MAC: Mines and Communities

Mongolia: "Resource Nationalists" make June electoral gains

Published by MAC on 2012-07-17
Source: Reuters, Mining.com, AP, Al Jazeera (2012-07-12)

As the dust began to fall over Mongolia's elections last month, the free-market advocate, Tsakhia Elbedgorj, lost his post as president, and the  majority of parliamentary seats went to the Democratic party.

Whether this party, along with another grouping led by former president Nambar Enkhbayar, will now introduce further part-nationalisation of the country's mining industry is not yet clear.

The issue has long divided Mongolian politicians, as successive governments tussled with the dilemma of retaining foreign investment while also wresting an increased share of profits from overseas companies.

Mr Enkhbayar is on record as demanding revision of several major foreign mining contracts in favour of the state -  particularly that for the Oyu Tolgoi copper-gold project, now majority-owned by Rio Tinto.

However, Rio Tinto's Mongolian country manager, Cameron MacRae, appears to dismiss the prospect of the Oyu Tolgoi investment agreement being revised - yet again - by a new administration.

Says Mr MacRae:  "[C]ommon sense usually wins out in the end".

Perhaps that's not a very sensible comment on his part, given (as Reuters' Michael Kohn points out) that "anti-foreign campaigners have emerged as the big winners" at the June ballot.

See: London Calling on Mongolia's "Champion of the Earth"

Concerns raised as Mongolian resource nationalists win big in June elections

By Michael Kohn

Reuters

12 July 2012

ULAN BATOR - Anti-foreigner campaigners have emerged as the big winners in Mongolia's June election, a bloc whose increasing power is bad news for the international mining corporations which have been trying for years to get potentially huge projects going there.

Politicians are jockeying to decide which parties form the coalition that will manage the money flowing into Asia's fastest-growing economy, but whatever the government's lineup after the inconclusive poll, some of its members will stridently oppose overseas ownership of Mongolian natural resources.

Mongolia is home to some of the world's biggest unexploited mineral deposits and has become one of the hottest destinations for billions of dollars of mining investment, a scale which has already transformed the economy.

"The fact that several resource nationalists won increases the uncertainty for investors," said Oscar Mendoza, the Mongolia manager for Canada's Prophecy Coal, which controls two coal deposits in the north Asian country. "Resource nationalism in Mongolia is not new but it is growing."

More than a quarter of the 76-seat parliament is now held by politicians who advocate local control of mines.

The Democratic Party, which won the most seats, is broadly in favour of the free market, but at least nine of its 31 parliamentarians have reputations as resource nationalists, and could press for a deal with the Justice Coalition, a group whose central doctrine is greater national ownership of mines.

Its leader Nambar Enkhbayar - who was president between 2005 and 2009 - wants deposits discovered by foreign companies to be returned to the state after a fixed period.

"For an initial period of 20 years it can be privately owned, because it was privately discovered. (Foreign companies) can invest in it, get their money back and make a profit but starting from the 21st year they should give it back to the Mongolian side," Enkhbayar told Reuters as votes were counted.

Were it to become law, this could mean investors have only two decades to recoup their huge capital outlay. Rio Tinto says the cost of building its Oyu Tolgoi copper and gold mine, due to start production this year, will be around $13 billion, a project it would then have to hand over without compensation.

Enkhbayar's minority group would need the support of other lawmakers to get the law passed, but just by pushing the issue they are inflaming the debate about foreign investment.

"I think the politicians in Mongolia need to know that what they say in public gets reported, and if things get said often enough and in a certain way, people do pay attention," said Cameron McRae, chief executive of Oyu Tolgoi LLC and Rio Tinto's country manager in Mongolia. "But this is a normal part of the political process and common sense usually wins out in the end."

Appearance of Hostility

Some in the industry fear the risk of the government demanding contracts with mining firms are renegotiated has risen, meaning they will have more hurdles to jump before they even start digging the minerals out.

Along with Oyu Tolgoi, other high profile projects that could be at stake are Tavan Tolgoi - potentially one of the world's biggest coal suppliers - and Chinese firm Chalco's attempted $926 million acquisition of coal miner SouthGobi Resources.

"In terms of Tavan Tolgoi, (resource nationalist politicians) want to keep it 100 percent in Mongolian hands. They want to distribute all shares to the public," said Dale Choi, chief investment strategist at Frontier Securities, a Mongolian investment bank.

Talks to develop Tavan Tolgoi have been frozen since last July, when the government reversed a decision to sell mining rights to a consortium involving China's Shenhua and U.S.-based Peabody.

Choi suggested emboldened nationalist lawmakers may try to make the government rework Rio's deal for Oyu Tolgoi, currently 34 percent owned by Mongolia. "They want more than 50 percent," he said.

Mongolia's economy, driven largely by mining development, grew at a roaring 16.7 percent year-on-year in the first quarter of 2012, according to the World Bank, more than double the pace of its neighbour China.

In the runup to the election, nationalist politicians introduced a law to cap foreign investment. The law was later relaxed to allow overseas firms to own a greater than 49 percent stake in Mongolian deposits, but only with parliamentary approval, and foreign state-owned companies need parliamentary permission to invest at all. That could be much tougher given the makeup of the new parliament.

"We want to have small government in this country," said Dambadarjaa Jargalsaikhan, an influential political commentator, "so why would we want a big foreign government doing business in Mongolia? Never. It will not happen."

As pressure builds from grassroots voters to assert domestic control of these engines of growth, the appearance of hostility to foreigners - especially Chinese - is often a vote-winning public stance that masks a more pragmatic approach.

" Some politicians said the contract with Oyu Tolgoi needs to be redressed, but the government is still in dire need of investment in infrastructure, power, technology, key areas that the government cannot provide any funding or financing for, so they do need foreign investment," said Prophecy's Mendoza.


Mongolia kingmaker: 'Fix' Oyu Tolgoi 'shadow masters' and 'scare to death' Tavan Tolgoi oligarchs

By Frik Els 

Mining.com

12 July 2012

The Financial Times' Beyondbrics blog analyzes last month's Mongolian elections and finds the most likely outcome of coalition talks to be a marriage of the Democratic Party and a splinter group of the former majority party called the Mongolian People's Revolutionary Party.

The Democratic Party which campaigned on sharing more of the spoils of mining with Mongolian citizens won the majority of seats and the MPRP is led by a former president of Mongolia Nambaryn Enkhbayar.

The paper has some dire news for foreign miners operating in the Asian nation of three million people:

Analyst Dale Choi of Frontier Securities says that this arrangement, if finalised in coming weeks, has the potential to give a lot of power to politicians who lean towards resource nationalism. He writes in a recent client note that "Enkhbayar is well known to analysts as a larger than life father figure behind radical resource nationalism, such as demands for revision of the Oyu Tolgoi Investment Agreement."

Choi also cited the MPRP Facebook page, which included the following (Choi's translation):

"When we tell them (authorities) to fix Oyu Tolgoi agreement, their foreign partners pressure them from behind and authorities who are in their pawn fulfill instructions of their "shadow masters" and defend with life Oyutolgoi agreement that is not beneficial to Mongolia. When we tell them give 100% [Tavan Tolgoi] to people as TT agreement is common riches of Mongolia, few oligarchs who are getting filthy rich from this deposit are scared to death."

Statements like these must worry world number two miner Rio Tinto and its majority-owned partner on Oyu Tolgoi, Ivanhoe Mines.

Oyu Tolgoi near the Chinese border is one of the biggest mining projects in the world with a final bill that could reach as much as $13 billion.

Mongolia has long coveted a a bigger slice of the massive Oyu Tolgoi copper and gold project that is nearing completion and is scheduled for production early next year.

Ivanhoe, which is changing its name to Turquoise Hill Resources, holds 66% of Oyu Tolgoi and Mongolia's government the rest. In October Ivanhoe and Rio dodged a bullet when the Mongolian government said it was rethinking the 2009 deal and that it wanted to own half the mine.

Ivanhoe shares plunged on the news, but the firm took a tough stance and after some desperate negotiations Mongolia backed off.

This time around it may be more difficult to resist renegotiating the terms of the deal and the stock has never really recovered from the scare. Ivanhoe has lost 10% since the Mongolian poll and is down two-thirds over the past year.

Ivanhoe also holds 58% interest in Mongolian coal miner SouthGobi Resources (TSX:SGQ) which was forced to idle its Ovoot Tolgoi mine recently and on Wednesday filed a notification of dispute with the authorities over a takeover bid by a Chinese firm.

Calls for much more forceful resource nationalism is also bad news for investors from Asia and the US that are lining up to develop Tavan Tolgoi in the South Gobi desert, the world's largest high-quality coking coal deposit used in steelmaking.

In March Mongolia stopped all talks with international miners on developing the western Tsankhi block of Tavan Tolgoi which on its own holds 1.2 billion tonnes after a shambolic bidding process that stretches back as far as 2007.

Mongolia is walking a diplomatic tightrope with Tavan Tolgoi. Aside from from closer ties with China it wants to use the project to strengthen its longtime political and cultural links with Russia and at the same time make room for the US as a geopolitical balancer in Asia.

Mongolia's National Security Council rejected a development deal struck with US giant Peabody Energy, Shenhua and a Russian-Mongolian consortium mid-September 2011, just two months after they were announced as winners. At the time losing bidders from Brazil, India and South Korea raised serious concerns and Japan went so far as to call the bidding process ‘extremely regrettable'.

Mongolia also still hopes to privatize its Erdenes Tavan Tolgoi coal-mining company which controls the remainder of the 6 billion tonne resource.


Democrats beat ruling party in Mongolian election

Associated Press (AP)

28 June 2012

ULAN BATOR, Mongolia (AP) - The opposition Democratic Party edged out Mongolia's ruling party in a tightly contested legislative election that centered on how best to use the wealth generated by the still poor but fast-developing country's mining boom.

It was not yet clear if the Democrats would win an outright majority in the 76-seat parliament. The party won 20 of the 48 seats awarded by outright majority in Thursday's vote, compared with 15 for the ruling Mongolian People's Party and fewer seats for two other parties, results released Friday by the General Election Commission showed.

Under a new system, the remaining 28 seats are awarded based on the parties' proportion of the overall vote, giving the Democrats a commanding but not a decisive edge in the new parliament. A coalition government between the major parties or with smaller parties would likely perpetuate slow policy-making and partisan bickering that has characterized Mongolia's fledgling democracy.

The Democrats and MPP each campaigned on promises that they would use revenues generated by mining mammoths' estimated trillion-dollar reserves of coal, copper and gold to create jobs and narrow a rich-poor gap in the large but landlocked country between China and Russia. The Democrats characterized the MPP as captives of the rich and foreign mining interests.

Along the way, a still popular ex-president split from the ruling party only to be arrested on corruption charges. Still, Enkhbayar Nambar's splinter party in league with another minor party took third place, potentially making him a factor in forming the new government.

None of the parties immediately contested the vote results, possibly avoiding a repeat of the post-election violence four years ago that left four people dead in the capital, Ulan Bator. Angry supporters of the Democrats took to the streets after the party alleged voting irregularities in a loss to the MPP.

To avoid such problems, the government introduced the mixed system of awarding seats by majority vote and by proportion. It also imported electronic voting machines, though the parties also wanted votes counted by hand.

The announcement of results was delayed earlier Friday after the MPP asked for a recount in some districts due to discrepancies between votes tallied by machine and by hand.

Mindful of the violence in 2008, ruling party politicians struck a measured tone in doing so, saying they would abide by the law, even as they asked for the recount.

"The election should run according to laws. The party election committee has complaints regarding vote counting and we are addressing the issues," said Prime Minister Sukhbaatar Batbold, the ruling party chairman.


Corruption and greed in 'Minegolia'

Al Jazeera

27 June 2012

Ulaanbaatar, Mongolia - There was a time when Tugsjargal Munkherdene felt like a pariah. Not one of Mongolia's many radio stations would air his songs; no agent was willing to help him find a gig. It seemed in a nation the size of Western Europe, there wasn't space for a hip-hop rapper, whose harsh lyrics - some of which border on what could be described as "hate" - attack the powers he sees corrupting the country.

Today, however, on the eve of elections, 28-year-old Munkherdene, also known as rapper "Gee", is one of the most sought-after sensations. As we meet in one of the hundreds of grungy bars that line the streets of the capital Ulanbaatar, his mobile phone won't stop ringing.

"It's another political candidate," he says and smirks. "I'll ignore it, I don't speak or rap for no-one."

That politicians are chasing after a hulking, heavily tattooed rapper who has at times been mistaken for being the "muscle" of Mexican drug cartels, speaks to the climate of the times: specifically, the public's seething anger over the belief that this fledgling democratic system is failing to keep leaders accountable, and that they, along with foreign companies, are "stealing" the country's valuable mineral wealth.

That is at least the perception. To have Gee, the outspoken crusader, appear at an election rally would be an automatic endorsement that a candidate is "clean", the nation's political operatives seem to believe.

Racism? Or railing against foreign ownership?

In one of his most controversial videos, Gee swears at the "Hujaa", a derogatory slur against the Chinese, equivalent to "chink". Wielding a meat cleaver, with sheep carcasses swinging in the background, he threatens to cut up Chinese operators of mines who mistreat their Mongolian workers, along with the country's leaders who sign away the nation's resources.

The video has been viewed more than 170,000 times on YouTube. In a country of 2.9 million people, that equates to a hit.

"I wrote that song because I was angry," he says. "There are so many cases of Mongolians not getting paid, even worse, being beaten and killed in the mines, and our leaders don't do anything. Our politicians should be ashamed. I wouldn't even call them Mongolians."

Negative public sentiment has not only been reserved for Chinese operators. Many other foreign enterprises that run the country's largest mines have also been targets.

Tsetsegee Munkhbayar, a nomadic herder and an internationally renowned environmentalist, shot at a foreign mining operation in 2010. He decried what he described as "predatory capitalism".

"We will give the mining companies fair warning - either they must cease their activities or incur our wrath," he said at the time, just before being jailed. Munkhbayar has since been released and continues his campaigns against the mining industry.

'Minegolia'

Mongolia, or "Minegolia", as migrant workers are keen to call it, is undergoing a rapid transformation, due to its incredible resource wealth in minerals such as coal, copper, and gold. Some estimate the total value of known deposits to be $1.3tn.

The country's economy grew some 17.3 per cent in 2011, faster than any other nation. And if predictions are correct, it will continue its double-digit growth for well over a decade.

But with such wealth comes greed. In 2011, Transparency International placed Mongolia 120th out of 183 nations on its corruption perception index - joint with Iran and Ethiopia, among others. Sumati Luvsandendev, the country's leading pollster, says 90 per cent of Mongolians believe politicians are benefiting from "special arrangements" with foreign enterprises over mining rights.

Public pressure has forced the government to consider placing restrictions on how much of a stake outside companies can have in Mongolia. That has led to nervous investors. A case in point came this week, as shares in Mongolia Mining Corporation, the nation's biggest coking coal exporter, slumped to a record low following speculation that investment rules would be tightened after the upcoming parliamentary elections on Thursday, June 28.

Mongolia's president, Tsakhia Elbegdorj, says he prefers to leave investment issues as they are, and focus instead on tackling the widespread corruption within the government. The this end, he has beefed up the powers of the agency responsible, the Independent Authority Against Corruption (IAAC).

Former president jailed

Since its inception six years ago, IAAC officials say they've gathered evidence on more than 600 politicians and civil servants. But it's the charges against a former president, Nambaryn Enkhbayar, that have raised eyebrows.

In the early morning of April 13, some 600 police officers, including members of a SWAT team, appeared on Enkhbayar's doorstep. A smaller group had failed to arrest him the night before, after his bodyguards reportedly drew guns.

Barefoot with a bag over his head, the former leader was bundled off to jail and charged with five counts of corruption. What followed was what one on-air host described as "the most interesting reality TV show Mongolia has ever seen". Networks aired footage of the former leader being shown around his "accommodation", which was far more comfortable than that of the average Mongolian prisoner.

Then there was the drama of a 12-day hunger strike, where Enkhbayar was seen at times verbally and physically lashing out at his handlers. Following pleas by his family members over his health, a court released him on bail.

The former president, who ran the country from 2000 to 2004, has called his treatment and the case against him "political persecution" and accused Elbegdorg, along with his "corrupt associates", of trumping up the charges to prevent him from contesting this week's elections, seen largely as his chance at a political comeback.

"It's quite widespread for all authoritarian regimes worldwide," Enkhbayar says. "When they want to remove their political opponents from the state, they use charges of corruption." With the case before the courts, the election commission has indeed barred him from running. But whether it is justice or political persecution depends on whom you talk to.

While in jail, Enkhbayar's media-savvy son made several international appeals and appeared to have convinced some that democracy could be under threat. At least one US senator, a former US ambassador, and even Amnesty International publicly raised doubts about the legitimacy of the case. UN Secretary-General Ban Ki-Moon even reportedly phoned Elbegdorj to express his concerns.

The current president, however, insists there are no political motivations behind the charges. "I know and most Mongolian people know that Mr Enkhbayar is trying to escape from the court of justice and trying to create [a] court of public opinion," said Elbegdorj. "I would like to urge our allies in the international community to follow this case closely."

He added: "Mongolia is regarded as the democratic anchor in the east... freedom here is non-negotiable, and the fight against corruption is also non-negotiable."

The charges

Of the five counts before Enkhbayar, one involves the selling of valuable state property in the heart of the capital to friends and relatives - including a hotel, which is now owned by a company run by his son.

He's also accused of diverting donations from Japan originally meant to be spent on television equipment for a Buddhist temple. The donations were allegedly used to pay for equipment at a network run by his wife.

Mongolian miners claim injustice

"Some outside the country may not look at these crimes as much," says Unurbayr Chadraabal, an official with the IAAC, "but counted together, they total some $6m, and in Mongolia that is considered a big thing."

While most of the political parties (barring Enkhbayar's) have preferred not to comment on the case, corruption has taken over as the key issue in these elections. At campaign rallies, candidates refer to it as a "disease", and admit that while "all parties are guilty of it, they are all committed to putting an end to it".

With one in three Mongolians still living in poverty, there is a heavy expectation that the government must move to ensure a fair distribution of the country's resources. "The only way out of this situation is to have more growth that is more just," says Dashdorj Zorigt, the current mines and energy minister.

Interestingly enough, Enkhbayar's plight has revitalised his party's election hopes. Supporters packed a hall at a recent meeting of the Mongolian People's Revolutionary Party (MPRP) to hear him speak. Having sold himself as the victim of a "corrupt government", many of his backers are the disenchanted. "The person who is really uniting the protest voters against the establishment is our ex-president, that's why whatever he is doing, he will be popular," says Sumati.

But not everyone is so easily convinced. Rapper "Gee" Munkherdene laughs off questions about how he will vote. He is so passionate for his country that he wears its name on a tattoo just below his left eye, and says he doesn't "buy any of the claims made by present-day politicians".

What he's looking for, he says, are concrete efforts that bring visible change. "My parents taught me to care about this country. I only use harsh words in my songs because I want to bring people's attention to the problems and make leaders listen."

The phone rings again. It's yet another political candidate. Is his popularity, and the fact that corruption has become a key election issue, perhaps a sign that Mongolians are starting to listen to him? He only smirks and says, "we'll see".

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