Oyu Tolgoi Mine Project

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.

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 Availability
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 has been diverted despite the protests of the local community. 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.

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 in the summer of 2011 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.

Alcohol Sales
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.

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.

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.