EBRD loan supports Mongolia's independent mining sector

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An EBRD loan is supporting Mongolia's biggest mining development in years.

In June 2009 the Bank commenced disbursement of a US $180 million loan to local mining company Energy Resources aimed at helping to develop a sustainable mining sector in Mongolia. Through this project, the EBRD is tackling various social and environmental concerns, supports the business needs of the local community and helps to create a level playing field in the sector.

Mongolian-owned mining company Energy Resources and the Bank are established business partners. Last year the Bank made an equity investment in the company when both organisations teamed up in a project to develop the Ukhaa Hudag mine. The mine is the first significant mining development in the country since the beginning of transition in the early 90s.

Ukhaa Hudag is located approximately 200km from the Chinese border in the remote South Gobi region and produces high-quality coking coal. Differently from thermal coal, which is generally used for power generation, coking coal is a required ingredient in the production of steel and other alloys.

A higher quality product

For the same mine, the Bank is now lending US $180 million to the company to finance the first washing plant in Mongolia. “Through the introduction of this new plant – the first of its kind in the country – the company will be able to integrate downstream in the value chain and produce a higher quality product,” says Enrico Grassi, Senior Banker in the EBRD's Natural Resources team.

The mine will initially be operated by Leighton of Australia, one of the world’s largest contract mining companies. Leighton has a superior environmental and safety track record in its global operations. “Leighton ensures that the mine adheres to strict environmental rules and is operated to a very high level. At the same time, their employees are training Energy Resources’ staff so that they can hope to take over the day-to-day management of the mine in the long run,” Grassi explains.

Supporting the private sector

In general, the competitive environment can pose great challenges to independent mining companies in Mongolia. “State-owned mines account for over 70 per cent of total coal production in Mongolia. This results in artificially low coal prices, which means that private companies find it difficult to compete. The proposed project therefore supports greater competition in the sector: as a result of the financing, majority Mongolian-owned Energy Resources is expected to be become a leading domestic coal producer,” says Grassi.

The example of the new technology shows how companies can move up the product value chain and become more competitive while at the same time adhering to international best practice and promoting high environmental standards. It is therefore expected to have an important demonstration effect on other producers and help boost private sector growth in the Mongolian mining sector.

The social dimension: “open ger”

The project also set standards in terms of public consultations in the mining sector in Mongolia. In order to attract people from the scarcely populated surrounding areas, the company organised a “mini-Naadam” celebration. Naadam is one of the most important Mongolian holidays, which normally takes place in July and is celebrated with the so-called “three manly games” – wrestling, archery and horse riding.

“The event helped to attract residents to ensure that as many people as possible would attend the ensuing discussion on the project,” says Grassi. “In a truly Mongolian-style ‘open ger’ meeting, participants had the opportunity to meet representatives of the mining company and voice their opinions and potential concerns. The project was also an excellent example of cooperation by the Bank’s Natural Resources and Environment Department,” says Peter Moore, EBRD Principal Environmental Specialist.

Sustainable Development

In order to increase sustainability of the project and support linkages, Energy Resources agreed to support the development of small private businesses in the mine’s surroundings through cooperation with the Bank’s TurnAround Management / Business Advisory Service (TAM/BAS) programme. More concretely, the company is providing grant co-financing for a programme of US$ 100,000, which will help train and develop the skills of local contractors and SMEs.

The TAM/BAS team is providing training sessions and screening some 20 start-up companies and existing local businesses, ranging from a small vegetable farm to souvenir producers and even a camel farm.

"Mongolia's future development will be very closely associated with its mining sector and in particular will depend on whether the country succeeds in unlocking and utilising its vast minerals potential in a sustainable way. Therefore, I am very proud to be involved in a project where the Bank is helping my country set high standards both in terms of operational efficiency and environmental and health and safety management in this important sector for Mongolia, and also fosters the development of local SMEs to support the long-term sustainability of the sector," says Bayar Burentogtokh, Principal Banker of the EBRD's Ulaanbaatar office.

A more transparent mining archive

The Bank’s loan is complemented by a €1.2 million Technical Assistance project, which will help kick off the digitisation of the national archive of mining licences. The project is part of a coordinated approach by the ADB, World Bank, IFC and the EBRD aiming to support the sustainable and transparent development of the whole mining sector in the country.

“The common pre-transition paper archive always runs the risk that documents are accidentally displaced or damaged by fire, water or other damage,” Grassi says. “The new digital archive will be safer in this regard. Furthermore, the goal is to make the data available online so that more companies will have access to them, which will ultimately help create a level-playing field for everyone.”

 

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