Mining accounts for one fourth of Mongolia’s economy and 85 per cent of our total exports today. However, it is increasingly looking like that we cannot effectively manage this vital economic sector of ours.
Local communities are posing a stronger opposition to mining, which has made mineral exploration and extraction much more difficult. In some cases, local governments are neglecting the decisions that come from the central government and have been acting like a federal unit in a federal government. Hence, there is a need to determine why we’re in this situation, analyse the circumstances, and come up with an effective solution to resolve issues.
We should remember that, despite having natural resources, many countries ended up suffering from a civil war and a split governance, having never been able to leverage the natural resources in the advancement of their country.
“Pop [populist]” extortions
- In Dornod aimag, soum citizens teamed up with a group from Ulaanbaatar to oppose gold mining conducted by Steppe Gold. They threw core samples (from mineral exploration drills) in the river and made a big commotion.
- Genie Oil, a U.S. company, came to Tuv aimag’s Erdenesant sooum to implement a shale mining project. However, they were forced to leave Mongolia shortly afterwards, due to pressure from local communities and election candidates.
- After years of facing opposition and overcoming various hurdles to operate in Dornogovi aimag, French company Areva is currently working in partnership with the government through a company named Badrakh Energy.
- Canada’s Centerra Gold sold their gold mining business at Noyon Mountain and left Mongolia, due to intense pressure from local communities, groups, and ninjas (illegal gold miners).
- Mongolian company “МАКС” faced a widespread smear and defamation to be able to do petroleum exploration in Sukhbaatar aimag’s Erdenetsagaan soum.
- Mongolian company Magnai Trade established a product sharing agreement with the government in 2010 to do petroleum exploration activities in Dornod aimag’s Choibalsan soum. However, due to strong protests from the aimag and soum governments as well as the MP representing the region, Magnai Trade has still not been able to do its first exploration drill. Going to the court didn’t help, so the company appealed. In the meantime, they’ve lost the prime time to exploration activities, which has magnified their business risks. This project would help Mongolia reduce its dependency on external petroleum and establish and operate our first refinery, which will always need additional petroleum.
- Due to the Dornod aimag’s Khalkh gol soum Citizens’ Representatives Khural not convening for an entire summer, a company who was building a road within the soum was forced to import gravel.
These are only a few examples of how dozens of companies are losing their time and money to navigate through various extortions from aimag and soum officials and other specialized groups who demand cash and donations. These extortion activities are taking place when the companies abide by the relevant laws, regulations, and government decisions.
On the outside, our government officials appear to be supporting foreign investment and give presentations to domestic and international audiences. But, in reality, the same politicians are fueling protests and opposition, making false promises, and encouraging aggressive groups. They are doing it on purpose to gain support and collect votes in the election. It has become a common phenomenon in Mongolia that mineral exploration and mining activities are always disrupted, and get suspended altogether if it is an election year. Local people who understand what is going on are now asking companies to postpone their drilling until after the election.
Two key reasons
The two key reasons why exploration and mining activities have been disrupted or suspended are 1) soums and local communities never see their share of royalty payments from mining activities on their territory, and 2) due to corruption, only a small number of people are enjoying the benefits of natural resources.
If you look at how much revenue in the public budget came from mining royalties since 2013 and how much of the revenue was allocated back to aimags and soums (via the Local Development Fund – LDF), you can understand why herders and community members, especially those who gave up their pastureland, are opposing mining.
Under the relevant laws, some of the mining royalty revenue go to the Fiscal Stability Fund (after market price adjustments on key commodities), 5 per cent go to the LDF, and 65 per cent of the rest go to the Future Heritage Fund. Also, as per Clause 59.1.5 of the law on public budget, 30 per cent of the petroleum royalties go to the LDF.
It is now said that 50 per cent of the revenue from special licence on mineral exploration will start going to the LDF, commencing from 2019, and it will become 100 per cent starting from 2020. The law states that half of this payment will be allocated to the given local government and community. In Canada, 40 per cent of the revenue of this type go to the local region where the deposit is located in, and the rest go to other states in proportion to population size.
The Mongolian government is currently putting all the revenue from mining royalties in one basket and divvying it up for all aimags and governments. Therefore, people who are living right next to a mine site are getting almost nothing, while some officials have been receiving huge portions and misusing them. It is clearly demonstrated by many cases related to mineral exploration and development licences.
Government officials led by D. Amarsaikhan, who was a department head in the petroleum authority, have been stealing funds from a product sharing agreement with Petrochina Daqing Tamsag. As per the agreement, the government receives 24 per cent, but they conspired to receive 1 per cent for their own personal gain. Their crime was revealed when petroleum worth 40 million USD had gone missing from the books. The Chinese government also found out that Petrochina Daqing n Tamsag had been transferring large amounts of funds to Hong Kong-based Sun Wang Company via their Shanghai bank account. As a result, some of their senior management were detained.
D.Amarsaikhan, who was being held in the infamous detention center 461, passed away in May 2014. The media talked about “The Anti-Corruption Agency received instructions from high above to not let D. Amarsaikhan, who had migraines and was dependent on medications, get hospitalized or receive his medications. The autopsy reported a fracture in his breastbone, and five broken ribs. Involved in a 50-billion-tugrugs case, he died minutes after receiving a suspicious package.” There was a lot of coverage on how D.Amarsaikhan was poisoned right before he was going to reveal the truth about the huge donations he made to his political party (Mongolian People’s Party – MPP). However, the coverage went silent after some time.
In any case, Mongolians have the right to retrieve the funds that were stolen. How many more years can we tolerate the court that protects the corrupt political parties by letting only one or two individuals go to prison as token? Aimag and soum citizens must also make the same demand from the government and hold them to the law. Mongolia needs to ensure its mining and mineral resources don’t cause a trouble for us, and make sure the government is open and transparent while the people can provide scrutiny over its activities. First of all, we need to reduce the overcentralisation of the public budget, and give more power to the local governments and communities. Only then we will be able to achieve flourishing development in our wide country.
2019.04.03
Trans. by B.Amar