Crossroads Asia

Mongolia’s Mega Coal Mine Deal Likely to Stall, Again

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Crossroads Asia

Mongolia’s Mega Coal Mine Deal Likely to Stall, Again

Lead negotiator on the $4 billion Tavan Tolgoi deal says the chance of parliamentary approval is less than 10 percent.

Mongolia’s Mega Coal Mine Deal Likely to Stall, Again
Credit: coal plant construction site via

The Tavan Tolgoi coal mine in southern Mongolia is one of the world’s largest undeveloped coal deposits–estimated to contain reserves in excess of 6 billion tonnes of high-quality coking coal used for steelmaking. In a 2012 article remarking on Mongolia’s high economic aspirations The Economist quipped, “To pay for these dreams, Mongolia is being dug up and sold to China.” But in the case of Tavan Tolgoi, the digging has stalled, again.

In early September, Reuters reported that Mendsaikhan Enkhsaikhan, one of Mongolia’s lead negotiators on the $4 billion deal with a consortium to develop the mine, said that the likelihood of Mongolia’s parliament approving the deal had fallen dramatically.

“When we submitted the proposed agreement for the Tavan Tolgoi coal mine project, I said there was a 50-50 chance for approval,” said Enkhsaikhan, the minister in charge of Mongolia’s so-called “mega projects”.

“At this moment, it’s less than 10 percent that it will be approved by parliament and will be implemented,” he said.

In addition, China’s economic tumult throws the mine’s near-future into question. Coal accounts for over 35 percent of Mongolia’s exports and China is the destination of 89 percent of all Mongolian exports. Trouble in Beijing’s economy ripples in Ulaanbaatar.

In April, Mongolia’s parliament stepped into the final stages of a $4 billion deal between the government and a consortium of companies–the Mongolian Mining Corp, China’s Shenhua Energy and Japan’s Sumitomo Corp. Reuters reported that the speaker of parliament, Zandaakhuu Enkhbold, said the deal might violate Mongolian laws. Shortly after, the government agreed that the deal would need to be approved by the legislature.

In July, the Mongolian Prime Minister, Saikhanbileg Chimed, was bullish about the mine. The Financial Times quoted him as saying that it “will be unlocked in the very near future.” But his optimism was ill-placed, it seems.

Saikhanbileg assumed the office of prime minister in November 2014, with a mandate to “put Mongolia’s economic house in order,” as FT put it. The slide in foreign investment in the country is stark; in 2012 foreign direct investment stood at $4.4 billion but by 2014 it had fallen to $850 million. In addition, revenues from coal have fallen. AKIpress reports that in the first half of 2015, Mongolia earned $353.9 million from coal exports, a 30 percent decrease from the same period in 2014. The volume of coal exported also fell 22 percent. AKIpress notes that the reasons for the decline were the Chinese economy as well as new regulations in Mongolia making it “compulsory to carry coal by heavy transport road.”

This is not the first time Tavan Tolgoi has faced significant hurdles. In 2011, two months after the government awarded the rights to develop the site to US giant Peabody Energy, China’s Shenhua and a Russian-Mongolian consortium, Mongolia’s National Security Council rejected the deal. At the time, the Wall Street Journal pointed to the impending parliamentary elections (June 2012) as contributing to “increasing resource nationalism” which the government would need to handle, in addition to “the need to satisfy neighboring Russia and China’s demands and pressure from countries and companies that were excluded in early rounds of bidding” in settling a final deal on Tavan Tolgoi.

Next summer, Mongolia will hold parliamentary elections again and resource extraction has continued to be a critical topic for the country. While foreign investment and significant infrastructure development is needed for the Mongolian state to take advantage of the country’s resource wealth, such massive mining operations come with significant environmental and political risks.

“Getting deals such as the Tavan Tolgoi deal – the country’s largest – will be harder in the lead-up to the July 2016 election,” bne IntelliNews writes. “Mining deals with investors are often unpopular with voters, who believe mineral deposits are a form of public wealth which should be shared among citizens.”