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
The mine is jointly owned by the Government of Mongolia (with 34% stake in the project) and the companies Turquoise Hill Resources (formerly Ivanhoe Mines) (Canada) and Rio Tinto (UK) (with 66% ownership). Given the expected benefit of the project, the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) approved over $1 billion each for the project’s expansion in early 2013 as a part of their strategic development plans for Mongolia, with the hopes of raising $4 billion with an assortment of other private investors. However, these funds have not yet been disbursed to the client due to stalled negotiations between the government and the company. The deadline for an agreement, which was originally set for July 2013, has now been pushed back to the end of 2014 after four previous deadlines had been missed.
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 in line with the IFC’s Performance Standards.
Lack of Transparency
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 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.
Impacts on indigenous nomadic herders
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.
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
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
The IFC and the EBRD have spearheaded 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 approved a Category A loan amount of $400 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
CSO letter to the World Bank Board of Directors on Oyu Tolgoi, March 28, 2014
CSO review of the OT OMPs, November 13, 2013
CSO letter to Dr. Kim on Oyu Tolgoi, February 11, 2013
Press Release: Complaint Filed Against Destructive Oyu Tolgoi Mine Being Considered for World Bank Support, October 12, 2012
Press Release: World Bank and Others Poised to Invest in Rio Tinto’s Flawed Mongolian Mining Project, September 21, 2012
Oyu Tolgoi Project Update, September 2012
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
IFC Response to civil society ESIA Review, February 2013 (IFC website)
Summary of EBRD Consultation Activities Post-Disclosure of ESIA, February 2013 (EBRD website)
OT LLC Response to civil society ESIA Review, December 2012 (Oyu Tolgoi LLC 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
Asia Program Assistant
Tel: +1 202 624 0635
Mongolia Page, Bank Information Center
Executive Director, Oyu Tolgoi Watch
Oyu Tolgoi Watch is a Mongolian NGO founded in 2010 to monitor Oyu Tolgoi investment agreement compliance with national and international laws and standards.
Tel: +976 99 185 828
Sukhbataar district, Bagatoiruu 44-6
Director of Strategic Support, Accountability Counsel
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.
Tel: +1 415 296 6761
8 California Street, Suite 650
San Francisco, CA 94111