Earlier this month six Mongolian members of parliament (MPs) and three parliamentary staff members toured western Canada to learn about Canada’s experience managing its mineral and oil booms and busts. During the visit, the MPs met with tax and public finance officials from British Columbia and Alberta, provincial and federal legislators, leaders of Canada’s First Nations (indigenous communities), and representatives from industry who work with mining-affected communities.
The British Columbia mining booms of the 19th and 20th century and the current boom in the Alberta oil sands in many ways mirror what Mongolia is going through now. With trillions of dollars of unexploited mineral and oil resources, Mongolia has been dubbed the “Saudi Arabia of Central Asia.” Yet the challenges of transforming these underground assets into development cannot be overstated.
Falling commodity prices, conflicts with local communities, and systematic cost overruns have squeezed mining investment globally, which could jeopardize Mongolia’s planned sector expansion. Unclear conflict resolution mechanisms and imprecise mining laws have led to disputes between companies and the government. And there have been concerns that mineral revenues placed in a “human development fund” were consumed rather than invested for the future.
Still, the economy is expected to grow by 9.5 percent in 2014. Mongolian parliamentarians are working hard to establish a legal framework that leverages this growth and ensures that mining revenues are maximized and used for national development.
Former minister of education and current sitting MP for the opposition Mongolian People’s Party (MPP), Mr. Yondon Otgonbayar sat down with NRGI economic analyst Andrew Bauer to discuss the situation in Mongolia and the Canadian study visit.
Dorjdari Namkhaijantsan (center) looks on. (photo by Andrew Bauer)
NRGI: Mongolia is going through a major mineral boom at the moment. What are the biggest opportunities and challenges that Mongolia faces in managing this boom?
Yondon Otgonbayar:This mining revenue presents Mongolians with a great opportunity, which, if we are able to turn this into a base for development, would create a brighter future for the country. The challenge is quite big, because right now the economy is becoming very resource-dependent. The volatility of mining revenues is currently affecting the national economy. Also, we have to learn how to avoid Dutch disease and dependency on revenues from mineral resources.
What must parliament do to address these challenges?
We have to enact a series of laws regulating the mining industry. On the one hand there are laws in place at the moment. The problem is that the Mongolian parliament keeps changing these regulations pretty often, which creates a lot of problems for foreign investors. Parliament probably has to learn to be strict on [enforcing the current rules]. Because of this mining boom, nationalism is on the rise. Sometimes it generates wrong policies, rather than long-term and sustainable policies.
How can civil society work with government and parliament?
We have to admit that Mongolia is not going through a unique experience. Many nations have been in similar situations and made their own mistakes. They have learned their own lessons. So international institutions like NRGI could help Mongolia with knowledge about good practices and mistakes so that we can learn from these experiences. Many people, especially resource nationalists in Mongolia, do not believe in investors. They believe they have come to take out our resources. Sometimes they question the intensions of foreign governments, believing that they are basically looking after only the interests of their own investors. International institutions, like NRGI, which are not dependent on extractive industry funding, are important because they can bring impartial and sound advice.
We’re here in Western Canada. We’ve been in British Columbia, and now we’re in Alberta. One is mining-dependent. One is oil-dependent. What have you learned personally from this study visit for Mongolia?
Quite a few things. Of course, Canada is a very different country than Mongolia. It is a federal country. In Canada they also have [special treatment of] First Nations, whereas in Mongolia you don’t have indigenous groups. Most enriching for me were three basic ideas. First of all, I was quite interested in the management of the Alberta Heritage Fund. In my opinion, it presents a model that we could apply in Mongolia. Soon we’ll discuss a natural resource fund law. This experience is therefore quite useful to us.
Secondly, you might have noticed that I was trying to emphasize in one of our last meetings that we should learn a lesson from Canada that government cannot run companies, especially in the mining sector. Unfortunately we do have that practice in Mongolia, and so far it was not successful, or at least was not a good experience for Mongolia.
Thirdly, although Mongolian law introduces quite a number of clauses regarding the interests of the local population, in Canada we saw that it was embodied in agreements defining the responsibilities and benefits of local populations located near mines. I believe that in future Mongolian legislation, we have to see to it that locals have their own rights clearly defined under the law, and companies would also respect the rights of locals for their own development in mining.
This is the first of two interviews conducted during the September study tour. In the second, the Hon. S. Odontuya speaks with NRGI's Dorjdari Namkhaijantsan about the lessons she learned in Canada and about the governance challenges that remain in Mongolia.