By Ariuntuya Nominkhuu and Batbold Otgonbayar
Right now we are living interesting pre-election days in Mongolia. Due to pandemic-related restrictions, the election with the largest number of candidates in the history of parliamentary elections of Mongolia or 606 people is to be carried out with all due precautions. For the first time in the history of elections three candidates who are not able to come to Mongolia due to pandemic quarantine are competing in these elections online from abroad. There is even one candidate who is participating in these elections from the prison. The elections look as exciting as any thriller.
We could count many more interesting facts and comparisons like the above, but let’s focus on what the political parties’ platforms say about their position on the mineral resource sector. These elections shall have enlarged districts and multiple mandates within the district where the competition will be predominantly between Mongolian People’s Party (MPP) and Democratic Party (DP) who have ruled this country in turns for the last thirty years. We have selected the “Right Person Electorate Coalition” as the strongest third opponent so far to compare its platform against the above-mentioned two.
The platforms of the selected three political powers paid due attention to mineral sector. Specifically they stated how they would manage the natural resources and revenues generated from them. Small political parties and coalitions consisting of such are vying for attention by unique propositions for mineral sector reform and some bordering on the grotesque in their policy proposals.
Our attention was caught by the statement below:
Resolve once and for all issues faced in geological explorations and prospecting, and immediately launch geological explorations. Protect legitimate interests of investors, implement drastic reforms in complaint resolution and provide tax stability to the investment projects beneficial to the country.(Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, АН мөрийн хөтөлбөр хуудас 14).
During the past four years of the MPP-led Government the main concept whereby the mineral licenses were provided for the last twenty years has changed. In 2017, the principle to provide licenses based on application was abandoned and is to be provided only based on selection that has limited the development in geological explorations and investment basically has come to naught. Subsequently the Government led by PM U Khurelsukh made the decision to stop granting exploration licenses at all throughout 2020. An eyecatching content from DP platform is the statement to immediately amend the Law on Minerals which would resolve complaints and disputes caused by the cancelling of licenses and confiscating the deposits where the exploration was conducted by the public funds during 2019-2020 and give the opportunity to the projects on halt. This idea becomes even clearer when you read the policy to be pursued in the mineral sector, that is to increase the resources and to grant mineral exploration licenses according to the international standards.(Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, АН мөрийн хөтөлбөр хуудас 21). Anyway, this is a more farsighted step in the geological exploration sector.
On the other hand, the MPP platform has two provisions on geological explorations.
Intensify geological exploration works conducted by government budget funds, increase the mineral resources, start economic utilization of deposits with estimated reserves and carry out fair distribution of wealth (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, МАН мөрийн хөтөлбөр хуудас 17-2.1.2).
Disclose mining licensing and cancel licenses granted in breach of the law (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, МАН мөрийн хөтөлбөр хуудас 33-4.2.1).
Please pay attention to the fact that it mainly refers to the government budget. This shows that the principles of selection in licensing would continue. The government will be predominantly involved in exploring and finding mineral resources, bearing huge risks associated with this exploration. Furthermore, as Mongolia lacks projects that would attract and intensify foreign investor’s interest besides exploration, this huge potential will be untapped.
As for the Right Person Electorate Coalition, despite the omission of the words “geological exploration” they promised to ensure stability for investment in the mining sector. Their platform mostly emphasizes the role of the private sector, responsibility and attracting foreign investment, which only stand out in contrast to the MPP approach of an increased government role.
Sovereign Wealth Funds, Their Legal Status and Purpose
Another principal issue in political platforms are sovereign funds. As the constitutional amendments which came into force on 25 May legalized the principle “to consolidate benefits of the mineral resources in the national sovereign fund and to ensure fair distribution”, the parties ought to announce their policies on wealth distribution.
The MPP devised a policy to pass a law on Sovereign Fund, increase revenues from the mining sector, create savings of at least one trillion MNT per annum, invest the funds in financial instruments, increase the funds and make investments in the large national projects to diversify the economy. Subsequently they are to establish a National Housing Corporation, and together with the General Fund of Savings and National Sovereign Fund to help hundred fifty thousand households to obtain apartments. Also, they stated that
When operating the mineral deposits in line with the principle, that the natural resources belong to the people legal regulations will be made to ensire that their benefits are distributed to the majority of people (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, МАН мөрийн хөтөлбөр хуудас 27-3.1.2).
At this state it is impossible to identify whether they mean the law on sovereign fund that they plan to pass or a different new law.
Proceeds from Mining Projects
Also it has defined that the proceeds from the natural resources would be distributed to the people in the following way:
Increase opportunites for national SMEs to work as suppliers to such large companies as Oyu tolgoi and Erdenet (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, МАН мөрийн хөтөлбөр хуудас 7-1.1.15).
Increase the benefits for Mongolia from Oyu Tolgoi and other mining projects, establish Social Responsibility Fund to support individuals with low and middle income (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, МАН мөрийн хөтөлбөр хуудас 7-1.1.16).
Please note the promise to establish a Social Responsibility Fund. Mongolia has an abundant number of funds. We do not lack in the number of Government’s special funds, which commonly have a bad record. The government funds that go through the special funds have been intergeerd with by political decisions, without monitoring and spent on purposes other than their designation, boosting corruption and inefficiencies in recent years. Although the intentions sound great nobody wants another version of SME support fund scandal. The MPP platform talks about establishing numerous new funds. Besides three above-mentioned funds they propose to establish many more with poetic names such as the Youth Development Support Fund, Export Guarantee Fund, Risk Fund and Herders’ Shared Fund where the funds are about to be pooled.
The DP also promised to pool the benefits from natural resources into the National Sovereign Fund and just like the MPP they developed the same concept to provide the citizens with apartments by establishing a sub-fund besides the National Sovereign Fund. They have the idea to transfer the privileged bonds of the Government and Mongol Bank to the sub-fund so that it actively participates in the secondary markets trading. There is a small additional detail – in so doing the fund savings shall be used to expand the availability of credits to support housing and household business and finances.
However, a drastic difference is that the DP platform directly states the source of revenues to be pooled into the Sovereign Fund, which is the royalties. They said the royalties
shall be separated from the state budget revenues and only five percent will remain in the budget whereas the rest will be pooled into the Sovereign Fund and a specialized organization shall manage the fund (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, АН мөрийн хөтөлбөр хуудас 15-16, 18).
Royalties are taxes with special significance. They constitute one third of total revenues gained from mining and almost fifty percent of the revenues that go to the state budget. If you take away royalties you would create a big vacuum in the budget that entails the question how to fill it in the state budget, Future Heritage Fund which is a sovereign fund consisting of mining revenues saved for the future generations and General Local Development Fund that is distributed to twenty one aimags and the capital city or whether some of these shall be considered as unnecessary. But the answer to this question cannot be found from the platform.
Besides this, the DP platform has another provision on revenue distribution.
Set up a system of direct distribution of up to thirty percent of revenues from natural resources collected at the state budget to local areas (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, АН мөрийн хөтөлбөр хуудас 31).
Distribution of larger mining revenues to the local areas, where mining takes place, is something desired not only by the local areas but by mining companies themselves. One of the reasons why the local communities do not like the mining sector is because they feel that they do not benefit from it. The DP calls this arrangement which would serve as the main mechanism to obtain social license from the local communities and its goal to save royalties at the Sovereign Fund as budget revenue and expenditure reform. Of course, it is important and necessary step to make budget reforms in order to reduce dependency on the mining sector and diversify the economy,but the real prospects for its realization looked dim. Anyway, both DP and MPP formula call for distributing the mining revenues not to the four, but five different sections.
The Right Person Electorate Coalition declared,
“Only the right economic policy shall ensure that the natural resources benefit everyone”…“stability and savings fund shall be expanded”, “fair distribution of wealth with equal opportunities and conditions for each individual shall be ensured” (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, Зөв хүн электрот эвслийн мөрийн хөтөлбөр хуудас 23-27).
In general, the coalition platform has the characteristic of concepts stating general principles and approaches. This is a big and innovative difference from the long list of promises made by DP and MPP covering all social interactions.
An important section that allows us to probe the party platforms on the sound policy to support the mining sector, is the part on their approaches to large mining deposits. The Right Person Electorate Coalition specified about developing national corporations which would compete regionally whereas MPP also prioritized similar large projects. The section named “Mega Projects to Lead to Development” has listed comprehensive utilization of Tavan Tolgoi deposit: Oyu Tolgoi underground mining, launch operations of Tsagaansuvarga, Kharmagtai, Asgat and Salkhit silver deposits. It is strange that the Gatsuurt deposit which was registered as a strategic deposit and always included in the Government Action Plans since 2008, is not mentioned at all. This eager project for operations was left out of attention for the first time. In regard to Erdenet Mining that the Government seized with 100% ownership, out of which 49% are disputed with the private sector, it said only that a locally owned Cathode Copper Plant shall be constructed.
In contrast, the DP set out a very important detail that it intends to sell the shares of Erdenet on the stock market so that individuals and legal entities could own them. Not only “Erdenet” but also “Erdenes Tavantolgoi” and other state owned enterprises would be privatized through stock market to make them publicly traded companies. This is the most fitting provision to the DP agenda to priorize private property and competitive markets limiting government involvement in the platform.
The Right Person Electorate Coalition offered a position similar to the DP by
removing political and party influence on large state owned mining companies and change them into publicly traded companies to ensure public monitoring to establish a balanced relationship between the citizens, government, and other shareholders of Mongolia (Монгол Улсын Үндэсний Аудитын газрын цахим хуудас, Зөв хүн электрот эвслийн мөрийн хөтөлбөр хуудас 26).
Turning the state which owned companies into publicly monitored companies will not only benefit the people through dividends, but serve as an important step forward for the future and economy of the country. It will also resolve all the problems related to unfair game, corruption and “illegal benefits” surrounding the state owned companies. The public is looking forward to such developments. So this is a position that reflects the realities.
Here we would like to point out a strange phrase in the DP platform which says Mongolian gold will stay in Mongolia. The first reaction is to recall what the current President stated in 2018, who said “Enforce the state authority in the gold sector and put a strict requirement for gold miners to sell all their gold only to Mongol Bank. I shall submit such a change in the law to the Parliament”. Did the President’s statement of two years ago find its way into the platform or did they state their goal to establish gold processing plant with twenty thousand tons capacity in this way? It’s difficult to know exactly. If they are talking about establishing a gold refinery, they could have replied it in a different way.
In general, when you analyze the content of the platforms you would see that the Right Person Electorate Coalition have indicated the flaws and distortions within democracy and the system that have built up for the past years and expressed their intent to correct them. The MPP relies on achievements of its previous Government promising to save the falling economy. As for DP they are focusing mostly on the mistakes and works carried out by the MPP for the last four years. The general content of the platforms on mineral sector all support responsible mining and the MPP said they would continue their policy they have pursued for the past four years, they shall keep high government involvement. The DP will focus on changing the main policies pursued by the MPP in 2016-2020. “Right Person Electorate” Coalition is to ensure stability for foreign and domestic investment and increasing it.
Mongolians have been suffering from the previous election platforms that promised money and share from the national wealth but, in fact, made us all fall into debt by the machinations taken to deliver such promises. So for this year’s elections, although we do not see promises and welfare benefits expressed in monetary terms, still the policy competition focuses not to deliver realistic planning but false ambitions and abstract promises.
About Ariuntuya and Batbold
Ariuntuya Nominkhuu is a Journalist (Mining, Business and Economic) and Executive Director of Council for Sustainable Development and Social Responsibility (CSS) Mongolia. @Ariuna_n
Batbold Otgonbayar is a Political scientist and Resource Governance Researcher PhD candidate of German University of Administrative Sciences Speyer and Chairman of the Board of CSS Mongolia. @OBatbold
The Council for Sustainable Development and Social Responsibility (CSS) is a non-profit and non-governmental organization established with the aim of introducing and advancing best international and local practices in sustainable development and corporate social responsibility into the country’s mining sector. The CSS was established in 2015 by initiatives of sustainable development experts, lawyers and journalists.