Guest Post: Label of Erdenet ‘Nationalization’ Misleading

By Marissa Smith

Many Fear Mongolian Government Decision Heralds Another Privatization, Securing of the Status Quo Possible

Last week during an extra session after the final day of its fall session, Mongolia’s Parliament voted that the state acquire the share of the Erdenet Mining Corporation held by the Mongolian Copper Corporation.  The share, 49% of the Erdenet Mining Corporation, had been sold by Russian State Corporation Rostec at the end of June. Investigations by the Parliament’s Standing Committee on Law as well as international journalists and scholars (The Diplomat, Mongolia Focus, Jargal DeFacto) allege that the Mongolian Copper Corporation is a shell company, its purchase of the 49% financed almost exclusively through the Trade and Development Bank, Mongolia’s oldest and one of its largest, most internationally-held private banks, as well as the state Bank of Mongolia, partly with Chinggis Bond revenues earmarked for development projects.

Bloomberg and the Associated Press have run headlines over stories about the action prominently featuring the label “nationalization”. However, while the Mongolian People’s Party, which took power after the sale and whose members are leading the charge to revoke it, may be often taken by foreign observers to be devotedly following the example of the Mongolian People’s Revolutionary Party that governed Mongolia during over six decades of state socialism, their members have long demonstrated their willingness to participate in privatization. A major reaction by the Mongolian public to the latest moves has been that the 49% has been taken away from the Mongolian Copper Corporation by the government in order that it be given to other businessmen and corporate actors, ones with ties to politicians (of both major parties) currently in power. That is, the government’s taking of the 49% from the Mongolian Copper Corporation is widely viewed as the opening move in another example of the kind of corruption they accused the June sale of (see Mendee J.’s comments), made while the sale was being contested in Parliament earlier on, and summary of Lhkagva E.’s interpretation and comments by Julian Dierkes about Mongolians’ suspicion of collusion across party lines. On Tuesday the Mongolian People’s Party said at a press conference that it is discussing forming an openly traded company though it is unclear as to whether this would include the 51% owned by the Mongolian state as well as the 49% ordered to be taken from the Mongolian Copper Corporation.

(“Who is going to take the milk of the spent old cow?”)

As President Elbegdorj noted in his address to Parliament (in which he urged the assembly to not approve the measure to take the 49% from Mongolian Copper Corporation, warning that such a move would deter foreign investment), the Erdenet Mining Corporation involves and directly benefits tens of thousands of Mongolians. As President Elbegdorj suggested, the loss of Mongolia’s “Milk Cow,” arguably the nation’s commodity most easily converted to cash, if the 49% were mismanaged would likely result in a political backlash. Erdenet has been the nation’s largest taxpayer and produces at least around half its copper concentrates. Elbegdorj noted plans for further development of Erdenet, including a long-proposed copper refining plant. The last serious such proposals at a national level have been to build the refinery at Sainshand, on the Trans-Mongolian Railroad, located between Erdenet and Oyu Tolgoi, a project now dormant.

The grades of copper sulphide ores in Erdenet’s forty-year-old open pit have sharply decreased as the mine has aged, though its oxide ores could be exploited with new processing plants.

Mongolia and Russia

The political situation is precarious. Mongolians are watching on-going Romanian anti-corruption protests much as they did in 1989 (media outlet Mongolia Live posted posted a statement of solidarity with Romanian protestors on February 1, saying that “corruption is extremely high in both countries”).

The matter of the Erdenet 49% remains mired in an ongoing crisis, in which the failure of public benefits to be realized by other operations, here the Oyu Tolgoi and Tavan Tolgoi mines in particular, has forced Erdenet, as the lone major functioning enterprise, into the spotlight, as also happened in the late 1980s and early 1990s.

Currently, Mongolians are waiting for response from Rostec and the Russian government. As Foreign Minister Munkh-Orgil visited Russia on a working visit February 13-14, Mongolian journalists and social media users were quick to note that the Erdenet matter was not discussed in press conferences, and the Mongolian Ministry of Foreign Affairs responded to inquiries that a meeting between Munkh-Orgil and Rostec CEO Sergei Chemezov had not been requested.  The text of a letter reportedly sent to Prime Minister J. Erdenebat from Chemezov and circulated among members of Parliament was printed by major news outlets news.mn and medee.mn, stating that reversing the sale would damage Mongolia and Russia’s reputations in the eyes of investors, and suggested that the matter be taken to an arbitration court in Singapore. If true, this text could be understood as a move to keep Russian-Mongolian relations in a holding pattern, as public discussions between Lavrov and Munkh-Orgil did, continuing to gesture towards the Shanghai Cooperation Organization, Eurasian Economic Union, and One Belt One Road’s China-Russia-Mongolia Economic Corridor as wellsprings of cooperative economic development. These have so far been unsuccessfully tapped, however, and Lavrov restated firm Russian opposition to a Chinese-backed dam project that has gotten the furthest of any of the OBOR projects in Mongolia. Munkh-Orgil will visit China February 19 to 20.

What can be expected to happen now with the 49%? And with Mongolia’s international and regional relationships? As emphasized on this blog and elsewhere Rostec demonstrated substantial desire to “cash in” the 49%. A possible scenario is that the Erdenet 49% be reprivatized to entities that will maintain the status quo (as also before Rostec acquired the 49% in 2007) in which Erdenet maintains Mongolian ties to Russian enterprises and involves social groups beyond the Ulaanbaatar-based elite (members of which have included many of the most adamant proponents of Erdenet’s privatization over the course of the last three decades), groups that are in comparison marginalized in Mongolian politics and business. The activity of these networks has long been demonstrated to have benefits for the nation as a whole.

There is some speculation that the sale and its illegalization are moves to force Russia’s hand to lend more aid to a Mongolia in deep crisis. (As a piece from Bloomberg’s editorial board stated three days ago, “the [Mongolian] government, along with a state-backed development bank, is on the hook for more than $1 billion in maturing bonds over the next year, starting with a $580 million payment due in March.” Currently, Erdenet constitutes a, if not the, major nexus of Russian-Mongolian relations in the form of important trading relationships between firms; for instance on February 2nd director of Russian manufacturer Uralmashzavod’s mining division named Erdenet as a major purchaser in an interview with leading Russian business journal Kommersant. In 2007, Erdenet joined other privatized Soviet enterprises when the 49% was taken into Russian state corporation Rostec, and thus was rearticulated with other such enterprises as well as the Russian state. It can easily be imagined that Russians as well as Mongolians are worried about the loss of tax revenue, business activity, and employment (not to mention the risks to the city built around the Erdenet mine, one of Mongolia’s only two second cities and a major infrastructure hub) were the Erdenet Mining Corporation to collapse. Furthermore, Cold War-era Mongolia expert Robert Rupen (in How Mongolia is Really Ruled: A Political History of the Mongolian People’s Republic, 1900-1978, Stanford:Hoover Institution Press: 1979, pg. 92) remarked as Erdenet was under construction that the gigantic mining operation (at the time, Asia’s largest open pit mine), city, and the road and railways connecting it to Ulaanbaatar and Irkutsk constitute a “defensive shield” for the section of the Trans-Siberian Railway that had to be built close to the Mongolian border in order to pass south of Lake Baikal.

About Marissa Smith

Marissa Smith obtained her PhD from Princeton University’s department of anthropology in 2015, after defending a dissertation about Erdenet and its position in local, national, regional, and international contexts. She currently teaches at De Anza College in Cupertino, California. 

Posted in Business, Corruption, Erdenet, Marissa Smith, Mining, Mining Governance, Policy | 17 Comments

Drop in 2016 Corruption Perception Index Score Not Very Meaningful

By Julian Dierkes

As readers of the blog know, I have developed an interest on Mongolia’s position on various global rankings over the years. I have written about indices in methodological terms as well as to try to understand Mongolia’s results. I have also become involved in formulating Mongolia’s scores for a number of indices myself.

Transparency International’s “Corruption Perception Index” (CPI) is one of the more important global indices. Not only does it have a long track record with a respected international non-governmental organization, but it is also an index that is used as a building block for many other indices, in part because corruption is difficult to measure, and there are not many alternatives to the CPI.

However, I’ve also been somewhat skeptical of the Mongolia scoring in the past and have written some notes about previous CPI rankings in 2012:

Mongolia in the 2016 CPI

Let’s look at what actually happened in Mongolia in the newest CPI that was released in January 2017:

2016 2015 2014 2013 2012
Rank 87 (of 176 countries included) 72 (176) 80 (175) 83 (177) 94 (174)
Score 38 (out of 100, higher = perceived to be less corrupt) 39 39 38 36

Before I get into methodology and an attempt to explain the change in score, it’s worth noting that the movement in rank (-15) is fairly substantial, while the score hasn’t changed much. The obvious interpretation of this year’s CPI is thus that not much has changed in Mongolia, but a number of other countries are perceived to be less corrupt.

Methodology and Meaning

Note that the CPI is fundamentally an aggregate score, i.e. it takes data from other rankings (that is interpreted to be related to corruption), standardizes that data on a 0-100 scale, adds it all together, and, presto!, a CPI score is born.

Transparency International does provide the xls sheets of data used in the calculation so that we have a look at the data included for Mongolia. Since the score changed from 2015 to 2016, let’s look at what was included with what score in those two years.

  WB CPIA WEF EOS Global Insight Country Risk BTI IMD World Competitiveness
2015 47 42 42 36 37
2016 47 38 47 35 35
WJP Rule of Law PRS Intl Country Risk EIU Country Rating Freedom House Nations in Transit
2015 35 31 38
2016 38 32 34 37

WB CPIA = World Bank Country Policy and Institutional Assessment
WEF EOS = World Economic Forum Executive Opinion Survey
Global Insight Country Risk = IHS Global Insight Country Risk
BTI = Bertelsmann Foundation Transformation Index
IMD World Competitiveness = IMD World Competitiveness Yearbook
Rule of Law = World Justice Project Rule of Law Index
PRS Intl Country Risk = PRS International Country Risk Guide
EIU Country Rating = Economist Intelligence Unit Country
Freedom House Nations in Transit

In comparing the two years, let’s first note the additional data point for 2016, i.e. the Freedom House Nations in Transit score. Then let’s also note that there are several, relatively small changes in a number of the other scores. Scores that went down: WEF EOS (-4), BTI (-1), IMD (-2), EIU (-4). Scores that went up: Global Insight (+5), Rule of Law (+3), PRS (+1). If these are added together we get a -2 overall movement. This is then reflected in a shift in the aggregate average of these scores of 38 for 2016 and of 38.5 for 2015 (rounded to 39). This makes it very clear that the score shift from 39 to 38 is NOT particularly meaningful. If any of the component scores had been just one lower in 2015, the score would have been 38 already.

Face Validity: What Happened in Mongolia in 2016?

With the conclusion that the change in the score is very slight only, there really isn’t that much of a point to a closer investigation of face validity in light of events in 2016.

Conclusion

What global indices can do is provide a benchmarking against other countries and a rough tracing of longer-term trends.

The 2016 CPI is another example of a year-on-year change in score that will likely be reported (I tweeted about it myself), but that should probably be ignored as it does not seem to be substantively meaningful.

Posted in Corruption, Global Indices | Tagged | Leave a comment

International Relations in the Trump Era

By Julian Dierkes

As someone who thinks and writes about political risk regarding Mongolia, my focus is on domestic politics more than on international relations. Yet, with Donald Trump becoming U.S.-president, I have to add a fairly random element to any risk assessment that acknowledges the utter unpredictability of the new president and thus the chance that he might make statements that have a pointed impact on Mongolia’s international relations, whether or not those statements are then backed up by any action.

Pressing Challenges

Mongolian foreign policy is built on two pillars:

  • positive relations with both geographical neighbours, Russia and China
  • ever-closer links with “Third Neighbours” as deepening relations with countries beyond the immediate neighbours, and also as a safeguard against either of these two neighbours becoming more than overbearing

These pillars have been in place more or less since the early/mid-1990s and generally go unchallenged by Mongolian parties and commentators. Even President Elbegdorj’ somewhat hasty Sept 2015 proposal of “permanent neutrality” was couched in terms of this foreign policy.

While little has changed about Mongolia’s outlook, its neighbourhood has shifted.

Russia has become significantly weaker vis-a-vis China since its isolation as a consequence of the annexation of the Crimea in 2014. Left without allies or business partners in Europe, Pres. Putin turned to China, but more as a supplicant than a partner. Given only rare moments that the Russian government has shown active interest in Mongolia (uranium resources, gasoline sales and distribution), this has meant that China has become a somewhat dominant player in this trilateral relationship. At some pushy times, this has taken on the form of a “Pu(tin)-Xi-Pincer”. Yet, even with Mongolian concessions in the recent spat over the visit of His Holiness the Dalai Lama, this pincer has not been very noticeable in international relations. The strongest indication of any change would be if Mongolia finally agreed to join either the Shanghai Cooperation Organization (as desired by China), or the Eurasian Economic Union (as desired by Russia).

Some third neighbours’ interest in Mongolia has declined noticeably in parallel with world commodity prices and those partners’ interest in the mining sector. That would be true – sadly for me personally – of Canada to some extent, but also of Australia.

U.S. Relations

Over the past 25 years, Mongolia’s relations with the U.S. have been characterized by a steady undertone of benign neglect with occasional and some sustained flurries of greater attention. I’m sure that many of those involved in the bilateral relationship (particularly, diplomats on both sides) would disagree with that assessment as perhaps a bit unkind, but I think it summarizes the relationship.

The two visits by then-Secretary of State James Baker in 1990 and 1991 were probably the high point of the (re-)establishment of relations with democratic Mongolia. Mongolia’s decision to participate in George W Bush’s “Coalition of the Willing” was certainly the impetus for the closest relations Mongolia has had with any president, including Pres. Bush’s visit in Mongolia in November 2005. Ultimately, this also led to the attention to Mongolia by the Millennium Challenge Corporation.

During President Barack Obama’s terms, relations have gone somewhat dormant again, though Secretary of State Hillary Clinton visited in July 2011, and Vice-President Joe Biden shortly thereafter, in August 2011.

Possibilities

Others will be much more qualified to offer interpretations or predictions on Trump’s foreign policy. In the context of Mongolia, suffice it to say that Trump is a) personally unpredictable, and b) not wedded to conventional wisdom on U.S. foreign policy, making him even more unpredictable. While his foreign policy team is somewhat more predictable, we will not known until some time into the Trump presidency, how actively involved in foreign policy he will be (when it is not also domestic policy), or how disagreements between him and his advisors/cabinet or congress will play out. Note that for Mongolia’s foreign policy, this is a new context, i.e. when the foreign policy of one of the reference points for Mongolian policy, the U.S., becomes significantly unpredictable, and possibly random.

Random interest in Mongolia

Over the course of the Trump presidency there is some non-zero chance then, that Mongolia will catch the president’s eye. There are some aspects of the situation that Mongolia finds itself in that make this a possibility, though I would not speculate on the degree of likelihood for lack of a deeper understanding of Trumpian foreign policy. In all likelihood, Trump would notice that Mongolia exists in the context of a confrontation with China, Russia, or North Korea, be that a purely verbal, possibly even digital exchange, or something more serious than that.

In any kind of confrontation with or harder line against Russia or China, Mongolia stands to gain attention by presenting itself as a down-trodden small, but democratic neighbour of either of these giants.

Confrontation with Russia

Trump’s relationship with Russia has dominated some of the attention in the transition period. Again, I have no insights on that, but it is clear that this relationship is complicated and volatile.

If at some point Pres. Trump takes a hard(er) line of some kind against Russia, Mongolia could certainly present itself as potentially victimized by Russian bullying. In that case, one might imagine that a Trump confronting Russia could become interested in Mongolia and back up assurances with greater attention or other means.

Confrontation with China

Confrontations, rhetorical and possibly more, with China seem very likely under Trump. Here, again, Mongolia could easily portray itself as a (potential) victim of a China that was attempting to gain regional power and establish something like a “sphere of influence”. Unlike the Russian leadership who would probably only be mildly bothered by Trump cozying up to Mongolia, the Chinese leadership might actually react to such cozying up. That in turn makes closer links with Mongolia potentially attractive to a Trump who might look for ways to needle/bully the Chinese leadership. But obviously, there are great risks associated with such a strategy given the degree of dependency on China of the Mongolian economy. Yes, U.S. attention is a good thing, probably, but not at the expense of losing the single greatest and really only viable large customer for Mongolian resource exports.

So, there’s an element of “be careful what you wish for” in U.S. attention in the context of the China relationship.

Confrontation with North Korea

The DPRK is obviously already a somewhat random element in Northeast Asian international relations, but what if Trump suddenly becomes active on this issue, for example by abandoning the Six Party Talks entirely or by deciding to call Pyongyang’s bluff on some particular issue.

If there is a confrontation that even hints at a military confrontation, Mongolia’s position as a potential mediator becomes much more important, esp. if Trump has a largely adversarial relationship with the Chinese leadership. Given continued close and somewhat cordial relations between Mongolia and North Korea, the long-standing offer of hosting talks or playing some other kind of mediating role might become that much more important to the U.S. (and Asia, and the world) in case of any kind of violent confrontation.

Whither Mongolian Foreign Policy?

If there is some possibility of direct engagement of Trump on Mongolia matters, how should Mongolian foreign policy prepare for that moment?

Obviously, an awareness of the possibility of any direct engagement is important. With that awareness should come some scenarios of how such engagement might play out in the context of U.S. confrontations with any countries in Asia, but especially in the three relations mentioned above. One obvious choice if scenarios of confrontation have any degree of likelihood of coming about (this will change over the course of the Trump presidency, presumably) is to intensify engagement with Third Neighbours other than the U.S. The EU as a whole (even without the UK) has a different relationship with China and Russia than the U.S., for example. Germany in particular, as one of Mongolia’s closest links to Europe has a very different relationship with both of Mongolia’s neighbours, especially under Chancellor Merkel.

Attempts to reduce the dependency of the Mongolian economy on China should continue regardless of the U.S., but what if a U.S.-China confrontations vis Mongolia (admittedly a somewhat far-fetched scenario) leads to some kind of closing of the border to China? That leaves Mongolia virtually isolated, especially if relations with Russia were to sour at the same time. Here, only Europe can provide much of an answer, and possibly Turkey via its engagement in Central Asia.

Democracy

Under Pres. Elbegdorj, Mongolia has placed a lot of emphasis on democracy as a platform for greater international visibility. Trump has not indicated any particular interest in the spread of democracy, though it could be assumed that the Republican leadership would be more committed to that.

I am a particular fan of Mongolian efforts to establish itself as an actor in democratization efforts, particularly via its International Cooperation Fund that targets Asian countries like the Kyrgyz Republic and Myanmar in supporting their democratization efforts. It is difficult to imagine that these efforts would harm Mongolia under any of the confrontation scenarios even though China, Russia, and North Korea will not be particularly charmed by such efforts.

Impact of Mongolian Presidential Election

As I am speculating about the impact of a new president in the U.S. on Mongolia’s foreign policy, I would be remiss not to also think about the Mongolian presidential election. A good part of Mongolia’s outsized international visibility relative to its geopolotical and economic success has been due to Pres. Elbegdorj’ efforts, however (in)credible they may seem on democratization in a domestic Mongolian context. A President M Enkhbold would inherit some of that international visibility, but would likely struggle to enhance or even maintain this. There’s little in the MPP’s history that says democracy (other than the peaceful relinquishing of power in 1990), and Enkhbold’s personality does not seem particular well-suited to international schmoozing. Yes, he would try to attend Davos every year as Elebgdorj has for seven years now, but would he make an impression? The same holds for any other MPP candidates that might be on the horizon should Enkhbold choose not to seek the presidency.

And the DP? Lu Bold as a president might have a good chance at making an impression on Trump given his own wealth and business background. He also has experience in international settings as a former foreign minister, but a democracy claim would not be obvious for him. Some kind of reform candidate, that is a younger DP representative, might have a better chance in this regard.

Posted in China, Foreign Policy, International Relations, Mongolia and ..., Nationalism, North Korea, Presidential 2017, Russia, UN, United States | Tagged | 1 Comment

Thoughts and Comments on Organic Mongolia

By Julian Dierkes

Early in December a bit of inspiration struck after I had read an ADB blog post and received a lot of responses to a tweet about that post. I wondered aloud whether it would be possible for Mongolia to go entirely organic.

I received a lot of tweeted, emailed, commented, mentioned-in-conversation replies to that idea and want to offer these here as well. Obviously, I was just presenting an idea and I wasn’t making a specific proposal, in part because I don’t know very much about Monglian agriculture. My conclusion from these comments is, however, that the idea is a bit radical, maybe even crazy, but that it might be worth thinking about further.

Just to recap: my idea was that since organic agriculture (plants and meat) seems to offer significant high-value export opportunities, why not pursue all-of-country certification for organic produce, i.e. for all agricultural products to be organic?

A number of comments seemed to like the idea, but there were also serious doubts expressed.

How organic is agricultural production now?

One of the premises of my idea was that much of Mongolian agricultural production currently is organic. I therefore imagined that some of the obstacles to organic production in the objections of existing producers might be less strong in the Mongolian context.

It may not be the case that agricultural production is as organic as I imagine. Some comments mentioned that there are examples of farming and animal husbandry practices (particularly around veterinary diseases) that will not stand up to organic certification.

Animal health

The health of Mongolian animals  may be a particular concern in this regard. Yes, for some significant portion of the national herd, animals may be raised in a very organic fashion, foregoing vaccinations and other veterinray intervention, for example, but that also means that animal diseases are fairly widespread. There is a careful balance to be struck between organic practices and health issues, particularly in industrial production and certification.

Certification

The cost and organizational effort tied to organic certification are significant. This has been an obstacle to the pursuit of producer-certification in the past.

In part, my idea hopes to side-step this issue by finding some way to actually certify all Mongolian products. Current certification won’t allow for that, I don’t think, so some creative solutions would be needed  here either in collaborating with certification agents, or in creating a for-Mongolia certification. The various standards that are employed by existing certification schemes are knowable, so they could be compared to come with standards of particular relevance to Mongolia. If those were made known in a transparent manner and enforced with credibility, a Mongolia-only certification could be a solution, I imagine. If such a route was successful, it could even be explored with other countries that could consider a similar switch, perhaps even through the Ministry of Foreign Affairs International Cooperation Fund, Mongolia’s foreign aid program.

Obviously, the proliferation of organic standards is not particularly desirable as it confuses consumers, but if other avenues are not feasible for Mongolia, this should be considered.

Enforcement

But, how to enforce a nation-wide organic agriculture?

The simplest solution would be a ban on imports of relevant chemicals. An example of this is the ban on mercury. But, that is also an example of an ineffective ban as all observers agree that mercury is used extensively in mining, small and medium scale.

Also, as my former PhD student Bern Haggerty pointed out, would a fertilizer ban get by the WTO, for example?

But, if there wasn’t an import & production ban, how could nation-wide certification work? And, how could imports be prevented, really?

This seems to be an objection that is both fundamental and practical. I don’t quite see how to get around that easily, but others may have ideas/experience from other policy arenas.

General Pessimism

A number of replies also focused on “nice idea, but it’ll never happen”. We know that the Mongolian state and politicians seem to be particularly challenged by implementing plans and laws that have been developed. There have been a number of past efforts at branding Mongolian products and Mongolia that have not gone anywhere, so why would an all-country organic certification?

I share the pessimism and readily suggested that the idea was a bit crazy. At the same time, the craziness might be just right to make this sort of thing work.

More Comments, Please!

I’m not about to submit a formal proposal to parliament or for funding to support an all-country organic branding, but I’d still be curious to hear more comments. And maybe, some day, something will come of this idea…

Сайхан хооллоорой!

Posted in Countryside, Development, Environment, Grassland, Infrastructure, Policy, Public Policy, Regulation, Tourism | Tagged | 3 Comments

Blogging in 2016

By Julian Dierkes

In the sixth calendar year of the existence of this blog, we were once again very happy to find a significant number of readers. In the course of the year, we wrote 68 new posts.

Highlights of Google Analytics data of our readership for calendar 2016:

Comparing to 2015

If we compare to 2015, our readership has remained roughly stable, though this year’s readers read more posts.

There were more Chinese readers this year.

Social media referrals are up.

 

Posted in Social Media | Tagged | Leave a comment

Bullied by China over Visit by the Dalai Lama

By Julian Dierkes

[With thanks to Bulgan B for her help in understanding the interview and subsequent statements.]

Late in November, His Holiness the Dalai Lama visited Mongolia. This was the first visit since 2011. Previous visits occurred in 2006 and 2002. Each time, the Chinese government predictably slipped into its petulant child role and protested loudly, going as far as blocking the Transsiberian Railroad for a brief period in 2002. As before, this was not an official visit, but rather a private one. The only government role thus comes in the granting of a visa.

Chinese Reaction

As before, the Chinese government threw a fit, leading to the raising of some fees at border crossings. But this time, the reaction in the background must have either been more severe, or Mongolia’s economic dependency in the midst of a public debt crisis is so extreme, that the Chinese government could easily bully the Mongolian government into caving only two weeks or so after the Chinese government first objected to the visit and continued to complain through editorials, etc. (which I will not dignify by adding links here), lecturing Mongolia on “core interests” and the other usual terminology characteristic of all Chinese reactions to the Dalai Lama.

A Foreign Policy Test for MPP Government

This was the first real foreign policy test for the new MPP government and it does not bode well for the future.

Of course, it’s not really the Erdenebat’s government’s fault that it has found itself in such a debt crisis (though the MPP’s objections in 2012 were muted enough to say that it was complicit in the taking on of this debt). The challenge is that the first part of the Chinggis Bond is due on March 21, 2017 and all attention (ratings agencies, creditors, investors, the IMF) is focused on this date and the question whether Mongolia will default on debt or not.

The expectation had been that the Chinese government would step in with short-term financing that would bridge some of the immediate financial needs. Of course, this option is entirely unattractive, as it will only deepen Mongolia’s dependence on the Chinese economy as well as on the Chinese government, but few alternatives are in sight, even with IMF discussions under way and the Prime Minister currently making the rounds in potential other creditor countries like Japan, South Korea, etc.

It’s in this troubled financial situation that the Dalai Lama visit has created some foreign policy havoc for the Mongolian government and Foreign Minister Ts Munkh-Orgil.

A Change in Policy?

An interview with FM Munkh-Orgil appeared in Mongolian newspaper Unuudur on Dec 20. No official statement has appeared since then (as of Dec 22) to clarify or (dis)confirm what FM Munkh-Orgil said in this interview, but the gist of it was interpreted by Chinese and other foreign media. For example, on Dec 21, Xinhua, the Chinese press agency released a summary of the FM Munkh-Orgil interview. This then seems to have lead to something that looks like a Mongolian version of this statement, released by Mongolian official press agency, Montsame. In the interview, FM Munkh-Orgil may or may not imply any real change in policy.

Here is the English version:

Mongolian Foreign Minister Tsend Munkh-Orgil said Tuesday Mongolia will not allow the Dalai Lama to visit the country.

The foreign minister said Dalai’s visit to Mongolia will not be allowed by the government in the future, even under the name of religion, according to a report in Today, a leading Mongolian newspaper.

[…]

Munkh-Orgil expressed regret over the visit’s negative impact on China-Mongolia relations.

Some Questions

Future Visits

Did FM Munkh-Orgil suggest that the Dalai Lama will “never visit Mongolia again” or that he will not visit on government invitation? The recent visit was not an official one, so there would be no change in policy if the statement implied no Dalai Lama visit on an official invitation. Offering that the Dalai Lama will not be invited by the government is nothing new at all.

However, FM Munkh-Orgil also seems to suggest that another even non-official visit by the Dalai Lama would not happen under the current government.

The qualification “under the current government” makes this a shift rather than a real change in policy, I would suggest. This is especially the case, since previous visits have come on roughly five-year intervals (2002, 2006, 2011, 2016), so it would be unlikely that the Dalai Lama would come again during the current MPP government, i.e. before 2020.

If, however, FM Munkh-Orgil’s statement were taken more literally that the Dalai Lama will not (be able to) visit Mongolia again, it would be a shift in policy that many Mongolians would object to.

Of course, the installation of the 10th Jebtsundamba Khutuktu has been discussed previously as an occasion that the Dalai Lama would attend and there had been speculation that this would happen during the recent visit. In the interview, FM Munkh-Orgil emphasized the separation of state and religion and that such questions would best be addressed at Gandan Monastery officials.

Regret?

The nature of the regret that FM Munkh-Orgil expressed is still a little unclear (to me). Is this the kind of regret that says, “too bad this happened”, or an actual apology? Obviously, NE Asia has many examples of years of diplomacy wrapped around seemingly simple statements of regret (usually by Japanese officials), so perhaps it’s better not to read too much into FM Munkh-Orgil’s statement here, but still, it seems a bit odd to make statements of regret and what seems like a shift in policy in a newspaper interview. Was this a response to a direct Chinese request? Or, was the bullying by the Chinese government more “subtle” and FM Munkh-Orgil or the MPP decided to be “proactive” in responding to this bullying?

Implications

No word yet (Dec 22) on China switching from sticks to carrot in its response, i.e. stepping in with bridge loan on bond repayment. Whether or not that happens, this brief diplomatic spat/crisis may turn out to be a sign of things to come for Mongolian foreign policy in an ever-more-dependent-on-China situation.

Posted in China, Dalai Lama, Foreign Policy, Religion | Tagged | 1 Comment

What if Mongolia Went All-Organic?

By Julian Dierkes

I recently re-tweeted an ADB tweet about one of their blog posts, “The Foreseeable Future of Mongolia’s Agriculture

My RT proved surprisingly popular and ended up with over 20 RTs and over 3,500 impressions (yes, I watch these Twitter stats!). It clearly resonated. The post was generally very good, but as you can see in my tweet, I find the potential of high-value exports to China, Japan and Korea particularly interesting given the organic quality of Mongolian meat, especially.

Among the reactions to my RT were those pointing out some of the challenges in setting up such high-value exports. For example,

Country-Wide Certification

This question gets raised regularly and there have been a number of attempts at certification and establishing product chains to benefit from the quality of Mongolian produce. Generally, such attempts as well as branding attempts have faltered and thus leaves many people skeptical.

Would it be possible to consider all-of-Mongolia certification as an alternative?

Rather than certify individual producting sites, why not go all-pesticide(and other nasty things)-free for all of Mongolia?

Has anyone considered this?

Obviously, going all organic would be a challenge to some producers, but it would not be a challenge at all to others. Most mobile pastoralists who are raising animals are probably doing so in organic fashion already. Grasslands (given prevailing wind patterns, etc.) should be certifiably organic.

The question then might be that if industrial production can be set up (that’s a topic that E Enerelt’s blog post focusses on), would that automatically imply a shift to more intensive production, presumably raising the possibility of hormones, antibiotics, etc.

The constraints that have kept Mongolia from realizing its meat export potential include low technological and production capacity, logistics limitations, few meat plants, quotas, and phytosanitary barriers. Existing processing plants require substantive upgrading to improve production capacity and meet quality and sanitary requirements. Due to poorly developed logistics and trade procedures, the costs of trading across borders are considerable.

If any of these obstacles can be overcome without introducing chemicals, etc. would that not be an innovation that would be worth considering?

Some elements of Mongolian agricultural production are so recent (or are getting re-established recently) that they should be able to adjust more easily to a different production paradigm, organic.

Other Possibilities

Organic certification would be quite natural for a number of Mongolian agricultural products, especially meat.

But sea buckthorn (чацаргана) is also produced organically, I would guess, as is honey or pine nuts.

Gobi Cashmere is already promoting their organic line, so the label seems to be meaningful in the cashmere context as well. The same logic would hold for some of the Mongolian skincare/beauty product brands that are establishing themselves.

I don’t know if ingredients for Chinggis Beer are sourced locally, but if they are, their lager could be “organic lager”.

All-country organic certification would make marketing simpler as it could simply advertise all Mongolian agricultural production as organic, possibly raising the possibility of buy-in from a variety of producers (and perhaps donors).

Finally, any marketing of all Mongolian agricultural products as organic would reinforce the kind of eco-tourism that is regularly touted as a diversification possibility for the Mongolian economy.

Crazy idea? Been done before? Comments, please!

Posted in Cashmere, Countryside, Development, Environment, Grassland, Infrastructure, Policy, Policy, Public Policy, Regulation, Tourism | Tagged | 4 Comments

Impacts of International Exchanges

By Julian Dierkes

[With thanks to CIRDI’s Marie-Luise Ermisch for contributing some of these.]

During the first workshop we co-organized with the Mongolian Ministry of Foreign Affairs’ International Cooperation Fund, a number of impacts arose in an incidental manner, but bolstered my belief in the utility of providing a forum for exchange between actors in emerging resource economies.

Here, I list some unintended impacts of the second workshop  held in Bishkek in early November.

Some of these are professional impacts, some of them a bit more personal or curious.

Mongolia-Kyrgyzstan Links

At the workshop we co-organized in Bishkek, one of the most concrete impacts right then/right there was that the Mongolian Mining Association and the Kyrgyz Mining Association signed an MOU to collaborate and exchange experiences.

Another very palatable impact was fellow blogger Mendee‘s joy at discovering a bit of Central Asia. It was very interesting to observe him speak Russian with Kyrgyz who were clearly puzzled, but to whom he immediately explained that he was Mongolian, a fact that was not obvious to them by his facial features, dress or mannerisms. And, Mendee felt quite at home in Bishkek, it reminded him of Ulaanbaatar in the 1980s!

Exchange between National Resource Companies

At the workshop, we were very pleased to have delegations from Timor Leste and Myanmar participating along with a group from Mongolia and many Kyrgyz participants, obviously.

As Myanmar and even more Timor Leste are much more focused on the oil and gas sector, the question of exchanges between national oil companies arose and came along the observation that there are relatively few points of interaction between national companies, even of emerging oil economies. When these are looking to expand/invest should they not follow their expertise and look for projects in other emerging economies?

Mongolian Public Servants’ Health

Following our workshop, we had a chance to visit the Kumtor gold mine. As the mine is located at 4,000+m, we had to undergo several health checks that were primarily concerned with blood pressure.

Curiously, all the male members of our delegation from the Mongolian Ministry of Mining were unable to participate in the site visit due to elevated blood pressure levels. Perhaps enough of a reason for the Ministry to examine its health policies or the health of its public servants more closely?

The Mongolian delegation bought a significant amount of fruit before their departure. We are pretty confident that vitamin C levels among the delegates and their families spiked in mid-November, hopefully promoting good health outcomes.

Language Skills in Hotel Staff

Some of the young receptionists and waiters at the hotel we stayed were thrilled to have an opportunity to practice their German. I am always happy to indulge German practice, so perhaps language skills were slightly elevated by the time we left.

Overall, I was very surprised to bump into real German skills at several moments. This is something that I delight in during Mongolia travel, but I didn’t know it was prevalent in Central Asia, or at least Kyrgyzstan as well.

Canada’s Reputation

Central Asia seems to be a bit off the map for Global Affairs Canada (despite the very competent and energetic work done by the Canadian embassy in Astana). Given the somewhat troubled history of the Canadian Kumtor investment, perhaps our workshop left a positive impression of Canadian initiatives.

Posted in CIRDI, Development, International Agreements, Kyrgyz Republic, Mining Governance | Tagged | Leave a comment

More on Re-Forming the DP

By Julian Dierkes

I recently started thinking about the future of the DP within Mongolian democracy. In that first post, I wrote about DP party unity and a rejuvenation of DP leaders. I want to continue that consideration here, particularly since the DP will be meeting in its party congress later in December.

3. Democratization Agenda?

One area where DP rhetoric has matched actions is on democratization. The DP very credibly stands for democratization given its history and its leaders’ history of involvement in the democratic revolution.

Pres. Elbegdorj personally emphasizes this democratization legacy at all opportunities, certainly in interactions with international audiences.

But, during his presidency, he has also made some credible efforts at building more democratic institutions that involve more Mongolians. The best example (though any sense of their longterm impact is too early still) are the Peoples’ Halls that have been crated at the local level to support democratic deliberations.

As these halls have been charged with hosting discussions of the Local Development Fund, they have been given real tasks that are of some significant relevance to local interests. The current budget situation may curtail the amount of funding that will be dispersed through the Local Development Fund and local corruption or lack of organization might limit the impact of deliberations in the peoples’ halls, but this has been a very tangible effort at further democratization.

If the DP wants to continue to trade on democratization as one of its strengths, some discussion will be needed as to what that might look like. Is continued decentralization of decision-making the direction that the DP would want to take Mongolia in, along with its implication of a move away from a unitary nation state to something that looks more federal?

4. Policy Platform?

In parliament, the DP has four long years ahead of itself as a small opposition party. Any legislative initiatives will likely be rejected by the MPP that can do so easily, given its 65/79 seat majority. It seems that while the DP might not have access to resources because of its electoral defeat, this would be the ideal time to build competency in policy fields that are of particular importance.

If some kind of rejuvenation of the DP leadership happens (yes, a big IF, see discussion in the previous post), the party should be able to enter the 2020 parliamentary election with an actual platform rather than merely a slate of candidates.

There is no shortage of issues where the DP could develop real competence as they are pressing and few solutions have been proposed in the past. From Ulaanbaatar air pollution, to serious attempts to address social inequality or to implement the UN Sustainable Development Goals, 3 1/2 years in opposition remaining leaves lots of time for discussions within the party and a reorientation toward particular policies.

5. Corruption?

Corruption remains endemic to Mongolia and to Mongolian politics. It is a massive drain on individual and collective opportunities for Mongolians.

At some point, I think, Mongolia’s democracy will give rise to a popular movement against corruption that will either start a new party or will be absorbed into existing parties. For existing parties, including the DP, that will mean that at some point, the party might be swept away by a popular movement if it doesn’t manage to credibly join that anti-corruption movement. But with the current strong representation of business interests and the apparent desire of DP politicians to think of public office as an earnings opportunity for themselves and their associated (no different from other parties in that regard), it seems unlikely that the party will actually address this issue.

If there was a genuine anti-corruption effort, it would have to start from the top, address the presence of business interests, and acknowledge that parties and governments have to be models for everyone else in this regard.

What Else?

Lots of topics I’ve left out: diversification, environment, debt, inequality, constitutional reform, etc. But those are specific policy-areas where the DP could develop competency and answers, not questions that need to be answered in terms of the party’s future, I think.

Posted in Corruption, Democracy, Democratic Party, Ikh Khural 2016, Politics, Presidential 2017, Public Policy, Public Service | Tagged | Leave a comment

Kyrgyzstan: An Excursion

By Julian Dierkes

I have been traveling very regularly to Mongolia for over 10 years now. At the same time, I also spend a lot of time in Japan and in Europe, but it is easy to disassociate those latter trips from Mongolia because differences in developmental stage, etc. are so blatant.

But two years ago, I visited Myanmar and couldn’t help but make constant comparisons to Mongolia. In Myanmar, this was more of a question of politics and democratization, and of mining and mining policy. These comparisons culminated in an article in the  Nov 23 2014 UB Post: “An Open Letter to Mongolian Political Leadership”, where I concluded that “achieving a prosperous, healthy, democratic and stable Mongolia should be so easy!” Well, it should!

Recently, I visited Kyrgyzstan and thus for the very first time, Central Asia. Here heritage, developmental stage, a focus on mining, cultural similarities, and familiar landscapes make the comparison with Mongolia even more natural.

Standing at Petrov Lake, fed by Petrov Glacier, which supplies water to Kumtor gold mine.

A photo posted by Julian Dierkes (@jbdierkes) on

Here are some impressionistic observations about Kyrgyzstan then:

Bishkek vs. Ulaanbaatar

Both cities have obvious features that mark them as state-socialist creations. Some grand(iose) avenues, wide open, empty squares, monuments with some remaining hints at Soviet iconography. Apartments are of a similar vintage and some of them share similarities in dilapidated looks.

But, there are some very clear differences.

The cityscape of Bishkek includes many, many trees. Even though the weather swings from 22C to near freezing in just a day, the trees still have their leaves, even at the beginning of November. Throughout the centre of the city, there are also several parks.

The Osh Bazaar in Bishkek feels signifincantly safer than the Narantuul or other markets in Ulaanbaatar. It also offers a much greater variety of foodstuffs, including numerous stands with a wide selection of apples, vegetables, spices, dried apricots and nuts, etc.

Bishkek also feels somewhat more diverse than Ulaanbaatar. Not only is it obviously bilingual (Russian and Kyrgyz), but there is a greater varieties of ethnicities and costume, at least to my eye.

Kyrgyz Driving

Yes, Kyrgyz, just like Mongolians drive like they ride horses, i.e. recklessly and with little regard for lanes, directions or others. Well, that’s putting it a bit too starkly, but still. Bishkek seems a bit more orderly at times, but then drivers seem just as prone to spontaneously adding lanes of traffic as Mongolians are, or at least used to be. In the countryside the passing maneuvers are definitely reckless.

But, the selection of cars is entirely different and in an interesting way suggesting that geography matters. Mongolia is dominated by used cars sourced from Japan and South Korea. While the Hyundai Accent used to be most common, there is now a greater variety of cars with a surprisingly large number of Prius in the mix. In Kyrgyzstan, I see a surprising number of cars from Germany. The 1980s Audi 100 seems extremely common, with a jacked-up suspension for more road clearance, and VW sedans and buses are also common. There is a also a good number of 3-generations-ago Mercedes E-types. Remaining stickers on the cars suggest that they’re actually German. All the mini buses are Mercedes transporters.

The license plates have followed the European example of placing a flag in the left edge of the plate (unlike Russian tags that have the flag on the right). Europe is the first place I saw this with an EU flag with a country code printed on it that replaced the used-to-be-ubiquitous D or F or S stickers for Germany, France, or Sweden, respectively. Mongolia has adopted these as well.

Like many European countries (but also Mongolia and Japan, for example) the license plates also vary by province of issuance, Bishkek is thus dominated (along with Berlin) by B tags. This system is currently being replaced with a number code for the province of issuance like France or Russia, where Bishkek is 01.

Cuisine

My very brief impression of Kyrgyz cuisine was very favourable. Food can be delicious in the Mongolian countryside, primarily due to the freshness and quality of meat and dairy ingredients. But by contrast, Kyrgyz food seemed much more varied with stronger regional (Russian, but also other Central Asian) influences and a much greater variety and use of spices.

Everything seems to be available at the market in #Bishkek: fruit & veg, breads, clothing, meat, honey…

A photo posted by Julian Dierkes (@jbdierkes) on

The fruit and vegetable selection at the bazaar was quite impressive. The dried apricots, in particular, were delicious. I ate some very nice soups. Alcohol drinking seemed a little bit more restraint and was certainly not very visible in restaurants.

Countryside

During the time in Kyrgyzstan we had an opportunity to visit the Kumtor Gold mine. It is owned and operated by Canadian Centerra Gold, also involved in the Boroo and Gatsuurt deposits in Selenge.

To reach the mine, we drove for four hours across the Kyrgyz countryside from Bishkek and along Issyk-Kul, the very large lake in the Northeast of Kyrgyzstan.

Coming down the mountain, looking across #IssykKul at mountain panorama on the lake’s North shore. #Kyrgyzstan

A photo posted by Julian Dierkes (@jbdierkes) on

The drive across the countryside was very different from a similar drive in Mongolia.

At least along this route, Kyrgyzstan is clearly more densely populated than Mongolia. Kyrgyz population density is just under 30/km2 while this figure is closer to 2/km2. This difference shows!

While it is surprising that there is always some human dwelling within sight in Mongolia (partly due to the openness of most of the landscape, but also due to the dispersal of population across most of the territory of Mongolia), in Kyrgyzstan there always seems to be a human settlement in sight with many small towns appearing along the road, and additional dwellings in between these towns.

On the whole drive, we did not see a single ger. We did see a lot of animals, however, mostly cattle, horses and sheep, but very few goats or yaks and only two camels. Because there are many apple and apricot orchards, there are also fences in this part of Kyrgyzstan, unlike most of Mongolia. The road got pretty crowded at dusk when many people were herding animals back to villages and used the road as a transit corridor, it seemed.

Islam is more visible in the countryside than in Bishkek as most small towns seem to have a mosque and a cemetery.

Posted in Curios, Kyrgyz Republic | Tagged | Leave a comment

Early Presidential Election Speculation

By Julian Dierkes

Nearly half a year after the parliamentary election, some discussions are turning to the presidential election in late June 2017.

One of the aspects that will make this election interesting is that incumbent Pres. Elbegdorj has served two terms as president, preventing him from running for re-election. The field is thus open for new candidates, at least in principle.

Recall that only parties represented in the State Great Khural can nominate candidates for president who then have to resign their party membership and any offices.

The parties that were elected to parliament in June are the Mongolian People’s Party (MPP), the Democratic Party (DP), and the Mongolian People’s Revolutionary Party (MPRP). All three are likely to nominate a candidate, so we’re likely to see a three-way race.

Also recall that the president is elected directly. If s/he secures more than 50% of the vote, s/he is elected. If no candidate gains more than 50%, a run-off will have to be held, though that has not happened in Mongolia.

Will He, or Will He Not Run: M Enkhbold

Given the landslide election victory the MPP won in June, it would have seemed that M Enkhbold as party leader is in full control of the party and is making his own political destiny.

When J Erdenebat was elected prime minister in the UIX with M Enkhbold taking the chairman role in parliament, that seemed to indicate that he was trying to stay out of the day-to-day politics of the executive in preparation for a nomination as the MPP’s presidential candidate. This seemed particularly plausible since the MPP government is so constrained by the budget situation that it is unlikely to be able to point to any achievements by next summer.

That is not to say that M is unopposed in the MPP. He’s long had a rivalry with U Khurelsukh. But since parliament has started meeting, Nyamdorj Ts has become very active and vocal, particularly around the hearings regarding the “privatization” of Erdenet. Either of these two rivals could also stand in as a presidential candidate.

Why would M forego the opportunity to run for president?

He might be worried about not winning. I don’t have the sense that M is particularly popular, nor is he charismatic. Will voters have second thoughts about handing the MPP a super-majority in parliament? Will they thus prefer a DP president as a check on parliament? That calculation will surely depend very much on whom the DP nominates. The DP party congress on December 6 might give some hints on that, but nothing conclusive. And, whom will the MPRP nominate?

He would have to give up the party chairmanship. Whether or not M would win the election, he would have to resign his party role to be nominated. If he resigns from the party, one of his rivals might make a play for the chairmanship, leaving M with a fancy title and constitutional role (if he wins), but no party to exercise power.

Possible DP Candidates

There are a number of different scenarios on whom the DP might nominate as a presidential candidate.

Doing a Putin

As early as the middle of last year, someone mentioned to me that Pres. Elbegdorj might try to “do a Putin”, i.e. to place a Medvedev-like figure in the presidency to then make a comeback (possibly via a government position) to another presidential run in 2021. I have dismissed that as absurd in the past, largely because I continue to be convinced that Elbegdorj harbours international ambitions, ideally as head of a UN agency or in some other prominent UN role.

The Medvedev-figure would likely be P Tsagaan, erstwhile finance minister and long-time chief of staff to Elbegdorj. A number of people have mentioned that he may be preparing for a bid.

But, a run for the presidency requires some level of personal popularity and Tsagaan has been closely identified with Elbegdorj for some years now and has been visible but somewhat inaudible in that association. “Doing a Putin” only works when the stand-in gets elected!

Perceived Independence

Another plausible scenario is a candidate who is a DP politician but can credibly run “against” the party in a campaign, i.e. someone who is not closely associated with the 2012-16. That would rule out a number of the people who lost their seats in June 2016, including N Altankhuyag who is the only person who has identified himself as a candidate to be nominated so far, but also Z Enkhbold.

In this category, one of the more interesting possibilities seems to be R Amarjargal, the former prime minister who has always maintained his status as a bit of a gadfly and independent within the party.

A “New” Candidate?

During the 2012-16 legislative period, the DP clearly suffered from its own “ossification“. The entire leadership has been in leadership for some time and seems to have lost a lot of credibility with voters. Yet, few “new faces” have emerged. For a while X Temuujin seemed a possibility, but he self-destructed or was destroyed politically by other parts of the DP, depending on whom you believe. Are there others like that? Some have mentioned former Min of Education L Gantumur in this context, but he was a member of the previous DP government.

Campaigning Already?

Interesting to see that some candidates that are being talked about as possible nominees for the DP have recently stepped up their Twitter activities significantly.

Examples:

MPRP

The default assumption would have to be that the MPRP will try to nominate former president N Enkhbayar. But, given his money laundering conviction, the MPP and DP have successfully kept him away from an actual candidacy for some time.

G Uyanga then?

Posted in Democratic Party, Elections, Mongolian People's Party, Mongolian People's Revolutionary Party, Politics, Presidential 2017 | Tagged | Leave a comment

The Nationalization of Erdenet Copper – Challenges for SOEs

By Mendee J

At a recent Standing Committee hearing, Ts. Nyamdorj, Vice Speaker of the Mongolian Parliament asked to meet with the new shareholders of the Erdenet Mining Corporation, especially the secret boss (link). The deal, which saw 49% of ownership transferred from Russian to Mongolian ownership indicates the Kremlin’s desperate economic situation as well as declining geostrategic interests in Mongolia (link). This secret deal has also triggered another round of debates on the role of state ownership of big mining projects, ranging from the press conference of Ts. Nyamdorj (link), to President Elbegdorj’s reactionary and emotional press conference (link), and to a well-known politician and now the representative of the new owner to the board, Da. Ganbold’s lengthy explanations (link). Now, as usual, all parties silenced after a major allegation, forcing the public to ponder – whether this silence indicates a major compromise for the sake of national security or parties working hard to divide up the cake.

State ownership has a strong public appeal in Mongolia since people perceive foreign mining companies as entities which strip the country of its natural resources without investing into the local development and taking responsibility for environmental damages.  The public assumes that the increased state involvement address these challenges.  But, it was not the case in Mongolia unless the political leaders constrained patronage politics and corruption by simply implementing fine regulations – passed by them.

The patronage politics around the state-owned enterprises have its own dynamics.  If one party makes a landslide victory as in 1996, 2000, 2012, or 2016, they will replace the management teams of the state-owned enterprises and promote party-affiliated politicians or local supporters to run the state-owned enterprise.  This creates a situation where these party affiliated politicians generate funds for their own party networks and some even benefit their own cronies.  However, if a coalition is formed, such as in the 2004 and 2008 elections, both parties negotiate how they would share these honey pots.

The other major challenge is corruption.  Evidences of shady deals by Erdenet Mining Corporation, allegations around the Erdenes Tavan Tolgoi coking coal and the outrageous high pay of state owned enterprise leaders were disclosed to the public around the election cycles – just like the parliamentary election of 2016.  But, neither the law enforcement authorities nor political leaders demonstrate the true commitment of investigating these evidences.

Cases such as the Erdenet buy-out indicate the competition among political and business factions over the state assets.  On one hand, the state ownership sounds appealing to voters.  But, on the other, political leaders won’t demonstrate resolve to constrain their patronage politics and fight against the corruption. Whoever manage to assert their influence in the state-owned enterprise, they would do their best in strengthening the patronage networks of  political parties, factions, and even a little crony-hood.  Unless high-ranking political leaders, President, Speaker, Prime Minister, and party leaders, agree to limit the patronage and greed for the public, more importantly the national sake, the state ownership is merely a greedy scheme.  If they adhere to the professionalism, the cake will be bigger for all rather than sliced into little pieces.

For our two previous posts on the “privatization” of Erdenet, see:

Posted in Corruption, Erdenet, Mendee Jargalsaikhan, Mining, Mining Governance | Tagged | Leave a comment

Mongolia – Rich in Governance Models

By Julian Dierkes

These days, the optimism regarding Mongolia’s development (economic, political, social) has turned into a disappointed consternation, “how could things go so wrong?”. Of course, the answer is mostly a domestic political one, but is also linked to commodity prices, etc. While we used to think of Mongolia as a soon-to-be-rich country, that is a little less clear now. Soon-to-be-rich in democracy, human development, etc. Those have all been topics for many posts on this blog and I will continue to return to these questions. But, inspired by a workshop in Bishkek bringing together Burmese, Kyrgyz, Mongolian, and Timorese participants, I am observing that Mongolia may well be rich in one unexpected commodity: mining governance models.

Governance Models

Here, I am primarily concerned with the nature and extent of government involvement in mining enterprises. More specifically, different levels and forms of government ownership, a limited view of governance, of course.

From a Canadian perspective (and it’s a very interesting conversation from this perspective at the workshop that got me writing this post), that is an odd concern under the broader rubric of governance models. Simplistically, there is no state ownership of mining enterprises in Canada. Of course, that could be a more complex discussion of First Nations involvement, and also public subsidies for mining in the tax code or in the unwelcome role of the public as an owner-of-last-resort when it comes to clean up of mining activities (see Giant Mine as an example, though not of ownership formally). Yet, as a simplistic statement, it probably works to say that the federal government does not act as an owner in mining enterprises.

Mongolia

If we think about mining governance as including different levels of involvement of the government, I would claim, Mongolia is rich in different models that are all operating at once.

What I mean is that the mining industry in Mongolia includes companies that

  • are fully privately held, that include some level of government ownership, and fully government-owned mines.
  • are operated directly by the state, or owned by a state holding company.
  • are very small companies that amount to barely more than a backhoe and a truck, there are medium-sized industrial mining companies operating a single mine, there are very large mining concerns with multiple operations.
  • are entirely owned by Mongolians, partly owned by Mongolians and non-Mongolians, and fully owned by non-Mongolians.

If we arranged these dimensions in some kind of array, we could probably fill all cells with at least one example from Mongolia.

International

Not all mining economies display such an array of different ownership models. Take Canada or Australia as mature mining economies, for example, and federal government ownership does not exist as a model, even though there are also many variations as to the size and domestic vs. foreign ownership.

In learning more about the four countries represented at the workshop, there is also much less diversity in ownership models than there is in Mongolia. In Kyrgyzstan, the instinct toward state ownership is strong, but the most prominent mining enterprise (Kumtor, with its Canada links (Centerra Gold) that are also a Mongolian link (Boroo Gold)) is fully owned by a Canadian company (Centerra), but the Kyrgyz government in turn has a 33% share in the Canadian company via Kyrgyzaltyn.

#Mining at 4000M in #Kyrgyzstan.

A photo posted by Julian Dierkes (@jbdierkes) on

The Burmese oil and gas sector is primarily organized around production sharing contracts, while mining is dominated by direct state ownership and operation. There is also some involvement by foreign investors, often SOEs from China. More ownership models seem to be on the horizon as Myanmar is taking steps toward opening its mining sector for investment.

The natural resource sector of Timor-Leste is concentrated in oil. Timor-Leste has a national oil company, Timor Gap, that partners with foreign companies in exploration and investments.

While the oil & gas sector operates very differently from the mining sector in many areas, making the Timorese and Burmese cases perhaps somewhat more distant from Mongolia, the Mongolian experience with different ownership models is still quite relevant to other emerging mining economies.

What does this Wealth of Models Mean?

It is not the case that Mongolia set out with its turn to a market economy following its democratic revolution in 1990 to become a world leader in the variety of governance models. At that time, there were only three models,

  • Erdenet, the very large copper and molybdenum mine, jointly owned by the government and the Soviet Union
  • fully-foreign owned operations like the uranium mines operated by the Soviet Union
  • fully publicly owned mines within Mongolia, like the coal mines near Ulaanbaatar that were developed to heat/power the capital (Nalaikh, Baganuur, etc.)

To some extent legislation on mining from the 1990s on was aimed at encouraging foreign investment, so this did presage some of the variety of models that have emerged since then.

But, a number of subsequent policy decisions took Mongolia further in the direction of a variety of governance models. For example, designation as a “strategic deposit” mandates a state equity stake in projects, but does not determine the level or nature of involvement.

So, today, Mongolia really is a particularly rich ecosystems of ownership governance models. Surely, some of these models have shown themselves to be effective for particular outcomes. Erdenet Mine would be the most prominent example here. As a mine that has been owned and operated by the state (and the Soviet state), most Mongolians see it as successful in spurring the growth of Erdenet as a town, and in securing financial benefits to the Mongolian state. More doubts may arise as to its corporate record (i.e. is it an efficient operation in extracting copper), or regarding its environmental impact. Given its disastrous closure “policies”, the Nalaikh coal mines might be an example of successful state-operated extractions, but at huge costs to the community after the state failed to close the mine properly.

At this point, I have not really seen a process that would begin to settle on one specific model, but instead, mostly not by design but in fact nevertheless, the diversity of models is likely to persist for some time.

That means, for example, in terms of political risk for foreign investment, that there is very little in the Mongolian trajectory that suggests outright nationalization, the worst-case scenario for foreign investors.

It also means that policy recommendations and solutions are, perhaps appropriately, complex. While many OECD-based consultants might emphasize the “need” for private sector-led development of the mining sector, Mongolia’s neighbours (China and Russia) might lean much more toward SOEs as the engine of development, and nearby neighbours like Japan and South Korea might point to state guidance for private-led development. For Mongolia, all these options exist and are relevant.

How Can Mongolia Benefit from this Wealth?

If I am right that the Mongolian mining industry is an ecosystem with a high level of diversity in governance models, is that a benefit to Mongolia?

Currently, it does not seem that way, as I said in the opening paragraph.

But, many models means experience with many models! If that diversity and that experience can be understood better, it will certainly form a strong basis for future policy decisions.

Sadly, that is yet another “big if” when it comes to Mongolia’s future. One of the great missed opportunities of the past 5 years has been the lack of concerted effort to build up analytical capacity within the Mongolian government, but also in civil society and the media. In order to turn the wealth of governance models into a wealth of human and sustainable development, such analytical capacity is sorely missing. Without it, the number of different models is just that, a lot of different models that potentially obfuscate the real situation at mining enterprises as it is difficult to understand for the (Mongolian public). A case in point for that is the recent “privatization” of Erdenet Mine.

In line with previous patterns, the new MPP government seems to be embarking on yet another round of wholesale replacement of personnel, destroying any capacity that may have built up, again. That makes me less than optimistic on the analytical capacity that would help understand the impact of different governance models on benefits that accrue to Mongolians.

Posted in Development, Kyrgyz Republic, Mining Governance | Tagged | Leave a comment

Bishkek ICF-CIRDI Workshop “Sound Management of Natural Resources: The State’s Role in the Resource Sector”

Co-Organized, Funded, and Hosted by:

From the perspective of the Canadian International Resources and Development Institute, this workshop continues discussions during a workshop held in May 2016. With participants from Afghanistan, Kyrgyzstan, Mongolian and Myanmar, this workshop pointed to the variety of governance models that are available for states to get involved in the mining sectors, but also to some of the risks these models bare. As the Oslo Centre has also been collaborating with the ICF on similar topics, we’re very happy to be joining with them to host this workshop in Bishkek with participants from Kyrgyzstan, Mongolia, Myanmar and Timor-Leste.

Venue: Golden Tulip Hotel, Bishkek

The workshop is open to the interested public, but we would ask participants to register.

November 2, 2016, Wednesday

08:30 Registration of Kyrgyz participants

09:00 Opening Remarks

  • Ms. D. Gerelmaa, Deputy Director, Department of Multilateral Cooperation, Ministry of Foreign Affairs of Mongolia
  • Mr. Duishenbek Zilaliev, Director of State Committee on Industry, Energy and Mining of the Kyrgyz Republic
  • Dr. Bohdan Krawchenko, Director General, University of Central Asia

09:20 “Challenges and opportunities for the State in the Sound Management of Natural Resources”, Mr. Einar Steensnæs, Senior Advisor, The Oslo Centre

Coffee Break

10:30 Panel One – Defining the State’s Role in the Management of Natural Resources

Moderator: Dr. Julian Dierkes, University of British Columbia

Panelists:

  • Mr. Ulan Ryskulov, Vice Director of State Committee on Industry, Energy and Mining of the Kyrgyz Republic
  • Mr. Umar Izabaev, First Deputy Director, Altynken
  • Mr. N. Algaa, President, Mongolian National Mining Association
  • Mr. Kh. Bayarkhangai, Senior Officer, Geological Policy Department, Ministry of Mining and Heavy Industry of Mongolia
  • Mr. Ch. Sukhbaatar, Director, Erdenes Mongol LLC

13:45 Panel Two – Taking Care of Values: The State’s Financial Challenges and Opportunities

Moderator: Mr. Claes Reksten, Norway

Panelists:

  • Mr. Maung Maung Win, Deputy Minister for Planning and Finance of Myanmar
  • Ms. Aicholpon Zhorupbekova, Kalikova & Associates
  • Mr. Kubanychbek Aidaraliev, Head of Fiscal Policy Department, Ministry of Economy
  • Mr. D. Bailiikhuu, Researcher, OSF, Mongolia

15:00 Coffee Break

15:15 Panel Three: Enhancing Coordination and Collaboration among the State, Industry and Public

Moderator: Ms. E. Odjargal, Mongolian Mining Journal

Panelists:

  • Mr. Mars Cherikchiev, State Committee on Industry, Energy and Mining
  • Ms. Venera Osmonkulova, KazMinerals (Mining Company)
  • Ms. Dinara Musabekova, Eurasian Foundation of Central Asia (mediator)
  • Ms. J. Sunjidmaa, Chair, Mongolian National Mining Association

16:30 Networking and Bilateral Meetings

 

November 3, 2016, Thursday  

09:00 Panel Four: Challenges and Opportunities for Increased Transparency

Moderator: Ms. Nazgul Kulova, NRGI Consultant

Panelists:

  • Mr. N. Dorjdari, NRGI Mongolia
  • Mr. Mung Don, Steering Committee Member, MATA, Myanmar
  • Mr. Ch. Tsogtbaatar, Senior Officer, Mining Policy Department, Ministry of Mining and Heavy Industry of Mongolia
  • Ms. B. Sunderiya, Chief Legal Officer, Erdenes Mongol LLC

Coffee Break

10:30 Panel Five: ‘Ensuring State’s Interests in the Extraction of Natural Resources’

Moderator: Mr. J. Mendee, UBC

Presenters:

  • Mr. Alfredo Pires, Minister of Petroleum and Mineral Resources, Timor-Leste
  • Mr. Claes Reksten, Norway
  • Ms. B. Solongo, Senior Officer, Legal Department, Ministry of Mining and Heavy Industry, Mongolia

13:45 Question and Answer Session, including responses to written questions

Coffee Break

15:15 Question and Answer Session, including responses to written questions

 

Posted in CIRDI, Development, EITI, International Cooperation Fund, Kyrgyz Republic, Mining, Mining Governance, Mongolia and ..., Myanmar, Timor Leste | Tagged | Leave a comment

The Diplomat Podcast on Mongolia as Asia’s Hidden Geopolitical Player

By Julian Dierkes

I’m finally getting around to listening to The Diplomat’s podcast episode focused on Mongolia, “Northeast Asia’s Hidden Geopolitical Player“.

Ankit Panda, one of the editors of The Diplomat, speaks to Peter Bittner who spent some time in Mongolia earlier this year and has written about that for The Diplomat.

One of the reasons I want to discuss that podcast episode is that I enjoy The Diplomat podcast and website and appreciate that Ankit Panda does pay attention to Mongolia as one of the actors in Asian politics and international relations.

Panda and Bittner focused on Pres. Elbegdorj to some extent. Panda built on his curiosity about Elbegdorj’ status as “one of the world’s best-travelled” leaders. This is appropriate of course, as this is the last year in office for Pres. Elbegdorj, so that a discussion of Mongolia’s role in geopolitics may look somewhat different in two years or so after a new president has made his (most likely, yes, his) mark.

Permanent neutrality

As Panda noted, Elbegdorj made a bit of a splash at last year’s UN General Assembly by announcing that Mongolia would seek to achieve “permanent neutrality” to bolster its Third Neighbour Policy further.

That proposal was not received with much approval in Mongolia itself, though the discussion has generally been muted rather than opposed. Note that at his address at the 71st General Assembly, Pres. Elbegdorj did not mention permanent neutrality again this September.

The opposition to this proposal has been built around hesitancy to abandon the possibility of alliances entirely. That is not because there actually is a debate about a real re-commitment to Russia as Panda and Bittner discuss a little bit. Yes, there is a generally positive attitude toward Soviet history with Mongolia and toward contemporary Russia, but that only goes so far in the population as well as the leadership. But even for foreign policy leaders who are not considering any kind of closer “alliance” with Russia (China is completely out of the question in this regard, despite the ever-growing Mongolian dependence on Chinese bridge loans to paper over its fiscal woes), the permanent part of neutrality is somewhat off-putting.

Mongolian Aid

One element of foreign policy that Pres. Elbegdorj mentioned at the UN this year and that also has an impact on Mongolia’s hidden geopolitical ambitions/role is its aid program.

The International Cooperation Fund has been operational for some years now (I have coorganized activities with the ICF in the past), but Pres. Elbegdorj highlighted its work in democracy promotion in his congratulations to Myanmar and Kyrgyzstan on “their successful elections”.

Genghis?

Overall, Panda and Bittner provided a useful discussion.

Join me in a campaign to persuade Panda to speak of “Chinggis Khaan” rather than “Gengis” and we’ll appreciate his coverage of Mongolia even more.

Posted in China, Foreign Policy, Japan, Mongolia and ..., North Korea, Social Media, South Korea | Tagged | Leave a comment