Cut 8 contractor in bribery allegations

Debswana  still has “confidence”  in the  awarding of a multi million pula tender to Leighton International  despite continued media allegations  that its parent company, Leighton Holdings  has been involved in corrupt business practices across the globe. Leighton Holding is  the parent company of Leighton International which partnered with Basil Reed and Botswana based Bothakga Burrow under the Majwe joint venture  which was awarded the tender by Debswana to move 400 million tons of waste at Jwaneng Mine, over 5 years as part of the Cut 8 Phase II mining plan.

According to Australian media, Leighton Holdings have been accused of corrupt practices in regions where they do business, including Africa, Asia and South America.  According to a Reuters report, Leighton is said to be  currently under investigation by  Australian authorities for multimillion dollar contracts awarded in the middle east and other parts of Asia.

Reached for comment about the new bribery allegations brought against one of their  contractors , Debswana stated that they still have confidence in the Leighton led partnership.
“We have considered the allegations made and feel that they currently do not affect the ongoing works at Cut 8. As you will probably be aware, the award of such contracts is done in accordance with our company policies which call for an objective and transparent tender process. In light of the allegations, we have reviewed this and are confident in our processes. We do however take such allegations very seriously and will be keenly monitoring the investigations by the Australian authorities. In the event that there is any proven wrongdoing against our partners, we will engage with them as that would be contrary to our policies and principles”, read a response to a Business Gazette Questionnaire.
Reuters quotes Fairfax, an Australian news agency  which  claims  to have seen internal company memo implicating the company’s management in corrupt practices. Fairfax media reported that Leighton senior executives, including highly regarded former CEO Wal King, knew about plans to pay alleged multimillion-dollar kickbacks in Iraq, Indonesia and Malaysia.

According to The Australian newspaper,   claims have been made specifically on the Iraq oil contract that was worth $AUS 750 million, which a bribery kickback payment of $AUS 42 million was allegedly paid out in order to facilitate the awarding.

The awarding of the Cut 8 contract by Debswana in 2007-08 was at the time marred by allegations of tender irregularities over the conduct of its awarding. The claims were later denied by the diamond mining company.  The Majwe joint venture was award a 586 million US dollar contract, around 6 Billion Pula at the time, by Debswana Diamond Company.

Bothakga Burrow Managing Director, Arthur Siwawa, who are one of the three Majwe Joint Venture partners, rubbished the allegations as old news. He referred  Business Gazette  to a statement by Leighton stating the same sentiments.

The statement signed by the Company Secretary Vanessa Rees denied that the company had widespread culture of corruption that was known by management. “The Iraq investigation and the construction of the barge in Indonesia are exceptional instances that are the subject of either an ongoing confidential investigation by the AFP or litigation commenced by Leighton Holdings which is before the courts.”
The statement further said the allegations were subject to a February 2012 volunteer discloser to authorities by Leighton and that there are no new allegations on the matter.
Efforts to reach the company for further explanation were not successful at the time of going t

Coal railway contracts awarded, Mongolia - Railway Gazette

May 2013

MONGOLIA: Plans to construct new heavy haul railways are progressing, with the national railway authority awarding South Korean construction firm Samsung C&T a US$483m contract to build a 217 km line linking a coal mine at Tavan Tolgoi, 540 km south of Ulaanbaatar, with the Chinese border. Work is expected to take 30 months.

On May 6 an agreement was reached for the government to pay Mongolian Mining Corp 84bn tögrög to reimburse expenses it incurred in the planning of a similar 225 km railway in the South Gobi between the Ukhaa Khudag coking coal mine and Gashuun Sukhait on the Chinese border. It was to have been built under a concession agreement signed on May 31 2012, but this has now been cancelled as part of a government strategy to consolidate various rail schemes so they can be implemented as a unified project under its oversight.

The compensation could be converted into equity in the New Railway special purpose vehicle to be established by the government to implement the national project. MM is to be granted 50% of the capacity of the planned railway, while its existing contracts and obligations will be reassigned to national railway shareholding company MTZ.

• The Northern Railways subsidiary of Aspire Mining has appointed SMEC to undertake an A$9·8m feasibility study and provide tender documentation for a planned 595 km line running west from the existing network at Erdenet to Mörön and the Ovoot Coking Coal Project. As well as coal traffic, the 1520 mm gauge line would be available for other freight traffic as well as passenger services.

BBC News - Tax avoidance: Developing countries take on multinationals

23 May 2013 

Developing countries are taking action to try to combat tax avoidance by multinational companies.

Zambia and Mongolia have told the BBC they want to stop mining companies shifting profits out of their countries before they can be taxed.

Both are major producers of minerals and say they lose billions of dollars a year in much-needed tax revenue. However, the Organisation for Economic Co-operation and Developemtn (OECD) has warned this could be dangerous.

The Paris-based developed nations' club thinks unilateral action by individual countries could lead to a confused, fragmented set of rules with no clear standards.

The speaker of the Mongolian Parliament, Mr Z. Enkhbold, told the BBC that Mongolia is cancelling international tax treaties which mining companies had intended to use to take profits from their Mongolian operations tax free."Tax must be paid where the real business is located," Mr Enkhbold told the BBC, "not in offshore countries". A new law in Zambia, which comes into force this month, requires mining companies to bring the proceeds of export sales back to Zambia. Once in Zambia, the country's tax authorities will scrutinise dividends and other payments to see if they are justified before they leave the country.

Mr Enkhbold, told the BBC Mongolia is cancelling tax treaties that allowed companies zero tax bills

You're talking about pregnant women who haven't got a clinic they can go to for antenatal care or child health education”

Guy Scott, Zambia's Vice-President, told the BBC that his government is losing roughly $2bn a year through corporate tax avoidance."We are talking a staggering amount of money," he said. That is more than Zambia spends every year on health and education combined. "You're talking about pregnant women who haven't got a clinic they can go to for antenatal care or child health education," Mr Scott said."You're looking at people who won't be educated beyond primary school level."

Zambia's new law is designed to increase the transparency of mine companies' finances.

"We don't even know where the accounts are," Mr Scott explained. "It'll at least criminalise a certain amount of avoidance. It obliges people to be transparent. At the moment they're only transparent if they volunteer to be transparent."

Mongolian officials say they are acting in an attempt to stem large future tax losses in their rapidly growing mining sector. Almost 70% of all major foreign direct investments are coming through the Netherlands, as a tax shield”

The former director of Mongolia's Ministry of Finance, Mr B Batjargal, said Mongolia stands to lose around $5.5bn in tax revenue over the lifetime of the country's single biggest project, the giant Oyu Tolgoi copper mine. "Mongolia's GDP is now $8-9bn," Mr Batjargal said, "so it's almost the same as the GDP of the country".

As future mining projects come on stream, the potential tax losses to Mongolia are "tremendous, unimaginable", Mr Batjargal said.The greatest threat to Mongolia's tax revenues is posed by its bilateral double taxation treaty with the Netherlands, signed by the two countries in 2002.

Under this treaty, if a Dutch company invests in Mongolia it is entitled to pay dividends back to the Netherlands free of any Mongolian tax.

Turquoise Hill Resources, the company which developed the Oyu Tongoi mine, is Canadian. But for tax purposes its investment qualifies as Dutch because it was routed through a Dutch company set up for the purpose: Oyu Tolgoi Netherlands BV. As a result, Turquoise Hill is entitled to receive dividends through its Dutch company, free of Mongolian tax.

Records for Oyu Tolgoi Netherlands BV show it has no employees. It is one of over 1,000 similar companies at a company formation service located in a single building in Prins Bernhardplein in Amsterdam.

The risk you face is that we will end up with double taxation, triple taxation which is also detrimental to investment and growth and employment” It is not just Turquoise Hill Resources that is using the Dutch tax treaty route, Mr Batjargal said. "Almost 70% of all major foreign direct investments are coming through the Netherlands, as a tax shield," Mr Batjargal said.

Mongolia is not only cancelling its treaty with the Netherlands, it is terminating three other treaties with Luxembourg, Kuwait and the UAE. They also provide for dividends to leave Mongolia tax-free.

After 1 January 2014, the cancellation date of the Dutch treaty, the tax position of the Oyu Tolgoi project is unclear.

The London-based mining giant Rio Tinto has bought a controlling stake in Turquoise Hill resources, so Rio Tinto will have to negotiate new ways to get future dividends from the Oyu Tolgio mine out of Mongolia.There are numerous other double taxation treaties between Mongolia and other countries. But these all allow Mongolia to levy at least 5% tax on dividends.

The actions taken by Mongolia and Zambia have caused concern beyond their borders.The OECD is now preparing an action plan to tackle corporate tax avoidance to present to world leaders this summer.Pascal Saint-Amans, who oversees tax treaties and international tax negotiations for the organisation, said he regards unilateral actions such as the Mongolian treaty cancellations as "dangerous".It is a further reason, he says, why the leaders of the countries in the G8 and G20 need to reach agreement on how to deal with corporate tax avoidance when they meet this summer."If there is no agreement," Mr Saint-Amans said, "then we'll have a number of countries walking away from consensus saying 'I'm not bound by these rules, I will decide on my own'."And then the risk you face is that we will end up with double taxation, triple taxation which is also detrimental to investment and growth and employment."

Meanwhile, the Speaker of Mongolia's parliament, Mr Z Enkhbold, advised other developing countries to review what agreements they have and decide which to leave and which to cancel.

"We need to close this loophole in the world economy," he said.

BHP Billiton terminates coal mine contract with Leighton Contractors - Energy Business Review

Published 10 April 2013

Anglo-Australian mining company BHP Billiton has terminated a development contract for Peak Downs coal mine with Leighton Contractors, costing the latter a sum of $260m.

As per the terms, the contract awarded to the Leighton Holdings' subsidiary to develop the mine at Queensland Bowen Basin was to expire in 2015.

Although Leighton has not disclosed the reason behind the termination, it added that the company is liable to compensate the early termination of contract. The company, however, added that it seeks continual long-term growth citing soaring demand for both thermal and coking coal across the markets including India and China.

Meanwhile, BHP spokesperson was quoted by Business Day stating that the move was made due to increasing costs, decline in the price of commodities, and to reduce the overheads and operating costs.

The company has reviewed contracts and made necessary arrangements to remain cost-competitive, the spokesperson added.

Nevertheless, BHP has awarded the development contract to HSE Mining.

The coal mine that is partly owned by Japanese firm Mitsubishi has 35 years reserve life alongside production capacity of 9 million tons of coking coal every year.

Mongolia: Ongoing mining disputes hurt growth

Tuesday, 02 April 2013 08:15

Source: Oxford Business Group

Following disagreements between the government and major international mining firms, Mongolia is taking steps to reassure investors. However, it has proven difficult to convince interested parties that these disputes are not indicative of a deeper conflict building between the present leadership and the foreign firms that are extracting minerals.

In mid-March government officials said a disagreement with multinational mining firm Rio Tinto on key points relating to cost overruns, the feasibility study for phase two of the Oyu Tolgoi copper-gold mine and the employment of Mongolian workers would not delay the start of production, which is scheduled to take place at the end of June 2013.

“The Mongolian government and the investor both [want to] highlight the importance of production starting on time,” Dorjsuren Javkhlanbold, a senior official at the Ministry of Mining, told Reuters.

In a further bid to calm sentiment, Ulaanbaatar also announced in March that it will ease recently introduced limits on foreign investment. Referring to legislation that required any deal worth more than MNT100bn ($71.9m) and involving the transfer of more than 49% of a Mongolian company to a foreign group to be referred to parliament for approval, Luvsanvandan Bold, the minister for foreign affairs, said on March 21 that the threshold would be raised to MNT1trn ($719.7m). “There will be changes in the law in the near future so that the international community and investors will be happy,” said Bold.

However, such steps will likely be condemned by politicians who say major international firms, such as Rio Tinto, are taking advantage of the country’s surge in resource wealth. Under its original deal with Rio Tinto, signed in 2009, the government was granted a 34% stake in the Oyu Tolgoi project, which will rise to 50% after the first 30 years of operation. Pressure from opposition politicians, however, saw the government attempt to renegotiate this in October 2012, as well as increase the size of royalty payments, but a revised deal has yet to be reached.

The massive Oyu Tolgoi copper and gold mine is important to the future growth of Mongolia, as it is set to double the size of the economy when it comes on stream in 2013. Meanwhile, the equally giant Tavan Tolgoi coal deposit, which is estimated to hold some 6bn tonnes of reserves, will also play a significant role in economic expansion.

Yet the coal sector has also fallen victim to a dispute between the government and mining firms. The China Aluminium International Trading Company (Chalco) said in January 2013 that it would seek legal redress if the Mongolian government followed through with a decision to try to alter an agreement signed in 2011. State-owned Erdenes-Tavan Tolgoi (ETT), the firm that manages the Tavan Tolgoi coking coal mine, said it wanted to renegotiate that deal with Chalco. The agreement between the two firms saw the Chinese firm lend ETT some $350m, which the Mongolian company would then repay with Tavan Tolgoi coal.

Meanwhile, Chalco had also planned to make a $926m bid for SouthGobi Resources, a Canadian firm based in Mongolia, but abandoned its proposal in October 2012 after strong suggestions that the government would not approve it. The firm also cited uncertainty over the regulatory environment as a cause.

In addition to disputes between the government and mining firms, critics say that to ensure its citizens benefit wholly from resource wealth, the country also has to build human resources capacity to ensure there is sufficient scope for its people to take on more than unskilled jobs within the mining sector.

“There is a significant need for techno-economic based capacity building and associated technology awareness training to be provided, covering the efficiency and environmental impacts of clean coal and alternative technologies,” Andrew Minchiner, the principle associate at the IEA Clean Coal Centre, wrote in March 2013. “This is necessary both to assist the nation in its near-term development plans and also to build up the national capacity from a longer-term sustainable perspective.”

Indeed, unless the country is able to strike a proper balance between nationalist sentiment, protecting its resources and keeping foreign investors happy, the basis for healthy economic assessments for the near term could be significantly impacted. To ensure continued prosperity, Ulaanbaatar needs to improve its ability to communicate, as well as take a more inclusive approach to dealing with international mining firms.

Mongolia's Mining Boom (BBC 2013)

The Oyu Tolgoi mine in Mongolia's freezing Gobi Desert is one of the the world's biggest - extracting a vast seam of copper, gold and silver the size of Manhattan. It's turned this country of camel and yak herders into the world's fastest growing economy. Fancy boutiques, top-end car dealerships and coffee shops are springing up across the capital. But, as Justin Rowlatt discovers, riding the boom is not easy. He meets a rapper who says the government is simply selling the country's assets to its old rival, China. And there are fears from foreign investors about attempts by the government to increase its income from the Oyu Tolgoi mine. Can Mongolia become prosperous while sharing its new-found wealth - or will it kill the goose before it has laid any gold (or copper) eggs?

To listen ......select this link

PM to end missing link to Cambodia

U.S. raises serious concerns over OT's environmental, social impact

Wednesday, 13 March 2013 11:47

World number two miner Rio Tinto PLC has suffered another setback at the Oyu Tolgoi copper mine in Mongolia after the United States refused to vote on World Bank funding to expand the massive copper-gold project in Mongolia.

Operator Turquoise Hill Resources, which is controlled by Rio Tinto, has already spent more than USD 6 billion on the mine in the south Gobi Desert, where it hopes to start commercial production by June. The additional USD 4.5 billion debt package being negotiated with the International Finance Corporation (IFC), the World Bank's private sector arm, the European Bank for Reconstruction and Development and several private institutions is needed to develop Oyu Tolgoi to full capacity with an underground mine to compliment the open pit.

The Inter Press Service reported Friday the U.S. decision to abstain from voting would not derail IFC funding of the giant mine, but would add further pressure to make substantial changes to the controversial project.

“[T]he United States' review of the Environment and Social Impact Assessment (ESIA) for the project has raised concerns in a number of areas,” a position paper, dated last February but publicly released this week, states.

“First, the United States believes the ESIA has gaps in critically important information, particularly related to the operations phase of the project and mine closure... Second, the ESIA does not provide a sufficiently detailed analysis of associated facilities and cumulative impacts.

“In particular, the policy statement notes that the impact assessment, which currently focuses almost exclusively on the project's construction rather than its potential operation, covers this planned expansion ‘only lightly.’ The document also draws attention to longstanding complaints from local herder communities, currently pending before a World Bank Group auditor. The U.S. says it is ‘keenly interested in the outcome” of this review.’

MMC 2012 announces weak 2012 results with lower coal sales prices

Wednesday, 13 March 2013 11:46

Mongolian Mining Corp. reported lower-than-expected results for 2012, said Visor Capital. The company increased its coal production by 32 percent year-on-year to 9.4 million tons. 2012 coal sales increased by 17 percent year-on-year to 5.6 million tons. 2012 average realized selling price fell by 26 percent year-on-year to USD 84.8 per ton. 2012 revenue decreased by 13 percent year-on-year to USD 474.5 million, whilst net loss for the period was USD 2.5 million (compared to the previous year's net income of USD 119.1 million). As in 2011, the company will not pay dividends for 2012. In 2013, MMC guides to produce 12 million tons of coking coal and expects to see a recovery in coal's realized prices. The third stage of the coal washing plant is expected to be commissioned in the first quarter of this year, bringing MMC's total annual coal processing capacity to 15 million tons. MMC is targeting to process 12 million tons of coal during 2013. "We believe the main reason for the company's weak 2012 results to be a significant decline in coal sales price, which was 5 percent below our forecast," said Visor Capital. The company said coal sales volume fell 47 percent below its estimates, and its 2013 guidance was 24 percent below its expectations. "We, however, still believe that MMC will successfully reach 20mtpa of raw coal production within the next three years, in line with our expectations."

Mongolia working on new mining law to avoid mistakes from quick passage

Wednesday, 13 March 2013 11:41

Jargalsaikhan Mendee writing in Asia Times Online argues Mongolian lawmakers in the process of finalizing a new bill to regulate the mining industry are hoping to avoid the mistakes of the past.

Parliament has revised the rules governing mining companies and foreign investment in the sector several times since introducing its so-called Gold Program in 1990, but previous laws have not always produced the desired outcomes. The country is still plagued by environmentally damaging artisanal mining, corruption in the awarding of exploration and mining licenses and a lack of local community participation in mining projects, but the new bill—which “avoids the dangers of politicization”—has a better chance of addressing these problems argues Mendee.

That is because Mongolia is relying heavily on its own expertise, the knowledge built up studying other resource-based economies like Australia and Canada, to repeat what happened in 2009:

“Pushed by demands from environmental and local activists, Parliament quickly approved the Law on the Prohibition of Minerals Exploration in Water Basins and Forested Areas in 2009.

“Under the law, the government canceled over 200 mining and exploration licenses that operate within 200 meters from water and forest sources.

“However, this sudden measure caused intense opposition from miners while raising public expectations for stricter enforcement and revisions in the major mining and environmental legislation.”