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  Mongolia repealed its windfall profit tax law, lost its hopes of selling electricity, building a smelter, and offering its banking, and received less in the local tax dispute.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.

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.
This entry was posted in Economics, Foreign Investment, International Agreements, Mendee Jargalsaikhan, Mining, Mongolia and ..., Oyu Tolgoi and tagged . Bookmark the permalink.

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