Mongolia & Oyu Tolgoi: Another winter of discontent?

There seems to be a lot of positive sentiments regarding an OT (Oyu Tolgoi) Investment Agreement. But should we really be that optimistic? Chris de Gruben , the Accidental Entrepeneur, puts our feet back on the ground.

by Chris de Gruben

The current session of parliament is closing soon, Naadam is in less than 2 weeks.The parliament still has to officially confirm the equity based deal, a democratic president is trying to influence an MPRP majority parliament into action, political parties have to voice objections, create endless committees and special review groups. And of course, the investors have to find an agreement that they can sign.

I see no quick resolution to this dilema.

In the meantime, Mongolia is at the mercy of the goodwill of foreign nations for ever increasing grants and loans. Every week brings new multimillion dollar loans to Mongolia while it does not seem the country has a clear strategy on how it will pay it back. It is spending money today that it hopes it will make tomorrow, a flawed strategy which sadly puts Mongolia in a weak negotiating position.

Even if, by some miracle, the agreement was to be signed this summer, it will probably be too late for Ivanhoe and Rio Tinto to start real, large scale investments and construction at the OT site and building its infrastructure in UB before the onset of winter.

This means that they will have to wait until next spring to start the heavy investments, thus yet another winter of discontent.

Furthermore, I believe that the OT investment has been blown out of proportion, it is not a magical key that will suddenly resolve all of Mongolia's financial and foreign investment problems, it is only part of a complex solution.

There is more to the recovery than OT, TT is also important but most important of all is what the Mongolian Government will do with the money.

There is constant discussion and clamouring from parliament stating that they want an agreement which brings in as much revenue to the Mongolian people as possible.

Fair enough, but I never hear discussions or strategies being made as to how those revenues will be distributed to the people? The motherland gift is a perfect example of a populist promise made with no thought as to how it will be done, who will pay for it and how it will be fairly distributed.

Will be people get a voice in how the revenues are distributed, will its allocation be transparent or will a major part of revenues be wasted on corruption, useless populist projects, all with the aim of improving the condition of the few against the many? This is what I am interested in, how will the money be allocated, spent and so forth.

I hope the agreement is signed soon, if only to improve the image of Mongolia as a serious country worthy of investments, but sadly it seems that too much time is spent by parliamentarians fighting for personal gains instead of fighting for the good of the people.

It is my strong believe that a democracy which allows its members of parliament to own, manage and have financial interests in the private sector is a flawed system. Public servants should serve the public above and beyond their own financial and personal interests. Providing the temptation to serve their own needs is dangerous as it changes the perspectives of their functions. As Oscar Wilde said: I find that I can resist almost anything except temptation...

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Archived Comments
2009-07-03 16:40:06
how true, it does not do any good to the people of Mongolia if the money gained from this project will be spent by corrupt people on themselves and their families. I don't think that this project will bring the big promised economic boom for Mongolia, since the politicians are fighting for their own gain.
very concerned
2009-07-06 12:15:49
One thing is for sure, Mongolia does not need another know-it-all exploitative foreigner like u.
mongolian man
2009-07-07 08:17:24
Well, this guy is clearly off the mark here. Poor belgian shop owner guy here. Trying to be know-all Mongolian expert??? Yes, we don't need Belgian shop owner here. We, mongolians can run our own shops here. R u the owner of this stupid little place called "Sub'baatar"?
mongolian man
2009-07-07 08:43:35
"In the meantime, Mongolia is at the mercy of the goodwill of foreign nations for ever increasing grants and loans. Every week brings new multimillion dollar loans to Mongolia while it does not seem the country has a clear strategy on how it will pay it back." Let me analyze this sentence of this belgian shop owner in Mongolia. Mongolia has received 200 some million USD from IMF and some from Japan so far. Not every week as this man is saying. Not a single dollar was given by Belgium so he has no reason to lament and complain. Japan is our traditional ally and US is our third neighbor. Japan is our largest grant provider and been so since 1990s. It has nothing to do with Oyu Tolgoi deal. We support Japan as we share same gene and brotherhood. Stop badmouthing and paint Mongolia black. It just shows your ignorance and limited knowledge on Mongolia affair. Do you what you can best. Run your sandwich shop!!!!! Don't exploit Mongolia and harm it by writing this kind of stupid stories and spreading baseless rumors!!!
Chris de Gruben
2009-07-07 10:11:10
to Mongolian Man: Belgium has donated money to Mongolia, primarily to buy equipment for the 1st hospital of Mongolia, furthermore Belgian pays for Mongolian doctors to go and train in Belgium every year. Furthermore, Mongolia has received more loans recently such as the 300$ million Agricultural loan from Russia, The Asian Development Bank, the World Bank, Japan and Australia have together pledged a further total of $165 million. Mongolian media also reported the finalization of a $300 million, 25-year loan at 3 percent interest from China for road and railway infrastructure. That loan was originally pledged in 2003. Altogether, Mongolia has either received or been pledged loans totalling nearly 1 billion USD.
2009-07-07 15:52:39
I think the Russian agricultural loan of 300 mil usd is a commercial loan for Mongolian banks. It is not Mongolian government who took it.It is loan operation between private companies. I don't think any of the Mongolian banks took this loan so far???
2009-07-07 16:03:08
I'm not taking side here. I'm just wondering where all this 1 billion USD loan or aid gone? These certainly did not benefit majority of Mongolians!! Maybe gone to international consultants and their expenses and salaries???? It would be curious to know what others think about this? Is there anybody who have opinions about questionable benefits of these so-called loans and aid Mongolia supposedly received??? I just wonder???
2009-07-07 17:41:30
not foreign, I am a mongolian
2009-07-07 21:17:51
Hi Shagai Either you do not read the media or you are very gullable when it comes to NOT beleiving there is corruption in Mongolia, and asking where the loans have all gone. Then to top the cake with more icing of supposed igorance with a dash of blatant rasicm, suggesting it is foreigners, yet again, who have filled their pockets with these billions. MY Mongolian friends have also experienced corruption regularly. Are you living in an ivory tower that you do not recognise this going on all around you? I have seen personally seen and experienced corruption in police and officials from the soum to national level in Mongolia. At the high end, how can a politician or official with their salaries (which supposedly are the same as highly educated doctors.....earning only $200/month) afford brand new SUV's, new houses and be able to send their kids to foreign universities? I, as I said in another page here, cannot afford to do these things. I am not jealous just extremely curious and looking for answers. How can politicians and judiciary in Mongolia be Directors of mining companies and other businesses, and potentially be able to influence bureaucrats, into decisions benefiting them? This is illegal in the west, as clear and obvious conflict of interest, and there are several politicians who have been ousted in the west for doing exactly that. Currently, there is an investigation of politicians in the UK for irregularities(even small ones)in their expense accounts. Please tell me any who have had the same fate in Mongolia? In the west these issues are investigated and pursued like a wolf after a deer. In Mongolia these issues just fade away or the reporters who expose them are called traitors or suffer a worse fate. Please show me I am wrong? You are questioning where the loans have gone. The question I raised about, where the shortfall of $25 million in taxes obtained from mining companies has gone, was not answered, nor even mentioned by you or any other person in the previous page. This was discovered by an independant Australian accounting firm and quickly disappeared from the news. I ask you am I missing something? Was this actually resolved? Elsewhere this would be big news. Apparently in Mongolia it is small change and not worth pursuing. In this debate, is there any chance you could address the above questions with some rational, please? Or am I, yet again, to receive no answer, just the rhetoric, " it is all the foreigners fault", despite clear evidence to the contrary?
2009-07-07 21:28:13
I just noticed that exactly what I am talking about is occuring here 'Very concerned' berating 'Concerned' for speaking up and pointing out, as a Mongolian, his observations of corruption. It is this honesty that is lacking and instead of following up on this he is assumed to be a foreigner or as happened with any Mongolian who has a point a view that was not racist or anti-foreigner, in the previous page, was called a** licker or worse. (I could not translate all the Mongolian). How can you expect to progress when you don't even tolerate honest comments amongst yourselves?
2009-07-07 23:24:56
To all other readers, Get real. It is only business. Rio Tinto and Ivanhoe want to invest and build to make money. Not exactly for the good of Mongolia or its nation. If allowed, they will build the mine and make the profits while leaving multi million dollars every year in Mongolia. What you government does with the money is another question and how it is spent is not a concern of Rio Tinto. But if you prefer to deprive Mongolia of this project because you have corrupt officials that's cutting your nose in spite of your face. Deal with the problem separately but don't deny development as one successful venture attracts another.
Joachim Bertot not anonymous
2009-07-08 05:26:12
Dear Mongol man, are you really mongolian ? After analyzing your grammar and your vocabulary, it seems obvious that you are trying to disguise a far better english ... I also noticed that most of your attacks are against this post's writer and not really against the post itself ... if you've got a problem with him ... please try to solve it somewhere else or at least not anonymously ... and try to let this conversation take a more constructive way !
2009-07-08 05:53:46
@ shagaii. Aid cooperation might not be perfect and difficult to evaluate its general impact. It is though sad to read that you generalize seeing it useless to the country. All bilateral projects are discussed and agreed by the parties. the procedure is that the Mongolian Government requests support and international donors respond. The GoM can always say no if the proposed project doesn't fit its interests.. This is in their power... I just wonder, according to what you say, if without international support Mongolia would be better off and in a better socio-economic situation.... there are many aid projects ongoing, you can search on internet and find lots of information, go and download their reports and then evaluate yourself...Start with UNDP, GTZ, World Bank, then international ONGs, and so on... Do you really think they all steal money with no results and benefits to the country? ... you are not that convincing and you should better support your theory with facts and promote a debate.
2009-07-08 06:07:55
@ Mongolian man: maybe you do not know it but Belgium contributes financially also through the EU projects and all the UN agencies ...
2009-07-08 07:35:23
@mongolia man, why on earth should small shops be reserved for mongolians? is Mongolia a democracy? I am confused. If foreign owners of small shops meet a demand in the market where is the problem? Are foreign shops employing mongolian staff? I can only guess so. If you can run your own shops here please do so, I think the majority of small shops are run by mongolians for mongolians. In any case, where do you think foreign shop owners get the money to invest in those shops? It is called direct foreign investments. It is providing jobs, services and training for Mongolians. they are paying taxes like everyone else and trying to make a business work If we follow your logic then maybe we should prevent mongolians from having small shops in the US and Europe... Stop beinga jealous racist and start being constructive...
2009-07-08 09:04:16
To Mano: I see your points. I don't possess good statistical data and analysis about benefits of the aid and loans Mongolia supposedly received. But based on my superficial observation, I may be wrong or right here, much of aid and loans is spent on studies and experts who produce much paperwork and reports. I wish that this whole aid or loan receiving process was more transparent and open to public. As far as i know, poverty in Mongolia is not being reduced because of international poverty reduction projects implemented in Mongolia.That is for sure.
2009-07-08 09:25:21
To Mano and Shagai, thank you for having a good conversation which is bringing up the level of this debate from the intial comments. I tend to agree with both of you, development money is useful to Mongolia and does help but it is a certainty that a certain portion of the development funds are lost in administration costs and so forth.. Thanks for the comments again. I look forward to reading more about this intresting debate. Lets behave like intelligent adults for once. Insider
2009-07-08 09:35:12
to Mano and Shagai, Thanks for your intelligent, polite and constructive debate, if only all people that comment on this post were able to make a constructive argument.. I tend to agree with both of your points, yes development aid and grants are useful to Mongolia as it helps it grow but at the same time it is likely that a proportion of that aid is used in administrative costs that have little impact to Mongolia. Thanks again for the comments and keep blogging.
Tyler Page
2009-07-08 10:19:30
Hey mongolian man just to set some facts strait for you the "stupid little place called sub'baatar" as you put it is actually owned by a dutchman, a swiss and a canadian who are the majority owners.It is very true that the Belgian, Chris is also an investor in our small sandwich shop, believing in the concept and the guys that worked it. Further more we employ mongolians, pay taxes just like any other business in mongolia. I agree with 'insider' on these views and will add that an insult on one of us in an insult on all of us who started a small business because we actually like Mongolia and our Mongolian friends, of which i have many and i'm sure others do to. Why do you think we started our small businesses in Mongolia? It's obvious that you and Chris have issues, he didn't hide behind a name so take you problems up with him and leave me and my Sandwich shop out of this bullshit. My name is Tyler and I own a small Business in Mongolia!
2009-07-09 02:06:22
This what analysts think about the ability of the Mongolian Parliment to pass the legislation after 6 years. "Despite the support of both major parties, the MPRP and the DP, caucus discipline is much weaker in Mongolia than in, say, Canada," said Salman Partners analyst Raymond Goldie. "Thus passage of the legislation authorizing the agreement is by no means assured before parliament breaks for summer," he said.
2009-07-09 08:19:32
To Shagii: the problem - in my opinion, is not transparency but visibility. Apart the direct beneficiaries and the involved parties, it is difficult to disseminate the information to the public. Most of the donors, NGOs and non profit organisations always try to reach the general public. one of the main tools today is via internet and their web pages. The GoM should also play a major role on this. For instant , take a look at ADB - Asian Development Bank at their web page "list of Projects". It is very detailed ..budget, project, results, contact person for further information and so on... this is just an example. In certain aimags, the international projects played a major role to sustain the economic environment. See today Arkhangai, Ovurkhangai, Darkhan-Uul, and Huvsguul which are emerging and developing very fast compared to years ago. The poverty that you talk about has mainly deteriorated in UB, which has the typical problems of an emerging city.
2009-07-17 06:20:17
I am very sure that most of the money will be corrupted by the poloticians. You can trust anyone except the politicians. hahhaa
2009-07-17 10:18:54
I see PM Bayar wants $25 billion invested in Mongolian mining projects. I hate to state the obvious, but he seems to be living in a dream world, totaly away from the reality of what it takes to encourage new investors to place their shareholders funds into Mongolia. Why does he think companies would want to invest in Mongolia when it has taken more than 5 years NOT to come to agreement on Oyu Tolgoi. The dealing going with Tavan Tolgoi is not a transparent process. Who knows what is going on behind the scenes. Meanwhile, licenses have been suspended on several foreign companies projects for non-specific reasons. Does he actually think these types of dealings with foreigners is something that will encourage investors to Mongolia? Does he think other companies want to be negotiating for 5 years after spending their money just to get 50% or less? How can he do it. Very simple. Recognise as the PM did in 2005 that Mongolia is in competition with the rest of the world for investors in mining. Then look at the laws, regulations and tax regimes of those rich, successful countries with significant income from mining and at LEAST EQUAL them in terms of how to encourage investors.........and be consistant. That is how to maybe get $25 billion. The way things are going in Mongolia NOW is not encouraging to say the least. The way it is now the it is in the governments hands to PROVE it is worthwhile investing in Mongolia. That is going to take years. The way it is now Mongolia will be lucky to get $25 billion in 50 years. Papua New Guinea put in place a restrictive tax regime in a simple minded way to increase revenue (much like Mongolia) and companies left for 15 years until they changed the laws. In the province of British Columbia, Canada, the new socialist provincial government that was elected in 1974 did a similar thing and companies left by the dozens and the province suffered for 25 years until the politics changed. Those companies that left, by the way, are the reason there has been so much world wide exploration by Canadian companies.
packing up
2009-07-17 12:45:48
the ship has sailed my friends. packing up and heading out.
2009-11-24 18:22:18
greetings form Mongolia you will see i warn you every Chinggis khaan's birthday i will kill one fucking foreigner so be careful