of a minority stake to international
investors to raise US$ 3 – 5 billion has
been indefinitely shelved, underlining
Mongolia’s loss of credibility in the
international business community.
“Mongolia faced a difficult economic
outlook in late-2012, owing to the
negative shocks to FDI and coal
exports,” said the IMF in its latest
annual assessment, which included a
drastic reduction in its forecasts of the
country’s economic growth.
In its 2012 assessment, the IMF had
forecast the Mongolian economy to
grow by 12.3% in 2014, 14.5% in 2015
and 14.1% in 2016, based on projections
for sustained high coal prices, rising
exports to China, sound government
policies and political stability. With
these assumptions dissipated, the IMF’s
latest forecast slashed those rates to
9.5%, 8.8% and 7.4% over the next three
years. While these growth rates remain
high by world standards, they are
based largely on government spending
and borrowings: not FDI or export
expansions. This potentially sets up the
economy for further declines down the
road.
The World Bank joined in the
criticism by highlighting the role of
government spending in creating high
inflation and balance of payment
problems for the Mongolian economy.
“High inflation will continue to raise
the costs of living and production,
which will further dampen economic
activities. The deteriorating labour
market situation will also likely further
erode the living standards, especially
for the poor,” the bank said in warning
that Mongolia’s social welfare system
will not help vulnerable families during
the harsh economic adjustment.
The long road to recovery?
To be sure, Mongolia’s condition is far
from fatal, as the IMF, World Bank and
the Asian Development Bank are
supportive of the government’s actions
to reverse the country’s slide. Months
after SEFIL’s passage, the government
began a series of moves to restore ties
with China and try rebuild investor
confidence.
In late 2012, the Mongolian
parliament approved SEFIL’s full repeal
and the enactment of a new investment
law, which received support from both
the governing and opposition parties.
In August 2013, President Elbegdorj
issued a surprise pardon for Enkhbayar,
sparing his bitter rival from fully
serving his jail sentence. This decision
was aimed at healing the country’s
divisive politics, although it could yet
backfire as Enkhbayar and his
supporters are likely to seek revenge.
Over the past 18 months, the
government has initiated high-level
and business meetings between senior
Mongolian and Chinese officials.
Last October, prime minister,
Norovyn Altankhuyag, met with
Chinese officials in Beijing to reduce
friction, culminating in the signing of
an agreement to supply 1 billion t of
coal to Shenhua over a 20 year period.
In May 2014, President Elbegdorj
and his Chinese counterpart, Xi Jinping,
met at a forum in Shanghai to improve
economic and trade ties by focusing on
mining, infrastructure building and
financial co-operation.
Two months later, the government
amended a 2006 law to open up more
land for mining and exploration
activities, lift a ban on new mining
licences and extend exploration periods
from 9 to 12 years. The amendment also
provides for the creation of a council to
oversee future policy changes to cover
the interest of foreign investors.
The government has set a new target
of attracting US$ 1 billion in new
investment to explore the country’s
coal, oil and shale gas reserves.
The final version of the new law has
yet to be published, but investors are
not waiting with bated breath. Rather,
they are watching the government’s
next move to resolve several lawsuits
and bitter disputes with foreign
companies that have led to the
detention of senior executives and the
trial of government officials on a
number of criminal charges. While
accusing some foreign companies of
abetting corruption, fraud, evading
taxes and breaking contract agreements,
the government has also revoked more
than 100 mining licences.
With little indication as to when and
how these disputes will be settled,
investors are not expected to quickly
return to the land where
Ghenghis Khan once ruled and terrified
the outside world.
Still at the drawing board
Months after agreeing to form a joint
venture firm, a group of Mongolian
companies and China’s
Shenhua Energy are still working out
the details for cross-border rail links to
serve their countries’ once-booming
bilateral coal trade.
In April, China’s leading coal miner
formed a joint venture with ETT, as
well as other Mongolian firms, to build
short rail links inside the country to
deliver coal to the Chinese border.
Existing lines serving Mongolia’s coal
mines do not reach the border,
requiring trucks to complete deliveries
to customers in China.
While Mongolia has long recognised
the need for an upgrade and expansion
of its railway system, its political and
business leaders remain wary of
increasing economic dependence on its
neighbour.
But Mongolia’s own challenges with
internal power struggles and
corruption have complicated
straightforward decisions and plans for
infrastructure projects that have held
back the economy. The lack of progress
in developing the railway network is a
symptom of Ulan Bator’s political
paralysis.
In 2013, the government took a
tentative step by appointing a
14-member consortium led by
South Korean builder, Samsung C&T,
to build a 217 km railway to link the
Ukhaa Khudag mine in the South Gobi
region’s Tavan Tolgoi deposits to
China. The US$ 483 million project is
part of a planned US$ 5.2 billion “New
Railway” progamme to improve
transportation and logistics links across
the country.
Within a year, the Samsung C&T-led
consortium was forced to briefly stop
work over a debt dispute with local
authorities. The Mongolian media cited
a deputy governor as stating that the
South Korean firm owed 1 billion
tugrik for the use of gravel for the
project. (US$ 1 = 1825 togrog or tugrik).
As a result of the work stoppage, the
project is unlikely to be completed
within the 30 month schedule
September 2014
|
World Coal
|
15
