Mongolia Focus

By Dorjdari Namkhaijantsan 

While political party platforms play arguably a limited role in the final outcome of elections in Mongolia, they are nonetheless important since the aspirations of the ultimate winning party stated in them end up forming the basis of the government policies for the coming four years and beyond. In this article, I comment on policies voiced by political parties in their platforms in the run-up to the parliamentary elections to be held on 28 June 2024.

Overall, 21 political parties and coalitions presented their platforms to the General Election Commission. In this blog, I focus on the extractive sector governance of five that are seen as having greater chances to grab some of the 126 seats available in the new parliament. These are the incumbent ruling party, the Mongolian People’s Party (MPP); the main opposition, the Democratic Party (DP); the third party in the current parliament, KHUN; the National Coalition (NC); and the New United Coalition (NUC).

I use the framework promoted by the Natural Resource Charter, which looks at four key parts in the chain of decisions that determine the quality of governance of mineral resources in any country. These include the discovery of resources, getting a good deal for the country, managing volatile revenues, and investing in sustainable development, as well as two cross-cutting pillars, that of domestic governance foundations and international stakeholders. I simplify this framework by focusing on three aspects of mining governance, namely policies related to (1) discovery, exploration, and extraction of minerals, (2) maximization and management of extractive sector revenues, and (3) good governance and institutions.

The comments provided below are not exhaustive and reflect the personal view and positions of the author and are not related to the institution the author is affiliated with.

Discovery, exploration, and extraction of minerals

In recent years, the country has suffered from dwindling interest from foreign and domestic investors to invest in the exploration and development of new projects in Mongolia’s extractive sector. Licensing is stalled, and investors fear potential expropriation amid a lack of clarity on ownership of projects in light of potential state intervention in the mining business through various channels. In terms of mining, Mongolia has actually increased production and exports of coal and copper, the main mineral commodities for the country. Mongolia has largely failed to engage in downstream processing and producing a final product, as most of the exports to China are in the form of raw commodities and concentrate. The sector suffers from poor infrastructure related to access to efficient power, water, transportation, and border services. Negative environmental impacts and perceived lack of local benefits create resistance to mining at the local level.

Let me look at what plans political parties and coalitions participating in the parliament have on these issues.

The incumbent ruling party, MPP, focuses on large-scale or strategic projects in its exploration and mining policy. It pledges to expand the geology and exploration work aimed at attracting investments for large-scale deposit development. In doing so, the party would focus on ensuring transparency in the licensing process. In terms of the mining sector, the strategy is to focus on high-technology and strategic projects. The platform calls for better control of environmental rehabilitation work and sanctions against violators.

At the same time, the policy promotes large national companies and channels investments from the Sovereign Wealth Fund (SWF) to strategic projects, which are likely to be in the mining sector as well. Investments would also be promoted through the expansion of infrastructure facilities and streamlining of government services. For instance, the stated goals include increasing border capacity, streamlining government services to businesses through digitization and automation, and transferring the responsibility of delivering some public services to professional associations. Value addition in the extractive sector is given a high priority, including coal-based projects, copper smelter, iron and steel processing, and fluorspar processing.

DP also included important pledges in their platform. One pillar for DP to bolster the economy is through “the energizing of exploration in the extractive sector”, including improving capacity to carry out geology and related survey and research work, and improving guidance and methodologies for such work. In addition, like the MPP platform, DP plans to focus on large-scale projects in mining and the use of progressive technology for exploiting mineral deposits in full, with the separation of as many mineral elements as possible. In terms of the processing of minerals, the focus is on those with export potential; specific minerals that are to be processed include copper, gold, iron ore, and rare earths. Support for processing is explicitly aligned with the infrastructure support, such as energy and water.

The pledge also includes improvements in the control of mining operations and focus on rehabilitation and the closure of mine sites. For instance, the responsibility for mine rehabilitation and closure will be placed squarely on license holders.

KHUN party, the current minority in the parliament with its single member of the parliament, stressed “the energizing of exploration work.” In doing so, it stressed two policies, namely, to delink the exploration work from the business cycle and price fluctuations in the mining sector and to expand the exploration in line with the global green transition. In addition, the promise is to limit irregular license trading. Other support for business would be through the renovation of mining royalty regime, stabilization of the legal environment including ‘reducing non-tax burden to business operations’, and promotion of processing.  Channeling mining revenue back to the implementation of mega projects in the sector is also envisioned, and so is the sharing of mining revenue with local communities. A pledge to diversify export destinations for mineral commodities is also included.  On the environmental side, clarity over responsible mining and environmental criteria would be required. The Gobi desert region would be singled out to address environmental and social impacts.

NC does not have specific pledges for the exploration of minerals on its platform. As for mining, the sector would be promoted through clarity on taxes. At the same time, revisions to the royalty regime are foreseen, apparently with the aim to maximize royalty collections. The coalition also stresses strategic investments and mega projects as well as processing of coal, and development and processing of hydrogen, rare earths, copper, iron ore and other minerals.

NUC’s platform also seeks to energize the geological surveying and focus on strategic and mega projects including processing of coal, copper, iron ore, fluorspar and gold processing.

Maximization and management of extractive sector revenues

The current ruling party, MPP, starts its platform with the pledge of using mining revenue to address the issue of housing of citizens. The platform pledges to operationalize the Sovereign Wealth Fund and improve the governance of SOEs, which are critical to fiscal spending and revenue generation. Plans include earmarking some mining revenue towards investments in science, innovation, and expansion of exports. For SOEs, the plan is to raise funding by floating their shares in international markets.

DP proposes to engage citizens in decisions over mining revenue and spending and limit politically motivated cash transfers. It also proposes to reduce the debt burden of the government and SOEs using surplus mining revenues and privatization of SOEs, respectively. The platform pays significant attention to the SWF governance, including a dedicated section on the subject. Issues such as limiting political interference and politically motivated spending, focusing on economic diversification, and using the funds for future generations are part of the policy proposed.

KHUN platform stresses megaprojects aimed at both mining and mining linkages and revenue sharing with local communities and limiting off-budget spending through SOEs. Interestingly, KHUN does not specify any explicit policy on the SWF.

NC proposes government guarantees for the implementation of large-scale projects, alluding to the use of mineral revenue for that purpose. The platform includes objectives to operationalize the SWF with the focus on mobilizing funds to it from the privatization of SOEs.

NUC plans to improve the legal environment around the SWF and presumably use the fund for the support of non-mining businesses.

Good governance and institutions

All parties and coalitions stress the importance of governance and anti-corruption efforts. MPP pledges to ensure the mining sector’s transparency, especially in licensing and the use of mineral exchanges for commodity trading. SOE reforms through floating their shares on stock exchanges and allowing public and civil society scrutiny are envisioned. Pledges on fighting corruption include establishing a special corruption court, introducing the whistleblowing mechanism, and the continuation of policies aimed at retrieving assets lost due to corruption. Automation and digitization of government services will also be a priority.

DP pledges to improve public participation in decisions related to the mineral revenue collection and spending, and focusing on improving governance of SOEs and special government funds. The anticorruption efforts would focus on whistleblowing, scrutiny of tax payments and spending alignment of high level officials, and stricter sanctions for corrupt officials.

KHUN pledges to eliminate corruption, and improve governance, and reform SOEs by reducing their number, mostly through turning them into public companies, and the state participation in business.

NC would privatize SOEs and use technology and public-private partnerships to eliminate opportunities for corruption.

NUC pledges to improve the current Glass Accounts system to improve the transparency of state entities, including SOEs.

Comments on platforms

Almost none of the pledges by the MPP, or for that matter by other political parties or coalitions, are new, as they have been included in various policy documents or discussed at various policy platforms over the years.

MPP focuses on Mongolia’s aspirations to move large-scale projects ahead, be they in mining or mineral processing. Similar aspirations have often failed over the years due to a lack of funding, especially from foreign investors. A few successful projects, like coal hauling railway and road, coal processing, or Oyu Tolgoi underground mining, have been the result of many years of wrangling, cost overruns, and delays. Reliance on SWF to fund such projects may be overoptimistic, as the current high revenues from coal may not last long, and the use of SWF is somewhat scattered, as it consists of three different spending channels and only a small portion may go back to domestic industry investments. In terms of downstream processing, coal or other fossil fuel-based investments will likely fail to attract foreign investments and result in the country’s over-dependence on the mining sector while limiting investments in alternative priorities like education or health sector.

In addition, many of the platform pledges are not specific enough, risking that there will be no accountability over the pledges should the MPP win the elections and the platform pledges become the new government policy.

DP’s platform pledges are more specific than the MP’s on some aspects, like geology and exploration policy, making it easier to track should the platform become the government policy. DP policy to prioritize debt repayments using mineral revenue may be a testament to high borrowing rates and lack of profitable projects that these borrowed funds could currently be used for. One can see DP’s accent on preventing mining revenue from flowing into and influencing politics, but the platform is not detailed enough to see how this could be implemented. This can be seen by the DP’s interest in reopening the mandate and purpose of the SWF. DP’s platform stresses public participation as an important mechanism for how mining revenues should be spent.

KHUN goes into greater detail in terms of how exploration and mining can be revitalized. The platform does not go into that level of detail when it comes to managing mining revenues, for instance through the newly legalized SWF. The accent on promoting mega or large-scale projects in mining and mining linkages, i.e. downstream processing and infrastructure is the backbone of the policy on mining for the party.

NC, headed by the owners of one of the largest private mining companies in Mongolia, focuses largely on tax incentives for mining and downstream processing while restructuring the sector by significantly limiting SOEs’ role and streamlining the government’s oversight burden.  

NUC’s plans for the mining sector are limited, but stresses economic diversification and use of Glass Accounts for transparency in its few pledges.

The parties’ platforms all stress the importance of downstream processing. This has been an aspiration or policy pledge for many years now, but the actual results have been limited. It should be noted that all parties still stress investments in fossil fuel mining and processing, although investments in cleaner minerals are also included. Especially with fossil fuels, the risk of investing public funds into potentially stranded projects is high, and the government needs to provide details every time such projects are funded by public resources. While platforms also include extensive pledges on anti-corruption efforts, they still do not provide enough details on the level of transparency that needs to be achieved to ensure public scrutiny over government policies and actions by all parties.  

About Dorjdari

Dorjdari Namkhaijantsan is an economist and the country manager for the Natural Resource Governance Institute (NRGI) in Ulaanbaatar, Mongolia. In this role, he works with the Mongolian government, civil society, and industry to address challenges faced by the country’s mining sector through policy research, analysis, capacity building, and dialogue.

Dorjdari’s experiences span over two decades, during which he has witnessed the mismanagement of natural resources during mining booms and busts. His interest in public policy was sparked by the monumental changes he observed during Mongolia’s transition from one political and economic system to another.

Dorjdari recently completed his SPPGA Practitioner Fellowship at UBC, where he engaged with the academic community, deepened his knowledge about energy transition challenges, and shared his experiences with others.

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