Mongolia resource sales hit headwind
ULAN BATOR - As Mongolia is cashing in on its enormous resource wealth, tensions are building between the Mongolian government and foreign investors. Strain is also growing in Mongolian society in general, as citizens push their government to closely regulate foreign businesses and more widely distribute revenue from resource deals.
The Mongolian government is moving forward on a number of projects to turn its minerals into money. None of its endeavors are bigger than the privatization of Erdenes Tavan Tolgoi, the state-owned firm that controls one of the world's largest deposits of coal, which is expected to raise US$300 billion. Tavan Tolgoi's initial public offering has been delayed until at least the first
quarter of 2012 and will likely be made on three different exchanges: Ulan Bator, London and Hong Kong. Mongolia seems to be looking to put its eggs in a number of baskets.
The first proposals for the development rights to Tavan Tolgoi, submitted by consortiums from China, Russia, and the United States, were rejected by Mongolia's National Security Council.
Thailand's biggest coal producer, Banpu, hasn't been deterred by the challenges of working in Mongolia. It recently committed to buying all remaining shares of Hunnu Coal, of which it currently owns 12%. In order for Banpu to gain full control of Hunnu, the bid must be approved by Mongolia's regulatory council. Hunnu has 11 coking and thermal coal projects in Mongolia, which will be fully controlled by Banpu if the acquisition is approved.
How to split the spoils of Mongolia's extractive industries is a sore point between foreign firms and the Mongolian administration, and there are signs that the Mongolian government might be getting more selective about what terms it is willing to accept. A group of 20 members of Mongolia's parliament are petitioning for changes to an agreement with Australian firm Rio Tinto over the Oyu Tolgoi mine. The members of parliament hope to get the Mongolian government a larger share of the revenue from Oyu Tolgoi.
The toughening government stance is believed to be inspired by displeasure among the public who see their country's resources being carted off without tangible improvements to their quality of life.
Relations between the government and foreign investors could worsen significantly if a ban on mining in Mongolia's river and forest areas, which is set to expire at the end of 2011, is extended in October when the Mongolian parliament convenes for its autumn session. The ban went into effect in 2009 and interrupted the workings of firms whose licenses were suspended. Intended to protect forests, rivers and lakes from harmful mining projects, the deal has been roundly criticized by investors who called it unfair and claimed it cast unhelpful doubt on their ability to do business in the country.
The Mongolian government appears to be making an earnest effort to help citizens who aren't directly benefiting from the current influx of revenue. Resource-rich countries have always grappled with the question of how to build a broadly successful society from a source of wealth that doesn't employ many people and is controlled by a small group. In Mongolia, the extent of inequality and challenges of distribution are severe.
In an attempt to boost domestic, non-mining businesses the Mongolian government has raised 108 billion tughrik (US$85.5 million) in bonds as part of a 300 billion tughrik bond issue. The bond sale began on August 9. The bonds are being sold on the Mongolian Stock Exchange.
The 300 billion tughrik will be distributed as assistance to small and medium-sized enterprises, producers of wool and cashmere products, and herders who provide unrefined camel and sheep wool to domestic factories.
In July, government revenues were $199.8 million more than had been projected. While the coffers are swelling, many Mongolians are living in poverty. Mongolian officials have allotted a portion of the country's new riches to programs intended to address poverty and unemployment. Many of Mongolia's poor live off government benefits and are driven to alcoholism by boredom and purposelessness.
From July's budget surplus, $74.4 million will be used for initiatives to boost employment and health programs. About $2 million will be used to develop small communities in the hinterland and therefore discourage rural to urban migration.
The Mongolian government is sponsoring job fairs in the capital and has declared 2011 the "year of employment". The recent Job Fair 2011 targeted a certain kind of job seeker: well-educated, fluent in English, and recently returned from studying abroad. Few Mongolians fit this description.
Mongolian officials are in the midst of a difficult balancing act. They are trying to maintain good relations with its foreign business community while assisting citizens and protecting the country's environment as they seek to profit from it. With business and government digging in their heels as a series of high-profile agreement are pending and citizens discontent apparently on the rise, it remains to be seen if they can make everyone happy.
Steven Borowiec is a South Korea-based writer.
(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
The Mongolian government is moving forward on a number of projects to turn its minerals into money. None of its endeavors are bigger than the privatization of Erdenes Tavan Tolgoi, the state-owned firm that controls one of the world's largest deposits of coal, which is expected to raise US$300 billion. Tavan Tolgoi's initial public offering has been delayed until at least the first
quarter of 2012 and will likely be made on three different exchanges: Ulan Bator, London and Hong Kong. Mongolia seems to be looking to put its eggs in a number of baskets.
The first proposals for the development rights to Tavan Tolgoi, submitted by consortiums from China, Russia, and the United States, were rejected by Mongolia's National Security Council.
Thailand's biggest coal producer, Banpu, hasn't been deterred by the challenges of working in Mongolia. It recently committed to buying all remaining shares of Hunnu Coal, of which it currently owns 12%. In order for Banpu to gain full control of Hunnu, the bid must be approved by Mongolia's regulatory council. Hunnu has 11 coking and thermal coal projects in Mongolia, which will be fully controlled by Banpu if the acquisition is approved.
How to split the spoils of Mongolia's extractive industries is a sore point between foreign firms and the Mongolian administration, and there are signs that the Mongolian government might be getting more selective about what terms it is willing to accept. A group of 20 members of Mongolia's parliament are petitioning for changes to an agreement with Australian firm Rio Tinto over the Oyu Tolgoi mine. The members of parliament hope to get the Mongolian government a larger share of the revenue from Oyu Tolgoi.
The toughening government stance is believed to be inspired by displeasure among the public who see their country's resources being carted off without tangible improvements to their quality of life.
Relations between the government and foreign investors could worsen significantly if a ban on mining in Mongolia's river and forest areas, which is set to expire at the end of 2011, is extended in October when the Mongolian parliament convenes for its autumn session. The ban went into effect in 2009 and interrupted the workings of firms whose licenses were suspended. Intended to protect forests, rivers and lakes from harmful mining projects, the deal has been roundly criticized by investors who called it unfair and claimed it cast unhelpful doubt on their ability to do business in the country.
The Mongolian government appears to be making an earnest effort to help citizens who aren't directly benefiting from the current influx of revenue. Resource-rich countries have always grappled with the question of how to build a broadly successful society from a source of wealth that doesn't employ many people and is controlled by a small group. In Mongolia, the extent of inequality and challenges of distribution are severe.
In an attempt to boost domestic, non-mining businesses the Mongolian government has raised 108 billion tughrik (US$85.5 million) in bonds as part of a 300 billion tughrik bond issue. The bond sale began on August 9. The bonds are being sold on the Mongolian Stock Exchange.
The 300 billion tughrik will be distributed as assistance to small and medium-sized enterprises, producers of wool and cashmere products, and herders who provide unrefined camel and sheep wool to domestic factories.
In July, government revenues were $199.8 million more than had been projected. While the coffers are swelling, many Mongolians are living in poverty. Mongolian officials have allotted a portion of the country's new riches to programs intended to address poverty and unemployment. Many of Mongolia's poor live off government benefits and are driven to alcoholism by boredom and purposelessness.
From July's budget surplus, $74.4 million will be used for initiatives to boost employment and health programs. About $2 million will be used to develop small communities in the hinterland and therefore discourage rural to urban migration.
The Mongolian government is sponsoring job fairs in the capital and has declared 2011 the "year of employment". The recent Job Fair 2011 targeted a certain kind of job seeker: well-educated, fluent in English, and recently returned from studying abroad. Few Mongolians fit this description.
Mongolian officials are in the midst of a difficult balancing act. They are trying to maintain good relations with its foreign business community while assisting citizens and protecting the country's environment as they seek to profit from it. With business and government digging in their heels as a series of high-profile agreement are pending and citizens discontent apparently on the rise, it remains to be seen if they can make everyone happy.
Steven Borowiec is a South Korea-based writer.
(Copyright 2011 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Comments
Post a Comment