BCM 2019 January Monthly Meeting Recap

MONTHLY MEETING RECAP 15 January 2019 Hits: 1884

The Business Council of Mongolia’s monthly meeting was held on Wednesday, 30 January 2018 at the Shangri-La with BCM Chairman B.Byambasaikhan hosting for an audience of around 120 members.

Today’s meeting focused on the Mongolian resource sector and expectations for 2019.

This was the first Monthly Meeting of 2019. The BCM’s membership drive is going well, with a renewal rate of 73% currently.

The BCM would also like to extend congratulations to Vice Chairman Cameron McRae on the birth of his child.

2018 was a transformative year for the BCM. Some of the major changes include:

In July 2018, BCM had a Board retreat, after which the process of renewing mission statement of the organization began. The mission statement now reads as follows: “To deliver value for the public, the members, and the employees by advocating economic freedom and property rights provided by the Constitution of Mongolia and protecting and promoting the common lawful interests of members for a fair, stable, and internationally competitive business environment.” (BCM Charter, Article 1.6)

To realize this Vision, BCM will strive for the following (Article 1.8):

To equip members with an information platform that provides up-to-date policy and business research, training and knowledge sharing
To develop and promote economic and sector policy recommendations through engagement with the BCM members, the government and the wider public
To provide networking and other services that support doing business in Mongolia

BCM underwent restructuring in 2018, and on 16 January 2019, the Board of Directors, Executive Committee, and Working Group Chairs were newly elected. The Board of Directors now comprises 15 members, each serving for a term of two years. Click here to view information on each member of the Board of Directors.
In addition, each Board member will also serve as either as Chair or Vice Chair of a Working Group as follows:

Banking, Finance and Capital Markets Working Group
Chair: R. Koppa, TDB
Vice Chair: D. Hulan – Tavan Bogd Group
Economic Freedom and Competitiveness Working Group
Chair: D. Jargalsaikhan, Gund Investment/TUSS Solution
Vice Chair: E. Orchlon – Clean Energy Asia
Energy, Infrastructure and Connectivity Working Group
Chair: E. Temuulin, PwC Mongolia
Vice Chair: Ts. Tumentsogt – Ministry of Mining and Heavy Industry
Growth and Innovation Working Group
Chair: Tatsuya Hamada – Mobicom Corporation
Vice Chair: Jon Lyons – Erdene Resources Corp
Resources and Environment Working Group
Chair: Armando Torres, Oyu Tolgoi LLC
Vice Chair: P. Gankhuu – Erdenes Mongol
Tax/Legal/Ethics Working Group
Chair: B. Solongoo, Avinex LLP
Vice Chair: D. Munkhtushig – Rio Tinto Mongolia

The BCM Secretariat has also been strengthened, with the hiring of three new Directors. They are:

S.Ganzorig - Director of Policy and Planning
B.Javkhlan - Director of Working Groups
D.Sayan - Director of Board Affairs

The BCM invites companies to renew membership and for new companies to become members. BCM is a platform, and how you want to use this platform is up to you without limits.

PRESENTATION BY THE CHAIR OF BCM’S GROWTH AND INNOVATION WORKING GROUP MR. TATSUYA HAMADA, CEO OF MOBICOM: “TOWARD SMARTER SOCIETY”

Click here to view the full presentation.

In 2019, the BCM will operate six Working Groups. The Growth and Innovation Working Group is a new working group chaired by Chairman and CEO of Mobicom, Mr. Tatsuya Hamada. Mr. Hamada has been in Mongolia for three years, hailing from Tokyo. His expertise is in information and communication technology (ICT).

“Innovation” is a term with broad meanings. However, the Working Group will strive to realize three things: 1) to educate and inform business entities, the government, and the public of the potential opportunities and challenges for research and development; 2) to promote and advance the benefits of business growth and innovation in Mongolian society; 3) to enable organizations to grow and innovate, not limited to those sectors ordinarily thought of as innovators (e.g. start-ups).

Many start-ups are initiated by young people, often just after school or university. Unfortunately, they lack experience, knowledge, and resources. In that case, we would like to support them, thereby supporting Mongolia’s economy from the bottom-up.

The world is undergoing a digital transformation, with things such as AI, RPA, blockchain, Internet of Things, Fintech, Industry 4.0, and Omni Channel. Google AI has defeated chess grandmasters. Fintech has revolutionized digital finance.

As for blockchain, many people think it is related only to bitcoin and other cryptocurrencies. However, its applications are much broader than just coins, which are only a part of its massive potential.

7 key objectives:

Digitalization of services, processes, and business operations
Infrastructure, both physical and virtual
Digital financial services "fintech"
Information and data security (storage, protection, secure privacy)
Resource efficiency (people, energy, water, etc.)
Roles of investment and public policy
Intellectual property protection

Actions to be planned for the Working Group:

Intake of interested BCM members into the Working Group
Education/awareness raising session in March
Events for key objectives (BCM Summit, ad-hoc)
Dialog, guidance, and advisory for governmental organs

As a first step, the Growth and Innovation Working Group needs members. Thus, any and all interested individuals are encouraged to reach out. The first meeting will be held very soon, at which the Working Group will discuss what areas to focus on. Upon deciding that, goals and objectives will be set.

PRESENTATION BY P.GANKHUU, CEO OF ERDENES MONGOL, ON THE “LEGAL ENVIRONMENT OF ASSET MANAGEMENT”

Click here to view the full presentation (Mongolian only).

Erdenes Mongol, established in 2007, is a fully state-owned holding company for major state-owned enterprises, including ownership of Mongolia’s 34% stake in Oyu Tolgoi through Erdenes Oyu Tolgoi. A full list of companies under its umbrella can be found in the presentation linked above.

Mining is responsible for 22% of GDP and 72% of foreign investment. It also accounts for 74% of manufacturing and 90% of exports.

In addition to operation of state-owned assets, the company also implements management of assets, especially of strategic deposits. Furthermore, Erdenes Tavan Tolgoi will also issue 2 million additional preferred shares by 2024.

Work was initiated by regulators to clarify the legal environment, with Erdenes Mongol providing comments on what needs to be fixed. BCM Board member Solongoo is also engaged in this effort, noted Mr. Gankhuu.

The biggest focus of operations right now is the IPO of Erdenes Tavan Tolgoi, which will be conducted on the Hong Kong Stock Exchange.

Erdenes Mongol’s strategic objectives for 2018-2023 include 4 points:

Hold licenses for strategic deposits and act on behalf of the government regarding government-owned stakes in such deposits
Undertake projects and programs in energy, infrastructure, logistics, and processing industries
Implement prudent asset management, attract investment, and finance projects
Implement good corporate governance and ensure sustainable development

Another important goal is to export more value-added products, instead of export raw commodities.

The government has issued a directive to Erdenes Mongol last year to establish an investment fund.

There have been many impediments to growth and development, many of which can be attributed to an unclear legal environment. The company has been engaging government bodies to make the law clearer, eliminate contradictions and overlaps.

Erdenes Mongol will also be the head company which will be in charge of a sovereign wealth fund, which has been talked about for many years, but looks to be finally realized. However, the bill and other questions of legalities are still under development by lawmakers. As such, input from business and the public is still being considered by lawmakers.

PRESENTATION ON “RESPONSIBLE MINING” BY MR. ARMANDO TORRES, CEO OF OYU TOLGOI

Oyu Tolgoi is the single biggest investment in the mining business in the world. “OT is a showcase of best practices,” said Mr. Torres. The Brazilian CEO has been working in the mining business for 29 years, in countries all over the world.

Mr. Torres also serves as the Chair of the BCM’s Resources and Environment Working Group. Based on the charter of the Working Group, there are three elements of focus: 1) Defining and understanding the concept responsible mining, and sharing best practices; 2) Advocacy – how we build a platform that advocates for business interests; 3) Public relations – how we work to educate the public and stakeholders.

There are six criteria in the Responsible Mining Index:

Economic development
Business conduct
Lifecycle management
Community wellbeing
Working conditions
Environmental responsibility

Mr. Torres went on to outline how OT fulfills each of these criteria at Oyu Tolgoi:

Economic development

The company has spent USD 8.7 billion in-country since 2010
Implementing the “Made in Mongolia” strategy
Largest private-sector employer in Mongolia
Top taxpayer two years in a row

Business conduct

The Way We Work is who we are at Oyu Tolgoi and Rio Tinto
The way we work outlines how we deliver both our purpose and strategy
We have fair and transparent procurement and HR policies

Lifecycle management

At least 75 years of future operation
Clear roadmap towards the vision.
Careful and professional planning in every area.

Community wellbeing

USD 6.2 million spent on sustainable, long-term projects in 2018
Spent USD 413 million on procurement from Umnugovi since 2010
Constructed critical infrastructure for Khanbogd soum, including water, power, roads, healthcare and education
Over one-fifth of the workforce is from Umnugovi Province

Working conditions

Safety remains top priority, with an All Injury Frequency Rate at 0.16
Safest operation in Rio Tinto, winning the 2017 CE safety award
With legislative change allowing women to operate haul trucks and work in the Underground
Encourage Inclusion and Diversity

Environmental responsibility

88% water recycles, used 0.4 cubic meters of water per ton of ore
Has rehabilitated a total of 1,557 hectares of land
Approximately 70 thousand saplings planter per annum

Focus areas of the Resources and Environment Working Group

Share best practices in responsible mining
Business associations, the government, and NGOs to work closely together
Align with the Government of Mongolia
Communication framework to educate the public on responsible mining and an investment-friendly environment
Support the GoM at international forums and events to attract future investors
Focus national forums at sharing best practices and attract potential investors

The challenge of advocacy is to influence regulators and lawmakers to create an environment to success in business and investment. To do this, alliances are important. The question is, what are the groups that can support us in this goal of advocacy? “We cannot be like us and them. We need to move together as ‘we’”, Mr. Torres stated.

On top of success in business and attracting investment, we must relay messages of success to people both domestic and international. Mongolia has experiences to share in best practices, and we must also let the world know of the potential of Mongolia as well as the successes thus far.

PANEL AND Q&A

BCM Vice Chairman Randolph Koppa moderated the panel discussion, with the presenters coming back on stage to answer questions.

When asked when the OT underground mine will be commission, CEO Armando Torres stated that construction is expected to be completed in 2022 or 2023, with sustainable production starting in 2024. An audience member then asked whether Oyu Tolgoi will be one of the projects in Rio Tinto’s big push for more robotics and automation. Mr. Torres replied that before making a large investment in robotics and automation, the company will look to improve efficiency in other ways first. One such focus is on data management and digital transformation. He did note, however, that OT does indeed employ state-of-the-art technology in its equipment, especially ones involved in tunneling and blasting. Regarding the cumulative impacts of mining, as opposed to the impact of one company or project, the CEO stated that one way the company is addressing this is by sharing best practices as a foundation.

Regarding BCM Working Groups, they have worked well in the past to provide information to those who are interested in keeping track of developments in a particular sector or tax issues, and will continue to serve this important function. The number of participants in a Working Group will depend on the interests of the members. As for advocacy, issues that are important would be raised through BCM management and driven in a more centralized approach in cooperation with the Working Groups. For instance, in the past, we established a united front with other business associations to raise a unified voice to lawmakers. Members should be business leaders from member organizations who can add knowledge and drive to the Working Group.

The one strict prerequisite for joining a Working Group is that you must be a member of the BCM.

Working Groups are now more sector-focused. There will be target areas that each Working Groups will take up, which we will then advocate for as BCM to government or to the public. The Working Groups will do the thinking, writing, and recommending. The Executive Committee will decide on what the appropriate advocacy approaches are: whether we use IFIs, embassies, NGOs, etc. We will also look at what we need to do manage our social profile and get messages out to the public – how we can be influential.

Before heading off to networking, Dr. Oliver Schnorr from Euro Khan asked Mr. Gankhuu a poignant question regarding rare earth minerals and the notion that the government plans to nationalize deposits. There is an intergovernmental agreement between Mongolia and Germany to support extraction of rare earth elements. Dr. Schnoor asked what guarantees Mongolia can give to ensure that these investments will be safe and secure.

Mr. Gankhuu stated that “there is no nationalizing” and that the government wants to discuss how they it can cooperate with private companies. Licenses for operations involving rare-earth elements are all owned by private companies in Mongolia. There is an economic committee under the German-Mongolian intergovernmental commission that will work on rare earth elements and other high-tech investments from Germany. Mr. Gankhuu stated that he believes he will head up this committee. These internal issues will be discussed and resolved before the next meeting near the end of May. Finally, he reiterated that right now, the most important thing we have to work on is the legal environment.