Corruption in India: Lessons for Mongolia?

A Conversation With Asim Arun

One of the things I really like about the broad variety of disciplinary academic perspectives on Mongolia that I come in contact with (for example, a lot of the discussions at the recent Oxford Deserts Conference), is that I get to learn a lot in the process of this contact. The same can be said about different discussions that centre around a specific issue.

Here, I’m writing together with Asim Arun who is an MA Candidate in our Asia Pacific Policy Studies program. Asim is a government officer from India on a mid-career study break.

We were having a discussion about Indian PM Modi’s recent visit to Mongolia and the extent to which PM Modi has emerged as a foreign policy actor. This followed on his election more or less on a domestic agenda focused on anti-corruption. This in turn gave me occasion to learn about anti-corruption activities in India from Asim and to think about how these might apply to Mongolia if at all.

Corruption in Mongolia

First, let’s set the stage for a discussion of corruption in Mongolia. This is clearly a serious issue. Petty corruption, systemic corruption, as well as grand corruption appear to be wide-spread if not endemic in Mongolia. It is important to note that grand corruption in particular essentially amounts to theft from the Mongolia people.

I have always been amazed by the extent to which corruption seems wide-spread in Mongolia and leads to some of the vast inequalities that can be observed, for example, in the kind of cars that can be seen on Ulaanbaatar streets today. Clearly, evidence is scarce, but there’s so much smoke around the topic of corruption that it is unimaginable to me that there isn’t a corrupt fire. Note that I’m concerned with corruption somewhat in the abstract here, not with particular cases or individual actors.

Anti-Corruption Efforts in Mongolia

The Civil Will Green Party has probably talked about the scourge of corruption for the longest time among the parties that continue to be active in Mongolian politics. Yet, despite the credibility on this issue by some of its leaders, most notably perhaps MP S Oyun, even CWGP has not – in my observations – made corruption the centre of its agenda or campaigning and appealed directly to the citizenry on the need to address corruption.

The Democratic Party has also talked about corruption for some time and President Ts Elbegdorj has been particularly vocal in this area. Yet, the last several years of a DP-led government have been disappointing in this regard. For the most part, anti-corruption activities seem to have focused on political opponents of the DP, or sometimes opponents of individual DP leaders. The Anti-Corruption Agency has lost some of its independence in this regard and many Mongolians now appear to see it primarily as an agent of the presidency.

If we think of the past several years as essentially a failure and lost time when it comes to the bigger fight against corruption (not that there haven’t been successes like the Extractive Industries Transparency Initiative or the enforcement of financial reporting by MPs), what strategies can we imagine that might be more successful?

Why India?

Here’s where my discussion with Asim was interesting to me as offering some possible lenses on Mongolia: Not only have India-Mongolia relations seen a recent highlight with #ModiInMongolia, but these are two of a rare breed, democracies in Asia. They serve an important signalling function for the rest of Asia, India obviously more so given its size and longer history of democratic governance, but Mongolia as well (as I discussed in a recent East Asia Forum Article, “Can Freedom Go Online in Asia?” with other MAAPPS students Trevor Kennedy, Christina Toepell and Melanie Schweiger).

Not only are Mongolia and India democratic, but they are generally seen as somewhat chaotic democracies. They might also be somewhat similar in the nature of their media: lots of it, but low journalistic standards across a wide spectrum of media outlets. On the issue of corruption, some of these low standards have meant that discussions are focused on scandals and that that the “discovery” of such scandals happens in a tabloid style and is rarely backed up by evidence.

Part of the chaos associated with these democracies is corruption:
In international comparisons, India and Mongolia look quite similar when it comes to corruption. In Transparency International’s 2014 Corruption Perception Index, the prevalence of corruption is perceived to be at similar levels in the two countries, as they receive a score of 38 (India) and 39 (Mongolia), ranking right in the middle of the 175 countries included at 85th and 80th, respectively. The Heritage Foundation’s Index of Freedom allows a side-by-side comparison of its “Freedom from Corruption” category (which is “derived primarily from Transparency International’s Corruption Perceptions Index (CPI) for 2010, which measures the level of corruption in 178 countries.“).

In many areas, the differences between India and Mongolia are so vast that they almost seem like incomparable cases. Population size and density, religious and ethnic diversity, the existence/remnants of caste society, geopolitical situation, etc.

Yet, there is another big difference between India and Mongolia: in India, corruption has become a prominent political issue that is not just paid lip service to, but that has swayed elections. That does not mean that corruption has been rooted out in India, nor that it is set to disappear any time soon, but there has been significant mobilization around the issue, a context that would seem to be one of the preconditions for any real attempts to address this issue.

A Chronology of Recent Indian Mobilization

With the Right To Information Act (RTI) coming into being in 2003, various levels of the government were forced into transparency and numerous instances of corruption- grand and petty, started coming to light. The Comptroller and Auditor General (CAG) pointed out large-scale state capture corruption in mining where instead of a transparent auction of coal blocks ‘allotments’ were made to companies in which members of the ruling coalition led by the Indian National Congress had interests. Similarly, the process of allocation of radio spectrum frequencies, another natural resource, was opaque and arbitrary. The CAG estimated the loss to the government in Coal-gate at USD 34 billion and the spectrum scam at USD 30 billion!

While news of such grand corruption occupied prime time, citizens struggled with petty corruption in their day-to-day lives. RTI activism gained support to evolve into a strong civil society movement which reached a crescendo in 2011 with India witnessing a massive campaign under Gandhian septuagenarian leader, Anna Hazare. Anna’s prime demand was the creation of a strong anti-corruption agency called Lokpal that, as in Hong Kong and Singapore, would become the main cleansing agent. To silence the growing movement, the Congress-led government reluctantly passed the Lokpal bill in Parliament but did nothing to implement it. Anna’s movement lost steam as its prime players could not work together for long and went their ways. A large chunk founded a political party – Aam Aadmi Party (Common Man’s Party) and in 2013 could manage 27 out of 70 seats in Delhi’s provincial elections. They even formed the government, ironically with Congress’ support, but resigned on its 49th day having realized the futility of running a minority government.

Sensing the mood of the electorate, Narendra Modi and his Bhartiya Janata Party (BJP) made anti-corruption the main plank of their 2014 federal election campaign and succeeded in sweeping it. In February 2015, fresh elections were held in Delhi and the AAP, this time, won all but 3 seats to the 70 member state assembly! Clearly, anti-corruption is the flavour of the season. In India today, no party can step into an election campaign staying silent on this issue. This bottom-up or demand-driven anti-corruption movement has mounted pressure on the government to reform procedures and cure corruption because the voters are not likely to forgive non-performance on this count.

In contrast, President Xi Jinping’s campaign in China is being criticised for employing a top-down approach. Without freedom of expression, democracy and, a vibrant and vocal civil society even if a demand for curing corruption exists, it does not aggregate into a movement. Mongolia has the advantage of the existence of these dimensions of a free society and it should not be difficult for people from all walks of life to come together against corruption in such a way that no political party can afford to ignore the malaise any longer.

Implications for Mongolia

India’s example of cosmopolitan, if somewhat urban, anti-graft movement holds lessons and inspirations for Mongolians. State capture or grand corruption can be controlled only by creating a strong and smart agency to track, try and, punish the corrupt actors. Petty or street corruption can be best addressed by creating complaint helplines and then helping the complainant organize a trap by using surveillance cameras in such a way that it becomes legally admissible evidence. This could be done by a government serious about the cure or even an apolitical activist organization. The idea is to bring corruption centre stage. In India, the media played, and continues to do so, the role of a catalyst as prime time TV and front pages of newspapers are occupied by news of corruption and anti-corruption.

An important dimension, where India has not made much of a breakthrough, is eliminating the imperative need for black money for financing political parties. A transparent process of political funding has to be worked out to get rid of systemic corruption which, in turn, needs out of the box thinking by a fresh bunch of people who believe that change is possible.

At the same time, it should be noted on the Indian example, that anti-corruption does appear to hold the transformative potential to mobilize the electorate around a single issue. Whether that leads to a new party like the AAP in Delhi, or forces existing political parties to adopt anti-corruption in its platform as now-PM Modi did in the 2014 general election, on top of civil society mobilization anti-corruption efforts can clearly galvanize the electorate. In the Mongolian context, it’s difficult to imagine any of the three biggest political forces, DP, MPP or Justice Coalition, to adopt a credible anti-corruption stance, but the Indian example seems to suggest that existing political forces, especially the CWGP or independents, as well as emerging political parties, may well turn to anti-corruption as a campaign theme. Such a theme would presume that civil society mobilization is not a necessary condition in bringing anti-corruption efforts to the political fore, as we’ve seen only a limited amount of mobilization around this theme.

In terms of institutional design, Mongolia might consider creating the role of a Comptroller and Auditor General (or expanding that role if it exists to some degree). Rather than making that an anti-corruption role only – and thus locating it within the Anti-Corruption Agency – a broader independent role to assess government accounting and procurement as the Canadian Auditor General has, might offer a number of additional benefits.

While some anti-corruption efforts like the Extractive Industries Transparency Initiative are focused on the payments that industry makes to government, there’s significant less attention paid to what government does with money that it receives. Scrutiny of some government programs without turning that into a potential instrument for a witch-hunt or partisan persecution, could give greater impetus to transparency efforts in other areas.

Posted in Asim Arun, Corruption, Governance, India, Party Politics, Politics, Social Movements | Tagged | Leave a comment

Guest Post: National Labour Party – Хөдөлмөрийн Үндэсний Нам

Bulgan Batdorj

Since their first forum “National Development – Mongol Person” in February this year, the Development Hun (ХҮН/Hun = person, individual) club expressed its intent of becoming a political force, but had not settled on both type (political movement, pressure group or party) or name. So, on May 4, the Development Hun club announced that they were becoming the new “National Labour Party” (in Mongolian) “Хөдөлмөрийн Үндэсний Нам”, abbreviated as ХҮН. The National Labour Party was registered with the Supreme Court of Mongolia on November 2011 as a political party and there was no information on whether it was a name transfer or merger. Before settling on the name, the club had suggested a few names which contained the word ХҮН. This is because their framework is to centre on ХҮН.

HUN’s Goals

According to Sant Maral’s April 2015 Politbarometer, 43.5% of respondents say that none of the political parties can best solve the socio-political or economic problems that Mongolia is facing today. This seems to suggest an opening for a possible new political force next to the two large parties and well-established parties like MAXH and Civil Will Green Party.

Those problems are in priority order Unemployment; Standard of living; Price increase (totals 65%) Economy, Law enforcement, Corruption, Education, Social Justice, State Administration and lastly Environment rated on the 10th place with 1.4%. Many of these problems are addressed in the HUN party’s “Mongolia Goal” agenda. There are 10 pillars for the Mongolia Goal [see the graphic entitled “МОНГОЛ ЗОРИЛГО” on Facebook]. Those are: (right to left)

  1. National Existence
  2. Environment to create wealth
  3. Legal Environment
  4. Environment/Ecology
  5. Wealth Distribution Environment
  6. Education
  7. Health
  8. Food
  9. Employment/Income
  10. Shelter/Housing

The “Mongol Goal” is illustrated in three timelines, short term, medium and long term, with set up qualitative and quantities objectives for the Mongolian economy and society up till 2050. The proposed framework suggests a liberal ideology, accepting the government’s role in education, health and poverty and endorsing a free(er) market economy.

HUN’s Leadership

The party seems to be building an image of educated and experienced men who are mature and energetic, based on the people who are representing the party in the public domain.

For example, the party leader is Mr. S. Borgil, who received a masters and PhD in the U.S., and has previous work experience at the Mongolian Ministry of Finance and a bank in Colorado.

Mr. B. Naidalaa is the CEO and the secretary of the Mongolian Banker’s Association, with previous experience in banking and MCS company. He has a graduate degree from the University of Kobe, Japan.

Another figure representing the party is Mr. T. Bat-Orgil, his mother and grandmother are highly respected and state-recognized actresses in Mongolia, so he is perceived by the public as being the son of a wealthy family and out of touch with the realities of a difficult life.

All three man are successful, educated and experienced. According to their interviews, many of the party’s members are foreign graduates and harvested work experience, recognized in specific sectors (technocrats). They uphold strong values of ethics, principles, accountability and humility at the individual level.

At the institutional level, they are promoting strong institutions (often pointing fingers at the other parties for having weak institutional capacity) guided by knowledge, justice and unity. As per the same Politbarometer, 65% of the respondents say that government policy is characterized most by self-interested politicians and in support for the rich. So, the image and message of “technocrat – capable institution” is appealing to many. This could also be a good strategy as the need of having technocratic perspectives involved in political decision-making was the main motive (at least publicly) to dissolve  Prime Minister N. Altankhuyag’s government and was the main condition for the next government (although this did not happen).

Challenges in Organizing a New Political Force

There are two main criticisms so far. The party is firmly pointing its fingers at the MPP & DP for their failures, but a further round of the “blame game” is not the best strategy to win the hearts of some. The second issue is that people are starting to develop conspiracy theories about the party’s finances as the events they organize are taking place at fancy venues and without transparent information on backers.

Anyone who has observed past election years in Mongolia would know that they will hear about many new political parties that they have never heard before during election campaign and will never hear again till the next election. The public is weary of yet another “New Political Party” especially on the doorstep of another election. But the National Labour Party might be the new thing that Mongolia might give a go for the next election in 2016 as they seem to be hitting the nail on the head (at least according to the Politbarometer 2015).

About Bulgan Batdorj

Bulgan Batdorj is a Master’s student at the Norman B. Keevil Institute of Mining Engineering of the University of British Columbia. Her research interests are Extractive Dependency, Resource Curse and Sustainability.

Posted in Bulgan Batdorj, Ikh Khural 2016, Party Politics, Politics, Social Movements | Leave a comment

Planning for 2016 УИХ Election

In June 2016, Mongolians will be voting for a new parliament, the Улсын Их Хурал. Having served as an election observer in the last four national elections, I’m thinking about what activities could be undertaken now to prepare for next year’s election, specifically whether there are any projects that would need to be initiated long ahead of the election.

Overall, I would say that the 2008 (despite the riots that followed), 2009, 2012, and 2013 elections were reasonably fair and free. While many rumours of electoral fraud swirled around these elections, no concrete evidence has ever emerged. The fact that electoral fraud only makes sense on a large scale suggests to me that evidence of any such national-scale fraud would have emerged over time. Of course, election monitoring is primarily focused on what happens in polling stations, any behind-the-scenes manipulation would be difficult to capture.

Despite the overall quality of the elections, there is certainly room for improvement.

The main challenges I have observed in the past include

  • lack of confidence in results and unproven allegations of fraud
  • variability in the electoral system
  • an increasingly active role of the media, but limited regulation, particularly regarding ownership of media outlets
  • organization of collection of the results at the district level.

Here, I want to think out loud about projects that might address these challenges, especially the first, as well as the ever-present need for voter education.

My ideas would variously apply under some of the changes to electoral laws that are currently under discussion, whether that is the MPP’s apparent proposal to turn to an all first-past-the-post system with 76 single-member electoral ridings, or any other specific set-up.

Guiding Principles

If I were to propose or carry out any efforts focused on the 2016 election, I would be guided by three principles:

  1. Do no harm.
  2. Remain independent and agnostic on outcomes.
  3. Lay open all decisions and funding.

I am not Mongolian, I do not vote in the election, and I do not have a direct stake in its outcome. While I have personal contacts with politicians of various stripes, I don’t have any particular sympathy nor loyalty for any of the Mongolian parties. I have no financial or other stake in Mongolia and election outcomes thus have no direct impact on me.

If I were to fear that any project I would undertake might have an undue impact (i.e. through manipulation or bias, rather than through information and education) on the results or on confidence in the results I would certainly not want to undertake such a project.

Goal: Confidence in Results

Mongolians’ confidence in the results of elections is shaken by all the unsubstantiated rumours that swirl around the press and politicians following the election. Clearly, rumour-mongering is a general pattern in the press, but it is the absence of evidence/further information that also plays a role in the tendency to jump to conspiracies as explanations, rather than offer actual evidence.

What can be done? Sant Maral’s Sumati is the only pollster in Mongolia, really. Yet, as he would likely readily concede, his polls are severely hampered by methodology (how do you poll a nomadic population?), the absence of a general social survey that would allow him to compare his results to such data to check representativeness, and – obviously – resources. The fact that credible, nation-wide pre-election polls are not possible, and that the number of exit polls is limited, means that election results stand on their own. In elections in many countries elsewhere,  results are anticipated by polls and voters thus gain a sense that the election “came out right”. When there are surprises (most countries can point to elections that had surprise results, I think), they are examined, re-polled and re-examined at great length to figure out why polls were wrong. Note that the default explanation is that the polls were wrong, not that there was electoral fraud.

Short of orchestrating a Kickstarter campaign to heap money on Sant Maral’s head (if you orchestrate it, I will donate!), what are other options?

I have long thought that an election stock market would be a great option for Mongolia. You can find the concepts of an election stock market explained on WikiPedia and in numerous academic publications. Some colleagues at UBC have been involved quite actively in this as the UBC Election Stock Market.

The main benefit of an election stock market in Mongolia could be that its predictive power of results might bolster confidence in reported results. I.e. if there are enough reasons and indications to believe that the prediction generated by an election stock market has some validity (that’s a big IF with many different elements), then reported actual results could be compared to this prediction. Overlaps would reinforce confidence in results, differences would need to be analyzed further.

However, there are massive obstacles and hurdles to establishing an election stock market that have me leaning away from proposing this as an avenue for Mongolia.

There are some quasi-legal hurdles. Election stock markets are meant to be driven by the predictive power of a large number of financially-motivated speculators. I.e. if you think you’re prediction of the election outcome is a) solid, and b) different from the conventional wisdom, you could make a moderate amount of money by participating in the election stock market. No investment, no risk in making predictions, and thus little predictive value. However, participants are essentially betting on the outcome of the election, and thus might run afoul of gambling laws. There are legitimate fears about the manipulation of election stock markets, especially in a situation like Mongolia where few other predictions might exist and the stock market might thus end up influencing rather than predicting the result.

Goal: Voter Education

This goal builds on the assumption that better educated voters make better choices and hold politicians to account.

There are many different elements in voter education from promoting an understanding of the electoral system to registration processes, party platforms, party advertising, candidates’ bios, polling station locations, etc.

Previous Efforts

The Mongolian General Election Commission (СОНГУУЛИЙН ЕРӨНХИЙ ХОРОО) has been challenged in recent elections by some fairly late changes in election system, such as the abandonment of the female candidates’ quota in 2008, its institutionalization in the 2012 election, but also the introduction of a proportional representation national party list in the 2012 election. From my perspective, the GEC has done a good job under challenging circumstances, particularly when it comes to public information about voter registration and voting procedures.

The Mongolian parliament has also taken some quite progressive steps that facilitate voter education, such as the power of the GEC to check party platforms against their (fiscal) feasibility, i.e. “no unfunded promises”. Candidates’ campaign literature is also checked against approved and published party platforms. This is meant to give voters a chance to familiarize themselves with readily-available party platforms to inform their decision on candidates and parties. It presumably also provides an incentive to parties to pass campaign platforms that are clear and accessible to voters, as well as presenting policy choices.

Possible Efforts for 2016

I could think of two strategies that seem promising in the Mongolian context: 1. further facilitation of access to information about candidates and parties, 2. application of tools to facilitate voters’ choices, particularly as they have been developed in German-speaking countries.

Facilitating Access to Information

While parties make information about platforms and candidates available, surely making access to this information easier could make a positive contribution. I am particularly thinking of the wide-spread adoption of smart phones in Mongolia that makes it possible to consider a voter education app to be deployed in 2016. Perhaps the GEC is already considering this, but it could also be an effort that would be organized privately.

An app as I imagine it could be based on different organizing principles, location, party, candidates. A map would allow a voter to select her riding and to then receive information about the parties and candidates competing in that specific riding, as well as locations of polling stations, etc. The information made available here would come entirely from public sources, possibly via the GEC or directly from parties.

Likewise, voters could be given the opportunity to search for candidates by name leading to standardized information about candidates’ biographies, including past offices held, etc. Party information would reproduce campaign platforms, etc.

Facilitating Voters’ Choices

A more ambitious version of such an app might facilitate a match of voters’ policy preferences with party platforms. This is a model that is well-established in German speaking countries by now as the Wahl-O-Mat in Germany, or Wahlkabine in Austria. In English such apps are know as “voting advice applications”, “voting aid applications” or “votematch tools” (Wikipedia). These applications, mostly web-based until recently, allow voters (anonymously) to fill out a questionnaire on important policy choices and then point to a match or mismatch between these preferences and party/candidates’ platforms. The apps don’t offer a recommendation per se, but instead typically point to the extent of overlap between voters’ preferences and parties’ stated intentions. After filling out such a questionnaire, a voter might thus see the result that his preferences match the intentions of Party A to 65%, those of Party B to 63%, and those of Party C to 40%. This leaves a lot of leeway for voters to decide what level of overlap between preferences and intentions serves as their personal “cut-off”, i.e. is an overlap of 45% large enough that this voter wants to consider Party C or will he restrict himself to a choice between Party A and B? Since voters initiate the advice themselves, these are really tools to facilitate decision-making, not to influence voting behaviour.

Obviously parties have to be given an equal opportunity to clarify their positions on policy choices that are included in the list of the votematch tool, calculations have to be transparent and reproducible, and impartiality is essential.

Some votematch tools are compiled and hosted by public or quasi-public institutions such as Germany’s Bundeszentrale für Politische Bildung (Federal Agency for Civic Education), Other examples such as Canada’s Vote Compass are hosted by media organizations. Applications have been generally prevalent across OECD countries, but have not spread much beyond these countries. It would appear that the widespread adoption of smartphones in Mongolia, coupled with the pre-existing efforts of the GEC would make an application in Mongolia quite feasible and desirable.

Clearly, the success of votematch tools depends on the neutrality and credibility of the organization(s) that “host” the tool online. Maximal transparency in all processes would be essential and either all parties should be invited to sign on, or no party involvement should be allowed. Foreign involvement would also have to be treated very carefully and in a transparent fashion.

Despite some of the risks inherent in votematch tools, I could certainly imagine an effort focused on the 2016 parliamentary election that would take the first step, i.e. the compilation of information on party platforms and candidates into an app, to test technology and the interest in it. The 2017 presidential election might then be an ideal occasion to develop and deploy a votematch tool as the direct competition between a small number of nation-wide candidates would lend itself particularly well to some kind of questionnaire.

The Media and Elections

One of the joys and strengths of Mongolian democracy is the vibrancy of the media, traditional as well as online. However, the Achilles heel of this vibrancy is the lack of credible information about the ownership of media outlets, whether they are broadcast, print, or online media. In the context of many media outlets that are owned and operated privately, there are numerous such outlets that are directly tied to prominent politicians or parties, or associated closely with political actors.

Perhaps the 2016 election presents an opportunity at self-regulation by media owners, or otherwise legislation that would force media companies to disclose ownership structures.

Posted in Democracy, Elections, Ikh Khural 2016, Media and Press, Party Politics | Tagged | 5 Comments

Policy Series: Mining Policy Failures (I)

Mining policy is a good entry point to understand the overall policy-making processes of Mongolia. For one, mining has been one of the dominant economic sectors of Mongolia since the early 1900s.[1] Second, with extensive mining activities, mining has caused numerous political and socio-economic challenges for policy-makers. Today any policy decisions related to mining trigger diverse reactions from political parties, political-business factions, businesses, civil society activists, and citizens. Third, mining policies also have implications for global stakeholders such as IFIs, multinational corporations (MNCs), state-owned enterprises (SOEs), foreign governments, and transnational advocacy networks (TANs). Finally, mining requires policies with long-term consequences not only to ensure foreign and domestic investors business rights and property rights are protected, but also to assure citizens limit negative mining impacts on politics, economy, society and environment are prevented. For these reasons, the study of mining policy and its failures is useful to illuminate ways to manage the central challenge of democratic governance – how to promote long-term policy solutions in the face of short-termism (fractionalized, parochial interests) dominated politics. In other words, mining policy failures in Mongolia will highlight a key feature of democratic politics: politicians, who are on an electoral schedule are inclined to neglect the long-term consequences of their policies and only be interested in remaining in office at any cost.

The following examples illustrate the less successful policy-making processes in Mongolia. They are policy failures for a few reasons: (1) their negative consequences are still present; (2) both politicians and the public acknowledge them as failed policies; (3) succeeding parliaments and cabinets have not taken any long-term policies to mitigate their negative impacts; and (4) politicians and bureaucracies still introduce similar policies that would certainly repeat these failures.

The Gold Program [Алт хөтөлбөр] was introduced in 1992 to attract foreign and domestic investors and to alleviate the immense socio-economic challenges resulting from the economic transition of the early 1990s. Even though the program provided opportunities for domestic mining companies and the government to generate some revenues, the program brought many challenges. First, mining companies exploited the weak regulatory and institutional settings and the majority of miners did not properly close and/or reclaim their mining sites. Second, related to the first, it provided opportunities for the emergence of a Mongolian-type of ‘gold rush’ – the ninja miners – people who engage in artisanal mining activities at abandoned mining sites.   Although the studies present different numbers, over 60 thousand people engage in artisanal mining activities and live within the informal (illegal) socio-economic structures of the artisanal mining. (Swiss Agency for Development and Cooperation, 2011, pp. 23-27; Grayson, 2004) Third, the negative environmental and socio-economic impacts of these small and medium-sized mining companies and artisanal miners are the most devastating to local community, environment, and herding livelihood (Swiss Agency for Development and Cooperation, 2011; World Bank, 2006). Although a few attempts were initiated, they did not succeed because of sudden policy changes.

Nalaikh Coal Mine [Налайхын уурхай] is a thermal coal mine partially closed following a deadly explosion in 1990. From 1954-1980, a Soviet-style mining town was built in Nalaikh to provide high-quality coal for the Soviet military facility (i.e., the largest joint military airbase, engineering and air defense units), power plants of the capital city as well as ger districts in the greater capital city area. At that time, the mine had state-of-art facilities and followed the Soviet mining standards for environmental and labor safety.[2] The withdrawal of Soviet military forces and suspension of Soviet assistance contributed to the overall deterioration of the operation and maintenance of the Nalaikh mine. Because of economic devastation in 1990, the government partially closed the mine, but it could not fully restrict artisanal mining activities in underground shafts of mostly unemployed miners and their families. Today over 1500 people mine with the lowest safety requirements. Since its partial closure, on average 10-17 people die annually in Nalaikh mines.[3] Despite periodic talk about the negative impacts of artisanal mining in Nalaikh, no government attempted to enforce the mining law, standards, and regulations or to provide a long-term policy solution even though it is the closest mine to the capital city.

Oyu Tolgoi [Оюу толгой] – was the first-ever and largest mining deal with multinational mining corporations (Jackson, 2014). After eight years of its discovery by the Canadian Ivanhoe Mines, the Mongolian government concluded the investment and shareholders’ agreement with the Ivanhoe Mines and Rio Tinto in October 2009. Under the agreement, the Mongolian government obtained 34 percent ownership and the Turquoise Hill Resources (a name of joint mine of Rio Tinto and Ivanhoe Mines) 66 percent, with foreign investors agreeing to provide local employment, procurement, and to contribute to infrastructure development for the value-added production (e.g., copper smelter, power plant, rails, and roads). Even though this phase I (i.e., open pit mine) of the mine was completed in June 2013, the Mongolian government and Rio Tinto failed to reach agreement on the project costs, including its phase II (i.e., the underground block-cave mine). This disagreement caused both sides to take retaliatory measures against each other (e.g., unpaid tax claims by the Mongolian government and trimming Mongolian employees and some local procurement by the investors) while slowing the overall project development, sending negative signals for foreign, especially Western investors, and heating up domestic politics. Now many policy questions – how to deal with powerful, global investors over the ownership, management, and development of the large-scale projects and how to assure the public about long-term environmental and socio-economic challenges – remain unanswered. The most interesting fact is why politicians, most of whom were members of the 2004 and 2008 parliaments which approved the investment agreement, now have been attempting to change their policy choices.

Tavan Tolgoi [Таван толгой] is the largest coal deposit in southern Mongolia. Since 2008, Mongolian politicians, bureaucrats, and private businesses as well as foreign investors have hoped to generate quick, substantial revenue from the Tavan Tolgoi deposit for two reasons. First, it will be closer to Chinese and East Asian markets if the railroad to the Chinese border is built (247 km). Second, unlike the Oyu Tolgoi mine, the deposits are extractable with open-pit mining technology. Therefore, all stakeholders have been extensively competing over licenses for mining operations and development of infrastructure, especially the railroad. In 2010, following the recommendation of the National Security Council (NSC), the parliament directed the government of Prime Minister S Batbold to negotiate with potential foreign investors to operate the western section of the mine. A year later, the government announced its decision to divide the operating licenses for Chinese Shenghua Group (40%), Russian-Mongolian consortium (36%), and American Peabody Energy Corporation (24%). However this decision was recalled immediately due to concerns from Japanese and Korean bidders. At the same time, the government permitted the state-owned Erdenes Tavan Tolgoi to operate the eastern section of the mine with domestic and foreign mining companies. Then contracts of the Erdenes TT were revoked and re-negotiated by the governments of ex-Prime Minister Altankhuyag and incumbent Saikhanbileg. In August 2014, the government issued another resolution to finalize the bidding over the operation of the Tavan Tolgoi mine.

The Strategic Entities Foreign Investment Law was passed by the parliament in May 2012 and invalidated in October 2013 with the passage of the new Investment Law. In April 2012,the Chinese state-owned Aluminum Corp of China Ltd (Chalco) launched a bid to buy the stakes of Ovoot Tolgoi, a Mongolian coalmine, from the South Gobi Resources Ltd (SGQ). Since the deal was done without informing the Mongolian government, politicians and the public began to voice concerns about the country’s sovereignty. A month later, the parliament passed the ‘Strategic Entities Foreign Investment Law,’ which requires foreign state-owned and private investors to obtain the parliamentary and governmental (cabinet) approval to operate in sectors of strategic importance (i.e., terrestrial resources, banking and finance, and media and communications).[4] Just like the quick passage of the law within a month, it was amended in April 2013, and repealed in October 2013 with little study and justifications.

The Windfall Profit Tax Law was passed in 2006 and repealed in 2011. The law imposed a 68 percent tax on copper and gold concentrates. In accordance with this law, mining companies operating in Mongolia would pay 68 percent tariffs on copper and gold concentrates if the price of copper and gold exceed $2,600 per metric ton and $500 per troy ounce respectively on the London Metal Exchange.[5] The threshold for gold was raised to $850 in 2008. Although the initial draft included only copper, gold was added later because of pressures from civil society movements. Interestingly, this law was secretly passed through a quick legislative process without proper consultation with major stakeholders – the copper and gold mining companies. By imposing the windfall profit tax, politicians intended to generate revenues to implement their election campaign promises (e.g., cash transfers), to assuage concerns of environmental and civil society movements concerning irresponsible mining, and to pressure the Oyu Tolgoi mine to build smelter facilities in Mongolia.  The Windfall Profit Tax Law produced several unintended consequences. First, it faced strong opposition from the mining communities; many sought ways to evade taxation (mostly due to poorly institutionalized enforcement) and the scale of the artisanal mining increased. Second, the only implementer of the law became the Mongolian-Russian joint copper venture, Erdenet, which then needed to generate additional revenue for the state beyond its operational capacity. Third, it projected the image of an unstable regulatory environment for major foreign investors.

The Law on Prohibition of Minerals Exploration and Mining Activities in Areas in the Headwaters Rivers, Protected Water Reservoir Zones and Forested Areas (known as The Law with the Long Name [Урт нэртэй хууль]) – was passed by the parliament in July 2009 under pressure from civil society organizations and the environmental movement.[6] Since the implementation of the aforementioned Gold Program, environmental damage, especially to rivers and forests, had grown noticeably and disrupted the livelihood of herding families and agrarian communities. The law caused strong opposition from the mining companies while bringing staunch support from civil society and the public. However the implementation process became difficult for two reasons. First, the law stopped all types of exploratory and extraction activities of mining companies near water sources, river basins, and forests. As a result, the government has been mandated to reimburse costs of all these mining companies. Second, the law still lacks effective enforcement mechanisms for artisanal miners, whose operations are not regulated under any mining and environmental legislation. Although civil society and environmental movements succeeded in pressuring politicians to regulate irresponsible mining activities, politicians failed to produce a well-thought, phased, and effective policy that considered the demands of all stakeholders, namely civil society organizations, mining companies, and local community.

These are a few examples of failed mining policies in Mongolia. Although politicians, parties, and bureaucracies have been attempting to improve the regulatory framework for mining activities, these laws, regulations, and standards are destined to be “momentary policies” due to the bargaining dynamics of major stakeholders – domestic and foreign investors, mining lobbies, mining companies, and IFIs on one side and civil society actors made up of domestic and international networks, environmental movements, and local community on the other side. Between these two forces, politicians, parties, and bureaucracies could not envision and enforce long-term mining policies.

[1] The mining sector of Mongolia has evolved through different historical stages: mostly Chinese dominated artisanal mining period (up to 1925), when Western companies were conducting small-scale exploration and extraction activities; the socialist period (1925-1989), when the Soviet Union and other communist bloc states (esp., Czechoslovakia, Bulgaria, Germany) had assisted establishing a large and medium scale mines and conducting geological surveys; the post-communist period (from 1990 onwards), when Mongolia has been using its mineral resources to attract foreign and domestic investors.

[2] Mining administration, mining rescue unit, recreational facilities, railroad, and mining vocational training college.

[3]For more information on Nalaikh mine, see http://mining.time.mn/content/26292.shtml; www.eurasianet.org/node/63373; www.ibtimes.com/most-dangerous-coal-mine-world-mongolias-illegal-nalaikh-pits-1564916; ubpost.mongolnews.mn/?p=10802

[4] The Strategic Entities Foreign Investment Law (2012) available at: www.legalinfo.mn.

[5] The 68 percentages was taken not because of the careful calculation, but of the commemoration of the Mongolian sumo records.

[6] The law was published in the State News (Төрийн мэдээлэл) 2009, No. 28. In 2011, the Head of the Mineral Resources Authority acknowledged the law was an important step towards responsible mining, but its implementation process was not clearly articulated. “The Law with the Long Name is a Good Legislation,” [“Урт нэртэй” хууль бол сайн хууль] 27 April 2011, http://economy.news.mn/content/64451.shtml; the civil-society compiled information on the Law with the Long Name is available at transrivers.org.

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Policy Series: Typical Explanations for Policy Failures (II)

The following explanations are commonly offered to explain these faulty mining policies.

External Factors – In the absence of major international or regional armed conflicts and threats (conventional and non-conventional), politicians often highlight two external factors – the dynamics of the global market and the geopolitical interests of major powers. Understandably, these external factors constrain Mongolian policy-makers – who have limited capacity to deal with them.

 Dynamics of Global Market. In 1990s, Mongolia was, like its two neighbours, desperate for western investors, but few responded because of the unattractive market environment (especially, infrastructure), uncertain political and socio-economic development, and underdeveloped regulatory framework for foreign investors. From a broader perspective, China was not seen as a promising market for natural resources. There also were the economic sanctions following the Tiananmen Square incident. Being overwhelmingly aid-dependent and isolated from the global and regional markets, Mongolian politicians had very little choice except to create the most welcoming regulatory framework for Western investors. They were unable to constrain investments from Chinese small and medium enterprises that were mostly in joint nature. When the potential benefits from the mining activities increased from 2000, Mongolian politicians were overwhelmed with increased interests from foreign investors; resulting in high expectation for resource-based development among politicians. Because of this politicians began to lose their earlier visions of non-mining development strategies (e.g., agriculture, tourism) and the economy became highly dependent on the international commodity prices as well as Chinese buyers. Instead of calculating the commodity market dynamics, politicians are now cover their mining policy failures under the commodity boom and bust cycles. Therefore, the dynamics of the global market is not alone responsible for the mining policy failures. It does offer both a blessing and curse for mining policy making because the reliance on the mining sector and a few mega projects – along with inefficient distributive policies –increases the vulnerability of Mongolia’s economy.

 The Geopolitical Interests of Major Powers. Geopolitical interests also appeared to provide another reasonable external justification for politicians to evade public scrutiny for faulty mining policies. Since Mongolia is a small, weak, and peripheral state, all external actors – two powerful neighbours, distant major powers, their MNCs and SOEs, and IFIs – exercise strong, effective leverage over Mongolia. For the time being these external actors, except Russia on some issues, seem to be tolerant and respective for Mongolia’s domestic policymaking process.

In retrospect, Russia has been quite assertive in certain areas and has explicitly pressured Mongolian politicians to change their policies (Wachman, 2010; Radchenko, 2013).[1] The first is the railroad. For Mongolia, the railroad is the most critical infrastructure for mining. With its partial ownership of the Mongolian railroad, the Russian government is heavily involved in the railroad politics. This is seen by its (1) rejecting the Mongolian government’s attempt to accept the US Millennium Challenge Account funds ($188 million) for the railroad project; (2) advocating the linkage of major mining sites to the trans-Mongolian and trans-Siberian lines; and (3) delaying the linkage of major mining sites in southern Mongolia to the Chinese railroads. Uranium mining is another area. From 2009, Russia re-established its influence in developing uranium deposits in Mongolia by (1) establishing the joint liability company, Dornod Uran; (2) marginalizing the Canada-based Khan Resources Inc; and (3) agreeing to resume full-scale of cooperation with Mongolia in areas of uranium (e.g., education, training, and infrastructure). [2] The last are on and off attempts of Russian state-affiliated oligarchs to be involved in major mining activities (e.g., Tavan Tolgoi and Asgat) and infrastructure projects (e.g., a power plant, railroad). The first two, the railroad development and uranium mining, were explicitly advocated by the Russian state whereas the other issues have been advocated by Russian oligarchs.

In contrast, China has been more tolerant and less assertive in dealing with Mongolia – although it possesses strong leverage over Mongolian policymakers.[3] First, China did not openly retaliate against Mongolia’s inclinations to provide more opportunities for Western companies. This might be understood in the context of Chinese closer economic collaboration with the West. Second, China tolerated Mongolia’s protective measures against Chinese SOEs’ investment into mining, telecommunication, and banking sectors. For instance, Mongolian politicians cancelled the bidding of the Chalco, a state-own aluminum company, to buy the SouthGobi Sands coal mine and approved the Strategic Entities Foreign Investment Law. Third, Chinese companies appear to be accepting the mining policies, despite the unpredictable and unstable nature of these policies, and offering more flexible policies towards Mongolia, especially in the areas of joint development of infrastructure and access into Chinese transit networks and ports. This type of Chinese constructive behavior would certainly create a favorable market and investment environment for mining in Mongolia.[4]

Given these contrasting behaviors of Mongolia’s two neighbours Mongolia has attempted to attract political security and economic interests of the so-called ‘third neighbors’ – distant major and secondary powers, that are expected to support Mongolia’s efforts to maintain its sovereign statehood in a complicated neighborhood.   Mongolia has restructured its macroeconomy with assistance from these states and IFIs, entered into a series of agreements with them to increase trade and investment, and even offered various types of exemptions, ranging from visa to taxation, for these states. With the commodity boom, long-term stability of the Chinese market and Mongolian desires for engaging non-Chinese firms, private companies of third neighbor states appear to have some advantages over Chinese and Russian SOEs. Moreover, the democratic system also provides these multinationals with formal mechanisms to influence domestic policy-making process. As a result, we have witnessed these multinationals exert influence through various channels. This includes advocating government policies (e.g., the United States), IFIs – especially, the WB, IMF, EBRD, influential politicians (e.g., James Baker, Tony Blair), and local partners.

Although all these external actors – all simply pursuing their pure business interests (maximize the gain, minimize the cost) – contribute to competitive political and business environment for Mongolian politicians, none of these actors, except Russia in some areas, have demonstrated explicit manipulation of Mongolian policymakers in developing and implementing the mining policy. Therefore, it is not sufficient to point out external factors – the dynamics of global market and geopolitical interests of major powers – as key explanations for the mining policy failures of Mongolia.

Domestic Factors – Politicians also point to two specific domestic factors for causing the policy failures. One is private business interests, which are expressed by political and business factions and business interest groups. The other is civil society activists, which have been labeled by politicians as “populists” a problematic term in Mongolia.

Private Business Interests. Like any other democracies, including the developed ones, businesses have all possible channels to influence the policy-making process in Mongolia. In order to advance their business interests (i.e., to increase and protect their wealth), businesses always complicate the policy-making process – unless politicians, parties, and bureaucracies create and maintain the predictable and just business environment. This is the most complicated, especially during the transition period and also in a developing state like Mongolia. Starting from the gold rush period (1992) and privatization of state properties, natural resources contributed to the emergence of a new capitalist class. Many mining companies and individuals obtained mining licenses and privatized the state-owned mining enterprises, some jointly with foreign investors. This process was pushed forward by the coal-mining boom and increased foreign mining interests in Mongolia. All businesses wanted to capitalize on these ad-hoc opportunities. Some of them established the mining consortium to operate in the largest coal mine deposit (i.e., Tavan Tolgoi), some entered into a competition to disadvantage each other (e.g., MSC vs. Jenco), others quietly bargained over major mining projects (e.g., MAK) and still others competed for the supply side businesses (e.g., equipment, fuel, food, services and so forth). Today these competitions have became more intensified and are formally and informally institutionalized in Mongolia’s political processes. Just a quick glimpse of the composition of the parliament, cabinet, and political parties demonstrates how much these private business interests are entrenched into the policy-making process. Therefore, this is clearly one of the influential factors for the policy failures, although all other democracies face this influence of business interests.

Civil Society Activists and Movements. Politicians also blame civil society activists and environmental movements for mining policy failures. Like private business interests, politicians, parties, and bureaucracies cannot escape from the pressure of civil society movements. Until the main causes of the public discontent are sufficiently addressed and/or assured with reasonable medium and long term solutions, civil society activists and movements will not decline. In any democracy, the government would expect the public discontent and social mobilization when the government cannot provide important public goods, especially justice. This also applies to the Mongolian case. Since 1990 the civil society space has remained open for civil society activists, organizations, and movements. A few main themes – corruption, injustice, and environmental degradation – have been advocated by these actors. The growth of the mining industry simply intensified the public discontent for three main reasons. First, corruption, revolving around the natural resources, provides much stronger justification for the public discontent than the corruption involving foreign aid. The public is more concerned with the mining issues. This is because (1) the land and natural resources are considered the public, national property; (2) mining activities have the most visual impacts on the environment, society, economy, and politics; (3), especially in the Mongolian case, the public is concerned about non-transparent governmental debts (e.g., borrowing loans and bonds in anticipation of operating large scale mines with foreign investors). Second, the environmental damage, especially from artisanal mining, arouses a stronger sympathy from the public in comparison to other major social issues (World Bank, 2006; Swiss Agency for Development and Cooperation, 2011). Third, major mining investment projects provide an effective leverage for the public to pressure politicians, parties, and bureaucracies since political instability increases the risk for large-mining investment deals. Unlike authoritarian regimes, we would expect similar types of public discontent in other democracies, especially in developed ones, if the mining industry contributes to corruption, injustice, and environmental degradation. Any politicians, parties, and activists would pursue the populist politics for multiple purposes (e.g., morale, political, and rent-seeking). Therefore, like private business interests, civil society activism (plus populist politics) also is considered one of the influential factors for mining policy failures, although it is not the cause.

[1] Mongolia is overly dependent on fuel imports from Russia and transit routes to Europe while Russia maintains a significant percentage (49-51) ownership of Mongolia’s key infrastructure (i.e., railroad), industry (i.e., Erdenet copper plant), and other joint ventures – such as Mongolrostsvetment LLC (the 4th largest fluorspar mining; potential silver mine).

[2] “Uranium in Mongolia,” October 2014, World Nuclear Association, available at www.world-nuclear.org

[3] Mongolia is also dependent on Chinese investment, market, and infrastructure (esp., railways and seaports).

[4] However, these Chinese behaviors have been regarded suspiciously in Mongolia.

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Policy Series: A Typical Quick Solution – ‘Let’s Change It’ Syndrome (III)

In retrospect, the most common methods for dealing with policy failures have been first to blame each other – politicians, parties, factions, and civil society activists in addition to geopolitics and global economy and second to change policies without asking the hard questions. These questions would be why is there a need to change; what part of the policy is working or not working; why did it fail; what would be the short, medium, and long term impacts of a policy change; what are the optimal, win-win options; and what would be the most agreeable implementation for all stakeholders. I call this blaming and uncritical policy change a ‘let’s change it’ syndrome that increases mistrust among all actors, including the policy makers, and promotes into ‘vicious cycle’ of cheating and competition to change the bargaining dynamics.

So, why do policymakers in Mongolia prefer the ‘let’s change it’ attitude? It seems to be structural. The current political settings are so much dependent on the four-year electoral cycle – since all key policymakers and enforcers – president, parliament members, prime minister, cabinet members, governors, and local assembly members – are changed every four years. Their time horizons are short and competition for being re-elected are costly. That means they need to blame their opponents as soon as possible in order to gain the power and authority to maintain their own patron-client networks. Instead of calculating the long-term benefits of stable policies, they prefer to change the rules of the game (i.e., the laws and regulations) to create a favorable operating environment while blaming their opponents for any policy failures. As a result, we witness sudden policy changes immediately after changes in the political landscape. Like other parliamentary democracies, the political landscape of Mongolia is changed not only after presidential, parliamentary and local elections, but also by the cabinet changes (e.g., non-confidence voting results). Because the policymaking institutions and process are heavily dominated by these political actors with short-time horizons, the policymaking in Mongolia becomes unstable, unpredictable, non-inclusive (divisive) and non-transparent.   In an ideal country, where policies are stable, predictable, inclusive, and transparent, policy changes are incremental, continual build on the achievements of previous policies, and increase the certainty for all stakeholders. But, in Mongolia, it is the opposite – politicians want to change it without substantial studies and discussions while their blame game usually ends up in conspiracy theories.

Mining policy faces the exact same challenges. Also, important to note, natural resources aggregate competitions among politicians, parties, and factions for a few reasons. First, natural resources, especially gold and coal, offer opportunities for a quick accumulation of wealth without much investment and technology; therefore, the majority want to exploit this ‘window of opportunity’ that combines a weak regulatory framework and demands of the Chinese market. Second, competition among foreign and domestic investors generate ‘rents’ for politicians, parties, and factions in return for political support (e.g., bidding, investment agreement, licenses, and tax loopholes). Third, major long-term investment deals will provide multiple benefits for politicians, parties, and factions (ranging from personal, factional, and to political prestige). Therefore, the mining sector not only becomes the target of political competition, but also suffers from effects of the ‘let’s change it’ syndrome when policymakers change laws and re-structure the policy-implementing and enforcing units

The first way the mining sector suffers is that politicians are strong inclinations to change laws and rules. The principal mining policy (i.e., the Minerals Law) has had two major revisions since 1997 and is waiting for the next major one.   At the same time, this law has been amended and revised multiple times, especially from 2009 annually. Some changes are understandable because of the passages of new laws like the Uranium Law and Law with the Long Name in 2009. But policymakers are still unable to produce substantial studies and reports on implementations of their previous legislation and potential implications of the proposed changes for the public. A few examples of failed mining policies also illustrate that policymakers are not so concerned with the quality of policies or the policymaking process; therefore, laws and rules are vulnerable to changes of the political landscape and power differentials of politicians, parties, and factions.

The other suffering of the mining policy results from the reshuffling and restructuring of the governmental units – ministries and agencies in charge of the coordination, implementation, and enforcement of mining policies. Despite the simple existence of ideal laws to insulate the government bureaucracy and bureaucrats from political, economic, and societal pressures, politicians, parties, and factions compete for having control over ministries and agencies. In other words, they neglect the existing laws and regulations pertaining to the government and public service. Politicians, parties, and factions first restructure and reshuffle ministries and agencies to accommodate their private, fractionalized interests and second appoint party-affiliated individuals to senior, mid-level and junior positions of the ministry, agency, and provincial (аймаг, сум) bureaucracy. As a result, party-affiliated officials aim to benefit within the four-year, or even shorter, election cycle. Consequently, these frequent structural and personnel changes complicate the policy coordination, implementation, and enforcement functions of those ministries and agencies. Thus contributes to mining policy failures – without giving a chance for any policy to be implemented. The key mining ministry and agency (i.e., the Mineral Resource Authority) and other relevant ministries and agencies in charge of the environmental protection, finance, taxation, inspection, and law-enforcement are all affected by the changes of the political landscape.

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Policy Series: Are There Better Solutions? (IV)

There are many possible ways to improve the quality of the policy-making institutions and process to improve mining policies and reduce failed policies. In fact, all politicians are well aware of these possible solutions, but they lack political will and courage to implement them for long-term benefits. Moreover, because this clientalistic political structure is increasingly entrenched, a good principled person talks about moral principles and patriotic deeds, but acts in favor of parochial interests.   Therefore, for a ‘win-win’ result, policymakers need to look beyond the short-term horizon; investors should avoid supporting ‘corrupt’ opportunities; and the public (esp., media) must maintain the pressure both on politicians and investors. Thus requires politicians to improve the quality of policy-making processes in order to increase trust among all stakeholders. Here are four possible measures to accomplish that.

The Rule of Law [1]

Politicians, parties, factions, businesses, and the public need to adhere to the rule of law principle. In particular, policymakers, especially, high-ranking politicians, must follow the law, regulations, and standards that are the rules of the game approved by them and their predecessors. Although the rule of law principle does exist and is reflected in the contemporary politics of Mongolia, there are numerous deficiencies. In regards to constitutionalism, rulings of the Constitutional Court were obeyed up to 2000. Since then politicians, especially parliament members and cabinet members began disregarding Constitutional Court decisions. The parliament and its appointed cabinets have override the Constitutional Court decisions on power-sharing between the legislature and executive bodies, electoral procedures, and appointments of politically-affiliated officials to non-political bureaucratic and judiciary posts. Judicial independence is still questionable. There is sufficient evidence to illustrate political and business influences over the judiciary and law enforcement organizations. For example, political parties and factions assert their influence over the judiciary, especially the procurator’s office, and over the anti-corruption agency through the presidential office. They also exert influence over the police, marshal service, intelligence, and taxation via the prime minister and cabinet. Finally, because politicians for various reasons do not show respect for the law and rules, the legal culture is still not respected by politicians and political parties. Attitudes like ‘the Mongolian law is for three days’ or ‘түгжилдэх’ (to renege/to cheat) are popular in society. Therefore, all policy-makers, shapers, and takers should adhere to the rule of law principle. This would certainly have strong implications for improving the mining policymaking process.

The Institutionalization of the Legislature

Parliament must improve its policy-making and revising process. It needs to build up and empower its own non-partisan bureaucracy, especially the standing committees, in order to advance institutional interests (i.e., public interests) rather than parochial, factional, and private interests. It needs to increase incentives to conduct a thorough examination of existing policies rather than encouraging proposing new legislation. It needs to strengthen the accountability of parliament members. What’s the current legislative picture? First, it is overwhelmingly represented by business interests in comparison to the parliaments of 1992 and 1996.[2] Second, all parliament members are entitled to introduce a draft bill or changes to the existing legislation. This provides immense opportunities to change any policies and increases the workload for the parliament and staffers. Third, the law-passing process is the easiest because there are very few veto players. With the presence of 39 (out of 76) members, any legislative initiative can be discussed in the general session and passed by only 20 votes. Incomprehensively, members can vote (push voting buttons) on behalf of other absent members. Finally, there are strong monetary incentives for the law initiation. A member can get up to 20 million tugrugs for initiating the bill (i.e., funding for experts and staff).[3] Therefore, the parliament should constrain today’s fractionalized, decentralized policy-changing behavior, but should create incentives for proper institutionalization of the legislature.[4]

The institutionalization of political parties. This is another important step to improve policies, including for mining. Today the most powerful political institutions in Mongolian politics are the political parties, especially the two dominant ones. Because they are dominating the political landscape, both parties provide opportunities and protection for politicians, bureaucrats, businesses, and civil society activists. At the same time, these parties are the training ground for future political leaders and bureaucrats. However Mongolian political parties have increasingly become clientalistic and based on patron-client networks, rather than issue-oriented platforms and/or ideologies. In other words, they are weakly institutionalized, although there are some difference between the MPP and DP.  “Party’s weak institutionalization is not the only cause of political corruption, but it is certainly one of the causes of party corruption” (Pelizzo, 2006, p. 180). If the political parties are clientalistic and corrupted, then the parliament and government bureaucracies are gradually becoming clientalistic. Although well intentioned laws on political parties were passed by the parliament, it is not adequate until senior leaders of political parties dedicate the will and courage to enforce the official laws as well as parties’ own internal regulations and discipline.

Insulation and Professionalization of the Bureaucracy

Politicians need to not only agree on, but also commit to the insulation and professionalization of the bureaucracy. Unless public servants are insulated from political and business interests, policies are unlikely to be implemented and enforced thoroughly and properly. In theory, public servants are supposed to serve as gatekeepers against parochial, short-term interests by adhering to long-term developmental policies. In reality, this would not be the case if political parties, factions, and interests groups competed for the public offices to protect their own interests, to increase their benefits, and to marginalize their opponents. “Adopting any ideal public service laws and practices in the world” is not helpful, as Spiller (et al) argues, “if patronage involving positions in the bureaucracy remains an important currency used by politicians to reward their partisan base”(Spiller, Stein, & Tommasi, 2008, p. 28). The current regulatory framework for public service and conflict of interests are ideal if politicians, parties, and factions just uphold it. Because party officials and senior bureaucrats are not following these public service laws, regulations, and standards, the current political structure encourages unaccountable, opportunistic, and cozying behaviour by politicians, bureaucrats, and businesses. This also encourages individuals and public servants to seek political party affiliation, and in turn, discredits the merit-based professional public service. Since this is an overall challenge for the public service, the mining sector is also affected. Without insulating public servants from political and business interests and influences, it would be difficult to expect proper implementation and enforcement of mining policies at the national and provincial levels.

[1] The rule of law includes the constitutionalism, independent judiciary, and pertaining legal culture. The most important feature of the rule of law is that politicians must be binded by the laws, rules, and regulations (Fukuyama, 2010).

[2] For total net assets and wealth of the Mongolian parliament members, see “The Wealth of Parliament Redux: What’s It Worth?” November 11, 2013, available at: http://themongolist.com

[3] Interview with parliamentary staffers, December 20, 2014.

[4] I borrow the notion of institutionalization as elaborated by Samuel Huntington. The institutionalization is defined as the process by which organizations and procedures acquire value and stability. The level of institutionalization of a political system can be defined by the adaptability, complexity, autonomy, and coherence of its organizations and procedures. The level of institutionalization therefore can be measured by its adaptability, complexity, autonomy, and coherence. For more on institutionalization, see (Huntington, 1968).

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Oyu Tolgoi on Track Again

Last week, this is what I tweeted

It looks like the day after is upon us, according to press reports and a series of Turquoise Hill press releases. Below are my initial comments, but note that these are based on the publicly-available information only, and are preliminary in nature.

What’s in the Agreement

  • On the question of outstanding taxes that had been assessed and in dispute, Oyu Tolgoi and the government seem to have agreed on a tax bill of $30m, without prejudice, i.e. without any admission of guilt on either side.
  • Oyu Tolgoi forgoes a 2% smelter royalty it had inherited from BHP Billiton.
  • There is a change to how the royalty on sales is calculated.
  • The management fees that Rio Tinto charges for operating Oyu Tolgoi are reduced from 6% to 3%.

What’s Not in the Agreement

Pending further announcements of details,

  • Any reduction in the 34% share in Oyu Tolgoi held by the government.
  • Any debt forgiveness or assumption of government debt.
  • Any significant changes to the royalty structure (in part because the 34% stake remained.

On balance then, I’m a little surprised that there are no momentous changes in the Oyu Tolgoi structure. It had seemed that both, Rio Tinto and the government, had lost faith in their partnership. While it was always clear that progress would ultimately benefit both sides tremendously, simply because of the overall size of the project, it seems that the results of negotiations have not reconfigured the relationship. Perhaps it was the process of negotiations itself that will allow this agreement to have some longer-term durability?

What’s Next

Various financing deals for the underground construction had expired, so negotiations for $4b in project financing will have to start anew. Given the fundamental economic soundness of the Oyu Tolgoi project, this should not be a huge hurdle.

Once financing has been established, Oyu Tolgoi should be able to ramp up underground construction in the course of the summer. A construction workforce will have to be recruited and machinery and materiel procured.

As construction gets under way, a Mongolian workforce will have to be hired toward operations at the mine.

For the Mongolian government, a number of issues that have come up over the last two years remain unresolved as the Oyu Tolgoi governance structure does not seem to be changing with this agreement.

When Erdenes Mongol looks at business operations at Oyu Tolgoi, how active will this holding company be? Presumably, there will not be any involvement in day-to-day operations, but in bigger decisions, is the state holding tasked with the maximization of financial benefits to the state, i.e. maximal revenue flows to the general budget, or does it take a more comprehensive and holistic view of operations? Is the holding run (at arm’s length, one would hope) by the Ministry of Finance or do ministries like environment, labour, etc. also get a say? For the long-term operations of this mine, answers to such questions will definitely be needed!

Economic Implications

The 2011 boom in Mongolia was built on construction activities at Oyu Tolgoi. I don’t see any particular reason why a boom should not result from the underground construction that will commence with the agreement that was reached.

While much of the construction-related employment may be foreign labourers and expats, construction will draw on local suppliers to house, feed and maintain a large workforce. Presumably, domestic air travel to Dalanzadgad will resume and a number of infrastructure projects will be accelerated further adding to a construction boom.

Also, presumably, the turgrik will either appreciate or at least hold its value (depending on the fiscal situation). Would there be any reason for inflation to decline other than a halt to the depreciation of the turgrik?

Other than the $30m tax bill, a construction boom doesn’t produce immediate revenue flows for the Mongolian government, if anything the agreement will strain government budgets more as the required investment will amount to up to $2b that the government currently doesn’t have. Open pit operations will continue and continue to generate revenues but not on a scale to finance the underground construction.

While Rio Tinto has obviously been persuaded by the negotiations that this agreement provides stability in the medium term, it seems unlikely that this would immediately reverse the decline of FDI into Mongolian. Mining projects already underway and undertaken by purely Mongolian-focused companies may be able to find financing somewhat more easily again and the associated activities might see a modest rebound of FDI.

But how has the mutual distrust between Rio Tinto and the government been overcome? While the agreement is a once-a-decade step for Mongolia, will it outlast the current decade? The 2009 Investment Agreements ran into trouble 4 years into its existence. Looking at that experience, it seems unlikely that FDI would rebound on a large scale.

Political Implications

For PM Saikhanbileg, the agreement is a huge victory, particularly since it comes just over a year before the election and there is some chance that voters will see positive economic results from this agreement by the time of the election.

This may not be enough to persuade voters to return the DP to power (in fact this still seems very unlikely at this moment), but it may soften the blow and allow Saikhanbileg to claim underground operations at Oyu Tolgoi as his legacy, more than the DP’s legacy, perhaps in the 2020 parliamentary election.

Since Saikhanbileg’s super-coalition was constructed with the goal of moving on large projects (Tavan Tolgoi appears to continue to be mired in a complex web of domestic business interests, contracts, and foreign relations), the signing of this agreement surely dooms the coalition sooner rather than later. It was never expected to outlast next winter, simply because parties wouldn’t want to go into the 2016 election with coalition partners lest they cannot establish the distinctiveness of political choices, but with this agreement out of the way (and everyone, including the MPP) being able to claim some credit for this, why should the MPP stay in this coalition?

The fiscal situation doesn’t improve significantly and that’s the DP’s mess to deal with. The construction and affiliated service industry boom that will be spurred by this agreement will happen relatively independently of government actions. Unless there is an unfortunate argument that the MPP and some of its prominent politicians want “in on the boom”, it would seem that this agreement would spell an end to the coalition though perhaps not before the parliamentary summer recess.

All in all, May 19 2015 will have been very significant to Mongolia’s development. While I had been feeling quite gloomy after my recent visit to Ulaanbaatar, this agreement changes everything. As I had previously argued, the Mongolian government has to “just” get Oyu Tolgoi right as the scale of this project will sustain capacity-building for other economic activities. None of this is guaranteed by this agreement, but it seems to be a positive step at least.

Posted in Economics, Foreign Investment, Mining, Mining, Oyu Tolgoi, Party Politics | Tagged | Leave a comment

Modigolia? Indian-Mongolian Relations post-PM Modi’s Trip to Ulaanbaatar

In the wake of Indian PM Narendra Modi’s visit to Ulaanbaatar should we expect a radical revamping of Indian-Mongolian relations? Certainly, you don’t send in the big dogs unless you mean business, right?

The Visit

Modi visited Mongolia on the invitation of the Mongolian PM Ch. Saikhanbileg from May 16-18th. This is the first visit from an Indian Prime Minister to the country, and was scheduled to coincide with the 60th anniversary of formal diplomatic relations between the two states. Conveniently, this also coincided with Modi’s Asia tour, and he came to Mongolia after a very successful visit to Shanghai.

In addition to formal meetings with Mongolian officials, Modi visited an IT school that India had funded in Ulaanbaatar, as well as a medical center. He was also treated to a cultural display modeled after Mongolian Naadam and presented with his very own Mongolian horse (something often organized for visiting heads of state).

In good diplomatic fashion, a slew of contracts, agreements, and MoUs were signed during his visit. Here is a short list of the various agreements that I was able to find:

  1. PM Modi and PM Saikhanbileg signed a new strategic partnership agreement
  2. India and Mongolia will jointly establish an “Indian-Mongolian Friendship School” in Mongolia
  3. They will establish a cultural program starting in 2015 and continuing through 2018
  4. Both sides agreed to foster connections between Mongolia’s Diplomatic Academy and India’s Foreign Relations Institute.
  5. The two states committed to advising meetings to discuss and exchange ideas on national security and defense
  6. India has extended Mongolia a $1 billion credit line.
  7. India and Mongolia have decided to intensified civil nuclear cooperation, especially with regards to cancer treatment applications.
  8. PM Modi and Mongolian President Tsakhiagiin Elbegdorj discussed ways of strengthening trade through agreements on shipping and logistics, energy, and taxation.
  9. There is also discussion of using the Gujarat Co-operative Milk Marketing Federation model to boost Mongolia’s dairy industry. (Modi was the chief minister of Gujarat before becoming PM in 2014, so the connection is not as random as it might otherwise seem).

Contextualized within the larger history of Indian-Mongolian relations, this is certainly not insignificant. This is another piece of in the puzzle of India and Mongolia’s neighbourly relations.

Three Kinds of Third Neighbours

India and Mongolia are neighbours? Surely, Brandon is failing at his efforts to learn geospatial analysis. But in all seriousness, Mongolia refers to India as its spiritual neighbour, one of many third neighbours, and increasingly as an ideological (democratic) neighbour. All three components of neighbourly relations were emphasized during this official visit.

Spiritual Neighbours

If one were to imagine an arc of Buddhism, extending from India, through Southeast, Japan, and China, Mongolia would be the northernmost section, and India and the southern most. Indeed, the first Indian ambassador to post-communist Mongolia was a devote Buddhist, and funded a number of monastery projects. It is no surprise then, that Modi’s first stop was to Gandan Monastery– one of the oldest surviving monasteries in Mongolia.

Let us not over state this religio-cultural relationship, however. Buddhism is not a broadly practiced religion in India, with Tibetan refugees and Tibetan peoples in Ladakh and elsewhere making up the vast majority of practitioners. India might be held in special esteem as a result of its connections to Buddhism, but Tibet is Mongolia’s real spiritual neighbour, with India a convenient second. Still, the rhetorical of “spiritual neighbours” is useful for providing additional justification to efforts at strengthening Indian-Mongolian relations, even in geopolitical calculations might actually carry the day.

“Third Neighbours”

“You always want to be the friend of the neighbors of your own most powerful neighbour,” I was once told by an official at the Indian Embassy in Ulaanbaatar. As is well known to readers of this blog, Mongolia’s execution of its so-called “third neighbour policy,” by which the country seeks to develop close relations with regional and global powers besides its two physical neighbours, has been shaky at best. Despite efforts to diversify trade, China dominates Mongolian exports, and Russia continues to dominate the list of imported goods. Indeed, Modi may have encouraged Indian companies to explore options in Mongolia, but that won’t make these companies more competitive against Chinese, North American, or Australian firms.

That said, there is reason to be hopeful that the third neighbour policy has succeeded in fostering diplomatic ties with a far wider range of actors than some may expect. India represents a particularly attractive partner for Mongolia, because both countries share a common concern about Chinese hegemony in the region. Mongolia as a small state needs to ensure that it has an array of international partners that would dissuade Chinese action against its sovereignty (including economic action). On the other hand, a rising India has a vested interest in ensuring that China is not the only regional power courting smaller Asian states.

Ideological Neighbours

India is the world’s largest democracy; Mongolia is the only democracy in its neighbourhood. This connection appears to have been highlighted during the visit, and is certainly a central component in the Indian-Mongolian strategic partnership. During his visit, PM Modi noted that his visit not only coincided with the 60th anniversary of Indian-Mongolian diplomatic relations, but also with Mongolia’s 25th anniversary as a democracy. Both India and Mongolia make a lot of noise about their democratic status. Mongolia has effectively leveraged its democratic credentials to further its relations with the U.S. and E.U. member state; India notes its established democratic system in sharp contrast to regional rivals (Pakistan and China).

 Conclusions

Returning to the question of whether we should expect any radical change in Indian-Mongolian relations, the answer is most likely a resounding “No, but…”

There are clear indications that India and Mongolia are moving to capitalize on the potentially strong relationship that they could enjoy as a result of their spiritual connections, shared geopolitical concerns, and ideological compatibility. There is no reason to expect that India and Mongolia will not be able to forge more significant economic and political ties, if there is the political determination to do so. At the same time, these ties remain limited by geography (distance) and the capabilities of both countries.

Posted in Foreign Policy, India, International Relations, Mongolia and ... | Tagged | Leave a comment

Potential Northeast Asian Economic Corridors: Differing Chinese and Russian Priorities

Sitting at a strategic crossroads between Europe and East Asia, Mongolia and North Korea are potential economic corridors for the wider Eurasian landmass. However, the realization of such corridors depends in large part on Chinese and Russian policy priorities, since both have long-standing geostrategic interests in the region. If the current trend of regional economic development continues to override the traditional security dilemma of all these neighbors, Mongolia can provide the shortest route for China to Russia, while North Korea could facilitate Russia’s outreach to other non-Chinese economies in East Asia. At the same time, Mongolia and North Korea, as the most isolated economies of Northeast Asia, would benefit from Sino-Russian regional development initiatives. Even though Beijing and Moscow have endorsed closer cooperation, they apparently have differing priorities: China advocates the Mongolian economic corridor, whereas Russia prioritizes a corridor through North Korea.

The existence of shared, and sometimes competing, Sino-Russian geostrategic interests in Mongolia and North Korea is historically quite clear. When Russia has perceived threat coming through Mongolia in the past, it extended its political and military presence into this landlocked country. Over 20,000 Soviet soldiers lost their lives defending Mongolia from Japanese aggression in 1939, and the Soviet Union maintained over 100,000 military personnel in Mongolia during the period of Sino-Soviet tensions in the 1960s and 1970s. Presently, while not wanting to provoke China, its newly established strategic partner (see EDM, March 10), Russia now has revived its defense ties with Mongolia by organizing bilateral exercises, providing military hardware, and resuming military training assistance (see EDM, March 20, 2013; October 9, 2013). Similarly, over 150,000 Chinese soldiers and volunteers lost their lives in defense of North Korea in 1953, and China is still committed to the mutual defense aid and cooperation treaty, which was renewed in 2001. Moscow and Beijing continue to emphasize these bonds by attending, at the highest level possible, events commemorating such past joint military endeavors. This clearly indicates that Mongolia and North Korea remain geostrategically significant for Moscow and Beijing. But, economically, China and Russia have differing priorities.

China appears quite supportive of Mongolia’s initiative to become a Eurasian economic corridor, and it quickly included Mongolia in the Silk Road Economic Belt initiative as well as the Asian Infrastructure Development Bank. At a summit in Dushanbe, Chinese President Xi Jinping proposed a Mongolian economic corridor that would increase transit infrastructure and Mongolia’s power grid network (Xinhua News, December 4, 2014). Earlier this year, Chinese Foreign Minister Wang Yi repeated Beijing’s interest in building an economic corridor through Mongolia. He articulated that this corridor would be an organic combination of China’s Belt and Road initiative, Mongolia’s Prairie Road and Russia’s Eurasian Railway initiatives (Chinese Foreign Ministry press release, April 2).

In contrast, China has, to date, excluded the Democratic People’s Republic of Korea (DPRK—North Korea) from both economic belt and infrastructure bank initiatives, even though there were previously such discussions with North Korean officials. This may indicate Beijing’s priorities of bringing Mongolia, Central Asian states, and South Korea closer under the China-centric regional economic order at this time of strategic convenience. Whereas, regarding Pyongyang, Beijing seems to have decided that it would prefer to restrict Chinese-DPRK economic relations to their present level. North Korea currently has quite limited options and must rely on Chinese capital, technology and markets.

Russia, on the other hand, appears to have prioritized the North Korean economic link rather than Mongolia’s economic corridor for several reasons. First, Russia’s engagement with North Korea would provide more opportunities to project Moscow’s image of a “Great Power” in the Asia-Pacific—particularly since Pyongyang considers Moscow a reliable partner in balancing against Beijing as well as other members of the Six Party Talks on North Korea’s denuclearization. In late September 2014, Pyongyang dispatched its foreign minister to Russia to build up a united political front as both countries have come under sanctions from the West (Mid.ru, September 29, 2014; The Guardian, September 30, 2014).

Second, Russia’s investment into North Korea promises a quicker and greater return than its investment into Mongolia, which would provide only an additional route for Russian exports to China. In the case of North Korea, Russia is more interested in gaining access to ice-free ports on the Pacific coast and investing into transit routes for its mineral exports to the wider East Asian region. This would provide access to some of East Asia’s largest resource importers, including South Korea, Japan and Taiwan.

Third, Russia sees more investment opportunities overall in North Korea than Mongolia. This may be especially true considering the strong South Korean interest in linking the trans-Siberian railway with the trans-Korean railways. Indeed, Russia has already expanded its business presence in Pyongyang and started playing a key role in implementing such trilateral projects (see EDM, May 7, 2014).

In contrast, Moscow’s policy toward Mongolia has been largely for Russia to regain its former “privileged status” in areas of major Mongolian mining projects, infrastructure development and energy sectors. But this contradicts shifting political and economic realities in Mongolia, which has been seeking to diversify its global economic and investment partnerships (see EDM, February 20, March 2, April 6). Therefore, most emerging projects like new railroads, uranium mining and energy, where Russia and its state-affiliated business entrepreneurs expressed an interest, have become victims of local politics.

While concerned with their traditional geostrategic interests, China and Russia are pursuing different policy priorities for establishment economic corridors in peripheral states. China is more interested in funding infrastructure development projects in Mongolia, whereas Russia prioritizes North Korean economic links and economic opportunities. Despite the entirely different political systems in Ulaanbaatar and Pyongyang, both present risk and uncertainty for long-term investment projects—even when amicable Sino-Russian interactions create a favorable momentum for closer economic cooperation.

Note: re-posted with the permission of the Eurasia Daily Monitor of the Jamestown Foundation, for the original news, EDM (2015/05/08).

Posted in China, Economics, Infrastructure, International Relations, Japan, Mongolia and ..., North Korea, Russia, South Korea | Tagged | Leave a comment

New to Ulaanbaatar in 2015

I’ve been keeping a list of things that are arriving to/disappearing from central Ulaanbaatar: May 2014October 2013.

I’ve copied the 2014 list here and am adding to it. New items since 2014 that I’m adding in italics.

What has arrived?

  • sadly, Louis Vuitton, KFC, Burberry Kids and Ugg [probably not new, but I noticed these brands]
  • Mini, Bentley
  • child seats
  • sidewalks
  • parks
  • farmers’ markets
  • yoga
  • dogs on leashes
  • Sunday morning joggers and bikers
  • coffee culture
  • river walkway along the Dund River (under construction in May 2015 but looking very promising)

    • pedestrian overpass to avoid street traffic (Chinggis Ave, just south of Peace Bridge)

  What’s going on in #Ulaanbaatar? Pedestrian overpasses? A bicyclist? What?   A photo posted by Julian Dierkes (@jbdierkes) on

What has disappeared, or at least nearly?

  • stationary 80s-office-phone-looking old-granny cell phone booth
  • for-pay scales (actually, they seem to be hanging on)
  • free WiFi on Sukhbaatar, er Chinggis Khaan, er, Sukhbaatar Square
  • Sukhbaatar Square, er, Chinggis Khaan Square
  • open gullys/missing manholes
  • street kids
  • packs of dogs
  • smoking
  • the sixth-floor souvenir shop at the State Department Store (though perhaps seasonal)
  • oversized sunglasses for women that were so popular across Asia (?) some years ago
  • Nescafe (see above on coffee culture)

What will appear in the future

  • navigation systems
  • wheelchair accessibility
  • bike lanes
  • city park along the Tuul (see above!)
  • new airport (apparently)
  • subway (really, I wish they had selected light rail instead)
  • sports cars √
  • Harley-Davidson
  • urban renewal and historical restorations embracing district north of government house (National University of Mongolia, German embassy, etc.)
  • road signs in the countryside
  • street names and signs in the city
  • network of cross-country riding trails
  • parking (meters)
  • Combined Heat and Power Plant #5 (yeah, right!)
  • hipsters discovering УАЗ (minivan and jeep)

What will disappear in the near future

I’m going out on a predictive limb here… 2-3 years is what I mean by “near future”.

  • stray dogs
  • stretched-out hand to signal for a car ride
  • that awkward extra half-step on most stairs

What will disappear in the medium-term future

I mean around 7 years or so.

  • new (to Mongolia) cars that are right-hand drive
  • the neo-classical Ministry of Foreign Affairs building, with its Stalinist (if that’s an architectural style) spire
  • deels in the city
  • some of the downtown university campuses
  • buildings of 4 floors or less in the urban core
  • Russian minivans (УАЗ452) but see above.
Posted in Curios, Ulaanbaatar | Tagged | 3 Comments

FOC Comes to Mongolia

Thanks to support from the Canadian Department of Foreign Affairs, Trade and Development, I was able to participate in the Freedom Online Coalition conference in Ulaanbaatar.

Below, I want to highlight some of the discussions and presentations that were of particular relevance to Mongolia.

For a more general sense of discussions at the conference, see #FOC15 on Twitter, or a write-up in the UB Post, or a blogged recap. To my disappointment, the conference seems not to have been covered by any international journalists at all.

Opening

The conference was hosted at Government House, always a grand, but also quite functional venue.

As would befit this kind of international gathering, the conference was opened by a brief greeting by H.E. L Purevsuren, foreign minister.

Naturally, FM Purevsuren also mentioned that Mongolia is celebrating 25 years of democracy this year. H.E. Ts Elbegdorj, president of Mongolia, spoke next. Jargal de Facto’s Jargal D served as the MC.

Kindly, Pres. Elebgdorj, identified this conference as the most exciting conference he has opened.

His address was surprisingly long, substantive and sincere, at least to me.

Some of the themes he touched on included the rapid transformation of Mongolia, drawing particularly on his herder origins and reminiscing about the role of “communications” in the countryside during the state socialist era (ie ride on horseback to fetch a doctor and better bring a horse for him/her). Changes that he identified in Mongolia included the telecommunications revolution, but also democracy and relative prosperity.

At one point, he pulled out a pretty classic “brick” cell phone to illustrate that telecommunications had also developed rapidly and massively.

Pres. Elbegdorj also spoke about the Freedom Online Coalition agenda (summed up in my understanding by something like “ensuring that off-line human rights are also enforced/respected/implemented online”).

After proclaiming online freedom a human right, he compared attempts by government to control the internet to “global warming”, noting also that “democracy is a learning process” and that “people have a right to be suspicious”.

While Pres Elebgdorj didn’t refer to Ts. Bat by name, it seemed to me that he had #FreeBat in mind when he talked about recent challenges to online freedom in Mongolia.

Online Freedom in Mongolia

I had organized a panel that would focus on a discussion of the threat that defamation lawsuits might pose to journalists and the extent to which this threat might lead to self-censorship.

With Trevor Kennedy, Melanie Schweiger and Christina Toeppel, we discussed the personal liability of journalists in traditional media, online, and for citizen journalists across FOC member countries, but also in China, India, Russia, and Thailand as particularly significant examples. Libel or defamation appears in the penal and civic codes of many countries, including FOC members. There is a concerted effort to move these provisions to the civic code, but that has not happened everywhere. The question of personal liability is one that is often highlighted in reporting about the state of media in Mongolia, for example (which led us to this topic in the first place), and it is taken into account by the various indices, but there are several high-ranked countries that have personal liability, Australia being a prominent example. As a general pattern among the FOC members, however, countries that are ranked highly on freedom-of-the-press indices tend not to have personal liability provisions on the book.

The other general pattern we saw is that Asian FOC members (Japan, Maldives, Mongolia), but also the other Asian countries we included in our survey (China, India, Thailand) all have personal liability provisions that threaten journalists financially and otherwise. Given that this was the first FOC conference held in the Asia-Pacific region and that some voices in the plenary session called for an expansion of the membership, particularly in underrepresented regions (anywhere but Europe and North America), we thought that this was noteworthy.

Lhagva who has been involved in efforts to set up the Media Council of Mongolia, joined the session to talk about media policy in Mongolia. #FreeBat was a touchstone in this discussion, but of course that hasn’t been the only case in Mongolia. Last year’s attempt to ban a set of “swear words” was another example, as has been the lack of enforcement of some press-related laws. Lhagva expressed his surprise that Mongolia ranks fairly high in various indices of democracy and freedom of the press.

Our session was also included in live-blogging by GoGo News Agency. After we concluded the session, we experimented with a wrap-up that was broadcast on Periscope, Twitter’s video-broadcasting service. It appears that there were some viewers, but we later could not retrieve the recorded version which only lasts 24hrs on Periscope in any case. My inability to name the broadcast something sensible (other than “Untitled”) probably didn’t increase the viewership, though the app claimed that 61 viewers watched us live.

In a panel on the second day, research organized by the Silk Road Foundation focused on the legal environment for online free speech.

Several presentations were quite useful in listing the laws and governmental authorities that are involved in regulating free speech, but it was also clear from the comments at the end of these presentations, that there is a fair bit of frustration in this community about the lack of responsiveness of the government/parliament to continued arguments for changes in the law, and to the mismatch between Mongolia’s international commitments and the laws and regulations that govern online communications. Activist Kh Nomingerel was particularly vocal in this regard in her presentation on “The Legal Framework of Freedom of Expression on the Internet”.

Cover Mongolia‘s Mogi also participated in the panel discussion. Rather than focus on the more abstract legal aspects, he pointed to the specific implementation of some of these laws as they limit online freedom. He urged listeners to have a look at the Black List of domain names that are blocked in Mongolia, as well as to inform themselves about the FinFisher mention on WikiLeaks.

Significance of FOC Conference in Mongolia

In addition to the topic of online freedom that I arrived at through my interest in digital diplomacy, I was very interested in the FOC conference as a foreign policy tool. Here, the hosting of the conference surely was a success. By being selected and then acting as the host, Mongolia reaffirmed its claim to membership in the club of democracies. Some of its “third neighbours” are quite active and were well-represented at the conference, especially Canada and the United States with delegations from Ottawa and Washington participating respectively. Japanese participation was more limited, and Australia just joined the FOC.

Whether or not the calls for alignment between claims to human rights online and democracy, and the actual implementation of internet-related laws detract from the overall hosting of the conference is hard to say, but since most of the “FOC-crowd” is unlikely to have sustained interactions with Mongolia, I suspect that the symbolic impact will far outweigh any doubts visitors might have had about sincerity. 

Of course, even the symbolic impact will be somewhat limited, as not a single foreign journalist covered the conference and beyond some blogs, little notice has been taken of the event.

The domestic press covered the conference extensively. Here, I suspect the impact is more one of the satisfaction at being a viable member in a club of advanced democracies than the attention given to some of the shortcomings in Mongolia’s regulations.

Posted in International Relations, Media and Press, Mongolia and ..., Protest, Social Change, Social Issues, Social Media | Tagged | 2 Comments

Initial Observations in Ulaanbaatar, Again

On previous visits to Mongolia, I’ve taken notes on my initial quick observations about changes (and the lack thereof) in the Ulaanbaatar cityscape: November 2014May 2014 | November 2013.

So, here it goes for May 2015.

Travelling to ULN

I came via Seoul. That is such a more pleasant way to come than the transfer in PEK. Incheon is a really nice, bright, modern airport. International transit is well-organized with a simple detour through security ahead of passport control so that Korean immigration is not involved at all. The only thing that it is missing are better newsstands with international newspapers and magazines.

Flying KAL is also much more pleasant than the Air China flight from PEK. The flight leaves from a reasonably-located gate, not the last gate at the end of the furthest reach of the terminal that PEK always seems to assign to ULN flights. It’s really hard to fight the sense of a imperial Chinese attitude toward Mongolia during the PEK transfer and the gate assignment is part of that. Other elements: the CA flight is always the oldest plane in their fleet, last night was a modern, very pleasant plane. KAL hires Mongolians as flight attendants, so all on-board announcements are made in Korean, English, and Mongolian. Even though you would think it would be easier for CA to find Mongolian-speaking Chinese flight attendants (even if it is Inner Mongolian) than KAL, I’ve never heard a word of Mongolian on CA flights, nor any attempts by their staff to cater to the many Mongolians that travel with them. I also took note that the flight arrived precisely on time, despite the usual sidewind/turbulence at ULN.

I arrived at ULN late at night which always reminds me of my first trip in 2004 (I think, and not counting a 1992 Transsiberian stop). It’s always slightly surreal, too, to drive into Ulaanbaatar from the airport at night.

Khaan-Uul District

It’s really amazing to see how the whole stretch of Ulaanbaatar between ULN and the bridge over the Tuul has developed.

One of the curiosities that struck me last night is that most of this area doesn’t have a lot of gers in it.

There’s probably an easy/obvious answer to why that would be (please, let me know in comments!), but it is striking. Yes, the area is relatively far away from the centre of Ulaanbaatar, but so is much of the Western end of Songinokhairkhan and there is lots of ger sprawl there. Something about being on the North side of the mountains, so in the shade? Something about the airport or about the Naadam horse racing course?

Of the various directions out from central Ulaanbaatar, this is one of the areas that is developing mostly by contemporary construction, not by people “voting with their ger” to move here. Thus there are lots of tall buildings sprouting up including the International School, etc.

Some new (to me) developments I noticed last night:

  • are the streetlights blinking on-and-off in a coordinated way? Is that a desired discotheque-effect (though it seems of limited benefit to drivers/pedestrians)? Or (more likely, I think), is this faulty wiring?
  • when there are traffic lights in the middle of an otherwise deserted stretch of road to allow pedestrians to cross to busstops, that’s a great thing. When those lights aren’t button-activated but on a timer and thus give pedestrians a green light in the middle of the night when there don’t seem to be any pedestrians, that frustrates drivers, and few will stop.
  • there’s a brand-new, very nice-looking Sansar supermarket on the North side of the airport road now.
  • the Hunnu Mall was still dark last night and it didn’t look like it was close to opening, or at least not closer than it looked late last year.

Coming into Central Ulaanbaatar

That whole section from the Tuul bridge to Peace Bridge looks so different now.

One part that is particularly striking is what used to be the traffic circle near the Olympic building

Here’s my immediate impression I tweeted last night:

Given my past (and hopefully future) involvement with the National Olympic Committee, I’m a bit dismayed by this loss of prominence.

I also noted that the Shangri-La is still dark and unfinished.

The apparent lack of city planning is continuing to produce strange concoctions of structures and streets in weird configurations.

On the Street

Speaking of street lamps (see above): I did notice that a number of the street lamps in central Ulaanbaatar seem to be LED lights. I haven’t noticed even one of those in Canada, so if my amateur observation is right at all, a case of leapfrogging technology.

I continue to be fascinated by the varieties of cars that show up on Ulaanbaatar streets.

When I was a kid, the car that would have been voted least likely to be adorned with flame stickers or a wing of any kind, might have been the Volvo Station Wagon, car of choice for all academics and other nerds. Well, today, the Toyota Prius might win that particular vote at least until you see versions of Priuses on Ulaanbaatar streets. Not only do some body panels seem to have a tendency to rip, but they also seem to get the tinted-window and fancy hubcaps treatment with the same frequency as all other cars. Note to self: check whether PIMPmyPRIUS.mn is still available as a domain name…

Posted in Social Change, Ulaanbaatar | Tagged | 6 Comments

Outlook: Freedom Online Coalition Conference in Ulaanbaatar

[For my impressions from the Conference, see http://blogs.ubc.ca/mongolia/2015/freedom-online-coalition-mongolia/]

Next week (May 4-5) the Mongolian government hosts the annual conference of the Freedom Online Coalition, a club of 26 countries dedicated to the promotion of, er, freedom online.

This is yet another success in Mongolia’s foreign policy, leveraging its status as Asia’s only post-state-socialist democracy to engage “third neighbours” and specifically to forge closer ties with tele-neighbourly democracies. Note, for example, that Mongolia’s immediate neighbours, Russia and China, are unlikely to be seen anywhere near the notion of freedom online.

Previous examples of events/organizations that help Mongolia remain on the radar screen of powerful large democracies: Community of Democracies 2013,, OSCE, next year’s Asia Europe Meeting.

Freedom Online Ulaanbaatar

Motto: “Internet Policy Making – Best Practices for Promoting Online Freedom

You can see how my interest in Digital Diplomacy coupled with my focus on Mongolia mean that I was eager to participate in this conference.

I feel quite fortunate that our proposal for a panel at the conference was accepted and am looking forward to participate in the conference together with UBC MAAPPS students Trevor Kennedy, Melanie Schweiger, and Christina Toepell. Our participation is possible through the financial support of the Canadian Department of Foreign Affairs, Trade and Development.

If you’re curious about other sessions for the conference, please see the detailed program.

Here’s our plan for our panel:

May 4, 14:15-15:30h
“Journalists’ Liability Online and the Role of the Press”

Panelists:

Debates and opportunities to critically examine and discuss government policies are an essential feature of democracy. Cross-national evaluations of press freedom such as the Freedom House “Freedom of the Press” report try to measure legal protections for journalists’ contributions to such debates.  In many countries, publishers are regulated as the legally liable entity regarding comments made by employees of these publishers. But in several countries across Asia, journalists are personally liable in libel accusations. In the last two years this liability seems to have been extended from traditional media to the online space, for example in societies with extensive state censorship of the media like China and Thailand, but also in FOC members like Mongolia.

While this seems merely an extension of practice from traditional media to social media, the threat of libel lawsuits may well curtail independent reporting, especially in countries where electronic media are a vibrant sector and essential part of public debates.  

The proposed panel will compare and contrast practices regarding the role of publishers in shielding journalists across different countries with contributions from scholars, analysts and journalists themselves.

The idea for this panel was rooted in a discussion at Freedom House late last year where SE Asia analysts pointed to the arrival of laws extending the personal liability of journalists to the online space starting with Thailand but the spreading to other SE Asian countries. Given my interest in Mongolia, this meshed with my in-passing knowledge of the prosecution of Ts. Bat for critical remarks he had made about then-Minister of Transport A Gansukh, see also #FreeBat. The personal liability of journalists has long been cited as an obstacle to the development of the media in Mongolia leading to self-censorship and a lack of investigative and critical journalism that is so needed to evaluate proposed policies.

The other angle on this topic is that a vibrant press is clearly seen as an essential element in democratization as the media can serve a critical role as the “Fourth Estate”.

As we will discuss in the panel, even among FOC member countries there is a fair degree of variability in the extent to which journalists’ writing is protected in traditional media as well as online.

I hope that there will be some discussion of these issues at the panel as well and that there will be lively discussion online using #FOC15.

I even have delusions of a self-made mini press conference using Periscope, but we’ll see if that happens. If you’re curious about that, please follow me at @jdierkes

Posted in Canada, Civil Society, Foreign Policy, International Relations, Law, Media and Press, Mongolia and ..., Social Media | Tagged | Leave a comment

Guest Post: Assessing Khan Resources Arbitration

Matthew Levine

Following expropriation of Dornod uranium investment, Khan Resources announces conclusion of arbitration with Mongolian government

Intro

Khan, a mining company listed on the Toronto Stock Exchange’s venture board, its holding company, and its erstwhile joint-venture partner, recently announced victory in arbitration with Mongolia. Khan has apparently been awarded a base amount of US$80 million plus interest as compensation for Mongolia’s expropriation of its investment in the Dornod uranium deposit.

There is still a great deal about the arbitration that remains unknown: the information in Khan’s press release provides an outline while leaving the details blank, and the award itself has not yet been made public. Non-lawyer colleagues likely have questions about Khan’s apparent victory. Some of these questions – for instance, on what legal basis was the expropriated investment valued  – will only be answered once the award is made public. Other questions though, about for instance the basis for arbitration between Khan and Mongolia as well as the arbitration’s procedure, can be answered based on past experience with investor-state arbitration.

Background

Readers of this blog may be aware that Khan began investing in the Dornod project in the mid 1990s as Ulaanbaatar was undergoing post-Soviet reforms. And that, after some years Khan released a feasibility study in 2009 showing commercial viability, which prompted a takeover bid from China National Nuclear Corporation in February 2010. Subsequently, to simplify a complicated chain of events, the Mongolian government expropriated a majority interest in Dornod without compensation, suspending and then cancelling Khan’s mining licenses.

Readers may also be aware that Canada and Mongolia have started negotiating a Foreign Investment Promotion and Protection Agreement (FIPA). FIPAs like other International Investment Agreements (IIAs) contain both substantive obligations – standards of treatment – and dispute settlement provisions that aim to protect foreign investors from discriminatory or otherwise expropriatory conduct by the host state. In the case of Khan, this would have potentially meant an obligation for Mongolia to pay compensation and access to international tribunal with Mongolia whereby Khan could enforce the compensation obligation judicially. However, while negotiations towards a FIPA started in 2009, progress appears to have stalled and there is to date no treaty.

Arbitration agreement(s)

Given the lack of a FIPA between Canada and Mongolia, it only makes sense to question the basis on which Khan filed for arbitration. A complete answer will have to wait for the award, but some details emerge from Khan’s 10 January 2011 Notice of Arbitration (Notice). In the Notice, Khan cites a series of legal instruments as the basis for arbitration with Mongolia, i.e.: the Energy Charter Treaty, the Mongolian Foreign Investment Law, the CAUC Founding Agreement, and the UNCITRAL Arbitration Rules.

The key point to understand here is that each part of Khan’s ‘corporate family’ or ‘corporate structure’ relied on different instruments to bring arbitration against Mongolia. For example, Khan’s offshore holding company – Khan Resources BV – was able to rely on the Energy Charter Treaty. (The Energy Charter Treaty, or ECT, was one of the most ambitious agreements arising from the collapse of European communism. Among other objectives, it aimed to bring western European capital to oil-rich former-Soviet spaces through the inclusion of an IIA. Mongolia is a signatory to the ECT as is the Netherlands.) Khan Resources BV as a company incorporated in the Netherlands is an investor for the purposes of the ECT and was thus able to claim its protections, including arbitration, against Mongolia.

Dutch holding companies such as Khan Resources BV are routinely used for tax planning but sophisticated solicitors are recognizing that the ECT – not to mention the Netherlands extensive network of bilateral IIAs – provides for investment protection advantages as well. The result is referred to as ‘treaty structuring’ by sympathetic observers and as ‘treaty shopping’ by critics.

The Mongolian Foreign Investment Law is also noteworthy. Khan’s Notice refers to Article 25 as providing that “the settlement of disputes may be resolved pursuant to the provisions of ‘international treaties to which Mongolia is a party or by any contract between the parties’”. The Notice concludes that this provides an “additional basis of consent” beyond the ECT. Mongolia undertook major revisions to this statute, which also dates to the post-Soviet period, in 2013.

Arbitration Procedure

I have been asked whether the arbitration’s procedure was impacted by the fact that the Canada – Mongolia FIPA has not been concluded. One useful way of approaching this question is to note the fourth legal instrument relied on in Khan’s Notice, i.e. the UNCITRAL Arbitration Rules. The United Nations Commission on International Trade Law (commonly referred to as UNCITRAL) first adopted arbitration rules in 1976. A major revision exercise was completed in 2010. Canada’s FIPAs always include the option of using the UNCITRAL Arbitration Rules.

The UNCITRAL Arbitration Rules are today one of the two leading sets of procedural rules for investor-state arbitrations. The other being the arbitration rules of the International Centre for the Settlement of Investment Disputes (ICSID), which is a branch of the World Bank. There are a range of differences between ICSID and UNCITRAL procedure, but it cannot be said that one or other systematically advantages claimants as opposed to defendants, or investors as opposed to governments.

Conclusion

I hope that this albeit short blog post helps non-specialists to better understand Khan’s investor-state arbitration claim against Mongolia. As we have seen, Khan relied on multiple arbitration agreements and each member of Khan’s corporate family was involved in ‘treaty structuring’. Also, the procedure of the arbitration took place according to the UNCITRAL Arbitration Rules rather than the arbitration rules of ICSID. These developments fit the pattern found in many other cases where a developing country government expropriates a lucrative natural resource investment. According to the World Bank, for instance, more than one third of ICSID arbitrations initiated in 2014 involved oil, gas, or mining investments.

Exxon-Mobil’s claim against Venezuela for expropriation of two major assets is a relatively well known case featuring facts not dissimilar to the Dornod expropriation. First off, Exxon-Mobil’s claim was brought by five parts of Exxon’s corporate structure including an offshore holding company and various local operating companies. Although the arbitration was not brought under the Energy Charter Treaty, it again involved the Netherlands and took place under an IIA between the Netherlands & Venezuela. The arbitration used the ICSID Arbitration Rules. As it happens, I have prepared a somewhat more detailed summary that can be accessed here, http://www.iisd.org/itn/2015/02/19/awards-and-decisions-18/.

In addition to treaty shopping and the choice of ICSID over UNCITRAL procedure, the Exxon-Mobil award sheds light on how arbitration tribunals approach the valuation of expropriated assets. On the one hand, the tribunal used a discounted cash flow analysis (DCF) for one of the two assets on the basis that it was already at the production stage. On the other hand, the second asset was not yet at the production stage and the tribunal found it more appropriate to consider the claimants’ sunk investment, rather than DCF.

As mentioned already in this blog post, we do not know the details of how the Khan tribunal approached valuation but we do know that it would have considered Khan’s contractual as well as treaty rights. This is a key difference with the Exxon-Mobil case. (Another key difference is that the Dornod project had not advanced to production.) The award will ultimately reveal the exact legal basis on which the tribunal decided to rely on previous offers for the Dornod project in setting damages.

About Matthew Levine

Matthew Levine is a Canadian lawyer and a fellow at the University of Toronto, Faculty of Law. Matthew began his legal career as an articled student and associate with the International Trade and Arbitration group of a national firm. His practice with mining companies and entrepreneurs includes corporate, securities, and tax law advice as well as arbitration-related work. His international experience includes stints in Geneva and Singapore. Matthew is a graduate of the University of British Columbia (JD, MA) and McGill University (BA).

[Slightly revised on May 15, 2015]

Posted in Business, Canada, Foreign Investment, International Agreements, International Relations | 1 Comment