The Nationalization of Erdenet Copper – Challenges for SOEs

By Mendee J

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

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

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

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

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

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

About mendee

Jargalsaikhan Mendee is a Deputy Director of the Institute for Defense Studies of Mongolia. He holds a PhD in Political Science from the University of British Columbia, and MAs in International Relations from the US Naval Postgraduate School and in Asia-Pacific Policy Studies from the Institute of Asian Research of the University of British Columbia.
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