Terrence Edwards in Ulaanbaatar -
One of Mongolia's premier dealmakers has taken on the supreme task of putting the country's mining and infrastructure projects back on track after years of delays—and he's doing so ahead of elections that could bring about yet another complete change in government and its institutions.
Mongolia was a magnet for investment until 2013, when foreign investors grew wary over problems that were plaguing the key mining sector. Poor management of state-owned mines, disputes with private partners and years of dragging development on infrastructure that would remove bottlenecks on mining exports all took their toll. The slowdown in China, which consumes most of the gold, copper and coal produced here, hurt the economy further. The Asian Development Bank is projecting just 2.3% growth for 2015, compared with 17.5% hit during the peak of the mining boom in 2011.
These are the challenges that Bayanjargal Byambasaikhan will face as he seeks to transform the country's most valuable portfolio of assets into a flourishing investment vehicle. State-owned mining license holder Erdenes Mongol is where the country keeps its stakeholdings in the country's five most-valuable deposits for gold, copper, coal and other minerals that litter this resource-rich country.
Erdenes translates from Mongolian into "treasure", but much of that remains buried deep underground because of poor management by successive governments. “We're introducing new standards of business to the companies that run the mines, starting with the financial and technical standards,” Byambasaikhan tells bne IntelliNews in an interview.
Currently, it's difficult to put a dollar estimate on the value of Erdenes Mongol's portfolio. But audits are currently underway, and the partial privatisations of the mines should help put accurate values on them. “Look at Oyu Tolgoi,” says Byambasaikhan, referring to the country's giant copper-gold mine that at full production could generate up to a third of Mongolia's annual GDP. "We own 34% [and] 66% shareholder Turquoise Hill has a $7bn market capitalization. That's just one asset.”
Known by many business leaders in Ulaanbaatar as Byamba, the Western-educated businessman cut his teeth as the head of Newcom Group, one of Mongolia's largest conglomerates. It was there that he led the development of the country's first wind farm. With one more and a solar farm also in the works, the Newcom subsidiary Clean Energy Asia has the ambitious hope to someday export green energy throughout northern Asia.
But it's Byambasaikhan's tenure at Erdenes Mongol that will likely prove the most challenging of his career. Case in point: Mongolia has squandered its enormous Tavan Tolgoi coking coal deposit since commercial production was launched four years ago. That includes numerous stops in production, corruption scandals and a decision to give away most of its working capital for a short-lived social programme that handed out about $15 a month to each Mongolian.
Byambasaikhan's first victory was mending relations with global miner Rio Tinto for the relaunch of a $6bn underground expansion at the Oyu Tolgoi copper mine. The project was stuck in limbo for about three years because of disagreements between Rio and the government. Now Byambasaikhan is leading negotiations for a strategic partnership for the Tavan Tolgoi coal mine after a deal from earlier this year to hand over management to China's Shenhua Energy, Japan's Sumitomo Corp and the locally-run Mongolian Mining Corp fell apart because of objections by some lawmakers. “The dialogue should be corporate-to-corporate relationship; not sovereign-to-corporate,” says Byambasaikhan about negotiations for Tavan Tolgoi. “That's how we succeeded in unlocking the underground project at Oyu Tolgoi.”
Success at Tavan Tolgoi as well as an investment agreement for a crucial railway line that would allow more coal to be sent to China would score a hat-trick for Byambasaikhan. That might give him the political clout needed to see through his grand design of transforming the holding company into a government-owned investment fund.
His inspiration is the Singaporean sovereign wealth fund Temasek, which currently manages a net portfolio of $266bn. Byambasaikhan puts its success down to the quality of its assets, its talented personnel and ability to operate independently.
Nigel Finch, managing director of the Sydney-based financial advisory firm Saki Partners, says “there are no cons” to the Temasek model. “The main priority is to develop a dual mandate strategy; to ensure the fund achieves the targeted economic returns while simultaneously delivering social impact in Mongolia,” says Finch, who is a honorary consulate in Sydney for the Mongolian Embassy and has hosted Mongolian delegations seeking economic cooperation with Australia.
Byambasaikhan sees 10-fold economic growth for Mongolia over the next 20 years, with Erdenes Mongol's portfolio expanding alongside that growth. But despite all his optimism, the upcoming parliamentary elections could put a hole in his grand plans. With Mongolians set to go to the polls in July 2016, a change of government could see Byambasaikhan turfed out of his job.
When the 2012 election saw the Democrats take power away from the Mongolian People's Party, it set off a sea-change in government. New appointments were made at every level of government agency, and the entire ministry structure was reformed.
In the run-up to these elections, politicians could also be tempted to criticize the government and people like Byambasaikhan for handing over too much control of valuable resources and infrastructure to foreign investors – which always goes down well with a population suspicious of larger neighbours looking to control its economy. Oyu Tolgoi, Tavan Tolgoi and the railway all hinge on partnerships with foreign investors to lead and finance development.
Regardless, Byambasaikhan insists he can do his job just fine under any government. If he succeeds, maybe they will let him try. “The government is really convinced that state-owned enterprises can be run better, but the way to do it is to remove political influences,” says Byambasaikhan, who asks for nothing more than the ability to run his fund as freely as any other company that operates in the country.
“Put me on the same ring as everyone else,” he says. “I don't need any privileges or restrictions.”
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