark package of laws that opens Mongolia’s huge mining reserves to big-time foreign investments.
The ground is thus prepared for a massive gold and copper project at Oyu Tolgoi in the Gobi Desert, near Mongolia’s southern border with China, to go ahead. The $4 billion project, promoted by Canada’s Ivanhoe Mines and Australia’s Rio Tinto, has faced repeated delays since 2003 but can now move smoothly towards full production in four years. Observers say this project alone could bless Mongolia with the highest GDP growth rate in the world.
The new agreement will create and maintain a stable operational environment, ensure rights to sell products at international market prices, and enable a fair disposal of the promoters’ income. But what cheers Oyu Tolgoi’s promoters even more is the scrapping of the controversial 68 per cent windfall profits tax — enforced in 2006, it aimed to take advantage of historically high international copper and gold prices. Taxes will be stabilised, rebates will be allowed during construction, losses can be carried forward 100 per cent for eight years, and up to 60 per cent of the required construction labour can be imported.
The agreement will be valid initially for 30 years, but will be extendable for another 20. The government will hold a 34 per cent stake in the project, which may be expanded to 50 per cent at the end of the initial agreement period.
And what’s the production going to be like? Ivanhoe estimates the life of the Oyu Tolgoi (Turquoise Hill) mines at around 40 years and expects its average production to be 1 billion pounds of copper and 330,000 ounces of gold a year for 35 years. Output will peak to 1.6 billion pounds of copper and 900,000 ounces of gold after six years of the start of initial production.
Mongolia sits on vast reserves of mineral and other natural resources and has no reason to remain a pocket of poverty and underdevelopment in an otherwise prosperous Asia. The task for the government is enormous. There still isn’t a respectable length of paved roads in the country, except those connecting Ulan Bator, the capital, with the Russian and Chinese borders and an east-west highway called Millennium Road that’s still not fully built. Most roads are gravel-topped or simply cross-country tracks.
Ulan Bator is the only worthwhile city, where half the population lives and where most of the country’s 30,000 independent businesses are located. Others are just settlements. Ulan Bator boasts modern apartments and offices, but yurts — these are round tents walled with felt — are still the common housing for people in the interiors. There’s very little land that is cultivable. Washed by almost 257 days of sunshine in a year, people live in cold and windy steppes, herding sheep, cattle, and horses or raising wheat, barley, vegetables, and watermelons.
Yet over 6,000 deposits of 80 different minerals have been discovered in Mongolia. Currently, it produces nearly 15 per cent of the world’s fluorspar and is a major exporter of copper, molybdenum, and uranium. Copper and gold worth billions of dollars are buried beneath the Gobi Desert alone. Nearly half the country’s gross industrial output and 60 per cent of its export earnings come from the mining sector, which has so far been only partially developed.
Following the agreement on Oyu Tolgoi, all this might now change. The country that has emerged from the remnants of the Mongol empire founded by Genghis Khan in 1206 should now attract a new kind of explorers from around the world — investors and profit-seekers, not just adventure travellers — to lay the ground for a new Asian success story.
There’s the immediate task of combating the effects of the global economic meltdown, in which the Asian Development Bank, the World Bank, and other international donors are helping. But infrastructure, the sinews of any development, is practically non-existent and has to be built up from scratch. Communication is in its infancy. The Trans-Mongolian is the only railway link in what is the world’s 19th largest country, measuring 1,584,116 sq km — a north-south track branching off from the Trans-Siberian Railway in the north, passing through Ulan Bator, and joining the Chinese railway system to the south.
It’s reassuring that, at last, the Mongolian authorities have woken up to the enormity of the task and are ready to face the challenge. One hopes they will stay committed and seek the world’s help, because Mongolia is one country that’s in no position to go it alone.
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