The Mongolian Mining Journal /Apr.2020/
By G. Iderkhangai
The first parliamentary election after the amended constitution comes into force on May 25 has been scheduled to be held on June 24, but there are some who want it to be deferred until the Coronavirus threat recedes. All contesting parties will campaign on the basis of their action plan which have first to be cleared by The National Audit Office. During its check this office found that all three major parties, and several of the others in the fray, had gone overboard in making promises. It promptly rejected their plans and asked the parties to submit by 25 April revised action plans that kept within the parameters of the law.
Action plans were submitted by 27 of the 35 registered parties. Among them were the big three -- the MPP, the DP, and the MPRP. All three were found to have made promises – or, speaking simply, offered enticements – in areas and of a nature that are clearly forbidden by law. The MPP is contesting the election on its own but the MPRP and the DP are in coalition with smaller parties. These also found their plans rejected. The minor parties who are going alone, aware that the voter knows their capacity, did not breach the law and their action plans were approved as they were.
Arguably the most blatant example of “promising the moon” was something all three major parties had aimed at “every person who pays social insurance premiums”. The MPP promised them a free apartment, the DP promised a minimum income of MNT3 million, while the MPRP (or You and Us, the coalition it leads) topped it up to MNT5 million. What was left unsaid was that these promises can be delivered only with taxpayers’ money. One could not but recall what the President had said before Parliament began its present spring session, “It has become the practice for parties to seek voters’ support by making promises without a care for if they can ever be met. This is an insult to citizens. At a time of impending crisis, political parties and politicians of Mongolia are competing with one another in offering large financial benefits which is in violation of the law.”
One day later, the offending parties were asked to submit by 25 April their revised plans. This they duly did, and these have now passed muster. However, the parties cannot release them before 2 June, when the campaign period formally begins. The media have not been told what in the plans were found unacceptable and what changes were made.
These action plans are mostly based on mining, merely corroborating that parties see it as a source of revenue which they would like to distribute in ways that would serve their own interests. This time, the promises were aimed at the voters’ primary need of a regular income, in most cases as salary and wages. It is remarkable how, in tryint to woo voters, political groupings that hope to govern the country chose to overlook such clear injunctions in the Election Law on the contents of manifestos such as the following two prohibitory provisions: “to grant money, property or any rights related to owning property” and “to create funds, and to offer shares and other similar things from the incomes made from mining oil and mineral resources, and from other sectors, as well as from the local and state budgets.” If a party breaks the law when trying to get power, what will it not do when it is in power?
A quick overview of the major parties’ action plans follows. Many promises in them should not be in the revised final plans, but it was not possible at the time of writing this what had been found to be against the law.
Vision 2050, a long-term development policy paper claimed to have been prepared with inputs received over a year from 1,500 scholars, served as the base of the MPP Action Plan. The only problem was that Vision 2050 itself might have no place in law. Article 6.2 of the Law on Development Policy and Planning, which has been in force since January 1, 2016, is clear that it is the Development Concept of Mongolia which is the only development policy paper to be implemented over a period of 15-20 years.
The MPP explains away the anomaly by insisting that it finds the law unsatisfactory and in need of revision, but this possibly cut no ice with the auditing team. It is interesting that the present government is reported to have discussed the Action Plan 2020-2024, which is technically a job for its successor, to be formed by the Prime Minister only after the amended Constitution comes into force, giving him the freedom to have a government which would not need Parliament’s approval.
As the present government nears the end of its term, it is fair to ask how much of the MPP Action Plan 2016 has been implemented. L.Oyun-Erdene, Head of the Cabinet Secretariat, says that 85.3 percent of the goals set out have been met. One cannot be so sure. For example, no new extraction unit has been developed in the mining sector. Again, the Action Plan was categorical that “Thermal Power Station #5 and Tavantolgoi, Baganuur, Booroljuut, Tevshiin Gobi thermal power stations as well as the railway of Ukhaa Khudag-Gashuunsukhait and Nariinsukhait-Shiveehuren routes will be built and commissioned into operation”, but there is no news of Thermal Power Station #5, or any clear indication when the Baganuur power station project will be launched. Something was heard about building the Tavantolgoi power plant every year and now at long last, the government says it will build it and commission it into operation in 2024, which is somewhat later than 2016 and we shall see and say it is done only when it supplies power.
The Tavantolgoi-Gashuunsukhait railway has been the subject of dispute and controversy for ten years and not a kilometer of track has been laid. On the other hand, construction of the 414.6-km Tavantolgoi-Sainshand-Zuunbayan railway has started, even though it was not part of the MPP Action Plan 2016. This is because it is the President’s pet project and the Prime Minister has fallen in line with his wishes. The construction and development of an oil refinery was included in the MPP Action Plan. It is likely to begin production in 2023, but if the MPP fails to hold on to power the DP would surely use the ribbon-cutting ceremony to claim credit. That would also be fair, as it was a DP Government which had done the spadework.
The credit for making serious preparations for the Tavantolgoi IPO goes – and not unjustly – to the MPP, though it was Su. Batbold who promoted the idea when he was Prime Minister. The DP itself does not remind people of this as its internal factions do not agree on putting the spotlight on Batbold. D. Sumiyabazar, Ministry of Mining and Heavy Industry, must be disappointed that all his hard work did not lead to the IPO, and we have to wait for the election results to know under whose watch the IPO would be a reality or, as is not impossible, it would be scrapped.
The last two years of the MPP government have been marked by several instances of the government taking over ownership of mineral resources deposits where exploration had been carried out with funds from the state budget. There has been a one-year moratorium on grant of new licences. As a result, investment has been reduced. In general, even though the MPP Action Plan had put a big emphasis on intensifying geological exploration, there has been little sign of this on the ground. The National Geological Service has just been established but it is too early to say what and how much good it will do.
The subsection on continuation of implementation of mega projects of strategic deposits included in the MPP Action Plan 2016-2020 had one project ready -- Gatsuurt. This was expected to be something of a showpiece and was also expected to be a major means of bringing Mongolia out from its economic difficulties. However, the investors left Mongolia as they had got tired of political instability, social protests, court disputes etc. This was a big blow to the MPP’s plans. Much was then made of stringent enforcement of the Law on Mine Closure which was expected to bring a brand new attitude to the sector, and it is not clear why after some initial noise the matter was given a quiet burial.
The Resolution on Ensuring Mongolia’s Interest in Mining Oyu Тolgoi Deposit and improving the agreements on it to get more benefit for Mongolia saved the project from being stopped. A feasibility study on a copper smelter in Khanbogd soum was made, but there has been no progress on the project as issues relating to water reserves and supply have not been resolved.
The MPP Action Plan promised to create a legal environment to ensure equal distribution of the revenue from the mining sector for “the present and future generations”. The draft of the Law on the National Wealth Fund, putting it under state-owned Erdenes Mongol, is being prepared for submission to the Parliament, but everything about it is kept very hush-hush. Both the DP and the MPP promised to put real value on the 1072 Tavantolgoi shares by distributing dividends on them. This could have been done in in 2017 and 2018, both years when Erdenes Tavan Тolgoi made a handsome profit, but the money was diverted to other use.
Altogether, the MPP’s promise of a policy to create an environment to increase foreign investment and reducing government involvement in the mining sector has not been fulfilled. If anything, its policies and actions have worked against both goals.
Many believe that the reason behind the DP’s bad loss in the 2014 election was the secret and suspicious way in which it arranged a deal to buy 49 percent of Erdenet enterprise from a Russian company without any discussion in Parliament. Even though it was out of power, the party’s mining-oriented Action Plan (2016) attracted considerable public attention. It aimed at developing the mining sector in a way that linked it with industries and also favoured stronger state control.
Now, four years later, the party’s approach as it faces another election is that Mongolia’s development policy and the main social and economic reforms have to come from five directions. It promises to make the minimum salary MNT3 million. Its apparent contest with the MPRP on how much monetary benefit (=enticement?) to offer reminds one of the campaign before the 2008 election when cash from established funds was being thrown around. Such allotment, according to the DP, is one of the ways in which wealth from natural resources can be distributed equally among citizens.
The promise to raise minimum wages to MNT3 million is a clear breach of the law specifying what can be included in an election manifesto, as it is fundamentally a promise to distribute cash to voters. The money will come from the profits made from the Tavantolgoi deposit. “All Mongolians should have a minimum salary of $1000. We can create 150,000 workplaces providing that salary by 2030,” noted Mr. Z. Enkhbold. The DP estimates that Mongolia could well earn $30 billion per year from export of raw materials if it sells them after processing. This will not come in four year, so the plan takes a 10-year view to achieve this goal.
Both postulates in an election action plan clearly infringe the Election Law. There, Article 34.4 reads, “In case that measures requiring a clear financial source are included in the Action Plans of the parties and coalitions, the sum of expenditure required for implementing them shall meet the budget special requirements set in the Law on Budget Sustainabilty”, while Article 34.5 states, “The parties and coalitions will have conclusions made for their Action Plans by the state auditing organization whether they meet requirements set in Develoment Concept of Mongolia and the Law on Budget Sustainabilty.”
The MPRP or the coalition called You and Us:
The MPRP did not make any reference to mining sector development and policy in its present Action Plan, but in its Action Plan 2016, it said that the natural wealth of the country is the basis of the happy life of its people. The party will be contesting the coming election as part of a coalition with the Civil Will-Green Party and the Mongolian Traditional Party. The coalition’s Action Plan includes replacing the erroneous policies governments have been following over the last 30 years, equal distribution of wealth and supporting local community development.
It will also formulate policy papers on programmes such as A Mongol With no Debt which will free every citizen from the pressure of debt repayment, National Housing Program which will provide each household with an apartment, and a law to make the Government more responsible.
Work on the plan has taken three years. One promise in it that clearly breaches the Election Law is that of making the minimum wage MNT5 million within the next four years. Apart from that, it is all very good to say paying MNT5 million as minimum wage is no problem if factories come up, the monetary policy is changed, and low-interest loans are accessible to the private sector, but are these possible on the ground?
The New Coalition:
The New Coalition comprises The United Coalition of Fair Citizens, the Republican Party, the True and Right Party and the Mongolian National Democratic Party. It wants to bring about a wealth revolution by “settling accounts” with the “30 families who have become rich from the mining sector”. Their assets should be taken over and used to repay the $30 billion the country owes on several accounts. After that, any remaining assets, including strategic deposits, would be brought under the ownership of citizens.
The Anti-Corruption Agency has recently certified that several people popularly identified as part of the “30 families” actually have no links with them. But the bogey of “30 families” plays well on people’s sentiments about being unfairly deprived of their dues and it is clear this coalition wants to use it to the most effect, even though it is not so forthcoming about the exact manner in which it would go about its goals.
The action plan also calls for an end to the total control by certain families of the banking and financial sectors and free citizens from paying loan interests. It is interesting that its action plan was passed and allowed to be submitted to the General Election Committee.
MINING IN CRISIS
Several proposals in the action plans would sound attractive at a time when the mining sector was doing well. Unfortunately, the COVID-19 pandemic has punched it hard. The state budget estimated that export of coal would be 42 million tonnes, the same as last year, but it would be lucky if this year’s final figures reached even 25 million tonnes. Our options are limited as we basically have just one market, China, and just three export products -- copper, coking coal and cashmere. The hard truth is that Mongolia has no capacity to influence the world market, and is actually at its mercy.
With the mining sector reeling and export revenues likely to take a big hit, the state budget of 2020 might well have to be overhauled. The estimated deficit was MNT2 trillion, mostly because of expenditure on construction of buildings and facilities, but the missing export revenue could take it up to MNT4 trillion. In such a situation, how can any government give a helping hand to the mining sector?
Another concern is our notorious capacity to abandon a policy midway, not because it has been found ineffective but solely because those who forged it have lost power. In 2007, we adopted the Comprehensive National Development Policy under the guidance of N. Enkhbayar, then President. After his departure from office, the policy just faded away. The MPP has invested much in Vision 2050 but will it be carried on if, and when, another party comes to power? At the moment the DP supports it, but if it forms the next government, it is likely to impose a new vision on the country.
In the foreseeable future, mining will continue to play an overwhelmingly dominant role in the economy. It is also the sector which gets the most investment. And it is now in distress. How can it carry the economy on its shoulders if it cannot stand straight? Observers have warned that there will be no significant economic growth until production starts at the Oyu Тolgoi underground mine and the oil refinery is commissioned in 2023-2024.
The new government, no matter who wins the election, will have its work cut out to put the economy back on track. This cannot be done without a healthy banking system. Some would prefer the Bank of Mongolia to reduce its policy interest rate, maybe in phases, but finally lowering it to, say, 5 percent. Will this work? We have seen once before how this allows commercial banks to give bigger loans and to have more borrowers. Not all the loans are used productively and soon the banks are saddled with non-performing assets. According to the Bank of Mongolia, most of these NPAs in 2019 were in the mining sector. Advancing money when economic activity is absent will never be productive, and the banking system will suffer. That is why some other observers want the Bank of Mongolia to wait for a few months before reducing rates. By that time the small and medium businesses will be more ready to put the loans to good use. That would help the economy recover more quickly.
Bank loans are not a tool to save economic entities from disaster. That is a job for the government, particularly in a special situation like now. All parties hoping to form the government after the election must have an action plan with realistic economic policies. Between 2021 and 2024, Mongolia will have to repay $2.9 billion of foreign debts. This year was expected to be quiet but the Coronovirus has put paid to that. Now there could be more debts and increased budget deficits, neither good for the economy. Faced with such uncertain future, it is surprising that the parties have not put their ideas on how to revive the economy in their ambitious action plans.