Mongolia’s Role in Engaging North Korea

By Julian Dierkes

Kim Jong-il Kindergarten in Darkhan City

North Korea has long been an important element in Mongolia’s foreign relations. With the surprise announcement of plans for a meeting between Pres. Donald Trump and Chairman of the Worker’s Party of Korea Kim Jong-un, we tried to stoke discussions about a possible involvement for Mongolia in the lead-up, hosting and follow-up to any meeting.

Recent Writing

Here are some of the articles we’ve published on this topic in late March:

  1. Dierkes, Julian and MENDEE Jargalsaikhan. 2018. “8 Reasons Why Mongolia’s Capital, Ulaanbaatar, Might Be the Place for a Trump-Kim Summit“, The Diplomat.
  2. Dierkes, Julian and MENDEE Jargalsaikhan. 2018. “ТҮҮХЭН БОЛОМЖИЙГ БҮҮ АЛДААСАЙ“, MongolTV.
  3. Dierkes, Julian and MENDEE Jargalsaikhan. 2018. “What Mongolia Gains by Playing Host to a Historic Trump-Kim Summit“, The Diplomat.
  4. Dierkes, Julian. 2018. “Trump, Kim … und die Mongolei?“, Internationale Politik und Gesellschaft. (EnglishНа русском)
  5. Dierkes, Julian and MENDEE Jargalsaikhan . 2018. “Location, location, location: Ulaanbaatar still in the running to host Trump-Kim summit“, The Diplomat.
  6. MENDEE Jargalsaikhan and Julian Dierkes. 2018 “UB Dialogue Initiatives from the 1970s to 1990s“, Mongolia Focus.
  7. Dierkes, Julian. 2018. “Some Thoughts about Logistics of a Steppe Summit“, Mongolia Focus.

There was also some interest around engaging North Korea via Mongolia around the time plans for the “Vancouver Group” meeting were announced in late 2017. Together with Chimguundari N, I wrote a piece for Policy Options: “Mongolia as a Canada-North Korea Intermediary“.

Long-Standing Interest

But, obviously, North Korea did not just suddenly show up on Mongolia’s radar this year. Quite the contrary, the long-standing engagement is one of the elements that make Mongolian involvement in 2018 plausible.

In Spring 2017, I thus wrote a post that looked at some of the turmoil Mongolia could be facing in foreign relations during a Trump presidency, explicitly speculating about what developments in the US stance toward North Korea might mean for Mongolia, though I didn’t include a summit as a possible development.

For other North Korea-related posts, see http://blogs.ubc.ca/mongolia/category/mongolia-and/north-korea-mongolia-and/.

Posted in China, Foreign Policy, Japan, Mongolia and ..., North Korea, South Korea, UN, United States | Tagged | Leave a comment

Implications of Power Politics for OT and Elsewhere “Offshore”

By Marissa Smith

About a week ago, Mendee and I agreed to write a pair of blog posts on the question of how OT and the current wave of corruption investigations and arrests, most recently involving former Prime Ministers Ch. Saikhanbileg and S. Bayar, and this week new actions related to the murder of S. Zorig (involving not the ATG but the General Intelligence Authority and the State Prosecutor’s Office).

In his post, Mendee discusses the many ways that Mongolian politics is fractured — OT is only one of many factors.

I fully agree.

However, in this post I point out that these “power politics” do have implications for OT, especially in terms of how Rio Tinto and other Western mining companies and associates (investors, financial institutions, governments) react to and are positioned in relation to them.

Oyu Tolgoi has itself been the center of a number of accusations in recent months. These have been widely understood and deliberately situated, however, to not really be about any malpractice on Rio Tinto’s part, at least not in Mongolia specifically. Investigations by Swiss regulators, or at least developments related to them in Mongolian contexts, have piggybacked on the “offshoring” controversy around S. Bayartsogt to separate the issue of who took money from who gave it, and explicitly stated that Rio Tinto was not under scrutiny. The SOMO reports, though highly critical of the OT Investment Agreement, were directed at critiquing such practice, which are currently conventional and legal, at a global scale.

In short, the corruption controversies involving Oyu Tolgoi are being used in Mongolian “power politics” while the role of Rio Tinto and other Western institutions is being downplayed. But this does impact how OT and similar Western-led projects proceed.

Understandably, there is a collective interest in not “scaring away” those institutions (again, the practices described by SOMO are largely legal and conventional in the multinational extractive industry). But as Undarya Tumursukh points out in her recent post, there is more at play in the bracketing of Mongolian politics from multinational corporate ethics. The sense that “Western companies are intrinsically good,” as Undarya puts it, is strongly present, and I have often discerned, including recently, the sentiment that there is nothing worth investigating about the OT Agreement at all, and that Mongolian politicians have siphoned off the kind of money that SOMO attributes to lost taxation from Rio Tinto. When asked for what they mean, interlocutors do point to the houses owned by S. Bayar in the United States or the ten million dollars in S. Bayarsogt’s Swiss bank account, in other words a few millions rather than hundreds of millions. My attempts to turn the conversation to larger systematic factors, involving Mongolia/Mongolians’ ability, in relation to international companies and IFIs as such relations are currently structured, to not only raise tax revenue but also to spend it, to answer the question of why Mongolia has crumbling (at best) rather than developing physical and social infrastructures*, often lead to a complete change of subject.

In any case, placing the blame and our analytical focus solely on Mongolia and Mongolians (as also Undarya does in the end of her post) does encourage the country and its inhabitants (not just politicians) to be further seen as bad actors, not suitable for investment (and more). Though excited conversation (much more extensive than any I saw or heard about the SOMO reports or Swiss investigations involving Oyu Tolgoi) about Mongolia as possible host for a summit involving the US and DPRK has been ongoing for over a month now, I see little chance that Mongolia’s involvement in such a summit would have much impact on Mongolia’s image as “corrupt” or not.

 

*(to elaborate on this, I may write another post to engage with Julian’s post on OT and “political risk” and Mendee’s post on OT Agreement as wrestling match and I hope this post encourages the same from others!)

Posted in Corruption, Development, Foreign Investment, Infrastructure, International Agreements, International Relations, Mining, Mining, Mining Governance, North Korea, Oyu Tolgoi | Tagged | Leave a comment

Some Thoughts about Logistics of a Steppe Summit

By Julian Dierkes

Can Ulaanbaatar and the Mongolian government handle hosting a Trump-Kim meeting? Yes, of course, though it would stretch some resources.

Past Summits

Mongolia involved itself very actively in a number of multilateral organizations and meetings during the Elbegdorj years. The biggest of these events was clearly the Asia-Europe Meeting in 2016.  The summit brought literally dozens of heads of state and government to Mongolia. The summit was much larger than a Trump-Kim meeting would be in terms of the number of delegations who attended, including their airplanes, support staff, etc., but it had none of the underlying tension that a meeting between two volatile leaders prone to name-calling has.

Travel

Pres. Trump would obviously travel by Airforce One which can be accommodated at Chinggis Khaan International. He would also arrive with his limo, probably helicopter, etc. Travel to Asia would allow him to visit allies like Japan or South Korea, and also other countries like China or Russia’s Far East.

For Kim Jong-Un, travel is not quite as easy. His decision to visit Beijing by train suggests that even for shorter distances he prefers the train over planes and this, in fact, is one of the reason, Ulaanbaatar is under consideration.

Train travel for Kim would mean a 2-day trip via Beijing, and a 2-3h stall at the Chinese-Mongolian border to change the undercarriage of his train out for the Russian railroad gauge needed for travel in Mongolia. See what the process looks like:

And notice the colour scheme of the Transsiberian! Already looks like Kim’s train (see this image in a Chosun Ilbo report)!

Presumably, the relative remoteness of the Erlian border means that the wait there can be secured by Chinese security forces working with DPRK security, I imagine.

For the press and other members of the public who do not travel with official delegations, seats on flights to Ulaanbaatar would be in short supply. Direct flights are offered by Aeroflot, Air China, KAL, MIAT, Turkish Airlines. If you don’t mind state airlines of authoritarian states, Air China from Beijing and Turkish from Istanbul might be the most convenient transfers from North America or Europe, respectively. My favourite would always be MIAT.

Visas

[Section added Apr 21 2018]

A discussion on CNN raised the issue of visas necessary for travel to Mongolia as a hurdle to the selection of Ulaanbaatar as a site.

This is a bit of a self-serving issue to raise by journalists, rather than a concern that may be prominent in the DPRK’s preference of possible sites, for example. As fraught as Trump’s relationship is with real journalists, he is concerned about the splash that the meeting will make, one imagines.

Given visa-free travel for Americans, the question does not really arise for the US media. However, a large number of journalists from other countries, including the EU other than Germany, but also South Korea, for example, would require a visa. As a German citizen, I have not needed a visa for travel to Mongolia for some years, but even before then, the process was always relatively easy, other than requiring a visit to the embassy or (honorary) consul. Since most relevant journalists would be based in a capital, that would be a minor inconvenience only.

I could also imagine that if Ulaanbaatar were selected the Mongolian government would at least consider expedited visa processes for accredited journalists.

Of course, the efficiency of any such processes would be weighed against security needs as discussed below.

Hotels

Presumably, the Trump entourage (security, staff, etc.) would be quite large. They might be best housed in Ulaanbaatar’s Shangri-La which offers 290 guest rooms. This is one of the very few hotels in downtown Ulaanbaatar that I have not stayed in, but from coffee in the lobby, I would guess that there is enough gold in the hotel’s design to satisfy Trump’s taste. Of course, the Shangri-la would be a very short drive (especially with all roads closed) to potential meeting sites like Government House, the Ministry of Foreign Affairs, or Ikh Tenger, the president’s palace.

That would leave either the Blue Sky or the Best Western Tuvshin for the DPRK delegation which would be somewhat smaller, one might presume. Both would be equally close to any meeting venue. The Best Western would offer experience with state visits, but would be easily identified as an American brand.

There probably are enough overflow hotel rooms in downtown hotels to accommodate the numerous members of the world’s press corps who would arrive.

One of the challenges in terms of accommodations might be who would pay for hotel rooms for a large DPRK delegation. I am guessing that the DPRK would not want to (possible under UN sanctions?), but the Mongolian government would also not want to get stuck with this tab.

Ideally, of course, a meeting would take place at Maidar Eco-City, in part because Pres. Battulga is also involved in that project. Unfortunately, when I visited the site last June, there was very little happening, making the project seem like a bit of a mirage. Perhaps, a Trump-Kim Ger could be built at the site, like the ASEM Ger for the ASEM summit.

A Summit Ger would also offer attractive symbolism for this meeting. It can be built (and dismantled) quickly, and on the inside of a ger, there is no place to hide, as visitors have to face each other in the round room. Who knows? A summit ger might re-energize the Maidar project and thus provide a blessing to Pres. Battulga. It is also easily reached from the new Ulaanbaatar airport, which could probably be activated for a summit meeting.

Diplomatic Infrastructure

The fact that the DPRK and the US both have an embassy in Ulaanbaatar is one of the factors that recommends the city as a location.

The US embassy is somewhat large, somewhat removed from the downtown area, and a pretty ugly collection of container-like buildings hidden behind somewhat overblown security measures as is the norm with US diplomat missions. But, the embassy has been in place since 1988, so it is well-equipped in terms of connections to and experience with the Mongolian government as well as Ulaanbaatar as a location. Of course, the embassy is somewhat hampered by the absence of an ambassador who has not been nominated by the Trump administration.

The DPRK embassy is much smaller, but equally well-established in historical terms.

All the other “players” in tensions on the Korean peninsula are also represented by embassies in Mongolia.

Traffic

Car traffic in downtown Ulaanbaatar would likely come to a complete standstill during a meeting if it was not banned outright. But that is okay (except for residences who would be massively inconvenienced), as downtown Ulaanbaatar is compact enough to walk most places, especially in May-June when the weather is quite variable (often four seasons in a day), but not very cold.

Security

Not something I know a whole lot about, but the biggest question is probably to what extent the Mongolian security apparatus is able to collaborate with US and DPRK security forces. I have few insights into operational details, but can imagine the process in a general way.

For the US, that should actually be very possible if the military is involved, as there are extensive links between the Mongolian and US military, including joint service in Iraq and Afghanistan, and regular joint exercises like the the Khaan Quest multinational peacekeeping exercise.

But the Mongolian military does not operate domestically. The Mongolian Secret Service would be in charge of providing security for a meeting. It is a department of the General Intelligence Agency. Most likely, some kind of Interagency Group would be created to coordinate different security needs, including paramilitary border troops, as well as the police which would provide the bulk of the manpower for an event. The military might be called upon to provide the communications infrastructure.

There are occasional consultative talks and non-combat exchanges between Mongolia and the DPRK, but these are on a small scale and probably not much of a basis for operational collaboration.

Given the lack of foreign travel by Kim, it is pretty unclear what exactly security for him and his entourage would be expected to look like.

Communications

A major meeting of this sort would obviously require some significant communications infrastructure.

It is unclear to me how much translation a host might be expected to provide. For example, Messrs Kim and Trump would obviously arrive with their own interpretation teams for Korean-English interpretation, but how much more of that translation would be needed? There are many Korean and English-speakers in Mongolia, of course, in part because the largest Mongolian diaspora is in South Korea, but also because of the attractiveness of South Korean higher education. For the same reasons and for a general push towards English, there are many, especially younger, English-speakers in Ulaanbaatar. This availability holds for the general public as well as government officials.

In terms of communications infrastructure for visiting journalists, for example, that is not much of a challenge. Smartphones are in very wide use in Ulaanbaatar, data is widely available via cell phone services and there are numerous restaurants and public venues that offer WiFi.

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UB Dialogue Initiatives from the 1970s to 90s

by Mendee Jargalsaikhan & Julian Dierkes

According to global speculation, Ulaanbaatar is still under consideration as a location for the envisioned meeting between US Pres Trump and DPRK Chairman Kim, Mongolia’s desire to be a part of a broader Asia Pacific region, especially of East Asia or Northeast Asia, is nothing new, however, but one can see interesting foreign policy patterns, that are mostly shaped by interests and interactions with neighbouring powers (i.e., China and Russia).  Even though Mongolia revised its foreign policy directions substantially in the early 1990s, the objective of furthering its engagement with the Asia Pacific remains a priority, after relations with the two immediate neighbours, and the development of ties with “third neighbours”.

A Socialist Model & Buddhist Hub

Mongolia’s wish to develop a relationship and eventual membership in the Non-Aligned Movement in the 1960s failed due to the Sino-Soviet rift and Mongolia’s military alliance with the Soviet Union.

However, Ulaanbaatar pursued two interesting foreign policy initiatives: The first was the Kremlin’s desire to promote Mongolia’s developmental model for newly independent countries, especially former colonies. Mongolia was accepted as the only Asian member of the Council for Mutual Economic Assistance (CMEA, also COMECON) in 1962 and provided with extensive economic aid, especially in mining, light industry, and agriculture. As a result, in the 1970s, Mongolia was considered and supported to promote itself as a CMEA’s model for Laos, Afghanistan, and other smaller countries.

The other initiative was to make Mongolia a hub for the Asian Buddhist Conference for Peace. Despite its own brutal suppression of Buddhism in the 1930s, this was an interesting foreign policy instrument to reach out to India, Vietnam, Laos, and Buddhists in Japan, Sri-Lanka. However, Thailand did not favour these initiatives, partly because of its alignment with the US. But, this move was in accord with the Kremlin on two fronts – one it irritated China as Mongolia got closer to the Dalai Lama and India while projecting the peaceful image of the communist bloc, and secondly, especially bringing Indochina countries to align against the US. Mongolia hosted a number of events, including two visits of the Dalai Lama (1979 and 1982) and organized the capstone conference in 1982.

1980s – Version of UB Dialogues

Mongolia made agreat progress in reaching out to the Asia Pacific in 1980s at two fronts. For one, Mongolia became a visible venue for the communist bloc’s activities in the Asia Pacific region. In 1981, Mongolia approved the first-ever comprehensive policy to reach out to Asia Pacific countries and to provide a dialogue venue for peace and cooperation. Within the period from 1983 to 1987, Mongolia hosted a series of ministerial (inter-governmental), youth, trade union meetings with extensive participation from the Asia Pacific region. Mongolia’s party congresses and events welcomed delegates from Asian countries – pursuing socialist developmental strategies.

The other front was (re)establishing its relations with China, US, Japan, and Australia.  Mongolia established bilateral relations with the US in 1987. This helped to reach out to US allies, especially Japan and Australia. In 1989, Mongolia ended two decades of hostility with China. Also, MPRP Party Chair J Batmunkh proposed to establish the North East Asian Dialogue at the 50th anniversary of the Khalkhyn Gol (Nomonhan) Battle in August 1989. Even though this foreign policy initiative was overwhelmed by domestic political turmoil in 1990, Mongolia successfully continued its dream of reaching out to the Asia Pacific.

It might be worthwhile to highlight Mongolia’s approach to the two Koreas. In 1986, North Korean President Kim Il Sung personally greeted Mongolian President Batmunkh at the Pyongyang International Airport mostly to suppress the rumour of his death. Then, in 1988, Kim Il Sung visited Mongolia, for the second time since 1956, to discuss the possibility of establishing a joint mining project at the Tavan Tolgoi coking coal deposit. President Batmunkh formalized bilateral relations with South Korea in March 1990. This was the first-ever foreign policy decision that Mongolia took without consultation with the Kremlin. Or, it marked the beginning of Mongolia’s foreign policy freedom.

1990s – Reaching out Asia Pacific Region

Amidst international as well as domestic turmoil, Mongolia was not in a position to continue its efforts of hosting events, welcoming Asia Pacific countries just after its democratic revolution and the sudden withdrawal of Soviet support in 1990. It was economically in a dire situation, which forced Mongolia to seek donors and international aid. At the same time, Mongolia was unknown to many regional players and the economy was not (yet) attractive for investors.

Although Mongolia reached out along with newly formed Central Asian states to the EU, OSCE, and NATO, none of the major powers supported Mongolia’s formal inclusion in this project – for its geopolitical sensitivity and financial burdens for even accommodating former Soviet republics in addition to Central and Eastern European states.  Mongolia’s reach to the East Asian Summit and Asia Pacific Economic Cooperation (APEC) was not supported by the majority of influential members.

However, Mongolia was admitted in three major regional cooperation efforts.

One was the Canadian North Pacific Cooperative Security Dialogue, a track two initiative, from 1989 to 1993.  Both countries were striving to find their place in regional cooperative mechanisms as both are on the periphery of the Asia Pacific region.

The second was UNDP’s Tumen River Area Development Programme (also known as the Greater Tumen Initiative) to enhance economic cooperation in Northeast Asia. But, the initiative slowed down due to bilateral relations and tension on the Korean Peninsula.

The last, and only successful one, has been Mongolia’s participation in the US Pacific Command’s multilateral events.  Gradually, the Mongolian military has become a participant in all multilateral activities, ranging from the Chiefs of Defence Conference, to peacekeeping exercises.

By 2000, Mongolia succeeded in developing political and economic ties with newly found friends – Japan, Australia, New Zealand, Canada, South Korea, Malaysia, and Singapore, deepening ties with older friends – North Korea, Vietnam, Laos, and finally, gaining the ARF membership in 1999.

Initiatives to promote Mongolia as a potential mediator in tensions on the Korean peninsula are thus not only rooted in the country’s constructive relations with all the players in these conflicts, but also in long-standing foreign policy priorities and Mongolian efforts to position itself in the Asia Pacific region.

Posted in Canada, Foreign Policy, International Cooperation Fund | Tagged | Leave a comment

It is not about OT, it is the Power Politics

By Mendee Jargalsaikhan

The Mongolian anti-corruption agency, known as the Independent Authority Against Corruption (IAAC), arrested former Prime Ministers Bayar and Saikhanbileg, Finance Minister/MP Bayartsogt, and several other former executives.  The Mongolian politics is presenting similar patterns of other East Asian democracies, such as South Korea or Taiwan, where former presidents are often brought to the justice.  But, in the Mongolian case, it is more likely the result of the power politics between two major parties (MPP and DP) and also factions within these parties.

Is it about OT?

Although many assumed and attempted to link these corruption allegations to the Oyu Tolgoi investment agreement, it doesn’t look like all about the OT.  Unless, the IAAC investigators present strong evidence of the investors bribing these influential politicians.  Otherwise, the OT agreement was openly debated in multiple rounds and approved by the parliament within the revised legal framework, namely the 2006 Mining Law. Since this was the country’s first-ever agreement with a global giant, Rio Tinto, many criticize the negotiated settlements (both initial and second-phase agreements).  Therefore, the re-negotation attempts would remain on the table for all succeeding governments and the OT agreement would be criticized by populist politicians and concerned civil society organizations.  Thus requires more transparency from the investors in this already perceived unequal match.

Power Politics – Intra and Inter Parties 

These arrests are effects of the power politics.  First, it is a struggle among three power centres – Speaker M. Enkhbold (MPP), whose faction controls the half of the parliament and the cabinet, Prime Minister Khurelsukh (MPP), who recently secured the control of cabinet as well as the MPP, and President Battulga (DP), seeking all ways to increase his influence over the judiciary and law enforcement.  The recall of former Prime Ministers Bayar and Enkhsaikhan from ambassadorial posts in UK and Sweden was initiated and pursued by President Battulga.  Battulga’s pressures to change the head of the IAAC might have resulted in the IAAC’s quick arrests.  One could easily see these collaborative moves of the IAAC and Chief Prosecutor’s Office for these recalls, 72 hour arrests, and the extension of detentions.   Even though initially, these investigations were perceived one-sided (i.e., only going after DP members), the arrest of former Prime Minister Bayar indicates the transactional cooperation between these power centres although it is hard to prove.

Second, the DP Chairman Erdene’s decision to expel Bayartsogt from the party and Speaker Enkhbold’s twitter statement of not interfering in the criminal investigations were quite new in the Mongolian party politics.

In the past, political parties usually either aggressively defend their influential members or  avoid issuing any types of statements.  However, this time, it is clear that both parties are experiencing intense power struggles among their major factions.  The MPP, albeit its dominance of the parliament, is divided between two major factions – of Speaker M. Enkhbold’s versus Prime Minister U. Khurelsukh’s (one controls the parliament and the  other controls the cabinet). Back in 2007, former Prime Minister Bayar marginalized Enkhbold’s faction and later a similar competition occurred between their successors Khurelsukh and Erdenebat in 2017.  The DP is also having similar fate.  The Polar Star faction, for which Bayartsogt and Saikhanbileg belong, dominated the DP politics from 2008 – 2015, and then shattered due to its own internal power struggle. Now the DP comes under the control of the Falcon Faction (former Speaker and current presidential secretariat Z. Enkhbold and S. Erdene) jointly with the MDU faction of President Battulga.  It seems that factions with access to some type of state power are attempting to increase their control  and influence over the party by simply marginalizing their opponents.

True Causes

Clearly, it is challenging to make assumptions about causes for current political events.

First, it is not a fight to clean the party or a move to improve the party’s institutions.  It is a struggle to improve their standings before the 2020 parliamentary and 2021 presidential elections.  These factions are no longer driven by shared political values or ideological commitments rather than shared economic interests.  Although recently there have been several noticeable attempts of strengthening the party institution within the MPP, it seems these efforts are running out of steam as the majority of members inside and outside the parliament/cabinet have started pursuing their self-interests of running in upcoming elections and competing for public offices.

Second, it is not an attempt of eradicating the corruption or bringing those to the justice.  If these arrests finally resolve all allegations – (i.e., hidden offshore accounts of Bayartsogt, seven houses of Bayar, non-transparent rush take-over of 47 percent of the Erdenet copper factory, money-laundering through Erdenet, and kickbacks for the OT investment agreements), it would be victorious, historic, and landmark steps towards Mongolia’s dream of becoming Inner Asian Tiger or Qatar. But, given today’s political dynamics, it is unlikely.  Those, who are in power, are trying to defend their economic interests and to marginalize potential opponents within and outside of their respective parties.

At the end of the day, the politics of Mongolia appears to be the power politics – in order to (1) control the state institutions for factional advantages and protection, (2) take over the state-owned enterprises, ranging from the Erdenet factory, to railroad, airline, infrastructure, and, of course, to Tavan Tolgoi mine, and (3) gain access to big loans, bonds, tenders, and grants.

Things would look differently – only when political leaders with true morale commitments of not making or involving in these alleged corruptions in the first place and same political leaders invest into formal institutions by endorsing and upholding the written, formally agreed rules.

Posted in Corruption, Economics, Erdenet, Judiciary, Oyu Tolgoi | Tagged | 1 Comment

A Primer on АТГ – the Independent Authority Against Corruption (IAAC) of Mongolia

by Mendee Jargalsaikhan & Julian Dierkes

“Авилгатай Тэмцэх Газар” (АТГ) or Independent Authority Against Corruption (IAAC) of Mongolia has been all over the media – some describe it as ‘useless’, ‘politicized’, some compare with the ‘До Яам’ (Mongolian equivalent to KGB) of 1930s, and others wish for the best in the АТГ’s fight against the corruption.

Directors of the АТГ

The Anti-Corruption Agency became a functional organization in 2007 under the Law of Mongolia on Anti-Corruption (2006) and has evolved to be a central law enforcement institution.  The first head (lawyer) suspiciously passed away, the second (police) was prosecuted for misuse of authority, the third (police/intelligence) requested early retirement just before the parliamentary election in 2016. Now, the current head (police) is walking on a tightrope.  The appointment procedure of head and deputy head have been clear and logical in the law.  The president nominates, parliament approves for a 6-year term avoiding the politicization due to presidential and parliamentary elections.  Three main criteria for the job are: (1) a lawyer by profession, (2) 10-15 yrs of prior government service experience, and (3) no political appointment for the 5 years prior to the appointment (Law on Anti-Corruption).  Senior officials of the Ministry of Justice, Police, and/or General Intelligence Agency usually meet these criteria and all past heads and deputy heads came from these judicial and law enforcement organizations.

Staffing and Areas of Focus

Your principal bloggers, Mendee & Julian, looking very inquisitive in front of the entrance to Mongolia’s General Intelligence Agency

Similar patterns of recruitment are observed for staff positions at the IAAC. Despite standard professional criteria for recruitment, the most important requirement for the staff recruits is ‘no record of being investigated for corruption with disciplinary, administrative and criminal records’ (Law on Anti-Corruption). All staff must take an oath to combat corruption while receiving slightly more privileges and support from other law enforcement agency and public servants. The oath of the IAAC personnel, as stated in the Law on Anti-Corruption, “I, servant of the Anti-Corruption Agency, independent from any undue influence, swear to honestly combat corruption and will be guided solely by the law.  Should I break this oath, I shall be punished under the law.”

According to the IAAC statement, IAAC employees are paid 50 percent lower than judges and 1.5 percent lower than prosecutors.  If one follows parliamentary sessions and interviews of the IAAC heads, the organization is significantly under-staffed to conduct four sets of activities:

  • to increase anti-corruption public awareness and education and corruption prevention work (requiring nation-wide engagement on public awareness and education; just imagine driving around 21 provinces)
  • to accept and analyze the submission of assets and income declarations of hundreds of political officials (ranging from members of parliament to all senior officials to senior public servants to 21 governors, city mayor, and local council heads)
  • to investigate corruption cases (including all complaints that have been made through the IAAC hotlines or delivered personally)
  • to do research (for example, regular surveys on corruption perception in political and law enforcement agencies and integrity level of government organizations and youth integrity surveys

Moreover, the ATG, as an government organization, responds to inquiries of the president and parliament, conducts press conferences to keep the media and citizens informed, including via Twitter, and participation in international initiatives (e.g., OECD reporting).  The IAAC provides background checks for all candidates for parliamentary (~600-700) and presidential elections. Plus, the IAAC needs to be on top of any legal and policy initiatives (either drafting or responding to legislative and regulatory proposals) and must receive all reports coming from all government agencies under the National Anti-Corruption Strategy  by February.  The IAAC will collect them, compile them, and submit them to the Subcommittee on Special Control of the State Ikh Khural.  This is the only political institution, which oversees its funding closely.

These immense tasks would clearly challenge the staff of 145 (in 2014) and 172 (by 2017). However, the IAAC investigated 2207 criminal cases and only 233 of which has been prosecuted. Its investigative power appears to be curtailed by Prosecutors. Prosecutors at different levels can stop any criminal investigation and courts could return or delay cases – submitted by the IAAC.

Civilian Oversight

The 2006 law also creates a public council (not paid) providing a forum for citizens to voice their opinion and to advise on implementation of the anti-corruption law.  Fifteen members of the Public Council (АТГ-ын Олон нийтийн зөвлөл) are appointed by the president for a four-year term. A key requirement for candidates is not being career public servant or holding government posts at the time of candidacy and during the four year tenure.  However, the selection process is still not clearly institutionalized.  Therefore, it is a double-edged sword for the IAAC: the Council can either increase pressure from the presidential office or increase public support from society.  At worst, it could also generate additional work hours for the small staff to accommodate their needs (esp., when populist ones search for momentum.

In 2009, President Elbegdorj renewed the public council members, appointing a civil-society activist, current MP Batzandan as the chairman and mostly DP-affilliated civil society activists.  The council members were changed again with more neutral members in 2014.  Similarly, in 2017, President Battulga renewed the council appointing another civil society activist Baasan as the chief and DP-affilliated politicians – Oyungerel and Burmaa.

Because the Presidential appointed Public Service is supposed to represent the public interests, the IAAC also created another structure, which is called the sub-Public Council (Олон нийтийн дэд зөвлөл) in 2017.  The IAAC would appoint volunteers, mostly retired at organizational levels and would receive limited monetary incentives for their service supporting activities of the IAAC at their organizations.  Currently, the sub-Public Council have  about 108 members.

It seems premature to label the IAAC either ‘useless’, ‘politicized’, or ‘KGB-style’.  With such a small staff, the IAAC – institutionalized the legal, regulatory, and administrative of the anti-corruption efforts, increased public awareness and accumulated data base (esp., those signed income disclosure by public officials), and done the general mapping and identified ‘grey zones’ (esp., political parties and parliament).  However, the effectiveness of the anti-corruption in Mongolia appears to be totally dependent on the political will of politicians.  Are there courage and determination to combat against corruption?  Or, the majority of them want the IAAC remain at this crossroad and enjoy mocking ‘toothless АТГ’?

Posted in Corruption, Judiciary, Security Apparatus | Tagged | Leave a comment

Mongolische Beziehungen zu Nordkorea und USA

Julian Dierkes

[Eine kürzere Version dieses Artikels ist bei Internationale Gesellschaft und Politik am 3.4.2018 erschienen.]

Im Laufe der letzten sechs Monate hat sich die koreanischen Halbinsel wieder zu dem globalen Brennpunkt entwickelt. An der Situation in Nordkorea selber scheint sich nicht unbedingt viel verändert zu haben, doch die Drohgebärden zwischen Donald Trump und Kim Jong-un haben zugenommen und im Zuge dieser Entwicklung auch konkretere Drohungen mit neuen und „verbesserten“ Waffentypen.

Dann hat die Olympiade dieser Eskalation aber anscheinend ein Ende gemacht. Erstaunt stellt die Welt fest, dass auf unbedeutende Eishockeyspiele (für Korea, umso bedeutender für ein deutsches „Wintermärchen“) die überraschende Ankündigung kam, dass sich die Herren Trump und Kim in den nächsten sechs Wochen treffen wollen. Kims Besuch in Beijing Ende März war eine weitere Fortsetzung dieser Entwicklung auf irgendeine Form von Dialog hin.

Seoul Pavillon on Seoul Street. State Department Store in Background.

Details zur Planung eines Treffens und noch viel mehr zum Inhalt eines Treffens werden wohl ebenso wie das Treffen überhaupt im Verborgenen oder sonst – einseitig – auf Twitter ausgehandelt werden. Trotzdem stellt sich die Welt und  die Region Nordostasien auf ein solches Treffen ein und Gedankenspiele zum Ablauf und zu den Folgen eines solchen Treffens tragen zu den Abwägungen um das Treffen bei.

Die Mongolei als Treffpunkt

Am 16. März hat sich der Chef des mongolischen Präsidentschaftsamts, Z Enkhbold, separat mit amerikanischen und nordkoreanischen Diplomaten getroffen um das Interesse der mongolischen Regierung an einer Ausrichtung eines Kim-Trump-Gipfels zu bekunden. Diese beiden Treffen deuten an, warum die Mongolei eine Rolle in den Gesprächen mit Nordkorea spielen kann, denn in Ulaanbaatar gibt es immerhin eine amerikanische und eine nordkoreanische Botschaft. Das trifft auch für Berlin zu, aber wann hat der letzte Besuch eines deutschen Außenministers oder irgendeiner Ministerin in Nordkorea stattgefunden? Der mongolische Außenminister D Tsogtbaatar war Anfang Februar in Pjöngjang, unter anderem um das 70jährige Jubiläum der diplomatischen Beziehungen zwischen Nordkorea und der Mongolei zu feiern. Z Enkhbold war kurz vor den Terminen mit den Botschaftsoffiziellen von einer Reise in die USA zurückgekehrt.

Ob der Protagonisten der derzeitigen Planungen für einen Trump-Kim-Gipfel ist überhaupt nicht vorherzusehen wie, wo und wann solch ein Treffen stattfinden würde. Als Ort ist dabei die Grenze zwischen Nord- und Südkorea am Wahrscheinlichsten. Sollte es aber Gründen geben, solch ein Treffen nicht auf der koreanischen Halbinsel abzuhalten, so drängt sich Ulaanbaatar als eine der Alternativen auf.

Für Ulaanbaatar sprechen in diesem Zusammenhang viele Gründe, aber der gewichtigste ist wohl, dass die Mongolei zumindest im Hinblick auf einen Austausch zwischen den USA und Nordkorea als neutral gilt. Die lange bestehenden Beziehungen mit Nordkorea sind seit der demokratischen Revolution in 1990 nicht abgebrochen, aber seitdem haben sich auf freundschaftliche Beziehungen zur USA entwickelt. Die Mongolei ist eines der wenigen Länder, in denen sich nordkoreanische Offizielle einigermaßen wohlzufinden zu scheinen. Ob dies auch für Kim Jong-un selber gilt, ist nicht bekannt, aber der nordkoreanische Vizeaußenminister Ri Jong-ho, der im März in Schweden zu Besuch ist, hat noch letztes Jahr am Ulaanbaatar Dialog teilgenommen und sich bei dieser Gelegenheit mit einzelnen Vertretern z.B. der japanischen und kanadischen Regierung getroffen und an öffentlichen Diskussionen mit südkoreanischen und amerikanischen Akademikern teilgenommen. Die nordkoreanische Weltsicht ist auf einer akuten Bedrohung durch die USA aufgebaut, so dass dieses vermeintliche Wohlfühlen in der Mongolei ein wichtiger Faktor in der Planung sein könnte.

Die Geografie spielt auch im Internetzeitalter noch eine Rolle, denn es scheint unwahrscheinlich, dass Kim eine längere Strecke mit dem Flugzeug auf sich nehmen würde. Es ist zwar nicht bekannt ob er die Flugangst seines Vaters geerbt hat, aber der nordkoreanischen Regierungsmaschine wird er sich wohl kaum anvertrauen, wie wir gerade bei seiner Reise nach Beijing gesehen haben, und ein ausländisches Flugzeug scheint auch unwahrscheinlich. Ulaanbaatar ist hingegen mit dem Zug zu erreichen. Der „direkteste“ Weg würde dabei über Beijing führen. Die Alternative wäre der lange Weg durch Russland von Wladiwostok über Ulan-Ude nach Ulaanbaatar. Umständlich aber machbar ohne durch oder über das Territorium von direkten USA-Verbündeten zu reisen.

Dazu kommt auch noch eine historische Komponente, denn während des Koreakrieges wurden Hunderte nordkoreanischer Kinder in die Mongolei evakuiert und der mongolische Botschafter ist als einziger ausländischer Repräsentant während der Bombardierung Pjöngjangs in der Stadt verblieben, zwei Gesten und Umstände, die der Mongolei in Nordkorea immer noch hoch angerechnet werden. Beide Aspekte der gemeinsamen Geschichte werden in Nordkorea offensichtlich immer noch sehr wertgeschätzt, was die Beziehungen weiterhin positiv beeinflusst.

Die mongolische Außenpolitik und Nordkorea

Seit 1990 orientiert sich die mongolische Außenpolitik um drei Bezugsgruppen: 1. die beiden direkten Nachbarn, Russland und China, 2. weiter entfernte „Drittnachbarn“, 3. internationale Organisationen. Auf allen drei Ebenen decken sich diese außenpolitischen Ziele mit dem Versuch als Vermittler zwischen Nordkorea und der Welt zu fungieren.

Kim Jong-il Kindergarten in Darkhan City

China

Die Mongolei hat nur zwei Nachbarn, weshalb das oberste Gebot der Außenpolitik sein muss, die Beziehungen mit diesen Nachbarn positiv und konstruktiv zu gestalten. Das gelingt größtenteils. Hindernisse, wie sie anderswo existieren, gibt es hier für die Mongolei nicht. Z.B. gibt es keine Grenzkonflikte und auch keine russische oder chinesische Diaspora in der Mongolei. Das Interesse der Mongolen in der Inneren Mongolei (VR China) an der Mongolei, oder der Buriaten in Sibirien an der Mongolei hält sich auch in, äh, Grenzen. China dominiert die mongolische Wirtschaft sowohl als Kunde für Rohstoffe, als auch als Lieferant für Konsum- und Investitionsgüter. Die wirtschaftliche Beziehung zu Russland beschränkt sich auf Energiezufuhr.

Für beide Nachbarn hat sich Nordkorea über die Jahre von einem Alliierten zu einem Problem gewandelt. Die derzeitigen Spannungen mit den USA beruhen z.T. darauf, dass das chinesische Regime lange auch keinen Zugang mehr zu Kim und seiner Führungsclique hatte. Das scheint sich mit dem Besuch Kims in Beijing vielleicht geändert zu haben, aber es ist unwahrscheinlich, dass dieser eine Besuch, den Verfall der Beziehungen über die letzten zehn Jahre wieder gutgemacht hat. Deshalb scheinen Teile des chinesischen Regimes mongolische Initiativen zur Einbindung Nordkoreas willkommen zu heissen, wie an einer Meinungskolumne im Propagandablatt Global Times am 16.3.2018 zu erkennen ist.

Drittnachbarn

Zu den dritten Nachbarn gehören Länder in der Region, also Indien, Japan und Südkorea, aber auch weiter entfernte Partner wie Australien, Deutschland, Kanada und die USA. Die Beziehungen zu diesen Ländern beruhen auf dem Status der Mongolei als isolierte Demokratie in einer nicht sehr demokratiefreundlichen Umgebung. Diesen Status hat die Mongolei in den letzten Jahren durch die Teilnahme an und Ausrichtung von internationalen Foren wie der Community of Democracies, aber auch dem Asia Europe Gipfel ausgebaut. Alle Angebote der Mittlung mit Nordkorea würden diese Drittnachbarn in ihren Bemühungen einer Vermeidung von weiteren Konflikten unterstützen und damit auch willkommen heißen.

UN

Auf der internationalen Ebene hat sich die Mongolei vor allem im Kontext der Vereinten Nationen als Land etabliert, das weit über seine politische oder wirtschaftliche Bedeutung hinaus wahrgenommen wird. So ist die Mongolei seit 2012 als atomwaffenfreier Staat anerkannt, nimmt rege an UN Friedensmissionen teil, und kandidiert für einen Sitz im Weltsicherheitsrat für 2022. Gerade im Bezug auf Atomwaffen würde die Mongolei im Konflikt USA-Nordkorea eine besonders bedeutungsvolle Rolle spielen.

Nordostasien

Hinzu kommt auch noch, dass die Mongolei sich in den letzten Jahren in außenpolitischen Initiativen immer mehr auf (Nord)Ostasien konzentriert hat. Bestes Beispiel hier ist das Freihandelsabkommen mit Japan, 2015 unterschrieben und 2016 in Kraft getreten. Dieser regionale Bezug ist noch nicht formell zu einer vierten Säule der Außenpolitik erklärt worden, kristallisiert sich in diesem Sinne aber immer weiter heraus. Das größte Hindernis in der Entwicklung der Wirtschaftsregion Nordostasien bleibt aber weiterhin Nordkorea. Alles, was die Mongolei tun kann, um dieses Hindernis auf friedlichem Wege zu nivellieren, dient dieser Außenpolitik. Auch wenn der Versuch über Investitionen in Nordkorea Fuß zu fassen gescheitert zu sein scheint, würde eine Entspannung im Verhältnis um Nordkorea der Mongolei evtl. direkteren Zugang zu Häfen (wenn auch über Russland oder China) verschaffen. Ganz langfristig könnte so auch ein ostasiatisches Stromnetzwerk aufgebaut werden, über den ein vermeintlicher Reichtum an Solarstrom aus der Mongolei in die Region verteilt werden könnte.

Weitere Schritte

Nach dem Angebot an die USA und an Nordkorea könnte die Mongolei weitere Schritte gehen. Über internationale Medien könnte das Verhältnis der Mongolei zu Nordkorea erklärt und damit die Argumentation für die Mongolei als Standort etwaiger Nordkoreainitiativen gestärkt werden. Der ehemalige mongolische Präsident, Ts Elbegdorj, hat vor ein paar Jahren den Ulaanbaatar Dialog ausgerufen, eine jährliche Zusammenkunft von regierungsnahen Repräsentanten aus Ländern mit einem Interesse an Sicherheitsfragen in Ostasien. Letztes Jahr hat bei dem Forum auch ein Vizeaußenminister Nordkoreas, Ri Jong-ho, teilgenommen, und sich im Laufe der Veranstaltung mit Regierungsvertretern aus Kanada und Japan getroffen und mit Wissenschaftlern und regierungsnahen Organisationen aus China, Südkorea, den USA und auch Deutschland diskutiert. Die Veranstaltung ist auch durch Mittel der Friedrich-Ebert-Stiftung unterstützt worden. Bisher wurde die Veranstaltung vom mongolischen Institute for Strategic Studies organisiert, dessen Direktor, D Ganbat, jetzt der mongolische Botschaft in der Bundesrepublik ist.

Seit der Wahl letzten Sommer steht die Frage im Raum, ob der neue Präsident, Kh Battulga, den Ulaanbaatar Dialog auch unterstützt. Die Initiative zu diplomatischen Gesprächen im März legt nahe, dass der Präsident das strategische Potential des Dialogs erkannt hat. Unabhängig davon ob es letztendlich zu einem Gipfeltreffen Kim-Trump kommt, könnte der Dialog ein weiterer und wichtiger Schritt in einer Deeskalation der Spannungen in Nordostasien sein. Die Mongolei hat sich hier strategisch geschickt positioniert und es sollte auch anderen Ländern klar sein, dass diese Position viel positives Potential birgt.

Posted in Foreign Policy, Mongolia and ..., North Korea, United States | Tagged | Leave a comment

Guest Post: A quick reaction to the on-going Facebook conversations on Oyu Tolgoi agreement and the role of Mr Bayartsogt in signing it

By Undariya Tumursukh

The news that the Swiss are investigating the possible corruption case involving the former Finance Minister S. Bayartsogt (DP) and Rio Tinto has triggered some agitated discussion, including on Facebook, about Mr. Bayartsogt’s central role in concluding the Oyu Tolgoi (OT) agreement in 2009.

Background

Mr. Bayartsogt was re-elected to the parliament in 2012 despite the controversy surrounding this investment deal and even appointed as a Vice-Speaker of the Parliament. However, he was forced to resign from this post in 2013 when his unreported offshore company with one million USD in a Swiss bank account surfaced through the Offshore Leaks Database of the International Consortium of Investigative Journalists . Mr. Bayartsogt claimed he simply forgot to include these assets in his legally required declaration of income and property when assuming his public office. He reportedly added that “one million USD is not such a large amount” (link).

Now, Mr. Bayartsogt’s offshore accounts have resurfaced as a result of Swiss authorities’ investigations into the source of not one but ten million USD transferred to Mr. Bayartsogt soon after he was appointed a Finance Minister. Reuters reported that the said accounts have been frozen and the Swiss court is investigating whether funds are likely to have been a bribe to the former Finance Minister in exchange for signing an investment agreement disadvantageous to Mongolia (link). As a number of other compromised politicians, Mr. Bayartsogt had been living in luxury abroad since his defeat in the 2016 parliamentary elections. He has recently come home and held a press conference at which he claimed that the funds in question have nothing to do with his role as a Finance Minister or Oyu Tolgoi agreement as he had simply borrowed that money from a friend. The said friend remains unidentified.

Social Media Discussions Defending Bayartsogt

My purpose here, however, is not to prove or disprove Mr. Bayartsogt’s guilt or argue the pros and cons of the OT agreement. My purpose is more modest: to reflect on a few arguments I encountered, to my initial surprise, in an ardent defense of our former Minister of Finance and the OT agreement. Among the proponents are people considered well educated and informed and concerned about Mongolia’s development. That initial surprise is what triggered this reflection.

What concerns me is the logic of arguments that defend powerful and privileged men whom we have sufficient reason to suspect of corruption and even treason in so far as they allegedly colluded with transnational and domestic private interests to cheat the Mongolian people of their public assets. That Mr. Bayartsogt figures here is of little importance. The limelight could have shone on any other politician such as, say, Mr. S. Bayar, former Prime Minister (MPP), also deeply implicated in corruption charges and also living abroad in luxury. Instead of OT, it could have been Erdenet or any other significant source of national wealth (and sadly they have been too) that is privatized through a non-transparent process, with Mongolia’s national interests poorly guarded (or easily sold?) and with the neoliberal ideology of the free market, private property and limited government serving both as legitimation and a smokescreen.

Argument 1: Innocent Until Proven Guilty

The first line of defense is, predictably, that Mr. Bayartsogt’s crime has not been established by the court. Indeed, a core principle of a humane and democratic system is the presumption of innocence until proven guilty. Whilst in this particular case, there is hope that the Swiss judicial system will prove trustworthy and effective, it is important to reflect on this defensive argument in the Mongolian context as it surfaces every time there is some effort to demand accountability from a powerful politician. Very simply, we cannot trust our legal and judicial institutions to systematically work fairly and competently. Both our lived experiences and corruption perception surveys indicate they are plagued with significant corruption. Recent revelations about the private wealth accumulated by some judges confirm these suspicions. If the courts themselves are a part of the corruption network, a corrupt politician may never be proven guilty through the formal processes. In such a situation, should we continue to believe men like Mr. Bayartsogt to be innocent since never proven guilty?

Then there is the issue of the difference between law and justice. Laws are a product of political processes in which those with more power often dictate their will onto those with less. Hence, if laws are designed to protect the interests of the wealthy and the powerful, even if the courts work effectively according to the law, we cannot expect justice. Nevertheless, for those of us committed to democracy and, hence, the goal of fostering an independent and fair judiciary, we have little choice but to wait for the courts to run their course as a matter of an ethical principle. So that is that.

Argument 2: Western Companies Are Intrinsically Good

The other pro-Bayartsogt arguments I have seen are a bit more perplexing. One states that since Rio Tinto is not a Mongolian or Chinese but a western company and one that operates on a global scale, it would never do such a dirty thing as bribing a public official. In this view, foreign, especially western and large, transnational companies are ethical, socially responsible, accountable, transparent, i.e. “nice and clean” in a presumed contradistinction to domestic and non-western companies. This absolutely unfounded and extremely naïve view is mind-boggling! A simple google search would show reports of Rio Tinto charged for fraud in US, imposed a fine in UK and facing investigation in Australia in relation to a coal reserves deal in Mozambique (link); investigated by UK authorities for corruption in relation to an iron ore project in Guinea; and implicated in human rights violations and environmental degradation in Papua New Guinea (link), etc. I strongly wish my compatriots, especially those who consider themselves intellectuals, would read up on the empirical history of western capitalism. To clarify, I do not mean reading, once again, the ideological treatises of the likes of Hayek and Friedman but critical studies grounded in the historical, material and social realities of countries and people.

Argument 3: Be Happy with the Leftovers

Another argument was that we should award rather than prosecute Mr. Bayartsogt as he at least made OT operate. In this view, whether or not the former Finance Minister colluded with transnational corporate interests to sell Mongolia short is irrelevant so long as the deal brought some income for some Mongolians. This argument is not as naïve as the previous ones. It expresses a worldview that has made peace with corruption and injustice. If we adhere to it, there is no need to hold accountable corrupt officials and businesses so long as they let some revenues to trickle down to Mongolians and we, as Mongolians, are to be grateful to the “big guys” for the opportunity to scramble for their leftovers. This view is not just defeatist, it is devoid of any morality.

Argument 4: The REAL Costs of Oyu Tolgoi

And then, in all of this, there remains a side to the OT agreement or any other similar arrangement that is still largely left out of the public discussions: the REAL COST of the mining in the fragile Gobi ecosystem. Once the minerals have been depleted and the wealth extracted and channeled abroad not only through the gains made by transnationals but also through Mongolia’s capital flight and imports, we shall face more than a loss of revenue. We will be left to face a devastated environment, severe water shortage and desertification, deterioration of public health, destruction of traditional livelihoods, massive social dislocation and exacerbation of inequalities and violence. When Mr. Bayartsogt bedazzled Mr. S. Ganbaatar during their televised debate by his now infamous reference to the twenty thousand variables included in the “highly complex” theoretical model underpinning the OT agreement, no word was said about the non-market costs to be borne by Mongolia. Mr. Ganbaatar had no wherewithal to challenge the limitations of the model as he himself had come to that debate as a neoliberal believer with a typically myopic vision of discarding the social and environmental costs as extraneous to economic relations.

Argument 5: The Bigger Picture

I believe the various positions (and omissions) on the matter of Mr. Bayartsogt‘s role in the OT agreement reveal much broader issues related to the post-socialist attitudes of Mongolians to economy, politics, public good, social values, and ethics. In the end, it is not just Bayartsogt. At the very least, two other ministers who represented Mongolia in the OT agreement negotiations and signing are implicated: Mr. L. Gansukh, then Minister of Environment, who allegedly bought a million USD house soon afterwards, and Mr. D. Zorigt, then Minister of Energy and Mining, whose private portfolio has reportedly reached 30 companies since then. A deal of this magnitude had to involve more people from both MDP and MPP. However, the issue is not just that corruption is institutionalized in post-socialist Mongolia. The challenge is that it is facilitated by neoliberal ideologies that have become hegemonic.

About the Author

Undariya Tumursukh is a PhD Candidate in Public Policy at the Auckland University of Technology and former National Coordinator of the MONFEMNET National Network.

Note: The initial, briefer, reaction was posted on Facebook on March 21.

Posted in Corruption, Foreign Investment, International Agreements, Mining, Oyu Tolgoi, Undariya Tumursukh | 1 Comment

Mongolian Mining Forum at PDAC 2018

By Bulgan B

Mongolia has made a tradition of sending a delegation to PDAC every year in the last 8 years (at least this is as far as I recall).  Although, the odds of the same minister of mining attending the conference might have been very slim given the changes in Mongolian Government. Regardless of the changes of faces, the objective of the event is to attract investment to Mongolia. So, hitting the right notes is important in an environment like PDAC where many countries are making a concerted effort in attracting the same investment. This year Chile, Peru, and Ecuador sponsored PDAC – showing that the event has become the international thing.

Unlocking Mongolia’s Potential

The Mongolian Mining Forum’s agenda was named “Unlocking Mongolia’s potential for investors and developing partnerships for economic development.” Although, given that it was the first day of the official opening of PDAC and there were many other events simultaneously taking place, the function hall was full. I take that a good sign and an interest because it was not easy to find any program agenda on the internet except the Xanadu mining’ tweet came in handy although might have been the draft version of the program as there are changes to the program at the actual event.

Government Perspective

In terms of content (skipping the pleasantries of opening remarks) Mr. Munkhbileg Namsrai, Mineral Resources, and Petroleum Agency of Mongolia showed geoscience mapping of Mongolian resources. He also shared that the Agency’s website is hosting geoinformation database which includes over 1300 state-funded geological reports and their intention to start private funded exploration.

The presentations by OT Country Director Munkhtushig Dul and Erdenes Mongol LLC CEO Tumentsogt were rich in information on where they are, and where they plan to go. Erdenes Mongol LLC shares that it is fated to manage the Mongolian Sovereign Wealth Fund. There were discussions of what this meant in the wider circle of Mongolian audience.

Mongolia and Canada

Moving on to the presentation by the Mining Suppliers Trade Association of Canada, Mr. Ryan McEchearn spoke on the mining cluster approach and stimulated a lot of interest in the Mongolian audience. Member of Parliament, Dr. Undraa Agvaanluvsan requested to learn how the cluster approach would match Mongolia’s development pursuit based on its mining industry.

The following session on Improving mining industry performance was moderated by  Mr. Jargalsaikhan Dambadarjaa. His panel included the Minister of Mining, Member of Parliament, Canadian Ambassador, CEO of the Mongolian Stock Exchange and Business Council of Mongolia. Mr. Jargalsaikhan touched upon a variety of questions ranging from “trust” to “tax”. The Canadian Ambassador, Mr. David Sproule shared that transparency and consultation were important for not only attracting but also maintaining the flow of investment in the country, making reference to the recent change to the income tax in Mongolia. The undercurrent of the panel was the issue of changes to the taxation in Mongolia. The Minister of Mining, however, was well grounded in his response on this hot topic of taxation. He reflected upon the process of policy making and budget making and how the budget making is not a consultation process at the parliament but rather a binary process either to approve or reject. He also mentioned that on January 5, 2018, the government passed legislation to stream the 30% of the royalty to the local governments which could change the nature of the industry’s engagement with the local governments. Minister D. Sumiyabazar did handle the hard questions with ease. It is an interesting comparison to Marissa Smith’s post covering the World Economic Forum in January 2018.

The event concluded with Altan gadas (polar star) medal to Mr. Matthew Wood, Executive Chairman of Steppe Gold Ltd for his contribution to the development of Mongolia. In the audience, there was another foreigner who holds the “Friendship” medal amidst longtime friends of Mongolia. These are the descriptive accounts of Mongolian Mining Forum 2018 at PDAC.

“Welcome Back” to Mongolia, Particularly for Junior Mining Companies

The mining industry is picking itself up from the ground and dusting itself off. It is a good sign for Mongolia to join the marathon and improve itself. Mining is a package deal, we can not separate its positive impacts from the negative ones. However, Mongolia can mitigate those negative ones and catalyze the long-term development through the benefits from the industry. First and foremost, to optimize the country in mining, we need to start taking the junior mining companies seriously. Those strategic deposits and megaprojects are in their own bubbles of complications, however, without a serious relationship with junior companies, we will not move forward.

In summary, the key message of the event was “welcome back” to Mongolia. The Mongolian government has presented a progress through legislative reform in mining, an openness of geoscience data and economic (and political of course) interest to welcome investment. Although, like any maturing democracy, it has and do not hide its challenges with policymaking, such as the case of a recent change in taxation.  However, both mining industry and government of Mongolia should and could work to get the best out of this “boom” ride.

 

 

Posted in Canada, Erdenes Mongol, Mining, Mining | Tagged | 1 Comment

Cars in Mongolia

By Julian Dierkes

Our image of Mongolia may be dominated by horses as a part of the landscape, but also as a mode of transport. But, of course, motorized transport is very common place today.

Development Stages and Motorization

I imagine that there’s some kind of impressionistic literature out there that classifies development stages by the kind of vehicles that predominate in urban traffic. Whether it is the tiny Hondas of the 1960s in Japan, the bicycles of pre-1980 Beijing, or the motor scooters so common across SE Asia, the predominant forms of transportation provide a measure of the funds that are available for urban transport, but also for luxury purchases.

Types of Cars

Hyundai

When I first started visiting Mongolia very regularly in the mid-2000s, I thought of Ulaanbaatar as the place that Hyundais went to die. This was an extension of my own experience in Alaska which around that time was the place where Subarus went to die. In both cases a brand that was enormously common and seemed well-suited to local conditions. In the case of Hyundai Accents, these were largely used imports from Korea that were affordable and possible to maintain. They thus dominated the Ulaanbaatar car-scape until Prius started arriving in numbers (see below).

Arrival of Prius

In 2016, the Beijing correspondent of the Globe & Mail, Nathan Vanderklippe, noted the preponderance of hybrid cars in Mongolia, but the growth of this sector had been going on for some years. Is it that Mongolians have seen the eco-light and want to save gas? Is it that this is an individual decision to alleviate a collective winter-time evil, air pollution? No, it’s mostly that most cars in Mongolia are imports from Japan (or Korea). Given Japan’s very strict safety inspections, cars are discarded in Japan strangely quickly and the used market for older cars is totally underdeveloped. So, roughly five years after hybrids, and especially the Toyota Prius, started being more popular in Japan, they “naturally” started showing up in Mongolia. Of course, drivers will be delighted by the gas-savings, but the market share of the hybrids is probably more due to push factors related to Japanese exports than any other decisions.

By 2017, Prius seem to be the most common car in Ulaanbaatar. They are the workhorse of modern Mongolian living. They seem to be approved to carry at least 11 people.

If you follow the secret-code-on-how-to-shut-off-hybrid-mode instructions, you can even drive through rivers with them. I can only imagine what the Toyota engineers who designed these would think when they see how their hi-tech hybrids are out through the ringer of life on the steppes, and how well they seem to handle that.

Resurgence of right-hand drive

The shift from Hyundai Accents to Toyota Prius also brought a resurgence of right-hand drive cars, imported from Japan. Today, Mongolia is a mix of right-hand drive and left-hand drive cars, even though traffic is on the right side of the street, of course. Given the high quality, low mileage, and technological advances in the domestic Japanese car market, it seems unlikely that this will decline as a major source of cars in Mongolia for some time. The main threat to the dominance of used cars from Japan, may be new cars from China, especially if electrification there really takes off. It would seem that the domestic market for used cars in China itself is so large that few cars might emerge from this to be imported into Mongolia, but new cars seem more likely, especially as Mongolia becomes more affluent.

Why no Subaru?

I have often wondered why there are no more Subarus in Mongolia. Again (as above) given my Alaska experience, Subarus seem ideal for Mongolia. A bit of ground-clearance, 4-wheel-drive, utilitarian, plenty of them in the Japanese used market…

So what keeps them from showing up in bigger numbers here? Do Japanese owners hang on to Subarus longer than other makes? Are the Boxer engines more complicated to maintain? Do they guzzle too much gas for Mongolian tastes?

Pick-Ups

Mongolians probably like the utility of pick-ups, especially for the countryside. They have sporadically started appearing. Mostly, they are bigger US models, it seems, that rely on a differential tax rate as trucks rather than passenger cars.

However, no nation nearby has significant numbers of these and since large parts of the Mongolian automobile market continue to be used cars from Japan and Korea, pick-us are probably unlikely to disappear in big numbers.

Cars are such an obvious element in the central Ulaanbaatar streetscape that I will continue to note changes as they occur over the years.

Car Language

One of the interesting features of car life in Mongolia is that model years are designated by numbers that I’ve never heard in Canada. Do you know what a Prius 20 is vs a Prius 30? What about all those numbers that designate generations of Landcruisers?

Fortunately, Hummer Craze Waning

Some years ago, Hummers seemed to be proliferating. The whole off-road, weird macho image with Schwarzenegger and all seemed like they would be a thing in Mongolia. Fortunately for the world, that trend never quite became a craze and the few Hummers that are around now look like the dinosaurs they are.

Posted in Change, Change, Countryside, Curios, Development, Social Change, Social Issues, Ulaanbaatar | Tagged | Leave a comment

SOMO Report “Mining Taxes”

By Julian Dierkes

The Dutch Centre for Research on Multinational Corporations (SOMO) published a report focused on a whole list of issues related to financial and governance structures for the Oyu Tolgoi project. The report was written by SOMO’s Vincent Kiezebrink and Rhodante Ahlers, and Mongolian NGO Oyu Tolgoi Watch’s D Sukhgerel.

The report is nearly 50 pages long and covers many different aspects of financial and governance arrangements around OT.

The most significant and novel information centres around the tax arrangements that Rio Tinto has made to move profits from OT production around the globe in order to minimize the taxes that are paid on these profits. In the report, these are chapters 4 and 5. But despite the best efforts of the authors, including some nice representations of ownership structures, these tax structures remain fundamentally obscure even to someone like me who is well-informed about the political context in Mongolia. And, perhaps, this is the biggest conclusion to take away from this investigation into tax structures, namely that they are inscrutable and deliberately so.

I think this report is a pretty significant contribution to discussions of the OT project in Mongolia and my guess is that it will receive significant attention. The report therefore deserves our closer attention for more detailed comments, and I hope that we’ll be able to write more posts to focus on specific aspects of the report.

Below are some of the issues mentioned in or questioned raised by the report that I hope we’ll be able to comment on:

  1. A lot of the discussion of Oyu Tolgoi, including the SOMO report, gloss over some assumptions that evaluations are based on. It would be better if these were explicit.
  2. Can we think of the relationship between Rio Tinto and the Government of Mongolia in wrestling terms?
  3. Expectations of Rio Tinto and of the government of Mongolia are very high when it comes to governance structures and the provision of maximum benefits to Mongolians. That is appropriate, but it is also unrealistic (from both perspectives, the investor’s and the government’s) that perfection will be achieved. After all, we are not all Norwegian.
  4. None of the tax schemes described in the report appear to be illegal. But isn’t it ironic that the EU initially black-listed Mongolia as a tax heaven, but that in this case Luxemburg appears to be very much in the business of corporate registration for the sole purpose of tax reduction. Hello, EU pot, meet a Mongolian kettle!
  5. What role do OECD governments play in enabling these kinds of schemes to minimize taxes? Given our location in Canada, what role has EDC financing played, and what about investment in TRQ by public pension funds?
  6. Some calculations that are made by Rio Tinto (and many other investors) appear fundamentally flawed. The OT project is expected to be productive for many decades. Does it really make sense for Rio Tinto to save x% on taxes by engaging in the schemes described in the report and not really addressed in the Rio Tinto response, when the deliberate obfuscation that is an element in all of these schemes clearly raises political risks associated with OT significantly? Yes, from an investor perspective, there have always been complaints about repeated efforts by individual Mongolian politicians or by governments to re-open discussions about the Investment Agreement, but a lack of transparency breeds mistrust which forces responsible Mongolian politicians into a continued examination of the relationship. Corporations would point to their obligation to maximize shareholder value, but should they not nudge shareholders into understanding long-term benefits vs. short-term tax savings? Should public funds that invest in TRQ and similar projects not be aware of that?
Posted in Canada, Corruption, EU, Foreign Investment, International Agreements, International Relations, Mining, Mining, Mining Governance, Oyu Tolgoi, Policy, Public Policy, Taxes | Tagged | Leave a comment

SOMO Report Preamble: Assumptions

By Julian Dierkes

It struck me while reading the SOMO report on Oyu Tolgoi governance and tax structures that there are a number of big assumptions and elements in the Mongolian context that are not discussed explicitly, but that are fundamental to the project. This includes technical requirements, political pressures, and the ownership of mineral resources.

The perspective that the SOMO report takes is one that I also find common in the investor community, namely an expectation of perfection in governance. Not surprisingly, I would argue that such perfection is unlikely to be achieved and that this expectation is somewhat detrimental to discussions of resource projects.

This is thus the “meta comment” in a series of posts reacting to the SOMO report.

Big Assumptions

There are a number of features of the Oyu Tolgoi project that some readers of the SOMO report may be unaware of. They relate to the nature of the mineral deposit, but also of Mongolian politics. For background, readers might also be interested in Byambajav’s summary of the history of the Oyu Tolgoi discovery.

Economic Development

Most fundamentally, Mongolians decided after the democratic revolution that they wanted to pursue economic development in a market context. Yes, they were surely nudged in that decision by international advice and one might debate to what extent this decision was made based on free and prior informed consent at the level of the nation, but by the time decisions about Oyu Tolgoi were being made, the pursuit of economic development in a global capital context was a foregone conclusion. Following on that discussion, Mongolians did not consider the option not to develop OT. Decisions about OT were also being made more than 15 years after the 1990 revolution, a period that had left Mongolia poor. Again, one might debate the role of international advice in bringing about this poverty, but it was a given by 2005 and led to a desire to see economic development sooner rather than later, thus precluding a number of development paths that would have required patience and a slow build-up of expertise and capacities.

So, even prior to making any specific decisions about Oyu Tolgoi, the fundamental direction of policy had been set: let’s have economic development within a global capitalistic system and the sooner, the better.

Ownership of Minerals

Mongolians own their mineral resources and thus have control over what happens to those resources.

That is not “resource nationalism“, it is constitutional and really any other kind of fact.

Comments from the investor perspective very often try to slap the “resource nationalism” label on any discussions about the level of taxation or other aspects of mining governance. But it is important to remember that Mongolians and the government that represents them are perfectly free and justified in doing anything they want with their mineral resources. If they want to develop these resources with partners, they would probably like to be responsive to these partners, but, fundamentally, it is the duty of the Mongolian government to be stewards of resources and to maximize benefits for the population from these resources.

The Deposit

The OT deposit is BIG. The SOMO report contains some nice maps of the surroundings of the project in the context of various other companies that Rio Tinto also has shares in in Chapter 2. The ore body is also quite deep. Currently, all production comes from the open pit mine that is the earliest phase of the project, but ultimately this will be replaced by production from underground mining.

Most relevant to decisions about ownership and governance structures is the fact that this deposit is best developed through block caving. While I am not a mining engineer myself, I have not heard any engineers or industry representatives dispute that fundamental perspective on the OT project.

As Priyadarshi Hem and  Jack Caldwell write in their overview of block caving as a method: “Block cave mining is a mass mining method that allows for the bulk mining of large, relatively lower grade, orebodies.” It is also a method that requires very complex calculations to predict subsistence as material is extracted underground. That expertise is rare. The method also requires very high investment costs in constructing the underground facilities that allow for block caving while production costs are relatively lower than for other methods.

In the case of Oyu Tolgoi this means that Mongolian mining companies, including long-time copper miner Erdenet did not posses the expertise/technology to develop the deposit when it was moving from exploration to development roughly around the time Rio Tinto bought into the project by acquiring a stake in Turqoise Hill.

So, given that development in a global capitalist context was a foregone conclusion (and is not really under debate in Mongolia currently), the nature of the OT deposit demanded some kind of cooperation with an international mining company that had the technical know-how and financial wherewithal to undertake this project. In the set of companies that fulfill these criteria, there are some but very few alternatives to Rio Tinto.

The Investment Agreement

Given the desire for economic development and the nature of the OT deposit, was the Government of Mongolia bullied into a disadvantageous investment agreement as the SOMO report asserts in several places?

This questions assumes that we have a standard for judging what “(dis)advantageous” is in this context. But there is no standard for what a nation should expect in terms of a return on development of its resources. If such an agreement ultimately produces any kind of positive return, (dis)advantageous is a judgement of relative benefits that might come, but those benefits are very difficult to estimate on the basis of an investment agreement alone.

Posted in Foreign Investment, International Agreements, Mining, Mining Governance, Oyu Tolgoi, Policy, Public Policy, Taxes | Tagged | Leave a comment

How Are We To Think About Rio’s Balancing of Political Risk and Taxation in Light of SOMO Report?

By Julian Dierkes

Rio Tinto’s response to the SOMO report claims that the convoluted corporate structure that has been created for Oyu Tolgoi is not aimed at saving taxes, but rather at reducing investment risk.

For as long as Rio Tinto has been involved in Oyu Tolgoi, it has struck me that management is fundamentally not willing to engage Mongolia on Mongolians’ terms to commit to the project in the very long term. Instead management seems to be operating with a remote-controlled spreadsheet constructed by tax lawyers. This continues to raise political risk at Rio Tinto’s peril.

Whether or not the details discussed in the SOMO report suggest tax avoidance or a reduction of investment risk (I can’t tell the difference, to be honest), I see a corporation that seems to have decided that a lack of transparency is an acceptable price to pay for a (seemingly small) reduction in taxes or in investment risk. What that decision seems to disregard is that a lack of transparency on part of the investor is a significant contribution to political risk.

Blaming Mongolians

In the past, when Mongolian officials have raised questions about Oyu Tolgoi and Rio Tinto’s management thereof (most recently, with a large tax claim), much of the international response has focused on blaming such questions for destabilizing the relationship and thus hurting the longterm relationship. In those moments, Rio is portrayed as a committed longterm investor.

Rio Tinto’s Longterm Commitment

Yet, the convoluted and seemingly deliberately obscure ownership structures detailed by the SOMO report make me question that longterm commitment, or at least the wisdom of Rio Tinto executives in how they choose to express that commitment.

The size of the OT deposit suggests that it will be in production for many decades. Obviously, this depends on the rate of production and there are some imaginable, but far-fetched scenarios where the project is abandoned (apocalypse, an artificial, cheap substitute for copper, perhaps others). Barring those unlikely developments, this mine will be in production into the late 21st century if not beyond. For a business investment, that is a longterm investment, I would say.

Given the substantial up-front cost of developing the underground production at OT, all broad indications suggest that Rio Tinto is in the project for the, er, long haul. So, how are these broad indications translated into specific business decisions that continue to seem to squeeze dollars out of the project by accepting an increased political risk?

Political Risk

There are two classes of political risks that the OT project is facing:

  1. Catastrophic risk
  2. Incremental risk

Exogenous Shocks

Catastrophic risks means that Rio Tinto’s investment in the project is lost entirely. Generally, the scenario that is considered in bringing this about is a some kind of full-scale nationalization. For OT, it is primarily exogenous (i.e. separate from the project itself) shocks that might represent such a catastrophic risks. Examples would be some kind of authoritarian government in Mongolia that nationalized the project (preferably after completion of construction though the operation of a block caving mine is very cheap, but also very complex in terms of calculating/planning subsistence). Currently, the possibility of such a scenario strikes me as very remote, perhaps <5% over 50 years.

Another example might be a foreign invasion. That also appears very unlikely, unless there were extreme events/changes in either Russia or in China. Both of those are not unimaginable (an even more authoritarian turn in Russia, environmental catastrophe in China that turns into social unrest…), but very unlikely. And it these scenarios unfolded, lost investments in OT might be among the least of the world’s worries.

Of course, the very size of the OT project may inspire a kleptocratic  take-over domestically and internationally, i.e. someone (person or country) might actively try to seize the project as a target all on its own, but if that happens, again, it would spell so many problems that this represents catastrophic, but very small risk.

Endogenous Dynamics

While catastrophic risk would largely stem from dynamics that are not directly related to OT, the project itself does represent some political risks to itself, so to say. But, OT and Rio Tinto do play a very prominent role within Mongolian political deliberations, so they are actors that do contribute to political risk to themselves. To me, the SOMO report strongly suggests that Rio Tinto continues to make decisions that raise the incremental political risks on the project.

Incremental risks stem from changes in the taxation and regulatory environment. Essentially they are the risk that the profitability of the project is reduced, possibly even so far to be no longer economically viable.

Most of the questions that Mongolians and others are asking about the project stem from uncertainty about the information regarding the project.

This is in part because this is only the second mega-project that the Mongolian state is involved in. Erdenet Mine was structured in a very different, post-state socialist context where decisions were made on a very different basis and the “corporation” was in fact part of the state, not a separate entity.

So, Mongolian policy-makers and regulators simply do not have past experience with this kind of project to rely on. Yes, they could hire foreign advice to stand in for their own experience, but that only goes so far. All along in the negotiations, there has thus been a fundamental information asymmetry. There are very many aspects of the project that cannot be known to policy-makers. Are there any aspects that cannot be known to managers, other than those that are subject to the negotiations themselves?

It thus seems to me that in order to minimize the political risk of regulatory uncertainty and also of uncertainty in taxation – the very risk that the Investment Agreement is supposed to mitigate against – it would behoove Rio Tinto to minimize information and experience imbalances wherever is possible without compromising negotiation positions. Overcharging Oyu Tolgoi on management fees (the focus of many discussions between Rio Tinto and the Government in 2013, ultimately reduced from 6% to 3% of capital costs), or the elaborate constructs explored by the SOMO report, do not reduce information imbalances. Other elements of these imbalances have been explored by analysts in the past, see for example the 2015 note by NRGI’s Amir Shafaie.

Rio Tinto Engaging Mongolia

Rio Tinto’s past decisions and an apparent preference for listening to lawyers and accountings over country experts to me suggests that management has made a calculation that higher political risks are small enough a price to pay compared to tax and other savings, that they are willing to pay that price, as they must believe that they will come out on top in the end.

That is unfortunate, as it is a recipe for ongoing turmoil in coming decades. It also undermines Mongolian democracy and attempts (however lamentably feeble they appear at times) to build capacity in Mongolia to address information and experience imbalances. This conclusion does make me rather impatient with oft-repeated claims by voices from the investment community, including financial journalists, that prefer to try to shame the Mongolian government with vacuous terms like “resource nationalist”, rather than examining the decisions that investors like Rio Tinto seem to be making that contribute to political turmoil and uncertainty.

I think that Rio Tinto would be better advised to engage Mongolians more fully by which I don’t mean that management try to lobby or become friends with government officials who are currently mired in a stand-off of mutual accusations of corruption. Instead, Mongolians very real and relevant questions should be taken very seriously rather than being dismissed as money-grabbery (which is absurd given Mongolian ownership resources in any case). There are many more contributions (not even predominantly financial) that Rio Tinto could be making toward building Mongolian capacities and reducing information imbalances than have been undertaken in the past.

Yes, Mongolian employees are rising into management ranks which is important. B Bold’s membership in Rio Tinto’s executive committee is the pinnacle of that approach so far.

Much of the local engagement (Byamba knows much more about this) does seem genuine and community-focused in many aspects.

But I have seen relatively little of that kind of engagement at the national level in areas like mining education, support for Mongolian analytical capacity, etc. To me, some dedication of resources in these areas coupled with greater transparency in all dealings, including corporate structure, would go a long way in reducing political risk that is currently exacerbated by corporate decisions reflected in the SOMO report.

Posted in International Agreements, Mining, Mining Governance, Oyu Tolgoi, Public Policy, Taxes | Tagged | Leave a comment

Unequal Match: Mongolia versus Rio Tinto

By Mendee Jargalsaikhan

If one describes the bargaining game between Mongolia, a small and isolated resource-rich state, and Rio Tinto, a giant multinational corporation, through the Mongolian national pastime sport – wrestling, it is truly an unequal match between the дархан аварга  (invincible titan) and залуу бөх (unknown young wrestler). Unlike the young wrestler with one or two supporters, the invincible titan knows the game and even has the power and prestige to influence the game. However, when the invincible titan acts that way, he starts losing his fans and weakening the very spirit of the game – fairness.  At the same time, such arrogant behaviour emboldens many young and junior wrestlers for fearless competition.

Source: The UB Post, By Dulguun Bayarsaikhan, July 11, 2017

Mongolian National Wrestling (The UB Post)

 

Multiple Encounters Between United Rio Tinto Club, Dis-United Mongolia Club

Mongolia has wrestled with Rio Tinto over the last decade in multiple matches over an untapped copper and gold deposit – Oyu Tolgoi. The project has potential economic spillovers by connecting the country’s isolated economy to global financial and commodity markets.  But, without any doubts, it would negatively alter the ecosystem of the Gobi – a large desert region with dozens of scenic oases and non-renewable underground water reservoir.

In spite of the successful negotiation of the initial investment agreement, the young wrestler has failed to challenge the invincible titan – who is backed up by a resourceful, supportive wrestling club under influential investors and with a broad spectrum of fans.  Mongolia repealed its windfall profit tax law, lost its hopes of selling electricity, building a smelter, and offering its banking, and received less in the local tax dispute.

Unlike Rio’s wrestling club, the Mongolian state (if we consider it a poorly-run, ill-funded wrestling club) hasn’t been united in its support of the young wrestler even though all young wrestlers did their best given their lack of expertise and multiple disadvantages (e.g., political, economic, and social constraints).  The MPP-led governments of 2004 and 2008 did their best of completing the initial investment agreement whereas the DP-led governments of 2012 and 2016 had their fights and completed the agreement to begin the construction of the underground mine.  Now another young wrestler (Khurelsukh’s cabinet) is about to wrestle (to settle the second local taxation dispute).

The key difference here – the invincible titan, although constrained by demands of the club financiers, could predict and steer the game for its continuous victory whereas the young wrestler has too many challenges. One, all other Mongolian young wrestlers think that they can do better.  Second, even though they can’t provide sufficient resources, the Mongolian club financiers have no patience and strategy.  Finally, most of the Mongolian club fans are hopeless. Above all, the audiences are increasingly becoming unhappy with the game.

Why – Lack of Transparency

The key challenge is the lack of transparency or academics call it ‘information asymmetry’ – thus easily trigger the conspiracy theory (see Julian’s post on conspiracy in Mongolia).  If any wrestler gives up easily, rumours about the potential of match fixing (or the round) or unfair pressures of the famous wrestler would spread with the speed of the light.  Since it is hard to learn to what’s being whispered between two wrestlers at the centre of the stadium, any rumours can be easily self-reinforced.

Particularly, when those – who were in the wrestling club boards or happened to be near wrestlers – talk about the unfair match or hidden deals, it is logical for the audience begin to suspect and lose the interest in the game and trust in referees.

If all matches between young wrestlers (Mongolian governments) and invincible titans (Rio Tinto) had been fought transparently, why would people (esp., former Presidents, Prime Ministers, Cabinet Members, MPs, and economists – who were closer to the negotiation and deal-making process) keep broaching facts and engaging in a blame-game?  Regrettably, all these allegations and claims were simply dismissed for political gains rather than providing the rational reasons and hard evidence.  But, these facts would continue to be leaked and questions would be raised and re-visited time to time as the country is not run by autocrats.

Therefore, it would be harder and more challenging for wrestlers to continue until both sides make efforts to increase the transparency to raise the level of trust of the audiences.

Strategies for a Young Wrestler (?)

The best strategy for a small state, Mongolia, to deal with a multinational giant, Rio Tinto, would be ‘having one voice and one stance.’  In our wrestling analogy, the Mongolian Club needs to make a long-term investment in its young wrestlers – instead of just criticizing and replacing rookies. But, it seems not possible for a country with an electoral democracy and weak institutions (esp., rule of law).  As a fate, the Mongolian Club Board is run with ambitious, short-sighted, and competitive entrepreneurs – who are mostly after their own parochial objectives and restrained by their narrow patronage networks.  In contrast, the Rio Tinto club has a long-term strategy for the ultimate victory and ability to test multiple moves and tactics in support of its big objective.  It possesses invaluable expertise in commodity market, hires high-caliber experts (e.g., PR, media, lawyers), collaborates with the International Financial Institutions, and secures the advocacy from the powerful governments.

So, what would be the ‘weapons of the weak’ then?

For one, Mongolia continues to pursue its dreams of establishing the Mongolian type of Temasek (Singapore) and Statoil (Norway). In other words, it needs to invest into Erdenes Mongol – as the young wrestler with the most potential – and must insulate it from the competition between political and economic factions.  But, Erdenes Mongol operations and funding must be transparent and its officials/experts must be held accountable for their work – to the public rather than their political factions.  Even though governments did make such attempts in the past, Erdenes Mongol’s operations and funding were not transparent.  Regrettably, those who hold senior posts in the Erdenes Mongol in recent past were not barred from pursuing their personal/factional interests afterwards.

Second, Mongolia, a new wrestling club, should network with other junior clubs to train its wrestlers and also to increase its leverages for the fair game to compete against powerful, global wrestling clubs.  Like hosting of the ‘think tank of land-locked countries,’ Mongolia is the most-suited site for leading the Centre of Excellence for Emerging Resource-Based Economies.  With its experience of a complete ‘bust and boom’ cycle, try-outs of multiple mining projects, and costly, ill-thought ‘mining rush,’ it should advance the peer-learning  by sharing its experiences with emerging ones, learning from its peers (e.g., successful ones – Botswana, Chile, struggling ones like Zambia, closer ones – Kazakhstan), and learning from international experts, those are fairly neutral and/or critical side of the commodity business.  Like its promotion of international learning platforms, starting from democracy to peacekeeping and to judo, Mongolia is an ideal training ground for all new wrestlers.  If the Mongolian club couldn’t hire good coaches (lawyers, PR experts), all clubs could do it together or simply sharing their past and current experience to develop their own expertise.

Finally, Mongolian civil society activists, academics, and investigative journalists – who are concerned with corruption, environment, corporate social responsibility, taxation – continue to make all possible attempts to link with their like-minded counterparts in the Western capitals, OECD, and EU.  The SOMO report is just one example to disclose the potential avenues, which increase unfair competition. In this way, the Mongolian project should not be hidden from the radar of other critical audience – who like to see the fair game – such as principled politicians, investigative journalists, concerned activists, critical academics, and even ordinary citizen (who might be a voter and an investor).

Like any other spectator sports, Mongols support fair matches.  They respect the аварга (esp., invincible titan) who commits to the rules and wrestles without any bad behaviors.  Otherwise, the аварга would be booed as he bullies the young wrestlers and manipulates the game.  Thus increases supports for young wrestlers – and by any chance if he manages to take down the titan even in a single match – the audience award him with the standing ovation.  Let’s hope the OT project would be fair match – both wrestlers learn together and gain respects of the audience.  But, the only saver for the unbalanced match between Mongolia and Rio Tinto is the transparency.

Posted in Economics, Foreign Investment, International Agreements, Mendee Jargalsaikhan, Mining, Mongolia and ..., Oyu Tolgoi | Tagged | Leave a comment

Mongolia at Davos 2018: Party like it’s 2009?

By Marissa Smith

In recent years, Mongolia has regularly sent a delegation to the World Economic Forum at Davos. This year was somewhat less eventful than some years, when President Elbegdorj himself attended and presided over a “Mongolia Night” and negotiations with the IMF were underway. However, major international events like these are a good time to check in and see if there have been any major changes in direction. None are really evident, and the ideas expressed by the attendees reflect familiar ideas with no new (or apparently revised or further developed) strategies indicated.

D. Sumiyabazar (Minister of Mining and Heavy Industry, professional wrestler and brother of Asashoryu) gave a six and a half minute long “interview” (it was more of a series of statements, as the interviewer only asked one question referring back to the scope of the interview, “what is interesting here at Davos… what directions are there”) with Bloomberg (Mongolia ?). In addition to vague references to “business culture” and “management,” he outlined a series of now familiar ideas about development through mining, specifically the construction of a metallurgical processing plant (gesturing to the “clean environmental surroundings” of Davos, he assured viewers that there must be ways to do this in an environmentally friendly way) and putting government mining companies (including Erdenes as well as Erdenet and Oyu Tolgoi shares) on the Hong Kong stock exchange for profits to reinvest domestically. Also hearkening back to 2011, Dubai and Kazakhstan were specified as worthy models, Kazakhstan particularly due to “nomadism.” (Now, however, Nazarbaev was named as driving force.) Perhaps to temper too much association with countries viewed by many as undemocratic, Norway was then mentioned as a model.

D. Tsogtbaatar (Minister of Foreign Affairs) attended a meeting on the One Belt One Road initiative organized by the UNCTAD (UN Commission on Trade and Development) that was also attended by the Foreign Ministers of South Korea and Qatar. Tsogtbaatar also shared a clip on facebook (tweeted by Sumiyabazar) of Emmanuel Macron’s speech, praising Macron’s comments about France as part of Europe and his speaking in English as well as French as demonstrative of commitment to multilateral development.

To summarize, while Sumiyabazar outlined familiar vague ideas about generating income from state-owned mining companies being listed on the Hong Kong stock exchange (a strategy that has been attempted and failed, and very likely is not in sync with initiatives of international financial and development institutions like the IMF), Tsogtbaatar reiterated commitments to international cooperation, but specifically the One Belt One Road initiative, which is in as much doubt now as ever as a viable plan for financing and constructing the kinds of large infrastructure projects that Mongolians want and need.

Addendum, 2/2/2018

As I have seen through a tweet by Allyson Seaborn D. Tsogtbaatar was also interviewed by Bloomberg Mongolia. It was posted on the Bloomberg Mongolia site on January 31. He speaks about international collaboration with India and China specifically, using language similar to the facebook comments on the Macron clip about cooperative (даяаршин хамтаа) versus dominating, monopolized (дангаараа) globalization and also of small/large states (after the interview used this framework in a question). Modi did attend and give a speech this year at Davos, which Tsogtbaatar comments in the first half of the interview. The second half has to do with One Belt One Road and how large and small states should “align” (жагсах); the issue of financing is highlighted.

This interview does suggest to me that D. Tsogtbaatar is passionate about and very engaged with issues of One Belt One Road and I will be following his moves in this direction.

Tsogtbaatar was interviewed by the same journalist as Sumiyabazar, but he asks more questions here — it’s a shame that the same isn’t seen in that interview.

Posted in China, Development, Economics, Environment, Environment, Erdenet, Foreign Policy, Infrastructure, International Cooperation Fund, International Relations, Mining, Mining, Mining Governance, Mongolia and ..., Oyu Tolgoi, Policy, Politics, South Korea | Tagged | Leave a comment