Mongolia rejects major coal mine deal

ULAN BATOR: Mongolia's National Security Council (NSC) has rejected a tentative deal struck in July with foreign firms to develop a vast coal deposit, a presidential spokeswoman said Saturday.

The move is likely to deal a blow to US mining giant Peabody Energy, China's Shenhua and a Russian-led consortium that had been announced as winners of the right to mine part of Tavan Tolgoi, the world's largest untapped coal deposit.

On Saturday, S. Batzaya, a spokeswoman for President Tsakhia Elbegdorj, told AFP the council -- which consists of the president, prime minister and parliamentary speaker -- had rejected the deal, without providing more details.

The announcement in July stipulated that 40 percent of a contract to mine the western section of Tavan Tolgoi had been awarded to Shenhua, 24 percent to Peabody and 36 percent to a consortium of Russian and Mongolian firms.

But Japanese and Korean officials immediately complained of an unfair bidding process after firms from both their countries were left off the list.

Officials in Ulan Bator later said the decision had not been finalised.

Analysts say Tavan Tolgoi has huge political implications for the government of Mongolia -- a mineral-rich country which is nevertheless desperately poor -- both at home and abroad.

Authorities hope that the money they will make from Tavan Tolgoi will enable them to pull thousands out of poverty, and are reluctant to appear to be giving away too much of their prized asset to foreign companies.

At the same time, the government of the landlocked country is working to accommodate its neighbours China and Russia, while seeking closer ties with the United States -- all of which have an interest in Tavan Tolgoi.

The deposit has an estimated 6.4 billion tonnes of coal reserves, the majority of which is high grade coking coal used in the production of steel.

Around 15 million tonnes of coal is expected to be extracted annually, giving the mine a lifespan of a hundred years or more.

An Ulan Bator-based analyst familiar with the issue, who declined to be named, told AFP the NSC's rejection of the deal could have been motivated by a desire to score points with the electorate.

"They know that making choices to give more to the public will be viewed as patriotic decisions," he told AFP.

"We can expect to see many blocks along the way but I believe at some point it will be approved. It will just take some time."

Copyright AFP (Agence France-Presse), 2011