Parliament has approved the proposal to establish
a copper smelter in Mongolia,
so that the country can export value added products instead of raw natural
resources. But there are risks, as a mineral expert, MP Kh.Narankhuu, explains
in answer to questions.

What
problems do you foresee?

The main thing is the cost. We shall need
around USD 300-400 million and the. Mongolian Government just does not have the
money. Look, the Government is taking loans to try and balance the budget. I
see Parliament’s decision as sending the message that we are serious about
having a smelter. Then we shall discuss collaborating with foreign and domestic
investors on building it.

How
fast will work start?

Quite a few things have
to be settled first. Choosing an 
optimally environment-friendly plant will be much more
expensive so we shall have to decide on some sort of compromise maybe. The
location will be contentious. Finally, some other sectors will be affected
negatively if we start producing refined copper.

For
example?

Almost half of the freight revenue earned by
the railway comes from transporting copper ore. Three-fourths of the ore is just
dirt. When that is removed in processing, the railway will carry freight a
quarter of the earlier weight. On the other hand, the Erdenet factory will
spend much less on transportation. There is also the issue of energy issue. A
smelting factory will need almost as much energy as the Erdenet factory. Where will
this come from? A new power plant will take time to come up. I repeat that the
Parliament decision is just an expression of intent. The work can begin only
when an investor is found.

Tell
us more about the problem for the railway.

In the old days, UB Railway carried freight
between Russia and China. With
that gone, the volume of freight became half. Of what is now carried, around 40
percent is copper ore from Erdenet. Erdenet is a reliable tax payer because it
operates night and day, winter and summer. That also makes it a big electricity
consumer.

Is
it true that Russia
is not keen about the establishment of a copper smelter?

I haven’t heard anything like that. They often
suggested that the Erdenet factory should build a smelter but the factory
administration never agreed. We cannot expect Erdenet to find the money to
build this now because it is already in debt. Also, Erdenet is a joint venture
so the share of profits will have to be decided before we begin work if we want
Russia
to invest in it. If a third party builds the smelter, without asking
Erdenet to share in the costs, it will just be a commercial agreement between Erdenet
and the builder.

UB
Railway is also half Russian. Maybe the Russian side would not be pleased if the
transportation revenue decreases?

Why only Russia? Loss of revenue will not make
Mongolians happy. UB Railway pays a large amount of tax. This will no longer
come.

It will take 3/4 years to build the smelting
factory. If Oyutolgoi and Tavantolgoi comes into full production by then, maybe
there will be no problem for the railway. But until then, there can be no
freight to replace the loss of Erdenet copper.