Many Mongolian producers and suppliers would like more information about the Oyu Tolgoi LLC procurement policy. We met with the National Supplier Development Team at Oyu Tolgoi LLC to find the answers to our questions. B.Serjmaa – team manager, Z.Erdene-Amgalan and S.Sainsuren – officers of the team, participated in this meeting and provided information about the procurement policy, tendering regulations, how to become a supplier to Oyu Tolgoi and what kind of training is available to develop suppliers.
How many Mongolian companies are working as suppliers to Oyu Tolgoi LLC today? How do you define a Mongolian national company?
Last year a total of 1,131 national businesses supplied products and services to Oyu Tolgoi LLC. These companies make up 67 per cent of our total suppliers. If more than 50 per cent of a Mongolian registered company is owned by Mongolian citizens, it is considered a national company. Foreign invested companies with 50 per cent or less Mongolian ownership are considered foreign suppliers. In 2010 – 2012, Oyu Tolgoi LLC purchased 1.4 trillion MNT or US$1.1 billion of goods, materials and services from national suppliers.
If national and international suppliers bid equally in tendering, will Oyu Tolgoi support the Mongolian companies? Is there a policy to support Mongolian national companies ?
Oyu Tolgoi LLC has established specific procurement policies to work with and develop national and South Gobi suppliers. According to this policy, when South Gobi and national suppliers are technically sufficient and all components of the tender are equal, apart from a small price differential, national suppliers will be chosen over international suppliers on a preferential basis.
What are the common mistakes of companies participating in bids?
Oyu Tolgoi LLC upholds the highest workplace health and safety and environmental standards – many national companies need to make improvements in these areas. Many national companies also need to develop the relevant documentation and fully understand the supply terms and conditions and offer realistic price proposals. Some companies offer very high or very low prices.
How to become a supplier to Oyu Tolgoi?
All current and prospective Oyu Tolgoi suppliers can register online. Suppliers need to complete the online registration questionnaire. It will take approximately 20 minutes to complete.
To find the registration link just visit 'How to become a supplier' section on the www.ot.mn. The suppliers will then be part of our master supplier database, an important tool used by procurement staff to invite companies for potential bids. Companies registering as suppliers need to enter accurate information reading the questions carefully. If you have any questions relating to the registration, please ask us directly for advice.
How can suppliers participate in bids after the registration?
We find potential suppliers from the database of suppliers and invite them to bid. Our procurement team is required to invite a minimum of three national suppliers for bids. If there are not three national suppliers available, the tender needs to announced openly. Open tender is announced in order to find potential national suppliers from the market. Open tenders are publicised via our company website and daily newspapers. Some companies wishing to participate in the open bids do not fully understand the requirements for the tendering process. To help these companies we organise information sessions to provide detailed information about the process and requirements.
Does it mean that you only provide information on open tenders?
We try to provide as much detailed information as possible during these meetings. In addition to specific tender related information sessions, we organise regular sessions to provide general information on the Oyu Tolgoi procurement process to registered Oyu Tolgoi suppliers. So far, we have run 12 information sessions, a total of 492 business entrepreneurs participated in these meetings.
What is the tender evaluation process? Is it fair? What is the system?
Oyu Tolgoi LLC implements a world class, open, transparent, fair, competitive and efficient procurement processes. We contribute to the growth and competitiveness of national suppliers and we are committed to work as a reliable business partner. When we requisition products with appropriate management approval, a joint tender evaluation team consisting of the procurement team and the end user, develop the product/service requirements and evaluation criteria. Then potential businesses submit tender information. There is a mandatory procedure to invite no less than three national suppliers for to bid. To find these suppliers we use the supplier database. The tender proposals are collected and the tender appraisal team evaluates them, according to the pre-determined criteria and then offers their recommendation. Different levels of management, depending on the contract amount, approve the recommendation prepared by the tender evaluation team. These can include the manager of end user department, the Procurement Manager, the General Manager Procurement, the Procurement Vice President, the CEO and the Board.
It is a big responsibility to supply to a large scale international project. Suppliers need experience. Are there programmes to develop and train the suppliers ?
We are working to identify deficiencies and areas for improvement in our suppliers. In 2012, Oyu Tolgoi conducted a supplier qualification assessment of 318 suppliers who provide high risk and critical services. These suppliers were assessed across seven criteria including HSE, quality management, HR management, business ethics and corporate responsibility. As a result, gaps in business practices were identified and we tailored the necessary consultancy and training for the suppliers to help bring them up to Oyu Tolgoi standards. We also organised 70 information-training sessions in 2012 for low risk suppliers. A total of 1,434 suppliers and individuals participated in these training courses.
What does Oyu Tolgoi LLC expect to spend on purchasing products and services in 2013 ? Is there a plan of products and services you will buy?
Oyu Tolgoi LLC has set a target to purchase 50 per cent of its total spend from national suppliers in 2013. We have posted information on the categories of products and services on our website, along with information on open tenders and direct contacts for more detailed information. Generally, all procurement information can be obtained from the procurement section of the website. Suppliers should visit our website regularly for updated information.
So does it mean the remaining 50 per cent of the spend will go abroad?
No. As mentioned above, a national supplier is a legal entity, registered in Mongolia and more than 50 per cent owned by Mongolian citizens. There are three other supplier tiers:
International Tier 1 – this supplier has 50 per cent or less is owned by Mongolian citizens, they are registered and pay tax and are headquartered in Mongolia, they generate added value in Mongolia to the products and services that they provide with greater than 75 per cent Mongolian staff. We plan to spend 37 per cent of the total spend with International supplier Tier 1 classification suppliers.
International Tier 2 – this includes suppliers registered in Mongolia who pay tax in Mongolia.
International Tier 3 – this includes suppliers who do not qualify the above or the suppliers who directly supply from abroad.
Therefore, national and international suppliers Tier 1 and 2 are Mongolian legal entities operating in Mongolia and they pay tax in Mongolia. We plan to make 87 per cent of the total spend with these suppliers. To be specific, 50 per cent of the spend will be allocated to national companies while 37 per cent of spend will be allocated to foreign invested companies registered in Mongolia. As mentioned, all these targets, objectives and performances are posted on the website.
Are South Gobi suppliers included in the national supplier category? What is being done to support local suppliers?
South Gobi suppliers are national suppliers and must have the following characteristics:
- registered in the South Gobi aimag,
- produce or supply goods and services within the South Gobi aimag,
- more than 75 per cent per cent of employees are Mongolian nationals who live in the South Gobi aimag,
- headquarters or branch of the company is registered in South Gobi aimag.
In 2012 Oyu Tolgoi purchased 7.5 billion MNT of products and services from South Gobi suppliers. In 2013, we project to purchase 36.4 billion MNT of products and services from South Gobi suppliers.
In 2010, we established a Business Development Centre in Dalanzadgad, South Gobi aimag. The goal of the centre is to build the capacity of suppliers and enable them to develop their businesses. Our local supplier development team is engaged in strengthening and growing local businesses in Dalanzadgad and Khanbogd. They offer a variety of training courses on HSE, business management, quality management and technology. So far a total of 1,058 South Gobi suppliers have attended these trainings courses.
Is the training and consultancy service sufficient for the development of the South Gobi suppliers?
Oyu Tolgoi has implemented a micro-loan project for South Gobi suppliers, in cooperation with the Khan and Xac banks. This project enables suppliers to borrow up to 30 million MNT with a one per cent monthly interest rate. The loans are for business capital funding purposes, to help expand their business. Seventy South Gobi business entrepreneurs have borrowed 823,625,019 MNT from this fund.
How else is Oyu Tolgoi supporting national suppliers?
The mining sector is emerging rapidly in Mongolia and there are simply not enough businesses in Mongolia, especially in South Gobi region, to supply the mining sector with the products and services it needs. We have looked at the long term need and demands of the sector and launched our “targeted business development program” to encourage businesses, especially in South Gobi amaig, to start new businesses to address these supply opportunities. So far we have presented six business opportunities to the public including the supply of metal fabrications, radiator refurbishment, supply of limestone, tire management and general engineering supplies. As result, business from Khanbogd soum in the South Gobi have began to supply some of these products and services.
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