News has started circulating about the inspection by the Anti-corruption Agency at the office of Achit Ikht company, which produces cathode copper using off-balance ores of Erdenet Mining Corporation. We sat with Mr. P.Tsagaan, former Chief of Staff of the President’s Office, and the founder of Achit Ikht for an interview.
The law enforcement organization is apparently inspecting Achit Ikht company, which has just celebrated its 5th anniversary and reported its achievements and contributions to the state budget. What has happened? Shall we start talks from this point?
The Anti-corruption Agency officials have come to our company office to examine necessary documents in relation to Erdenet Mining Corporation (EMC). The process is ongoing. Sometimes, inspections have good effects such as being cleared off any allegations. That is why we are actively cooperating with the law enforcement organization voluntarily. I used to think that jealous people only live in fairy tales, but it is disappointing to come to know that in real life there are some people who are envious of others who create and strive for better things, and lead ideal lifestyles. Different factors might have had influence on it.
Anyway, I believe that the truth will be re-asserted by the end of this process.
The issue at hand seems that Achit Ikht company concluded an agreement which envisaged EMC would have 34 percent of the company’s shares, but this agreement did not become effective, and that a private company is making a significant profit using assets of the state-owned company. Can you please talk about how idea of using the off-balance ores of EMC came about, and the establishment of Achit Ikht company?
It is a long story. In 2006, our cabinet just resigned, and I became unemployed. That time, the current so-called ‘fair’ member of Parliament Mr. Lu. Bold was the Head of the Minerals Authority. He said, ‘There arrived many people from a major UK investor and you shall advise them if you are not too busy.’ And those people were from the British company ‘Central Asia Metals’. They had started exploration works, looking for gold, copper, and molybdenum.
I agreed to advise them. If I remember correctly, these people discovered a world-class molybdenum deposit in Mongolia. Also, they had an interest in another prospect, which was to produce copper cathode by the hydro-metallurgical method from EMC’s written-off mine dumps which contained low-grade ores not compatible with EMC’s flotation technology. It was very interesting for me because I had been the Chairman of the Board of EMC in the 90s. Numerous dumps had been accumulating since 1978, which were never used. These dumps were source of continuous dust and acid mine drainage. Moreover, this acidic green water penetrated into the ground, posing huge risks to surrounding plants and animals. That is why I started researching this potential.
Unfortunately, I became quite sick in 2007 and took one-year break to get treated overseas.
When I came back in 2008, I found that the minds of the folks at ‘Central Asia Metals’ had somewhat changed. It seemed like that they somehow lost interest in Mongolia. Soon afterwards in 2009 they sold out and transferred all their licenses to others and left for Kazakhstan. There were about 30 copper-producing plants in Kazakhstan during the Soviet period. One such plant was located near Balkhash lake. It had been operational since 1938 till it ran out mining reserves, and was left for other location, leaving behind big abandoned dumps. ‘Central Asia Metals’ acquired these dumps and constructed a plant exactly the same as ours. That plant was the first hydrometallurgical plant ever built in the Central Asian region. The opening ceremony was even attended by N. Nazarbaev, President of Kazakhstan, who congratulated the team.
The departure of ‘Central Asia Metals’ from Mongolia had a significant damage on me – both economically and time-wise. I had invested a good deal of money to jointly implement the project. Then I approached the EMC management and asked, “Shall I implement the project?”. In response, they said “This dump was not only examined by American and South Korean companies, but also by us. Everyone concluded that this project is economically unviable. If it were profitable, we would have built a plant ourselves in the first place. Why are you so adamant to lose money in this?”. Nevertheless, I insisted I can do this.
Why were you so confident?
I studied the technology. While working with the British colleagues, I imagined in my mind what would be the sources, where to procure, and how to build, etc. Projects are usually formed in the mind first.
Then I kept nagging Mr. Ch. Ganzorig, CEO of the EMC, “Those British guys offered you 15 percent, but I would offer 34 percent. I would never ask you for single penny investment. I will take the investment responsibility 100 percent.”
The concept of 34 percent deal was quite trendy at that time. Finally, Mr. Ch.Ganzorig signed the agreement upon getting assurance from me by asking “You will not hold grudges against me for life if you go broke and fall in debt?”. That is how this project started.
Then we got a loan from Golomt Bank, and the credit was suspended later. After a year break, we got a financing of 24 million USD from an international trading company “Noble” and continued the construction works and finally commissioned the plant in October 2014. We went through a lot of hardship during this period. In fact, it was my wife, not me, who went through all these difficulties. There were cases where some people who had worked in the first stage of the project did ill-intended things such as stealing money, misappropriation of assets and money. There was even an attempt of strike against us.
Please tell me why the 34 percent project ownership of EMC had changed?
A working group was formed at EMC during that time. After some research, it concluded that this project would be both financially and operationally risky. EMC did not participate in the technology selection, nor in the drafting of feasibility study. They considered that we had no operational experience and found the whole venture too risky.
Refusing to take any risks they said, “We will not enter this project. Rather, we would like to receive royalties if you manage to produce. Let us opt for something akin to production sharing contract.” Well, we were dumbfounded, and even felt offended. We thought that we came across as not worthy. Probably, there was no point in believing us. This was a point I concerned that we are going to bankrupt.
I went to see Mr. Roy, then the First Deputy Director of EMC. He told me, “Tsagaan, that Dump #2, is written off from our balance. It is not our asset anymore. However, we stockpiled this dump, kept it for many years. And it is on the land possessed by us. For these reasons, you would have to give us a cut of your production if you use it. We will not engage in any of your activities. We will not give you any money, and won’t be responsible for any risks. The joint ventures we dealt with in the past only brought us losses, not profit. We founded a joint venture to extract molybdenum with a Russian company, but we faced loss. If God blesses your operation and you prove to be successful, then you should give us two percent of your products free of charge regardless of your operation being in loss or profit.” Thus, we had to follow the big fellow’s words. Come to think of it now, the decision was the right one.
So Erdenet Mining Corporation refused the 34 percent of the project?
To be honest, we would like to have a joint venture with EMC, which is contrary to the current arrangement. I will say one thing. Both Mr.Davaatseren and Mr.Roy, and others who worked there, have not been given or taken any bribes. What they did is that they prayed for the success of the project.
I would like to point out an interesting fact from that time. We hired a man who was previously employed at Central Asia Metals as our Director in Mongolia, in addition to an expert from Australia whom we paid 25 thousand dollars per month. The plant recycles the water it uses. During this period, it rained more than average, increasing the water balance of the plant substantially, causing havoc. The pump at the plant, even with an additional four pumps, could not handle the amount of water. We then went to Oyu Tolgoi for assistance; however they did not have pumps to handle large volumes of solutions at that time. As a last resort, we hired EMC’s portable pump which they used to pump their green water, until it stopped raining. The water level was nearly full at the time. It would be rather catastrophic if the dam overflowed. The matter was quite challenging that we even alerted the National Emergency Management Agency for immediate action, if necessary. This is probably why the Erdenet Mining Corporation was skeptical about our project as they witnessed this event.
We have been both open and flexible with EMC, and have always fulfilled our duties and responsibilities. Yet, there are only two persons who spread negative publicity about our plant. The former Prime Minister N.Altankhuyag, the one who was actually applauding us when the plant was first opened. And his racketeering relative who keeps asking for money or share of the company. The evil brothers of fairy tales and legends still exist to this day. It seems that these people are using the media to spread allegations to their greedy interests. I even doubt their sanity. Well, I believe that the knowledge and expertise of the professional management team of EMC is far beyond than that of Mr.Altankhuyag.
How much of financial proceeds does EMC receive from the plant?
The company has paid Erdenet around 10 billion tugriks in royalties. And it looks to be no less than 2 to 3 billion tugriks annually in the coming years. This is the standard in other countries where mining and markets are matured. They do not interfere with others’ businesses. They help you and wish you the best. They get royalties or other forms of incentives, that’s it.
Actually, the concept of ‘royalty corporation’ is taking hold. For example, there is the case involving the famous Canadian hockey player Tim Horton. The investor who financed the chain using his name earns six cents of per dollar sales revenue. This fast-food restaurant took over Canada and has now entered the USA. Even though it is somewhat new in Mongolia, the concept of royalty, an outstanding practice, has existed in developed countries for long time.
They rumor that the process of Feasibility Study was unlawful?
That would be utterly silly. No point in even talking about it.
Another issue relates to your company is that a private enterprise is using a state-owned dump, what would be your response to this claim?
There is no concept of private land, nor of private minerals. Isn’t taxation the most pivotal? We paid about 170 billion tugriks in taxes and fees to the government in the past. Look closer at this year’s government budget. The amount we paid equals the annual sum of the allowance the government pays to mothers with many children. I believe there is no other patriotic act than this. If everything belonged to the government, then how would mines such as Boroo Gold be treated?
Some time ago, I proposed a waste disposal project at Tsagaan Davaa landfill site by building a mini-power station in cooperation with Austrians. However, this was not approved by the Ulaanbaatar City Administration. If this project completed and the power station was built, would you ever demand “give me free electricity because I have generated that much waste. This is my waste.”
Building a plant is hard work. I would say “No” even if they ask me to build more. Look at Central Asia Metals, which built a copper plant in Kazakhstan. Their shares are now being traded on the London Stock Exchange. They produced about 10 thousand tonnes of cathode copper per year, and now their production has risen to 15,000 tonnes.
The eighth plant on different waste dumps is rolling into operation in that country now. This is how a nation develops and prospers. In Kazakhstan, the state demands the private enterprise to deliver their plants in short period time. They urge them to build it in three years. The rights are transferred to a different entity if the company does not deliver on time.
I understand some people are envious. Yet, it is truly disappointing that a person, a person who once was Prime Minister of a country would be so low to spread baseless and defamatory information, wasting time and energy of his own and of others.
Is it true that former President Elbegdorj had an influence in Achit Ikht’s efforts to obtain the mine dump of EMC? Some even say that he is a shareholder.
Think about it. Would the President of the country ever cooperate with the spouse and children of his employee, whom he had labor contract, on a project that almost sounds ridiculous – to extract metals from industrial waste? I guess the person would have opted for a more tangible or more realistic project if he had to. Nevertheless, some people are rather skeptical on this.
I would like to share with them a Russian proverb, ‘man thinks to the best of his soul’s deprivation’. This is the suspicion of such people. Anyway, law enforcement organizations will find out whether the former President had anything to do with this business. I am surprised and extremely disappointed.
One Monday morning President Ts. Elbegdorj called me into his office and asked, ‘What are you doing?’. Felt a bit annoyed, I replied, ‘I am doing my job’ and he angrily went on, ‘What are you doing in Erdenet?’. I replied, ‘This does not concern you. My wife is implementing a project to extract metals from mine dump based on a scientifically proven technology”, to which he replied, ‘Why haven’t you informed me’. I replied, ‘Why must I inform you; it is not your project’. He said, ‘I have recently met the citizens of Erdenet and they have asked me “what are you and Tsagaan doing in Erdenet”, and I replied that I am not aware”. I immediately suggested that I call a press conference and declare that President Ts.Elbegdorj is not involved with this project. This incensed him even more for he uttered “Don’t be so foolish, it will sound more suspicious”. And that was the end to it.
It was probably my mistake not to provide explanations each time a concern was raised. When I first joined the Cabinet, a wise old man from my hometown once said to me, ‘Do not throw stones at every dog that barks at you. You will not go far. But if you are honest and truthful, the truth will eventually prevail’.
I have experienced this in my life before, the truth has always prevailed. Therefore, my acts and tracks are flawless. I can say this anytime and anywhere. There is no need for me to steal or bribe anyone. The state should make its decisions if it sees this project as wrong or unjust. We would respect the decision. Just compensate us for our investment and set us free of the headache.
When I first started this project in 2006, I never thought that I would one day become the Chief of Staff of the President’s Office. There are no major issues between us and the EMC. Yet, it is interesting that some people keep interfering in our relationship. I actually feel that this project is an exemplary one that should receive compliments rather than blames.
Motto of our company is not to cherry-pick mineral resources. For example, ‘Erdenes Tavantolgoi’ has reserves of 6 billion tonnes. And some are fighting over the 2 billion tonnes of this coking coal reserve. Yet nobody talks about the remaining two-thirds of it. Furthermore, 10 different types of products or businesses can be created on the back of these resources. One could build a power station or a chemical facility. Also, methane gas or rare earth elements can be extracted. Even fertilizers and medicines can be produced, just to name a few of many thousand possibilities. Unfortunately, there is the risk of depleting this wealth without ever using it if the government keeps it idle and let it decay. It is just like the Russian saying about a dog guarding a hay mound; the dog won’t eat the hay, nor it allows the cow to eat it. The hay is spoiled and thus wasted.
Actually, Mongolia is rather a wealthy country. But we treat our mineral wealth like an extravagant family or wolf. We use it selectively like a wolf that attacks and kills the sheep herd only to eat their tails. This is what is happening in the country’s mining sector.
I entered this business to prove that it is possible. To prove with my actions, not just words. Founding father of our constitution, B.Chimed, once said to me, “Tsagaan, don’t talk about what you would, should, or could do. But talk about the learnings and achievements of your actions after you have done so”. Therefore, I talk after I do things.
There are suspicions that you used your position as the Chief of Staff of the President’s Office to influence this project?
I became the Chief of the President’s Office in 2012. It is naive to assume that this plant has been easily built on my wish just because I was the Chief of Staff. This project involved energy and dedication of thousands of people, and took a long time to materialize. Ten or more dumps at Erdenet mine site are getting bigger and bigger every day. They are not so easy to exploit. Hence building and operating a plant is a both praiseworthy and meritorious undertaking.
The involvement of your family may have come to scrutiny. Couldn’t you keep others in charge?
Assigning this task to others have resulted in stealing or transfer of money to offshore accounts by these very people, and, even ridiculously, they provoked a strike against us. Therefore, there was no other choice but to assign the responsibility to my family members.
We did not get any financing from the Government Bonds, nor we received interest-free loans as N.Altankhuyag did. We have always got commercial loans with high-interest rates, taking associated risks along with it. Perhaps what the former Director of Erdenet Plant Mr. Ch. Ganzorig said to me was right. Had I been unable to pay off my loans, then I would be in jail today and nobody will talk about it.
Yet I trusted in knowledge and science. Moreover, I am a lucky man. At that time, the copper price surged. Karma was on my side for I have never harboured ill will on others. I have never got an inch of land for free in Ulaanbaatar. During the numerous ministerial positions I held, I have never received even one square meter of an apartment. All we bought was with my own money earned with my hard labour. Thus, I have no fear and sleep peacefully. The officers who conducted the inspections seemed to be highly educated and not of the types to repress others.
What development has Achit Ikht accomplished recently?
My father used to ice-skate. I also grew up skating with blades manually attached to my felt boots. I wanted to realize the dream of multiple generations of skate enthusiasts and embarked on the development of an Olympic-standard, all-year-round indoor ice arena in cooperation with other national companies.
Our plant is the flagship of the national processing industry and the pioneer in introducing the best management system in Mongolia. I could proudly say that our plant is the first-hand experience to be disseminated in Mongolia. For example, the fire system is unique in Mongolia for it can be monitored real-time from anywhere. Also, it has a sophisticated ERP management system. This exemplary plant deserves merits and compliments and should be replicated rather than being a target of pointed fingers.
Furthermore, we are issuing preferred shares with guaranteed fixed income to the employees of Achit Ikht and EMC. The first of its kind in Mongolia. Mongolia has 600 thousand households. If each of top 100 enterprises of the country issues their shares to 5,000-6,000 people, the poverty will be alleviated. The main reason behind the issuance of preferred shares was the wish to set an example of ‘people’s capitalism’. In advanced economies where markets matured, people do not put their money in savings accounts, nor do they feel the need to start a business, they simply buy corporate shares. Therefore, these people pray to their gods that the corporations are successful and profitable rather than defaming them.
We believe that the steps we took are in right direction. We have learned and acquired the technology, employed expertise from the UK, Australia, and Canada. We have human resources and learned the managerial expertise needed. Some of our technologies have warrants not transferable to third parties. In this aspect, I believe that my knowledge, capabilities, and my network who respect my trustworthiness have played important role.
Let me tell you a secret. Currently, we produce 99.999% copper using the hydrometallurgical process. Next, we will open a small plant in Mongolia, the first of its kind that will produce water atomized metal powders. This technology is not even available in developing countries. It is scheduled to be commissioned before Naadam Festival next year unless we encounter significant obstacles.
Our plant will produce copper, brass and bronze powders. These are used in many business sectors such as electronics, electric cars, high-speed trains, minting and jewellery. Actually, this is the way to push the country forward and what we should strive for.
N. Altankhuyag, who sold a sack of coal at 80,000 tugriks, which actually costed 27,000, suspects that I am like him. It is said that ‘man thinks to the best of his soul’s deprivation’. It is like a housewife stealing from her neighbour’s firewood on the way back home and yet wonders if her other neighbours do the same to her.
This is not a sort of a person I am. I think of myself as a person of Mongolia, for Mongolia.
I constantly receive work offers from both domestic and international organizations. I want to contribute to the development of Mongolia. If time allows, I want to enter the global market with my fellow Mongolians. I want to bring that possibility closer. Gossips and defamation won’t produce anything.