Mongolia works to avoid curse resource wealth

Government looking to Norway, Canada, Chile for development model

No one missed the symbolism when earlier this month the Mongolian government announced which companies are getting the rights to develop the western block of the world's largest known coal reserve, Tavan Tolgoi, in the Gobi Desert.

The Chinese company Shenhua Energy won the right to develop 40 per cent of the block, a Russian consortium got 36 per cent and America's Peabody Energy won 24 per cent.

Those proportions represent a reasonably accurate picture of how the government in Ulan Bator manages its relationships by both courting and holding at arms-length its two overpowering neighbours, Russia and China, with the help of a longrange economic and military alliance with the United States.

But 21 years after Mongolia escaped from the collapsing Soviet Union and achieved renewed independence, the state-owned Tavan Tolgoi deposit, believed to contain 6.5 billion metric tons of metallurgical coal, has even greater significance.

Early next year, Erdenes MGL, the state company in charge of developing the remainder of Tavan Tolgoi, will float 29 per cent of the company in international exchanges. The public offering is expected to raise more than $10 billion.

Already, however, 10 per cent of those shares have been distributed to every one of Mongolia's 2.7 million citizens.

As the government of Prime Minister Sukhbaatar Batbold wrestles with the challenges of developing one of the world's last known great deposits of mineral wealth, he also must confront the monumental social and cultural pressures involved.

It's a matter of how a culture and an economy based on the produce and virtues of the life of semi-nomadic herders on Mongolia's vast plains of open steppe can adapt to take advantage of its mineral deposits, estimated at current values to be worth at least $1 trillion.

These are not easy matters and successive Mongolian governments have struggled to evolve a workable policy toward mineral development while establishing a vigorous democracy, even as a tumultuous rush to grab stakes to the country's mineral resources is underway.

Those governments have been well aware that for underdeveloped countries - 30 per cent of Mongolians still live in poverty - sudden wealth from natural resources can be more a curse than a benefit.

The prime minister has said repeatedly that Norway, Canada and Chile are the examples of resource-based economies he wants Mongolia to follow.

Hence the issuing of Tavan Tolgoi shares to Mongolians rather than the failed voucher system in a round of privatizations of stateowned companies when the government adopted free-market reforms after the collapse of the Soviet Union.

But Mongolia is also borrowing from Chile's experience and establishing a fiscal stabilization fund, which will set aside money for long-term development and tide the country through the inevitable roller-coaster ride in commodity values.

There is also a new Mongolian Development Bank, which will gather mineral revenues to provide loans for infrastructure projects. A Human Development Fund will use mine revenues to finance education, housing, health care and other social development programs.

Not everyone is delighted with the direction Mongolia is taking, even if it does offer a more prosperous future.

There is a loud and sometimes violent anti-mine movement led by an iconic nomadic herder, Tsetsegee Munkhbayer, who heads a group called Fire Nation.

Munkhbayer is in prison after he and followers shot at equipment at a mine in the southern province of Ovorkhangai.

This is not the first time Munkhbayer and his group have used dramatic acts to draw attention to what they say is irresponsible mining operations that they claim are destroying grass land and polluting rivers.

In September, the group riddled a bulldozer with bullet holes at the Boroo gold mine in Selenge province, which is owned by the Toronto-based Canadian company Centerra Gold Inc. And in April, Fire Nation activists charged on horseback into Ulan Bator's central Sukhbaatar Square demanding the government impose stricter environmental controls on mining operations.

Munkhbayer began his campaign by leading demands that the Ongi River, one of the country's largest, be cleaned up. The river had run almost dry because of unchecked mining activities.

Munkhbayer was successful in getting the government to shut down 35 of the 37 mines in the area. As a result, he was awarded in the U.S. in 2007 the Goldman Environmental Prize, which is given to grassroots conservation activists.


Source: The Vancouver Sun







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