Mongolia's Troubled Mine Sector
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Central Asia Economic Paper No. 10 November 2013 More than a boon: Mongolia’s Troubled Mine Sector Mathieu Boulègue On June 26, 2013, President Tsakhiagiin Key Points Elbegdorj1 was reelected for a second four-year term upon winning 50.89 per- Mongolian politics are increasingly po- cent of the vote in the first round of what larized around a nationalist-prone coali- was the country’s sixth presidential elec- tion advocating for “resource national- A Sciences Po and King’s Col- tion.2 Serving almost as a litmus test on lege alumnus, Mathieu ism” and business-oriented groups look- mining policies in the young Asian de- Boulègue is an analyst in the ing for international investments in the mocracy, the election took place amidst field of Russia/CIS security mineral extraction sector. the backdrop of a decade-long mining and geostrategic issues. He boom which has, however, been tem- currently works as a project pered by calls for resource nationalism The revamped draft version of the Min- manager for a French risk voiced by local populations negatively erals Law is slowly taking Mongolia on management consulting firm. impacted by mining activities. the path of responsible mining, with the He is also a member of the Oyu Tolgoi mine presently at the center Institut Etudes Prospectives This tension has manifested itself in an of attention. en Europe (IPSE). increasingly visible political fragmenta- tion between nationalist-protectionist The effects of the “mining boom” need to factions and more business-prone forces be contrasted with the rather bleak eco- within the government and the State nomic outlook. Great Khural (the Parliament). The opinions expressed here are those of the author only and do not represent the Cen- tral Asia Program. CENTRAL ASIA ECONOMIC PAPER No. 10, November 2013 As embodied by the ongoing struggle around the votes, and the female health minister Natsag Oyu Tolgoi mining super-project, a huge copper Udval from the Mongolian People’s Revolutionary and gold mine in the south of the country, Mongo- Party (MPRP), who garnered 6.58 percent.10 Im- lia finds itself at a crossroads between openness mediately after the release of the GEC’s official to international investments needed to support report, the Parliament endorsed Elbegdorj’s the economy and demands for responsible and reelection and he was sworn in on July 10 in sustainable mining aimed at protecting national Ulaanbaatar.11 Another notable feature of the nature reserves and ensuring the protection of election was the fact that the Organization for local populations. Security and Cooperation in Europe (OSCE) car- ried out the first Election Observation Mission to A no-trump ballot the county (after it had become a member the previous year) with the mission concluding that With a turnout of 66.5 percent of registered vot- the election had been “free and competitive.”12 ers,3 the incumbent Democratic Party candidate heavily benefited from the support of many small Mongolia between a rock and a hard place political formations, in tune with its own political line, thereby limiting overall competition and President Elbegdorj is seeking to achieve a bal- voter choice. ance between openness and closure to please both the electorate at home and international Indeed, the Civil Will-Green Party,4 the Mongolian investors.13 The issue has polarized Mongolian National Democratic Party (MNDP),5 the Republi- politic, with two major political factions having can Party,6 and the Motherland Party7 had all emerged in the aftermath of the parliamentary announced in May 2013 their intention to sup- elections and the subsequent formation of a coali- port the Democratic Party’s candidate in the pres- tion government. idential election. Among these, the Civil Will- Green Party was an electoral coalition formed On the one hand, the outcome of the latest par- between the Civil Will Party and the Green Party liamentary elections led to the formation of a that took part to the 2000 parliamentary elec- nationalist-prone coalition that could sensibly tions. They subsequently merged in early 2012 renege on economic openness at the expense of ahead of the June parliamentary ballot, winning foreign investors. The coalition government is two seats in the State Great Khural. Although in- currently headed by Prime Minister and Demo- dependent, the Green Party remains politically cratic Party chairman Norov Altanhuyag with close to the ruling coalition, as several members lawmaker Davaajav Gankhuyag serving as Minis- work as environmental advisers to the incumbent ter of Mining. Both men are considered “resource President,8 and Green Party Member of Parlia- nationalists” and are known to have a tough ment (MP) Oyun Sanjaasuren now serves as Min- stance regarding international mining companies ister of Environment and Green Development. and foreign investments. Furthermore, the gov- Similarly, the Motherland Party—also known as ernment includes members of the People’s Revo- the Democratic New Socialist Party—is close to lutionary Party (MPRP) and the MNDP, who are the ruling party, with several of its prominent advocating for better control over national re- members having served as ministers under the sources. The Justice Coalition also uses its lever- Democratic Party government.9 age in the State Great Khural to push for resource protectionism: formed in 2012 as an electoral Only three candidates officially registered with bloc between the MPRP and the MNDP, it seeks to the General Election Commission (GEC) to run for restrict the shares of international extracting the post of president—that is, contenders stem- companies and curb foreign investments. ming from political parties holding seats in the State Great Khural. Hence, Elbegdorj competed These nationalist Members of Parliament might against former wrestling champion and MP very well decide to increase their pressure on Badnaanyambuugyn Bat-Erdene standing for the bills fostering greater national sovereignty, espe- Mongolian People’s Party—the former Com- cially since the Democratic Party only retained 31 munist Party—who obtained 42.52 percent of the seats in the 76-seat legislature. 14 Nationalist- 2 CENTRAL ASIA ECONOMIC PAPER No. 10, November 2013 oriented forces could, for instance, back “Resolu- sion of the issuance of mining and exploration tion 57” (named after the 57th Resolution of the licenses in 2010 and also initiated the complete State Great Khural) whereby Mongolia could seek overhaul of mining laws after setting up a work- to acquire 50 percent of the stakes in the Oyu ing group under the President’s Office in 2011. Tolgoi mine and thus ensure greater control over The suspension of licenses was reconfirmed by national resources.15 the State Great Khural in December 2012. Since the 1997 Minerals Law, in fact, exploration li- On the other hand, business-oriented political censes have halved from 6,000 to 3,000 today.21 forces are trying to push for an increasingly larg- er part of the mining cake: the importance of for- The first draft of the revamped Minerals Law was eign investments in Mongolia is constantly used made public in December 2012,22 coming under by certain politicians as a leitmotif in internation- heavy criticism from both mining companies and al speeches.16 Both the ruling Democratic Party investors. As such, the draft law restricts the is- and the Civil Will-Green Party are trying to act as suance of mining licenses—prospecting licenses a counterweight against resource nationalists. An will be reevaluated every year—as well as state increasing conflict of interests is occurring be- involvement in the ownership of shares.23 The tween business opportunities and people’s de- new draft law also takes into consideration envi- mands for responsible and sustainable mining, ronmental protection through the framework of with the Democratic Party consequently having the 2009 Law on the Prohibition of Minerals Ex- to adopt the political middle ground.17 ploration in Water Basins and Forested Areas as well as local development for populations con- The political split presently occurring over the cerned by mining activities. mining issue can also be seen when analyzing the results of the presidential elections. Elbegdorj President Elbegdorj declared in February 2013 was mostly backed by the young, urban strata of that there needed to be greater national oversight the population and the middle-classes of the capi- of international mining projects through the tal18—he received an average of 55 percent votes presence of Mongolian representatives on the in urban areas compared to 47 percent outside of managing boards of concerned companies as well Ulaanbaatar—whereas Bat-Erdene fared better in as greater responsibility in managing costs and the rest of the country, especially in mining re- allocation of resources.24 This was further rein- gions.19 As such, a strong divide exists between forced by the April 2013 amendments to the Reg- urban dwellers preoccupied by the overall eco- ulation of Foreign Investment in Business Entities nomic development of Mongolia and rural popu- Operating in Sectors of Strategic Importance (SSI lations directly affected by mining activities and Regulation) of May 2012: new provisions in the therefore more prone to vote for candidates with foreign investment law differentiate bids made by strong positions against international mining state-owned enterprises (SOE) from those made companies. It needs to be recalled that rural by foreign companies25 as well as introduce mon- Mongolians are mostly herders whose way of life etary thresholds for international private ac- and subsistence economy have been considerably tors.26 Provisions of the draft law also include a affected by mining activities in terms of environ- long-term regulatory framework concerning en- mental pollution and lack of sustainable devel- vironmental protection (especially against pollu- opment. tion of waters and pastures), the fight against corruption, and the integration of local communi- Taking the path of responsible mining ties in the decision-making process.