Tavan Tolgoi was a costly test for the Mongolia’s mining governance. It tested the resilience of the revised mining governance under the 2006 Minerals Law, checked the unity of political elites, especially of two major parties, and examined the resolve of the state bureaucracy to implement new mining policies.
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Tavan Tolgoi was a costly test for the
Mongolia’s mining governance. It tested
the resilience of the revised mining governance under the 2006 Minerals Law,
checked the unity of political elites, especially of two major parties, and
examined the resolve of the state bureaucracy to implement new mining
policies.
Image Attribute: Tavan Tolgoi
(Mongolian: Таван толгой, also Tavantolgoi, Tavantolgoy, "Five Hill")
is one of the world’s largest untapped coking and thermal coal deposits,
located in the Ömnögovi Province in southern Mongolia.
It has a total estimated
resource of 6.4 billion tonnes, one quarter of which is high quality coking
coal. It is divided into six sections: Tsankhi, Ukhaa Khudag, Bor tolgoi,
Borteeg, and Southwest and Eastern coalfields. The Tsankhi section is the
largest part, and is divided into East and West Tsankhi.
Apparently, all didn’t pass
the test an even failed to capitalize the favorable momentum of the global
commodity market. But, most importantly,
did we learn from our mistakes? Did we
take measures to enhance the institutional resilience of the mining governance,
to unite political forces on a major (mega) project, and to insulate
bureaucrats from political, economic, and social pressures? In this blog post,
I will lay out the government intentions during the favorable period for
mining governance (esp., 2008-2012) and
then discuss some factors that complicated the decision-making process over the
Tavan Tolgoi coking coal deposit.
Intentions were clear during the coalition
government of 2008 – 2012. Under the
revised 2006 mining law, licenses of the Tavan Tolgoi deposit were taken back
to the state from private license holders because the deposit was discovered
with state funds in the 1960s. Then the government also delegated its authority
to the state-owned enterprise (SOE), Erdenes Mongol, to manage the tender
process for permitting foreign mining operators while also allowing it to
establish its sister SOE, Erdenes Tavan Tolgoi, to mine and export the
coal. Furthermore, the government
decided to issue stock shares to its citizens (1072 shares per person) and to
allow Mongolian companies to operate some parts of the deposit. Moreover, the government hinted its ‘mining
diplomacy’ by rewarding the operating licenses of Tavan Tolgoi to US Peabody Energy,
China’s Shenhua and a Russian-Mongolian consortium.
In retrospect, politicians and bureaucrats in
power complied to the mining governance rules. First, Tavan Tolgoi was included
in the list of mineral deposits with strategic importance. Second, the SOE was
established to govern the process of operating on the largest coking coal
deposit. Third, it created ways to
allocate the mining benefits to the public.
Finally, it attempted to balance interests of Russia, China as well as
newly found third neighbors. These decisions were approved and endorsed by the
parliament, the coalition cabinet, bureaucracies, political parties, and the
public. But, these decisions were not
implemented. If these intentions were formulated as a result of the formal
politics, the implementation process became blurry for all actors – maybe
except those in power. The role of the
informal politics has dominated the formal rules, procedures, and mechanisms;
thus makes everything suspicious and non-transparent.
Seemingly, three factors,
(1) Competitive interests of transnational
corporations,
(2) Dynamics of the competitive elections,
and
(3) Interests of domestic business
entrepreneurs and groups, have overwhelmed the Mongolia’s weak mining
governance.
First, Mongolia now interacts with
influential, experienced, and wealthy transnational corporations, including
Western multinationals, Chinese state-owned enterprises, and Russian
state-affiliated magnates. All are experienced negotiators and lobbyists at
their respective capitals and financial centers. The result of the first Tavan Tolgoi
tendering process left Japanese and South Korean corporations unhappy while the
latest made Americans and Russians disappointed. These players have different interests and
leverages over Mongolia. Russia, a
traditional ally, wants to keep its influence in mining and infrastructure,
especially, the railroad. It is the only source of Mongolia’s fuel. China, a new strategic partner, desires to
secure the closest resource deposit and to link Mongolia into its regional rail
network. China is Mongolia’s only market
and its infrastructure offers the closest link to the East Asian market. Japan, the most proximate third neighbor,
longs to get access into Mongolia’s mineral resources. The US companies also make attempts to
operate in new economic frontiers. Both
Japan and the US are vital partners for Mongolia’s sovereignty and
international visibility. As all these Great Powers began to back up their
corporations, Mongolia fails to impose its rules for foreign investors.
Second, the election logic presented another
major challenge for politicians and bureaucrats because political parties in
power need to win hearts and minds of their supporters and the population. Prior to the parliamentary election of 2012,
Prime Minister Batbold’s cabinet loaned 350M USD from the Chinese SOE Chalco
and distributed it as cash-transfers to the public fulfilling the party’s
campaign promise of mining revenue benefits.
A new cabinet of Prime Minister Altankhuyag canceled the loan contract
with the Chalco, but his action resulted in a debt because of the falling coal
price. The 2012 government revoked all
major decisions in regards with Tavan Tolgoi mostly in order to discredit
previous politicians who were in power, its opponent party (i.e., Mongolian
People’s Party), and the coalition cabinet of 2008-2012. Also, the newly-established SOEs, Erdenes
Mongol and Erdenes Tavan Tolgoi, now follow the examples of former SOEs such as
the Erdenet copper and molybdenum factory in generating funds for politicians
and political parties in power as well as serving as an administration to post
party officials and affiliated supporters. In 2013-2014, executives of these
SOEs were investigated and fired mostly because of their political party
affiliations. As a result, bureaucrats, especially at the senior level, have a
little courage and autonomy to implement new policies, to uphold business
principles, and even to take initiatives.
Therefore, structurally, all politicians come under pressure of
safeguarding the party’s interests in winning elections and feeding its
clientelistic network.
The domestic business groups and
entrepreneurs appeared to be a major challenge for effective mining governance. The railroad is
a good example. With the mining boom in
Mongolia, the railroad became the most attractive business as it generates
funds to do multiple feasibility studies, especially in Mongolia’s case (mainly
for money-laundering), to construct the railroads, and later to own the infrastructure
as well as to operate the trains. To win
these funds, domestic business entrepreneurs, corporations, and
political-business factions successfully geo-politicized the railroad projects
because Mongolia falls into the Russian broad gauge 1520mm infrastructure while
Chinese narrow gauge sits next to its major mineral deposits. Despite costly feasibility studies and
alleged corruption investigations against these interest groups, factions, and
individuals, the Tavan Tolgoi deposit remains unlinked to any rail networks.
While the railroad decisions were politicized, there are a number of Mongolian
companies still making fortunes from their small mining operations at some
parts of Tavan Tolgoi. These companies
also have strong political representations at key political institutions, for
example, the parliament. Also, Tavan
Tolgoi presents the case of the labor union’s interests. For instance, a self-immolation of the union
leader of Erdenes Tavan Tolgoi truckers at the press conference in November,
2015 caused quick action from the SOE Erdenes Mongol to revisit its contracts
with foreign operators. Mongolian truckers opposed the Chinese company’s
take-over of the coal trucking business because it will leave them unemployed.
Clearly, the transportation of coal by either by Mongolian or Chinese trucks
have been causing substantial negative impacts on the environment, health and
livelihood of locals, but the government is still unable to enforce its
decisions of efficient, environmentally sound mining governance.
Tavan Tolgoi is going to remain a failed case
of Mongolian mining governance unless the parliamentary election of 2016 or the
next commodity boom changes conditions.
It may continue to fail unless politicians unite to provide autonomy for
bureaucrats and professionals and to increase the institutional resilience of
Mongolian mining governance. Because
none of the political parties could solve this deep-seated institutional
problem alone and enforce the decisions, political parties must insulate major
projects like Tavan Tolgoi from the election timeline and business
interests. The populist type of pleasing
all – external actors, domestic business groups, and the population – politics
could not be a solution, but ‘making sacrifices for a long-term benefits’ seems
to be the right solution for a small state in complicated geopolitical and
economic scenario. Therefore, all players, especially politicians, must make a
sound, timely decision and then provide an environment for the decision to live
at all cost.
About The Author:
Jargalsaikhan Mendee, a PhD candidate of the
Political Science Department of the University of British Columbia. Canada. Twitter ID: @MendeeJ
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This work was
originally published at Mongolia Focus, UBC Canada under is licensed under a Creative CommonsAttribution-NonCommercial-ShareAlike 2.5
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