Dawn at the Oyu Tolgoi mine in Mongolia
Original image by ginger_ninja (CC BY-NC-ND 2.0)
Located in the Omnogovi Aimag (province) in the Southern Gobi Desert region of Mongolia, the Oyu Tolgoi copper/silver/gold mine is one of the largest undeveloped copper and gold deposits in the world.
Location: South Gobi, Mongolia
Total Cost: US$12,000 million
Funding: IFC, MIGA, EBRD
- World Bank (IFC and MIGA): 28 February 2013
- EBRD: 26 February 2013
Located in the Omnogovi Aimag (province) in the Southern Gobi Desert region of Mongolia, the Oyu Tolgoi copper/silver/gold mine is one of the largest undeveloped copper and gold deposits in the world. Estimates of the total copper and gold reserves of the mine have reached 37 million tons and 46 million ounces respectively. The Mongolian GDP is expected to increase by 30% once Oyu Tolgoi (OT) begins production, which is likely to start in the third quarter of 2012.
The mine is jointly owned by the Government of Mongolia (with 34% stake in the project) and the companies Ivanhoe Mines (Canada) and Rio Tinto (UK) (with 66% ownership). However, the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) have expressed interest in financing the project as a part of their strategic development plans for Mongolia, with the hopes of raising $4 billion with an assortment of other private investors.
Civil society groups, both in Mongolia and abroad, are concerned about the negative environmental and social impacts the mine will have. One NGO for example, Oyu Tolgoi Watch, was founded in March 2010 specifically to monitor compliance with international environmental and human rights standards at Oyu Tolgoi. Two fact-finding missions undertaken in 2011, one by a USAID field team and another by a coalition of CSOs (including BIC and OT Watch) found that the long-term interests of the mining companies and the traditional herders that live nearby are incompatible.
One of the most significant concerns regarding this project is water resource management. Oyu Tolgoi is located in the Gobi Desert, an arid ecosystem that is suffering the effects of increased desertification due to climate change. Mining is a notoriously water-intensive industry, and the large size of Oyu Tolgoi means that competition for water resources with the nearby nomadic herding community will be fierce. There are at least 8 other mines within a 500 km radius of Oyu Tolgoi, and all are facing water scarcity issues. The Government of Mongolia is proposing two river diversion projects to address these water limitations, but experts have claimed that these rivers may not survive the diversion.
It is unlikely that the Oyu Tolgoi project will be discontinued, as the government and private investors alike, including the World Bank Group, see mining as the future of the Mongolian economy. However, it is imperative that World Bank and Rio Tinto staff work to mitigate the number of concerns expressed by Mongolian civil society since the IFC is going to invest in this project.
Mongolia joined the World Bank and Asian Development Bank (ADB) in 1991 and the European Bank for Reconstruction and Development (EBRD) as a country of operation in 2006. The international financial institutions (IFIs) have already disbursed more than $1.2 billion combined to projects in Mongolia. As IFI interest in Mongolia’s mining sector grows, so do concerns about resulting negative social and environmental impacts.
There are more than 300 mining companies operating in Mongolia. Coal, gold, and copper account for a large percentage of their mining activities. In April 2007, Mongolia’s government signed a Memorandum of Understanding (MOU) with the World Bank, EBRD, and ADB on the development of the country’s mining sector. The MOU signals growing interest on the part of the IFIs in expanding activities in this sector. As a result, the extractive sector is a key issue to monitor.
The expansion of IFI financing of extractive industries in Mongolia raises several major concerns for civil society groups, including environmental risks and governance issues. BIC has urged the IFIs to adopt the best international social and environmental standards for all mining projects that they finance in Mongolia.
Extractive Industry Transparency Issues
One of BIC’s primary concerns is revenue and contract transparency. BIC and other civil society organizations have advocated that payments made by mining companies to the government be transparent and published. The Mongolian Government’s commitment to the Extractive Industries Transparency Initiative (EITI) in December 2005 is a step in the right direction, but the IFIs can do more to require that projects be transparent.
Mongolia is now an EITI candidate country, having completed its pre-validation process in 2007. The country’s first report, covering 2006, was published in January of 2008 and can be found on Mongolia’s EITI website. The report identified major inconsistencies in the types of data reported by companies and the government, as well as inaccurate information from the government’s side. However, Mongolia is one of only a few countries to publish data on a disaggregated – company by company – basis. A National Council and Multi-stakeholder Working Group, both established in 2006, monitor the EITI process, but civil society has complained of inadequate representation. The NGO Coalition for Transparency in the Extractive Industries was formed in 2006.
IFI involvement in revenue and contract transparency has come through support of EITI. In 2007, the World Bank awarded Mongolia a $304,394.00 grant for EITI assistance. In the same year, the European Bank for Reconstruction and Development (EBRD) disclosed a $45 million loan to Mongolyn Alt Corporation for expansion of its coal mining operations. This project marks the first requirement for a Mongolian mining company to comply with EITI. On June 26, the World Bank approved $9.3 million in aid to Mongolia for technical assistance in the mining sector. The project focuses on strengthening the government’s capacity to manage revenue, state equity, and the regulatory framework. Parallel funding is expected from the ADB ($1.5 million) and the EBRD ($2.3 million).
Extractive Industry Project Developments
IFI investment in Mongolia’s extractive sector has focused on large companies and immediate export, rather than developing the country’s capacity to process and add value to its resources. Illegal exports to China and South Korea also remain problematic. Recent exploration has made Mongolia’s mining sector even more important. The two largest sites, Oyu Tolgoi (copper and gold) and Tavan Tolgoi (coal), could bring in $5 billion in foreign investment, a figure double the country’s GDP. NGOs have raised concerns over the transparency and management of these deals. Mongolia is also seeking to develop its uranium mining capabilities with Russian assistance, but it is unlikely the IFIs would become involved with uranium projects.
Civil Society Analysis
A Golden Opportunity? – Unpacking the Relationship between Mongolia and the World Bank, June 2012 (BIC website, PDF)
Mongolia EITI Reconciliation Reports, Mongolia EITI Secretariat website
Terms of Reference of the Mongolia EITI Council, National Council, 2006 (WB website, pdf)
A Review of Environmental and Social Impacts in the Mining Sector, by World Bank, May 2006 (World Bank website, pdf)
Revenue Watch Institute, Mongolia country page
EITI, Mongolia country page
World Bank Group, Mongolia country page
Asian Development Bank, Mongolia country page
European Bank for Reconstruction and Development, Mongolia country page
There is the issue of Mongolian debt, which the World Bank and the IMF are supposed to monitor. The Government of Mongolia owns a 34% stake in Oyu Tolgoi (OT), which Rio Tinto estimates is a $13.2 billion investment. This has the potential to create more debt for the government than any net profit from the mine. The World Bank has also funded a variety of mining support projects through the Mining Infrastructure Investment Support Project (MINIS) and other projects, without clearly addressing sub-project coherence. We are concerned that the extensive credit the country is receiving for mining support projects is investor-interest driven and ultimately harmful to Mongolia’s development.
Lack of Transparency
IFC and Oyu Tolgoi management have been very guarded and not transparent about Oyu Tolgoi. Requests for information from OT Watch are often ignored, delayed, or answered only in part (see discussion of Undai River Diversion Project below). We had also been told since December 2011 that the Environmental and Social Impact Assessment (ESIA) would be published shortly, but the ESIA’s publication had been constantly delayed until it was finally published in August 2012. Moreover, the management plans included in the ESIA only cover the construction phase, which was over 94% completed at the time of disclosure, making the published ESIA both incomplete and retroactive.
Water Resource Management
Oyu Tolgoi is a huge mine with a project life of 30-60 years. Reports from Oyu Tolgoi LLC declare that there is enough water in the Gunii Hooloi aquifer to support the mine during this lifetime and that it will not affect the shallow aquifers used for community wells. The US Agency for International Development (USAID), however, found that although mining companies claim that the deep aquifers do not impact shallow wells, “if pressed, there is no proven evidence in the public domain to validate their claim.” At the 2010 Annual General Meeting, Rio Tinto CEO Tom Albanese confirmed that there is only enough water available for 5-10 year of production. A recent World Bank assessment found that “there is enough groundwater to sustain projected development in the Southern Gobi Region until 2020,” far short of the projected 60-year minimum lifespan of the mine.
Moreover, OT’s calculations regarding the sufficiency of water include only the water necessary for production and do not include water usage by the workforce, construction and other operational needs. For instance, Oyu Tolgoi is currently using bottled water for its 18,000 strong workforce, and there is documented evidence that they have begun pumping from community wells. While the IFC has indicated that OT itself is not sourcing water from Khanbogd, it does concede that some of OT’s contractors have been pumping from local wells. However, it has also stated that the ESIA will not include an analysis of the water from these sources. We are concerned that if the use of local wells by OT’s contractors is left out of the ESIA, there will be no way to quantify how much water they are using from these sources and how much water will remain to residents when the contractors are gone. Similarly, it will be impossible to guarantee that the amount of water being used “is low, temporary and will cease once construction is finished,” as argued by the IFC.
Finally, the community heavily protested the construction of the Gunii Hooloi pipeline, a 75km long pipeline built to bring water from the Gunii Hooloi deep aquifer to Oyu Tolgoi. The construction disturbed the pasture of many herding households. Moreover, the local community does not believe that the current rate of pumping (870 L/s) will not deplete this aquifer, though the company claims they will use only 20% of the water available here. The community is also afraid that OT will begin pumping water from the Galbyn Gobi aquifer, despite the company’s lack of necessary permits. The Galbyn Gobi aquifer is very close to the Gunii Hooloi aquifer and is considered crucial to the Gobi ecosystem. Major distrust regarding water scarcity exists between the company, the locals, and the Mongolian expert community.
Undai River Diversion Project
The Undai River, the sole source of surface water in the region, flows through OT property and will be diverted. However, as most of the river flow volume is subterranean, we are concerned about the chance that the river will not survive the diversion with enough water to feed springs and wells needed by the local population downstream.
Orkhon River and Kherlen River Diversion Projects
In order to provide additional water supplies to mines in the South Gobi, including Oyu Tolgoi, the Mongolian Government is working on the Orkhon-Gobi water diversion project. The World Bank is financing the $3.2 million feasibility study, even though experts have said that the Orkhon River would not survive the diversion. The World Bank is also financing a feasibility study on the Shuren Hydropower Station on the Selenge River.
These projects are likely to have severe transboundary impact issues as the Orkhon River is a key tributary to the Selenge River. The Selenge River, in turn, is the key tributary to Lake Baikal in Russia, which is protected under the UN Ramsar Convention. The government is planning a similar project with the Kherlen River, which is a key tributary to Lake Dalai in China, also a Ramsar-protected lake. The Kherlen River is also unlikely to survive the diversion.
Rio Tinto vehemently denies that it will use fresh water such as that being diverted from the Orkhon and Kherlen Rivers for production at Oyu Tolgoi. However, it is silent on the use of this water for its workforce and other operations. There is also no documentation of the availability of fresh water for the needs of the company’s operations in the South Gobi.
There are several high-profile species in the South Gobi that will be impacted by the Oyu Tolgoi Project, as outlined in a 2011 USAID field mission report, including the endangered saker falcon, threatened Mongolian wild ass (khulan), near-threatened Mongolian gazelle, vulnerable goitered (black-tail) gazelle, and vulnerable houbara bustard. Linear infrastructure, such as roads and power lines, has been shown to disrupt the migratory patterns of the khulan. Fracturing of pasture from mines and roads has led to increased competition between the khulan and the herders for land and water resources, due to the insufficient size of the protected areas. The houbara bustard is also affected as it requires zero to minimal disturbance to successfully breed. The increased activities in the Gobi are easily scaring the birds off their nests, and deaths caused by collisions with power lines have been increasing.
Impacts on indigenous nomadic herders
The nomadic herders of the Gobi consider themselves to be Indigenous Peoples, as they are the carriers of ancient Mongolian nomadic traditions. The company does not recognize this, as stated in their letter to OT Watch, using as justification a statement produced by an ADB and Ministry of Transportation of Mongolia project. This statement is project specific, and, furthermore, these institutions are not authorized to make such a determination.
Loss of Livelihood and Involuntary Resettlement
The herders that CEE Bankwatch, urgewald, and Bank Information Center met during a fact-finding mission conducted last summer expressed dissatisfaction with the resettlement process, as confirmed by a USAID field report. Both missions found that 4-5 of the 11 families initially resettled have continued herding, but the rest had stopped altogether. The herders were moved to poor quality pastures and camps, and OT refused to fix the electric well pumps for two herder families that had broken within a couple of months. Under the IFC’s Performance Standard 5, displaced persons should be “offer[ed] . . . choices among feasible resettlement options”, yet one family was told they had to move from the land they’d lived on for generations regardless of whether they accepted the non-negotiable resettlement package. This package included a summer home, wooden animal shelter, costs of resettlement, a scholarship for one family member and a job with OT LLC for one family member.
The nomadic herder families are not being assessed as a livestock production unit in the relevant soum. As a business unit, the losses incurred by the herders as a result of mining activities include the loss of or reduction of infrastructure (pasture land, water wells, winter camp animal shelters and reserve pasture) and the resulting diminished quality of their agricultural products. This has led to the abandonment of the traditional culture as herding becomes more difficult and nomads lose their means of livelihood.
According to the IFC, OT has implemented many activities to assess social impacts and create a suitable compensation plan for resettled herders. Two participatory groups, namely the Compensation Working Group and the Pasture Users Group, are identified as being instrumental to the development of the Herders Livelihood Improvement Program. We have reason to believe that these consultations were generally insufficient, as most herders and other community members felt and continue to feel ill-informed about the company’s plans. In particular, community members were concerned with a potential conflict of interest with the Deputy Governor of Khanbogd serving as chair of the Compensation Working Group. The working group was also unable to exercise their right to hire outside legal and technical advisors, which would have been beneficial to the negotiation process, due to a lack of financial assistance.
OT Watch has made several requests for a draft copy of the proposed compensation package contract, as well as the methodology used in determining the amount of compensation, but the company has consistently refused. Oyu Tolgoi reports that 80 percent of the affected households have accepted and signed the contract, but reports from the field uncover that the company has used all means of persuasion. There are a dozen households who have refused to accept the terms of the compensation package and have stepped up their fight against the low compensation, as well as the issues of water and the reserve pasture at Khanbumbat.
Khanbumbat International Airport
The land taken away from the local community for the construction of this airport is the herding community’s “reserve pasture”, fertile land used by all the herders when bad weather (winter dzud or summer drought) strikes. The Undai River surfaces on this land, providing better quality vegetation and water resources. The loss of this land will affect the 300 herder households that depend on the availability of this reserve pasture, but Rio Tinto only recognizes 80 households as being directly affected. This number is based on the proximity of winter camps to the airport construction site, when it is the diminished pasture size that has immediate negative impacts on the size and quality of the families’ herds. Rio Tinto has also adopted a “compensation without relocation” strategy for those living near the airport, without a published assessment of what social and health impacts will arise from living in close proximity of the airport. According to IFC, Oyu Tolgoi is planning to conduct additional negotiations with the herders near Khanbumbat, but further information is still unavailable. Additionally, information on the ESIA for the Khanbumbat airport on the OT website is not clear. There is an ESIA for a permanent airport available in Mongolian and English, but it is for a domestic airport, not an international one.
Labor and Working Conditions
Alcoholism is a growing problem in Mongolia, and a safety concern for workers in the extractive industries. We are concerned that the presence of a bar in the OT main camp exacerbates the abuse of alcohol among the workers. We are also concerned that the existence of the bar is a form of control on the part of Rio Tinto, as it is a way for the company to earn back wages from its workers as well as give them an excuse to fire employees at will. More importantly, the bar’s rules limiting alcohol purchases to two drinks can be easily circumvented, as patrons can leave and come back for more in the same night.
It should be noted that this bar is in violation of Mongolian law, as the Law on Combating Alcoholism prohibits the sale of alcohol at work sites and near dormitories. It is also disconcerting that the bar used to give out beer for free before obtaining its liquor license. This lax regulation of alcohol consumption puts these employees at risk of accidental injury or death on the job.
Fights and Harassment
The historical resentment between Mongolia and China has resulted in several fights between Mongolian and Chinese workers at Oyu Tolgoi. There have also been cases where female Mongolian workers at OT have been sexually harassed by Chinese workers. It would not be too much of a stretch to assume that alcohol would exacerbate these issues.
Local vs. Foreign Employees
Oyu Tolgoi Watch’s research has shown that in spite of the commitment on the part of Oyu Tolgoi LLC to hire locally, the majority of its employees have been brought in from China. Although OT’s agreement with the government obligates it to hire locally, the mine gets around this by hiring local workers and then firing them and replacing them with expats who will work for less, or by maintaining a “ghost workforce”. Oyu Tolgoi has contractual obligations regarding “local content” which applies to hires, contracting, and the purchase of goods, among other things; but there is a lack of information on whether Rio Tinto has met these obligations.
Community and worker health impacts
Due to climate change and desertification, Gobi dust storms have become a permanent fixture of the region’s weather forecasts and impact communities as far away as North America. Mining operations such as Oyu Tolgoi exacerbate the dust problem through periods of construction and the use of unpaved roads. Watering the roads to limit the dust means utilizing a large amount of the already scant resource, and the fix does not last long in the arid climate.
In Khanbogd, the closest town to the mine, there are an increasing number of cases of respiratory illnesses (such as bronchitis) brought on by the increased dust and population influx. Livestock that graze near the roads are also dying off, and according to the herders they are found with black internal organs as a result of the dust. However, the doctors in Khanbogd simply do not have the capacity to monitor or address these dust-related issues, nor are there any veterinary services to help treat ailing livestock.
Cumulative Impact and Cumulative Risk
Oyu Tolgoi is just one of many mining projects in a waterless ecosystem. The Tavan Tolgoi mine, claimed to be the world’s largest untapped coking coal deposit, is a mere 160km away from OT. Another mega-mine, the Tsagaan Suvraga copper mine, is 230km to the north. An additional five to six medium-sized mines are located within a 500km radius of Oyu Tolgoi, some of which are owned or operated by Ivanhoe subsidiaries. All of these mines will require a large amount of water for production and to support their workforces and all face water resource scarcity. Moreover, Oyu Tolgoi’s associated facilities, such as the planned coal power plant and Khanbumbat International Airport, and the population influx that will occur in the neighboring soums as a result of the mine will also impact scarce water resources. While a cumulative impact assessment was included in the published ESIA, no cumulative investment risk analysis was included.
The IFC and the EBRD are set to spearhead a fundraising effort with a consortium of other banks for approximately $4 billion. The co-financiers include Export Development Canada (EDC), Standard Chartered Bank, BNP Paribas, US Export Import Bank (US EXIM), and the Multilateral Investment Guarantee Agency (MIGA). The balance will come from sponsor equity, shareholder loans, and project-generated cash flows. The IFC has a target loan amount of $300 million from its own accounts, as well as a B loan program for a target amount of $600 million. The EBRD has a target loan amount of up to $400 million in Category A loans and up to $1 billion in Category B loans.
Because of the size of the project and the relative political instability in Mongolia, Oyu Tolgoi LLC is also in discussions with MIGA for a political risk guarantee. The proposed guarantee is for Standard Chartered Bank in the amount of $1 billion.
Mongolia’s nomadic herders, who have practiced their traditional lifestyle in the South Gobi desert for centuries, are finding their way of life threatened by the OT Project. Herders forced to resettle because of the Project have experienced devastating herd loss. They are also currently being coerced into accepting low levels of compensation based on their location in proximity to the OT Project, rather than the size of pasture taken away from them. According to Sukhgerel, “Rio Tinto is manipulating herders into signing biased and unfair compensation contracts, telling them that they are the only ones left yet to sign, that they will be left with nothing if they do not accept the terms as is, or even just pressuring them to sign without reading or understanding the contract.
The herders who filed the complaint are concerned that the compensation being offered does not take into account the fact that safe and undisturbed access to sufficient water and high quality pasture is essential to maintaining their herding businesses, as well as their traditional culture and way of life. The CAO determined that the complaint was eligible for assessment under the Ombudsman stage of review in early November and completed its assessment in early 2013. The company and the local herders are now beginning the process of negotiations.
The herders of Khanbogd filed a second complaint to the CAO in February 2013 regarding the diversion of the Undai River, which the herders contend will have a serious negative impacts on themselves and their livestock despite the reassurances from the company on the contrary. The Undai River is the sole source of water in the Khanbogd area, and the loss of water flow to downstream springs as a result of the diversion will pose a significant loss of ecological services to the residents and wildlife of the South Gobi. Those on the ground also say that the company does not have the proper permits to begin the diversion. The herders vehemently oppose the diversion project and are asking that the diversion be stopped permanently. The CAO found the complaint to be eligible for assessment in late February 2013.
Updates and Press Releases
Oyu Tolgoi Project Update, September 2012
Press Release: World Bank and Others Poised to Invest in Rio Tinto’s Flawed Mongolian Mining Project, September 21, 2012
Press Release: Complaint Filed Against Destructive Oyu Tolgoi Mine Being Considered for World Bank Support, October 12, 2012
CSO letter to Dr. Kim on Oyu Tolgoi, February 11, 2013
ESIA Review and Supporting Documents
ESIA Review, December 2012
Annex 1: Review, by Robert Goodland, Independent Consultant
Annex 2: Review, by Mark Chernaik and Heidi Weiskel, ELAW
Annex 3: Review, by Jennifer Gleason, ELAW
Annex 4: Review, by Daniel Song, Biologist
Annex 5: Review of the Coal Power Plant, by Gordon Scott, Sierra Club
Oyu Tolgoi Complaint Case #1 Information, Compliance Advisor/Ombudsman
Oyu Tolgoi Complaint Case #2 Information, Compliance Advisor/Ombudsman
Responses to the ESIA Review
CSO Reply to OT LLC and IFC, February 26, 2013
OT LLC Response to civil society ESIA Review, December 2012 (Oyu Tolgoi LLC website)
IFC Response to civil society ESIA Review, February 2013 (IFC website)
Summary of EBRD Consultation Activities Post-Disclosure of ESIA, February 2013 (EBRD website)
Breaking Ground, Breaking Trust: Mongolia Trip Report, Bank Information Center, March 2013
Spirited Away: Mongolia’s Mining Boom and the People That Development Left Behind, January 2012
Oyu Tolgoi Copper/Silver/Gold Mine Project Trip Report, prepared by Leslie Johnston, USAID, May-June 2011
Environmental and Social Impact Assessment, available at the Oyu Tolgoi LLC website
Oyu Tolgoi Project Summary Document, European Bank for Reconstruction and Development
Oyu Tolgoi Summary of Investment Information, International Finance Corporation
Oyu Tolgoi Environmental and Social Review Summary, International Finance Corporation
Oyu Tolgoi Summary of Proposed Guarantee, Multilateral and Investment Guarantee Agency
U.S. Government Position on Oyu Tolgoi
- Oyu Tolgoi Watch is a Mongolian NGO founded in 2010 to monitor Oyu Tolgoi investment agreement compliance with national and international laws and standards.Sukhgerel Dugersuren, Executive Director
Sukhbataar district, Bagatoiruu 44-6
Tel: (976-99) 185828
Fax: (976-11) 328798
- Accountability Counsel is a legal advocacy organization that seeks to protect the environmental and human rights of communities around the world who are harmed by internationally financed development projects, with an emphasis on non-judicial accountability mechanisms.Sarah Singh, Attorney
8 California Street, Suite 650
San Francisco, CA 94111
Tel: +1 415 296 6761
- CEE Bankwatch Network monitors the activities of international financial institutions such as the EBRD to propose constructive environmental and social alternatives to the policies and projects they support, including several mines in Mongolia.Vladlena Martynskevych,Central Asia Program
22 Lva Tolstogo Street, Apt. 53
Tel: +380 44 353 78 42
- London Mining Network is an alliance of human rights, development and environmental groups that seeks to expose the role of companies listed on the London Stock Exchange, London-based funders and the British Government in the promotion of unacceptable mining projects such as Oyu Tolgoi.Richard Harkinson, Researcher
Tel: +44 7563 238179
- Urgewald is a German non-profit that organizes campaigns around investors and financiers, especially those in the EU, to block the funding of problem projects in developing countries.Regine Richter, Biologist
urgewald Büro Berlin
Tel: +49 3028482270