Battered in Bator

By bne IntelliNews July 7, 2008

Jamul Jadamba in New York -

The violent protests that followed Mongolia's parliamentary elections are not only a sign of people's discontent at the problems that typically plague elections there, but are also a reflection of how much was at stake in these elections. The economy grew 13% last year and with greater exploitation of the country's vast mineral wealth, the next four years is likely to see continued double-digit growth.

The trouble started when two days after the polls closed on June 29, leaders of opposition parties began protesting that the elections, preliminary results for which showed the ex-communist Mongolian People's Revolutionary Party (MPRP) had won an outright majority, were rigged. Crowds gathered outside the MPRP headquarters, which were set ablaze. The fire spread to the national gallery and Cultural Palace. Five people died and dozens suffered injuries. The protests prompted several sessions of the National Security Council and President Nambaryn Enkhbayar declared a four-day state of emergency, which ended midnight on July 5.

There were indeed problems with these elections, preliminary results for which showed that up to 45 out of 76 parliamentary seats went to the MPRP. There were some irregularities in voter registrations and the election commission failed to disclose the list of registered voters within the time prescribed by the Law on Parliamentary Elections. There were also concerns regarding full disclosure in media advertisements and MPRP-bias of the national broadcasting network.

Despite these issues, though, international observers declared that the elections overall were free and fair. In view of the endorsement of the election by international observers and significant disapproval of the population to the violence, the results of the election are likely to be ultimately accepted.

The MPRP party head and acting-Prime Minister Sanj Bayar has his work cut out. His programme of tuguldurshil - Mongolian for "innovation" - has received much support. In December, in his first parliamentary speech as acting-PM, Bayar outlined his programme of innovation that targets the electoral process, exploitation of natural resources and distribution of generated revenues as well as efficiency in government. Despite failing to make headway in reforming the electoral process, Bayar is widely regarded as having accomplished more in his six months of tenure than his predecessors did in over three years. The stance of the MPRP leadership on mining expressly acknowledges that the time is ripe for Mongolia to put its assets into production and that the country needs the help of international mining companies and financial experts in order to do so.

Mining discontent

The country's resource sector boasts world-class deposits of copper, coal, uranium and other minerals. Oyu Tolgoi, which is owned by Rio Tinto and Ivanhoe mines, is currently the largest undeveloped copper and gold deposit in the world with mineral resources of 32m tonnes of copper and 31m ounces of gold. Tavan Tolgoi, a 7bn-tonne coking and high grade thermal coal deposit, was recently transferred into state hands with private entities holding a minority share. Late in its campaign, the MPRP started issuing vouchers that promised to entitle holders to receive $1,300 in a special dividend from "Bequest of Motherland" fund. According to this scheme, a sovereign wealth fund would pay regular dividends to citizens from mining revenues. The opposition Democratic Party has proposed issuing shares of a public company that would take on the state share of strategic mineral assets, as prescribed by the Law on Minerals. According to the Democratic Party, these shares would be worth about $860. However, the offering of vouchers and shares are a typical election ploy in the country and might never see the light of day.

The previous government of Bayar also tried to push through amendments to the Law on Minerals in May, but election politics got in the way. Now, however, the MPRP's majority in the parliament will all but ensure that the country will ratify its new mining laws in the coming months. The legal amendments should provide clarity to investors' key concerns. Namely, the new law should provide a more precise definition of what constitutes a "strategic deposit" - a mineral asset that has requirements for a level of Mongolian ownership. The amendments should also set the range of required Mongolian ownership of mining projects, depending on whether the asset was discovered with private or state funds. The most widely discussed draft law suggested a minimum of 51% Mongolian ownership for deposits discovered by the state and 34% for privately explored projects. The new legislature should also clarify whether Mongolian ownership will be defined solely by state ownership or joint ownership by state and Mongolian private companies and provide clarity on the definition of state ownership itself. In addition, the law should also set royalties, fees and tax regime, including any exceptions to the Windfall Profit Tax and any additional non-monetary obligations of mining companies as well as possible state veto powers.

Although the elections have been marred by violence, the country has likely gained a parliament with an effective majority that can make and implement decisions. The passage of legal amendments would allow for the signing of investment contracts on projects such as Oyu Tolgoi. That project alone, which will require an estimated $2.5bn to develop, should contribute significantly to a country whose annual GDP is only about $4.2bn. With the anticipated production of major mines, Mongolia should start appearing more on investors' radar screens.

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