By Julian Dierkes
I have recently shared my perspective on the negotiations of a (new) OT Agreement.
Below, I want to highlight one of the aspects that I see as bringing about this cycle, an aspect that is also prevalent in political discourse, namely a search for perfection.
Nature of Negotiations and, Ultimately, Democracy
Negotiations are not about perfect outcomes for either side and they cannot be because the interests and thus the outcomes are typically not aligned so there cannot be a perfect outcome for both parties in a negotiation and instead there needs to be an acceptable outcome.
I was reminded of this dynamic in reading some of the New York Times reports from the COP26 negotiations in Glasgow. Take the following paragraph,
John Kerry, the U.S. climate envoy, said: “If it has been a good negotiation, all the parties are uncomfortable. And this has been, I think, a good negotiation. We are seeking the shared goal of keeping the Earth’s temperature at a level that the worlds’ scientists say we must do.” (NYT Nov 13 2021, “In Glasgow, a climate agreement seems within reach.“)
Or, another version
Andrea Meza, the Environment and Energy Minister of Costa Rica, summed it up this way: “We don’t have a perfect package but we have a possible package.” (NYT Nov 13 2021, “In Glasgow, a climate agreement seems within reach.“)
That – to me – exemplifies not only the nature of negotiations, but also of democratic decision-making. If two partners come into a negotiation with different value propositions, then the purpose of the negotiation is to find some common ground that is acceptable. If I agree with someone that something needs to be done about the financial basis of Mongolian higher education, for example, I might argue that the overall social benefit of better and more accessible higher education is so great that I am committed to see it funded out of taxes (my value commitment that a distributed tax burden is an effective way to fund social outcomes), but I might be negotiating with someone who has a strong commitment to some version of the aggregate of individual decisions leading to more optimal outcomes (their values commitment) and thus prefers a financial structure for higher education that is focused on individual tuition, i.e. on contribution from students. In our negotiations, we thus try to find a compromise, perhaps around only publicly funding some level of higher education or certain subjects, or perhaps focusing on tuition exemptions depending on income levels, or something of that kind. Neither I nor my negotiation partner will think this optimal, but it is acceptable.
The Search for a Perfect OT Agreement
Back to OT…
Some of the dissatisfaction with the OT Agreement (2009 or Dubai) stems from the fact that many Mongolians (politicians, public figures and many voters, I think) think that the agreement is unfair to them or to the nation. Underlying that point of view is the conviction that there is such a thing as a fair agreement.
I alluded to this in my conversation with The Economist recently, where I was quoted with the following statement,
Complicating matters in Mongolia, Mr Dierkes asserts, is the common belief that there is a “perfect Oyu Tolgoi agreement out there in the Platonic heaven”. In Kyrgyzstan, the stakes are higher yet: not just foreign investors’ trust in a turbulent country, but Kyrgyz people’s dwindling trust in the ruling classes.
This is a pattern I see in a lot of decision-making and it is tied up with the lack of policy competition between Mongolian parties, namely the belief that a single, ideal solution to policy challenges is possible.
When asked – as I often am – whether the OT Agreement is a “good deal”, I do not offer an assessment, in part because I do not think that there is a standard of quality or fairness that I would be able to apply to such a negotiation. Sure, there could be agreements that were so lop-sided that it would be clear that they are bad deals, and there are many aspects of the Agreement that are worth considering for their merits, but “good” or “fair”? That would require some standard to measure this quality by. So, I think that the OT Agreement is a good agreement as long as one agrees that development of the mine will bring net benefits to the owners, i.e. the people of Mongolia.
However, an agreement that is negotiated on the basis of comparable information (that would be a question to raise about the 2009 negotiations, perhaps, as Rio Tinto had much more experience in negotiating this type of agreement than any element of the government had, a disparity that has certainly shrunk since then to still be present in the current negotiations, but much less consequential, I believe), is an agreement that all parties found acceptable. Somehow, Rio Tinto management is able to persuade its shareholders that the return on equity will be sufficient to justify their commitment, and the government was persuaded that enough benefits would accrue to Mongolians to make the agreement worthwhile.
I also have to emphasize in this context that I continue to object to portray attempts by the government to maximize the share of revenues that comes to the government and thus the people as somehow illegitimate, as is often captured in the term “resource nationalism“. To me, this term often signifies attempts by resource companies based in the Global North to use media and politicians to shame or brand governments of civil society of the Global South into accepting deals that are more favourable to investors, but there is almost no analytical purchase in this argument and terminology.
As an understanding of the elements of an agreement shift around, parties might always come to a view that they are less happy with such elements now than they were when agreeing to them. That triggers another round of consideration whether an attempt to renegotiate (i.e. to persuade or force the partner to reconsider) will bring substantial enough benefits to engage in that conversation. In hindsight it might be said that the Dubai negotiations led to a substantial reduction of the management fee paid to Rio Tinto and might also have signalled strongly that the government (along with minority investors in Turquoise Hill) was paying close attention to Rio Tinto’s actions. At the same time, the uncertainty around those negotiations and subsequent uncertainty caused by accusations of corruption etc., may have had significant financial costs (higher price of borrowing for investments in underground mine development primarily) than may or may not outweigh the gains in the agreement. At some point, it might be better for a party to accept terms of an agreement that it deems less than what it has come to find acceptable for the sake of preserving the agreement and progress on the project and I don’t know whether the current negotiations will bring changes that are significant enough to justify the costs of uncertainty and what follows from that uncertainty.
The Bigger Picture: Democracy
The search for perfection, I think, Mongolian politicians and political parties essentially present themselves as political pragmatists which in turn prevents competition over platforms or policies and thus deprives Mongolians of one element of the determination of their future via the ballot box, namely the choice of political representation of their own value preferences.
When running workshops on policy-making with aspiring MPP politicians in the past, we have incorporated some role-playing activities. When we have set these up with fictional political parties, most participants are inclined to what they often call the “National Party”, i.e. – in their mind – the party that “does the right thing for the nation”. From my perspective as an academic with an interest in mining governance, but also from a political theory point of view, that is a different view of democracy as some kind of process that leads to am objectively optimal outcome. But that is not what others see in democracy namely a sphere of competition over ideas that leads to outcomes that are often determined by value commitments rather than optimal outcomes, and – very importantly – by political compromise.
If there was such a thing as a party that does the best thing for the nation, all voters would support it, obviously. But that assumes that there is agreement on what the best thing for the nation is. There isn’t. It’s this disagreement about what best outcomes would be and also about how to reach those outcomes, that animates democratic competition. It is also recognition that many of the outcomes of policy decisions are not predictable that leads to competition over which avenue to take toward an imagined outcomes.
When it comes to mining agreements, just like higher education policy, there is no such thing as perfection. I’m even skeptical that there is such a thing as “best practice”, i.e. not all mining jurisdictions can and maybe even want to be Norway. However, I do think that negotiations that are structured well and start from a comparable level of information and also different forms of power, can lead to a good outcome, i.e. an outcome that is acceptable to all parties and that allows a project to continue to move forward.
Side Note
This should probably be a more academic argument that I should place in a more academic outlet, primarily for my own career benefits. The element that is missing here is a more rigorous empirical basis for my observations beyond my experience of engaging in many discussions, quasi-fieldwork, and observations in Mongolia over a sustained period of time. Perhaps I can find a different way to make a similar point in a more evidence-based fashion and then persuade others that this is worth for inclusion in more academic outlets.
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