Guest Post: Label of Erdenet ‘Nationalization’ Misleading

By Marissa Smith

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

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

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

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

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

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

Mongolia and Russia

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

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

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

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

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

About Marissa Smith

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

This entry was posted in Business, Corruption, Erdenet, Marissa Smith, Mining, Mining Governance, Policy. Bookmark the permalink.

21 Responses to Guest Post: Label of Erdenet ‘Nationalization’ Misleading

  1. Apologizes about a bad link in my bio line here to “dissertation.” The correct link is: The full text is embargoed for a few more months, but if you are interested in a copy please contact me directly (

  2. Terrific to have Marissa’s analysis on our blog.
    One of the aspects of the Erdenet Mine story that is most interesting is that the recent UIX decision will not have been the end of it, and that real questions about what is behind the sale/cancellation are being asked, including by Lkhagva E ( Questions about collusion between parties/individuals lead to important questions about corruption, etc.

  3. Bill Bikales says:

    Thanks, Marissa and Julian.
    Just to clarify, has there been discussion on the Mongolian side of attempting to actually cancel the sale, i.e. restore 49% ownership to Rostec and demand return of the $400 million?

    • Hi Bill,

      My sense of this is that there may be, and I will keep watching. Since I wrote this up, the trend of neither acknowledging nor disavowing the veracity of the alleged letter from Chemezov to Erdenebat has continued. Also, while the previous stance on the Foreign Minister’s visit to Russia was that Erdenet, meetings with Rostec/Chemezov had not been requested to be on the agenda, Foriegn Minister Munkh-Orgil made some comments on Friday that suggest “cancelling”/refunding the scale has been discussed between the Mongolian and Russian governments (while saying that Russian side stated “this is a matter internal to Mongolia,” “payments have been made”)

      See Reuters story (that came out just as this post was being published) that includes how Rostec and the Mongolian governments had responded to their inquiries about the leaked letter:

      “A Rostec spokeswoman would not confirm or deny the veracity of the letter when contacted by Reuters. The spokeswoman said the deal was completed in accordance with international law and the firm had already received payment.

      A spokesman with Mongolia’s Foreign Affairs Ministry denied knowledge of the letter, adding that a visit to Moscow by foreign minister Tsend Munkh-Orgil this week had no connection with Erdenet.”

      Here is the clip of an interview Foreign Minister Munkh-Orgil posted the on the Mongolian People’s Party facebook Friday:

      This is the best translation I could come up with (would appreciate help from others!):

      “On the Russian side, to us was stated: we understand that Erdenet is a matter internal to Mongolia. Between the two countries, the two sides of a Russian-Mongolian company a conclusion was reached, fees paid … decided. Now Mongolians have questions …, they must be informed by you. … On our side, (idea?) to meet with director Chemezov [of Rostec] [not being stated was a mistake? the idea itself a mistake?]”

      • diyanchi says:

        During an official dinner the Russian side shared their opinion: We understand this as an internal affair of Mongolia – in terms of relations between the two countries of the two countries’ companies the question has been closed – the negotiations have been made, the payment has been payed, the ownership has been transferred. Now it is Mongolians dealing with the issue along the lines of Mongolian law – this is how we understand it. Is that correct? – they were asking. You have understood fully correct. [-was the answer] That is all. It [meaning other issues or some specific issue mentioned before the clip] has not been remarked upon in the official talks. Especially that we made a request to meet with director Chemezov. That is false news spreading.

  4. Anonymous says:

    Marrisa’s analysis fails to ask perhaps the most important question: where is due process and where is rule of law? before going into some local political quarrel. The parliament accused the private company a lot of wrongdoing, but the leading figure in the probe admitted publicly that he had conflict of interest, mention that.. the parliament acted like judge and jury and the prosecutor, mention that…

    • It’s too bad this was commented by “Anonymous”, esp. since there was nothing particularly incendiary or controversial in the comment. I hope that other comments will continue to identify themselves by name.

  5. Hello Anonymous,

    Thank you for bringing up widespread concerns about “corruption” regarding particular politicians and the place of the courts (and structure of government more broadly).

    Both of these I would frame under the main point of this post, which is that the dominant concern in Mongolian society is now “corruption.”

    Thus, this post does discuss the sense of widespread conflicts of interest in government (and refers to earlier blog posts here by others, including Julian, which point out the same). Given the length of the piece, it is not possible to cover all of the particular accusations. I believe you are referring to Ts. Nyamdorj in particular? I realize that he is also not portrayed in the twitter cartoon, but yes, I am aware that he is a main focal point of corruption narratives. At the same time, I have not personally seen too much worth of comment at this point (contracts he and his son held to the tune of a few thousand dollars, for instance). I would appreciate your forwarding me any other news on this, however.

    Regarding the court system, two points. 1. Faith in the court system is quite low, among the Mongolian public and also among foreign investors and observers. I imagine that taking this issue to the courts would spark many of the same accusations of conflict of interest, manipulation, etc. 2. As is the case with former socialist countries generally (again, this brings to mind Romania, where the court system and its relation to the executive and other agencies is coming up quite a lot in deeper analyses of the recent protests and government decision they are, among other things, in response to) it is very rarely noted that the role (in practice as well as written in law) that the court system played during socialism was very different compared to that in Western systems (more enforce than interpret law) and while there has been wide expectation that courts shift to the latter, very little reform has been done, or even properly discussed. For work on the Mongolian case, refer to Brent T. White’s work (and do some reading between the lines with my points here in mind). I am not an expert on Mongolian law or the structure of government, but it seems to me that the Parliament’s interpretation/enforcing of law in this case (what exactly is the “Standing Committee on Legal Matters,” why does the Parliament have one in the first place?) reflects differences in how interpretation, creation, enforcement of law are legally divided up in the Mongolian system, as well as differences in practice, and of course in any system these are always controversial.

  6. (I should say “a” main point of this post, rather than “the” main point of this post, actually — referring to point that the dominant concern in Mongolian society [regarding this case, at least] is now ?corruption.?)

  7. Andrei Marin says:

    The big difference from Romania is the presence- and leverage- of EU institutions, as well as higher urbanization and connectivity level (social media) allowing for easier communication to set up protests. Still, as we’ve seen in 1989, if grievances are deep enough, there are ways…
    This seems very difficult to analyse because of the apparent intermingling of interests and networks. We’ve seen the discourse of “bad for investment”/nationalization before being fueled by the same (mostly international) actors, couched in the cold-war language (Tavan tolgoi in 2008?). Basically equating nationalization (is the term even accurate in this case?) with fully fledged collectivisation and communism. Still, the strange ways this acquistion has been made is at least sloppy. It sounds like layers of interests of many kinds getting all entangled. Call me conspiracy theorist, but I can’t escape the feeling this might also be connected somehow with the new IMF deal. I wonder how.

  8. Anonymous says:

    Dear Marissa,

    In Mongolia, people trust more in judiciary. Unlike your arguement the trust in judiciary increased over the years. If you dont agree please read this:

    Its a recent survey by Int’l Republican Institute. Nevertheless in your opinion you think its fair to ignore due process? Do you think its fair for the process to be spearheaded by a corrupt politician with not “alleged” but “admitted” conflict of interest but thinks it does not count because it happened “long time ago”?

    Just because you did not find enough literature in english doesnt mean the literatures in Mongolian doesnt count. Too bad.

    • Hello “Diyanchi,”

      Thanks again for the input on the translation, here and on facebook! I went over it again. I’m still not sure about that last sentence… Is there a new term in Mongolian for “fake news?” (I guess I would expect шар мэдээ? It seems the word after буруу is ташаа — so a more emphatic false, mistaken. etc. And sounds to me now like he is saying that “It is mistaken that we did not propose meeting with Chemezov” !)

      Hello Andrei,

      Good to have your comments here — I should have alerted to you of this piece directly! Yes, I think that reasons for the differences in protest phenomena could be considered and elaborated more — I wonder what the effect in Mongolia is of the way that the 2008 protests involved violence and lasting political fallout. This also brings to mind things Mongolians have told me (and I expect perhaps also yourself?) about observing the 1989 Revolution in Romania, about Ceaușescu and Tsedenbal. On EU institutions, yes, definitely more in Romania, but not totally absent from Mongolia by any means…

      It is interesting that you bring up the “Cold War” kinds of discourse — I have not seen such coming out as strongly before as here (in President Elbegdorj’s speech to Parliament, he says to deter the Parliament from making the decision that “they [out in the world] will call you communists!”). The discourses are more reminiscent of the Romanian context to me than what I have known of the Mongolian in the past, actually! (I don’t usually follow the statements of politicians so closely, however. Would be interested to hear more on the Tavan Tolgoi example from 2008 you bring up.) Also, I initially mistranslated Elbegdorj’s comments from the summary ( of the Parliament session, thinking he was saying public opinion did mandate “collectivization.” It seems however that “нийгэмчлэх” carries a much more negative connotation for and its assumed audience than I thought. Some of the reactions I heard from Mongolians on social media, however, seemed to indicate resistance to this framing. On Tavan Tolgoi specifically, that also reminds me I thought part of the misleadingness of the AP story (run by the New York Times) was that they did not mention the creation of new state mining companies and other considerable state involvement in the sector more or less consistently over the past two decades, giving the “Erdenet nationalization” event even more “weight” in their narrative of “they are in real economic trouble so they are (foolishly) nationalizing the economy and further scare investors.”

      On the IMF, I do think it is interesting that at the end of the Parliament’s fall session, legal changes were made in order that the Development Bank of Mongolia “operate independently” [from the Mongolian government], apparently at the IMF’s behest. (See: Lots more to think about, look into, and watch for here. I’m watching what happens with the other packages mentioned by the IMF and others… (see: (also, I should have said this as part of my answer to Bill, I think with the visit to China some of the clarifications/tightenings of the Russian position here may happen.)

      Hello Anonymous (I don’t know if you are the same as one as before or a new one),

      I would appreciate any Mongolian literature you have to share. (I can see how you might assume I have not used any, but I don’t see where you have the basis from reading my post for that claim.)

      In any case, I do not base my comments solely or primarily on literature, I am an anthropologist and my main source of data is talking with, working with, and living with people directly. Participant observation, which is also quite different from the kind of survey research involved in the study you linked to. (Thank you for passing that along. I do believe I saw some of this presented at the International Congress of Mongolists and I have shared the results on “international relations” — see my twitter feed. I do not see much data about the courts, however — just page 19 and 48, where it looks like the “Supreme Court,” and “Judges, State Prosecutors” are middle of the road compared to other insitutions. On page 43, “courts” are listed with several other institutions, only listed as “corrupt” by three percent of respondents, yes, but it is also plausible that people included courts, judges, etc. in their other comments, i.e. about bribes, when naming particular corrupt individuals. I would also say that my sense isn’t so much that Mongolians see courts as “corrupt” so much as irrelevant or ineffective — they don’t think of them until they have to face or use them directly, when they may experience “corruption.” In any case, especially without more information about the methodology, the questions (what were they in Mongolian? What words for “corruption” were used?), etc., these results could be interpreted in various ways, and you claim things have “improved” while only presenting data from one “slice of time.” Also, I cannot tell whether this work has been peer-reviewed.)

      I am not arguing that “due process” should be ignored. I point out that it is not clear to me here what “due process” would actually involve (is it indeed “illegal” for the Standing Committee on Law of the Ikh Khural to make the decision it made? What kinds of investigations, by what branches and agencies of government, of Ts. Nyamdorj and others would be part of “due process?” I understand that many Mongolians are concerned about the reaction of FDI — that is a different issue than following “due process”). Also, it was mainly my goal here to discuss the stakes of the various political options overall (including but well beyond “reaction of FDI”). Finally, especially since you bring up the IRI, I would clearly state that I take a position of relativity — my statements about the Mongolian system here being different are not negative judgments.

      Also, Anonymous and Andrei, I see some related news about the Anti-Corruption Agency… something I have also been watching for. Now we add them to the mix of who does/should interprets, carries out, creates, etc. the “rule of law.” Also another point for comparative thinking on Mongolia and Romania.

      • diyanchi says:

        Hey! Sorry for the late reply. I could have used a better word. “Buruu tashaa medee yawj baigaa” he says. By spreading I meant that it IS spreading not is BEING spread. Buruu tashaa is an established horshoo vg (Monsudar’s horshoo vg dictionary explains it as “anduuragdsan hudal”). Shar medee is gossip rather than false information. Also I made a typo in the above translation “between the two countries of the two countries’ companies” should be OR not OF.

      • Thanks Diyanchi!

        Yes, I think that using “shar medee” would be rather uncharacteristically accusatory, quite the opposite of this expanded understanding of “buruu tashaa,” and the construction of the phrase without a subject, of course. Thanks for the follow up on “buruu tashaa” — it’s not a bolded compound in my 2011 Monsudar Mongol Khelnii Tailbar Tol… (online version:

  9. Bill Bikales says:

    Thanks, Marissa, for your additional comments. I think the whole ‘nationalization’ discussion is a bit of a red 🙂 herring. No one in their right mind could accuse the MPP of being Communists who would nationalize this or anything for ideological reasons. They are pretty much all business people themselves.

    The real question is, given that the Russians seem to have quite clearly said that as far as they are concerned this is a done deal, and given the quite serious questions that have been raised about the Mongolian side in the purchase, what to do? I can understand the impulse to simply seize the 49% from MCC, but have no idea how that would work, legally. Some legal analysis of a) whether the purchase was legal, or if it required Parliamentary approval (which sounds unlikely on the surface, but I am not a lawyer) and b) what the proper response should be to violation of banking and other laws in the financing of the purchase. If it was indeed an illegal purchase because Parliament never approved then it would have to be taken up with the Russian party again, I would think?

    Not sure what is being suggested about the IMF agreement? How might it be linked to this? If banking laws were violated and if the Central Bank used state funds to finance a private business’ transaction the IMF would be concerned. But they would not intervene in any way without having done some analysis of their own, and in general this is just the sort of messy political issue the IMF goes to great lengths to avoid.

    By the way, the Reuters piece had one curious line; it quoted Orkhon, TDB CEO, to the effect that TDB had helped underwrite the purchase. That suggests that there were some other funds involved as well, raised elsewhere.

    Still much to clarify.


    • Yes, “nationalization” is a red herring, but one that doesn’t seem to smell as bad to editors at Bloomberg/AP as it does to us, apparently. To foreign investors who have limited depth of understanding in individual emerging markets “nationalization” is the scare monster that they associate with the – imagined, in my mind – “resource nationalism” that they also like to talk/write about. So yes, to describe the UIX decision last week as such is silly, but the fact that it was described that way to certain audiences actually matters a fair bit for perceptions of Mongolia, I think.

      Is the way out not simply to rescind the cabinet decision to forego the first-right-of-refusal, then to finance an acquisition through Erdenes Mongol? Erdenes Mongol could then hold an auction (I owe this suggestion to @MaximMGL) to sell the 49% or some portion thereof (thereby recouping whatever financing was needed for the acquisition), or integrate Erdenet into Erdenes Mongols holding. The latter would actually be a quasi-nationalization (though with compensation determined by a market price). This scenario ignores whatever position the Russian party might take on this.

  10. Hi Bill and Julian,

    Completely agree about “nationalization” as scare monster in the Bloomberg/AP pieces, good comparison with “resource nationalism” discourses.

    1. On Julian’s comment about integration with Erdenes Mongol (which I saw was also discussed on another blog post here about Erdenet:

    Given that Erdenes Mongol doesn’t hold any mines 100% (except for ETT… which is a disaster), i.e. it doesn’t appear to do much management, I think that this would be a very contentious and difficult move, raising issues I outline in this post about:

    1.) “nationalization” as privatization into other hands, with attendant concerns about “corruption” (at the very least, widespread perception of corruption, both among Mongolian public and sources of FDI… ETT’s reputation is particularly horrible! See for instance recent tweets by Nick Cousyn on thread with @MaximMNG and myself, which I think you were “cc’d” on)

    2.) existential threat to enterprise (and national economy) carried with difficulty of switching from Erdenet “nexus” of involved parties who contract for, supply, etc. Erdenet GOK (Mongolian ones, as well as Russian ones), switching which I would expect to go along with attempts to integrate to Erdenes (MCS’ Energy Resources comes to mind).

    (Relatedly, I would argue again that Russian parties, as I suggest in the post, may want to get Rostec “off the hook” for funding a lot of improvements at Erdenet since 2007, but would like to keep doing business with Erdenet… and many Mongolian parties also value status quo — see comment by Julian in response to “Iveelt” on other thread.)

    On “open auction,” I am very skeptical that such could be “open” enough to cover the first issue, and might be “too open” to deal with second.

    2) On Russian involvement, closed or open. I say still very much an open issue.

    Foreign Minister Munkh-Orgil just gave a press conference on his China and Russia visits, and is still being badgered apparently (first journalist question in coverage on the issue of whether or not he met with anyone from Rostec. He went further with his remarks about the “official dinner” and quoted Lavrov (who he says, said): “This is not something that concerns our international relations. It’s fine.” Still very vague.

    In his statement at the press conference, Munkh-Orgil emphasized new power projects, though Russia is still firmly opposed to the Egiin Gol project (see press conference with Lavrov during visit; in Munkh-Orgil’s press conference in Mongolia I am discussing here, this opposition reflected by statement that research on effects of Egiin Gol and Shuren Gol projects on impacts to Baikal ecosystem will continue in coming months). Railroad improvement as well as power projects discussed, but vaguely.

    Without even getting into the (point 3 below) legal issues (“first refusal,” etc.) that point to possibly involving Russian side down the line (I don’t see that happening necessarily), I can’t see the Mongolian public and politicians dropping the Erdenet 49% (at least not by presidential elections) while Russian-Mongolian development (and other kinds of development) remain in such a vague, unrealized state.

    3. I was looking yesterday at the legal framework and governmental structure issues.

    First, this helpful comment by “Iveelt” from an earlier post on the blog, in which there was conversation on how revocation might be carried out (first comment, not second one referenced above about Erdenes… which I do not agree with. Erdenes and its current partners are hardly known for transparency…): “At least two tiers of legal proceedings: The prior PM’s approval to alter the board structure in relation to the sale of the 49% shares, and, separately, a violation of law on the first-right-of-refusal process on the sale. No viable professional legal interpretation has been published on intricate inter-relation of the relevant statutes of the Constitution vs. the Administrative Law on this case. Along with the absence of such, the current cabinet moved the case over to the anti-corruption agency, which is notoriously rumored to be under the influence of the President’s office. This action possibly adds to the complication of the case legally, IMO.” (

    It seems that the “international arbitration” is an alternative to taking the issue to the Mongolian Constitutional Court? Have there been any recent calls for this? MP J. Munkhbat was saying Constitutional Court in October ( but was citing the alleged Chemezov letter (interesting this suggestion can be tied unofficially/officially like this to Russian side, no?), “send it to arbitration” at the Ikh Khural session (,

    Some background reading on Constitutional Law and Mongolian government structure and governance: Tom Ginsburg also was part of a recent UNDP project on Mongolia and constitutional law: Work by Kim Lane Scheppele on the Hungarian Constitutional Court and changes to the Constitution under Orban and his Fidesz Party might be something good to compare with.

    And obviously, there has been plenty of discussion of these issues on this blog by Julian as well. (Which I need to go over.)

    4. On IMF and new changes to law on the Development Bank. A major ground for the Ikh Khural Standing Committee on Law’s determination (source, 1/24 press release) of the sale of the 49% having been illegal is that funds involved from the Development Bank (as well as loans from it to the Bank of Mongolia and TDB) were money from the Chinggis Bonds (and there were other alleged breaks of banking law that I’ve not fully worked out — money from the central budget does appear to be involved according to Ikh Khural committee investigation). What is special about the Chinggis Bond money, and does the new law (see IMF statement about it below) preclude such “earmarking?” (I’ve not looked at the Mongolian sources on the new law.) Your observation about O. Orkhon’s comment in Reuters piece also relevant here.

    On IMF trying to avoid political problems, I would say that is a major reason it does get invoked, at the least, in politics!

    Relevant passage from the IMF statement:( “The Development Bank of Mongolia (DBM) will henceforth operate in an independent, purely commercial manner, as laid out in the recently passed DBM law, and the Bank of Mongolia (BOM) will not engage in additional quasifiscal activity, with the mortgage program now operating essentially as a revolving fund. In addition, the law on concession projects will be reformed, and the public investment program (PIP) will be rationalized and better aligned with national development priorities.”

  11. Bill Bikales says:

    Thanks, Julian and Marissa. I have to rush right now and won’t go into all the legal discussions, about which I don’t know enough to comment very usefully anyway, I fear.

    Marissa, DBM is really not much of a factor in this issue, but it has been a huge problem in terms of the broader macro issues relating to quasifiscal activities; the reason why the government has been under such pressure to repay the DBM bond that is coming due March 21 is because DBM has made so many loans that were not repayable, i.e. was simply another source of funds for politicians to tap for pet projects (or worse.) The IMF condition that DBM be made to operate as a bank, responsible for making loans that can be collected, is completely understandable for reasons that were crystal clear long before the Erdenet sale took place.

    The big issue with Erdenet is not DBM, but that TDB and UB City Bank apparently (this really needs to be confirmed by an audit) lent much more to MCC than they are allowed to under the banking system’s quite normal regulations regarding loans to connected parties and loans to single parties. A bank can’t lend more than a small percentage of its capital to any one borrower because to do so would expose it to great risk. Apparently both TDB and UB City disguised their way too high exposure to this one borrower by channeling loans through shell companies that then onlent to MCC. Bank of Mongolia apparently provided some of the funds for that operation, which is also a total violation of the Banking Law. Orkon’s commenet suggests that there may have been some other source of the funds that TDB lent. It’s all still quite murky.

    That’s all for now.

    • Thank you Bill, that is helpful.

      Your points about DBM are very much in line with the impression I was getting from their website yesterday:

      Also, your points about UB Bank and TDB also make sense with some of what I can get from the Ikh Khural investigation press release as to broken banking laws.

      That being said, I am still interested as to how the Chinggis Bonds and the management of their revenues fits in.

  12. Dan says:

    I don’t see anywhere in this post discussing about the original 49% buyers. Rumors in the street suggest the main person behind the purchase is none other than president Elbegdorj himself (1 reason he’s been quite vocal about private property rights) along with TDB owners (the majority owner is Erdenebileg, “the mustache” but nobody really knows exactly who is behind TDB or any other big banks in Mongolia). M. Enhbold the head of MPP and the current chairman of the Mongolian parliament also has family connections with Badamjunai who is a minority owner at TDB. It’s another evidence why M. Enhbold has been hiding throughout this drama. According to Nyamdorj and few others, the people behind the Erdenet operation pulled it off by paying off most of the big players in both main parties (DP and MPP), the PM Saihanbileg’s cabinet, and most other top officials in the judicial and law enforcement agencies. The fact that the current PM J. Erdenebat and his cabinet had been dragging their feet on Erdenet investigation raises questions about whether there is some sort of conflict of interest. We shouldn’t forget that the current PM Erdenebat has been a finance minister in the previous gov’t so it’s possible he’s been privy to nonpublic information. Imo, these explain why the MPP majority in the parliament were reluctant to pursue legal avenues outside the parliament since the proper legal channels were effectively controlled by people appointed by president Elbegdorj and others who might stand to profit from the sale.

    • Hello Dan,

      My focus is on institutional structures, international and domestic, about which there is a lot to say. As you say, the question of “who owns[/owned] the 49%,” in terms of individuals, is currently being addressed largely in terms of “rumors” and “no one really knows who is behind…”

      This focus does shed some additional light on the positions of these and other individual actors (I have been wondering, why is no one talking about D. Ganbold, who was on the MCC board and was the losing presidential candidate for the DP in 1997, and has long been a major proponent and actor in privatization in Mongolia?)

      What the focus on the broader institutions also does, however, is give us a much better and more detailed sense of what the risks and consequences in play are.

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