Status of OT Agreement Update

Bloomberg is reporting that Ivanhoe Mines has agreed to meet with the Mongolian government next week to reopen discussions on the OT agreement (see here). This information seems lifted from the Ivanhoe Mines press release here. Neither are very informative, and much of the information I see on news sites in Mongolian either deal with the issue in a hypothetical, out of context sort of way or with mild to impassioned invective being hurled in all directions. There are not a lot of simple facts to be had. Given the limited information available at this point, however, it appears the agreement suffered a serious if not fatal setback last week. However, I am somewhat convinced it may in the end be less of a setback than it appears.

Parliament approved giving the government, led by Prime Minister Bayar, the authority to conclude the OT agreement without further parliamentary input. However, the resolution tacked on a proviso that any agreement has to conform with current laws; i.e., the final agreement cannot have any special exemptions that contravene current laws. This is seen as a shot over the bow of the government and Ivanhoe Mines by those who do not want to see OT contain exemptions from taxes such as the controversial "Windfall Profit Tax." Or, in other words, it was a seemingly successful last ditch effort by opposing factions in parliament to scuttle the deal. That's because the government is now authorized to negotiate and sign an agreement, but parliament took away all of its bargaining chips. Without the ability to tailor the agreement with exemptions, provisos, and amendments on tax and revenue issues, the government goes to the table without the ability to negotiate in a practical way.

That is the pessimistic view, and it probably is a fair assessment of the situation. If one side of a negotiation is anchored to a position, then it ceases to be a negotiation. However, what I am going to be looking for in the coming week is whether this, in fact, is an accurate assessment of the government's bargaining position. The first meeting between the government and Ivanhoe should hopefully shed some light on this. The fact that the government has the authority to sign an agreement means that, even hamstrung by the parliamentary resolution, Prime Minister Bayar finds himself in an unprecedented position of actually being tantalizingly close to concluding a deal. This has to be worth a lot in terms of attracting the investors back to the table, and hence the meeting in the coming week. Moreover, agreements are all about wording, right? So, the thing to look out for is the PM and other ministers discussing details of the agreement with Ivanhoe and Rio Tinto that conform to the spirit of the parliamentary resolution but still give the government the ability to move from its starting position, thereby making what looks like a setback actually the final stage of refreshed negotiations.

A Strong Old Soul

Even though there was some interesting movement (or non-movement from another perspective) on the mining agreement this last week, I unfortunately have no new updates at this point. That's because I was out of the loop for five days of relaxation in the khuduu (countryside).

I returned to Khotont Soum in Arkhangai Aimag where I was a teacher from 2002 to 2004. A lot has changed there since my last visit in the fall. New babies born, gas stations erected, a paved road laid, other improvements here and there. But, I was also sad to learn that my dog Bankhar passed away about 10 days before I arrived. He was an strong old soul, and accounts of age are arguably questionable in the countryside, but he was approximately 18 years old! That is fairly amazing for any type of dog in any type of environment, and that's 18 Mongolian winters outside! True, horses can live that long, and they do it outside, but somehow dogs get a little more credit for doing it because they generally live a more pampered life than livestock.

Bankhar was notoriously vicious to strangers and lovably sweet to those living in the khashaa (fenced in yard). Once in the middle of the night a jeep arrived at our khashaa to call upon the school director for some reason (I lived in a ger next to the director's house), and Bankhar literally jumped up on the hood of the jeep barking and spitting all over the windshield. No one in the vehicle would get out to pound on the gate, so they slowly backed up the jeep until Bankhar jumped off and then drove away. The story was relayed to us the next day by the driver of the jeep, and we all agreed that Bankhar was not to be messed with. At the same time, he was there every morning to greet me and was always ready for a little play. I felt very secure having him around.

My former school director is not one to get taken by sentimentality, but last week he spoke at length about how great a dog Bankhar was. He talked about how impressive it was for him to live so long and how both his strength as a guard dog and kindness as friend made him great. I have to agree. Rest in peace, Bankhar.

Khalkiin Gol

This summer marks the 70th anniversary of the Battle of Khalkin Gol (or Nomonhan from the Japanese perspective) which pitted the Soviet and Mongolian armies against the Japanese army in a pivotal fight on the Mongolian-Manchurian border in present day Dornod Aimag. Although ostensibly a border dispute, the battle turned into a test of strength for both armies. The Soviet Union and Mongolian side won a decisive victory putting any Japanese designs on annexing Mongolia and Siberia permanently to rest for the duration of WWII. Last week an international conference on the battle was held, and later in the summer the Russian president will come for a ceremony at the battle site. More information is available on Wikipedia for those interested in the details: http://en.wikipedia.org/wiki/Battle_of_Khalkhin_Gol.

The town of Nomonhan and Khalkin Gol (Khalkin River) are visible in the satellite image below.

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More Details

Saturday's edition of Өнөөдөр has a few more details about the proposed agreement, some of which I have seen in other papers. Interestingly the article in Өнөөдөр is on page two and emphasizes statements from MPs who are declaring this is a bad deal for Mongolia. So, oddly it does not cast the deal in the best of light, and yet it is also tucked inside the paper. The other details according to Өнөөдөр, though, are:

1. Mongolia will have a 34% equity share in the project, and the government will pay for it through 4 separate tax regimes.
2. The agreement will be for 30 years.
3. The project will be exempt from several taxes such as the value added tax and foreign workers tax for 7 years as construction for the project takes place. (This provision is not clear in the article, and it seems to also indicate an exemption from the Windfall profit tax).
   
4. Rio Tinto and Ivanhoe mines will put down a deposit of $125 million which will be repaid by Mongolia at a concessionary interest rate.
5. Construction must begin in 2 years of signing the agreement or the government can cancel the it.

Reading the different papers it is hard to get a clear definitive explanation of the terms of the deal, so I am not confident that anyone is reporting it accurately. Until the government publishes the draft, it will remain this way.

In other news, four employees in Rio Tinto's Beijing office were arrested this week for "stealing state secrets." This has created tension between the Chinese government and the Australian government which is being pressed by Rio Tinto to address the situation. For those who do not follow international mining news, a few months ago a Chinese mining conglomerate attempted to buy a strategic stake in Rio Tinto which was pursued by Rio Tinto's management but was ultimately defeated by Rio Tinto's shareholders. This made for some bad blood between China and Australia, and the arrest this week of the Rio employees naturally raises suspicion of continuing drama over that failed deal.

There was some speculation that one of the reasons the Oyu Tolgoi deal was floundering in the special and regular spring sessions of parliament was the fact that people here were wary of the fact that Rio Tinto was on the verge of becoming a company partially owned by a Chinese state run corporation. The stock purchase deal falling through may have contributed to a change of heart for some in parliament, as well as the addition of provisions that prohibit Rio Tinto or Ivanhoe Mines from selling their stakes to third-parties without permission from the government. So, corporate intrigue, geo-politics, and domestic politics are all affecting the trajectory of this deal. Very complicated, indeed.

Details of Deal Emerging

If there is a complete draft version of the deal that will be debated in parliament available in the public domain, I have still not seen it. However, on www.olloo.mn there is an article from Unuuduriin Mongol which describes some of the terms of the deal. The key points in the article are:

1. The deal does not contain limits on the taxes collected from the project other than there being 7 specific kinds of taxes.
2. Oyu Tolgoi will pay a depletion tax (or the government will receive a depletion deduction from its share of expenses) following the tax law provisions over a 10 year period. That is, as the mine extracts minerals, it will have to compensate for the depletion in the value of the site itself by subtracting that value lost from the total expenses of the government and thereby increasing the total amount of income for the government. Each year the site will have to submit a five year extraction plan, and it will have to ask for government approval to deviate from those plans. All equipment and extraction techniques will have to be international standard to mitigate the rate of depletion and depreciation on the area around the site. (Note: This part of the article is difficult to understand, and the author does not explain it well).
   
3. Further the issue of water use and other natural resource depletion will be decided upon at the appropriate phase of the development process.
4. Within four years after beginning the project, at least 90% of the employees must be Mongolian citizens. However, during the initial phases of construction, because the project will require foreign expertise, no less the 60% of employees must be Mongolian citizens.
5. Fellowships to receive training and study mining issues at international and domestic institutions will be offered by Ivanhoe Mines and Rio Tinto (how often and to what extent the article does not say).
6. The project will be subject to international audits, the provisions of which will be discussed between the project representatives and the tax authority.
7. If ownership of the project is transferred to a third party without approval from the government, then the government will have the right to cancel the agreement.

There clearly has to be more to the deal, so this is just a sampling of what might appear in the final draft. Complicated stuff, though, especially No. 2 above, and it is not surprising it confuses a lot of people.

Learning Mongolian Parliamentary Procedure

The news portal site http://new.gogo.mn has illuminated what occurred in parliament today...somewhat. It is clear I need to learn a lot more about Mongolian parliamentary procedure, but, from what I understand of the explanation in this post, after much debate parliament voted to support the recommendations of the Economic Standing Committee with 39 of 59 members present voting for the resolution.

This is where it gets a bit fuzzy. Apparently the resolution based on the Economic Standing Committee's recommendations will be punted back to the party groups and standing committees for further debate and comment, and then it will be passed on to the full parliament again for formal debate. So, from what I gather, today's vote was on whether to consider debating the specifics of the agreement in the full parliament, presumably with an eye towards a formal vote on ratifying the agreement. In other words, today was a debate and vote on whether to debate and vote. Make sense? If this is a correct interpretation, then I would say Mongolia's democracy is thriving. It feels like I am in Washington. At any rate, today's vote means the agreement has moved to the next important stage of the process of being ratified...whatever that is.

An additional question the vote brings up for me is where were the other 17 members of parliament were during today's proceedings? Seems to me a bad day to miss a vote. Clearly there is still much I need to learn about how parliament works, and, based on the comments posted by readers below a lot of the articles online, I am not alone.

(Revision: Two members were not present because their seats are open. President Elbegdorj's former seat and one seat from MAXH according the Mongolian Parliament website at http://www.parliament.mn/whoswho. So, where were the other 15 members?)

Public Response to OT Deal

It is difficult to get a full picture of what the general public response is to the spreading news that a deal on Oyu Tolgoi may be nearing, but based on information in the online media and TV9 the response so far has been tepid. Although, that may be a bad way to put it, because it could just as easily be that everyone is waiting with baited breath to see what happens. It is such a hot political issue, though, one might expect an explosion of indignation at the way parliament has sprung yet another important decision on the public. Instead, there was a protest which drew, based on what seemed to me a liberal estimate on www.news.mn, about 60 people to Sukhbaatar Square today. The TV9 report made it look more like there were 16 old ladies and a couple of out of work jeep drivers at the protest. Not exactly what one would call a political force on the trajectory of the deal. Whatever one might say about the way politicians work here (see the previous post), they just might turn out to be effective tacticians in this case; that is, if the goal is to get an agreement finally signed without special interest groups derailing it once again.

Mining Deal Before Naadam

There was a committee meeting in parliament today to discuss issues surrounding whether to sign the stability agreement with Ivanhoe Mines. This appears to be the first public movement on the issue since rumors began circulating that an agreement might be reached before Naadam. Admittedly my Mongolian ability is not superb, but based on a few articles I have seen it looks like the editors of some news organizations are not particularly pleased with this rumor.

See here: УИХ Оюутолгойн гэрээний төслийг ямар ч байсан хэлэлцэхээр боллоо
And, here: Оюутолгойн гэрээг наадмаас ємнє батлахаар шуурхайлж байна

The tagline for the second article is rather telling. Let's see if I can interpret it with some accuracy. It is: Аливаа томоохон шийдвэрийг олон нийтийн анхаарал єєр тийшээ хандсан vед хулгайгаар хийдэг нь улстєрчдийн гэм биш зан болсон зvйл.

Interpretation: It is a case of politicians' predilection to take all serious decisions by theft when society is looking the other way.

Not a resounding endorsement of the decision to finalize things quickly. But, at the same time this is not surprising. It is a highly political issue. The fact the rumor is receiving a somewhat official airing in the media, though, may indicate that a deal is not only close but robust enough for everyone to feel it can be discussed freely. Maybe the hope is this gives the illusion of debate, even if cursory in nature, so as to allow the deflection of criticism post-signing. A plausible way to rush a decision is to catch someone off guard, pausing just long enough to suggest an opening to give comment, only to move quickly to resolution. In retrospect you can claim there was an opportunity to speak and the other person didn't take the opportunity, so the person has no right to complain. Can you do that with a multi-billion dollar mining deal and a whole society? As always, only time will tell.

The Bloody White Baron

Freiherr Roman Nikolai Maximilian von Ungern-Sternberg's name was as bizarre and tortuous as his life story. James Palmer retells the story of the "Mad Baron" Ungern-Sternberg, whose military career culminated in 1921 with a brief period of tyrannical rule over Khuree (Ulaanbaatar) and the surrounding countryside, in a recently published book called "The Bloody White Baron: The Extraordinary Story of the Russian Nobleman Who Became the Last Khan of Mongolia."

The Mad Baron is one of those historical personalities that at first blush makes you think you have encountered a piece of fiction. Surely it can't be true? I would have heard about this before. It is so bizarre. At least, that is how I reacted the first time I heard about the Mad Baron a few years ago. Once the story sunk in, though, it seemed less improbable relative to the many twists and turns in Mongolia's history, especially during the 20th century. And yet, it's still a pretty fantastical story.

James Palmer goes to great lengths to chronicle the Baron's early career and the events leading up to his invasion of Mongolia in 1919. The Baron truly lived up to his many nicknames which implied an insane and/or sadistic personality, and the book is full of rather gruesome tales of Ungern-Sternberg and his officers dispatching of people in very inhumane ways. The stories are the type that are difficult to read and comprehend but also difficult to turn away from. The atrocities he and his men committed were so extreme that they almost take on a sense of fictional violence like in a horror film. Freddy Kruger and Jason are fictional characters with no "based on a true story" attached to them, though, so these stories amplify the lore and legend of Ungern-Sternberg being more (less?) than human, possibly the personification of evil.

The book is an interesting read, and Palmer does a good job of telling the story. His descriptions of Mongolia at times tack towards inaccurate and superficial, but the Baron is the star of this story, so these minor issues are easy to overlook. It's also not clear at times what the sources of information in the narrative are. Citations often seem randomly distributed. He draws upon several primary sources from archives, but he also refers to "Beast, Men, and Gods" by Ferdinand Ossendowski often in the narrative as a secondary source. As a non-expert on the issue, it is not possible for me to assess whether this is a problem for the validity of the story as Palmer has written it. However, I was left at many points in the book in which a "fact" about the Baron was presented without a citation wondering: "How could he possibly know that without a supporting document or eyewitness account?" I don't usually like it when people nitpick details like that, especially for a non-academic book meant for a popular audience, but in this case, since there are not many other accounts of Ungern-Sternberg's life, this book is likely to be used in the future to educate many people about this story in history. It would be nice to know for sure if the "facts" can be accounted for. Nevertheless, it is worth a read if one has an interest in this truly bizarre figure in Mongolia's history.

The book is available in the ACMS library.

Rumor Mill at Full Production Levels

The international press and local rumor mill are at full production levels regarding the Oyu Tolgoi stability agreement between Ivanhoe Mines, Rio Tinto, and the Mongolian government. Conclusion of the agreement is apparently imminent according to some sources. See the following article for an example:

Talk is that Ivanhoe may win approval in Mongolia

The skeptical among us have pointed out that this sort of statement of imminent signing has been in the press numerous times before with the depressing result of more of the same. A scholar at the center pointed out that at about the same time the rumors began circulating, Rio Tinto made some financial transactions which strengthened confidence in both Ivanhoe's and Rio's ability to finance a deal if it is signed. This drove share prices up for Ivanhoe before the imminent signing rumors began leaking into the press, possibly creating a confounding element in people's appraisal of the situation. See the following article for an example:

Ivanhoe Soars After Rio Sells Shares to Repay Debt

The final twist is that most of this news has not made its way into the local media. This is indeed very interesting, because it raises some interesting possibilities. Is it because the rumors are false? No need to report on something that is patently untrue and counterproductive? If this is the case, then the local media has suddenly turned a new leaf. It would be so unlike them to show such a disciplined level of journalistic integrity. (Yes, I am a cynic with regards to the local media).

Another possibility is that a deal is nearing but it is extremely fragile. So fragile, in fact, that everyone involved would like to keep it quiet from local agitators until it is either pushed through or gains enough strength to stand against a potential tide of opposition. But at the same time, in order to strengthen bargaining positions, one or both sides are leaking information to international interests to create momentum behind the deal. I am inclined to believe this possibility is in play at the moment. A deal is ready to go, but it is not robust enough yet to get a full public airing. Are members of parliament living by the old adage that it is better to ask for forgiveness than for permission? It may be so, and it may be the best strategy given the incendiary nature of the issue for some vocal oppositional factions. With some poll estimates showing that over 80% of the public would like to see an agreement signed, though, it may not be all that bad of a political strategy in the long run.

In the end, time will tell if it is for real or just more of the same.

Post-Election Riot One Year On

Things have been so hectic at the center lately that July 1 came and went without me taking notice of any events to remember the post-election riot last summer. I've seen a few articles in the newspaper examining the effect of the riot on the political landscape in Mongolia over the last year, but I missed the official or unofficial events organized to mark the day. A straw hat poll of different people around the office and at a reception Thursday evening indicated that I didn't miss much. Surprising, really, that someone didn't organize an ceremony to mark the day. That said, I don't sense a top-down conspiracy to suppress the memory of July 1, 2008 but rather a collective desire to let bad things remain in the past.

This was driven home by a colleague who said, "It wasn't that big of a deal." I definitely disagreed, and I reminded him that the mood in the city last summer was one that was decidedly dark; that is, until Tuvshinbayar won Mongolia's first gold medal in the Olympics. That moment was a moment of redemption, which was typified by the scene on the steps of parliament when political enemies Prime Minister Bayar (MPRP) and then MP Elbegdorj (DP) stood hand-in-hand above their heads intoxicated letting loose primal screams to the crowd in the square. Clearly the city and the country was in need of a catharsis. It was a big deal--the riot. The collective amnesia in this regard is something I find understandable and yet puzzling at the same time.

It is understandable, because leaving the past in the past is a desire most of us have when bad things happen. What is puzzling is that there doesn't seem to be a politician or a political group that feels the exact opposite. I have heard that families of the victims killed the evening of July 1 are petitioning to have a memorial erected in the park in front of the old MPRP building, possibly on the very spot Lenin's statue currently stands. But, this apparently has not gained momentum or a broad base of support. In a purportedly polarized political system, though, it is baffling, in a sense, that political leaders have not taken this issue up as political bludgeon against rivals. The event has enough fodder for both sides to use to their advantage. Repressive government, out of control opposition, failed social elite, you name it, and that evening has a political hook for your position. The lack of such political maneuvering, however, may lend credence to the hypothesis that Elbegdorj's presidential victory retroactively legitimized the parliamentary elections and therefore fully delegitimized the basis of the riot, making it become in the minds of most people what it probably always was--an act of political bravado and bluff that spun widely out of the control of the organizers. If this is true, it makes sense politically why people would choose to forget. It is a minefield of an issue that really holds no value to anyone with political ambitions.

In the end, the epilogue written for the July 1 riot may not be all that impressive or interesting. That in itself is interesting, though, because when one thinks back at that night in an honest way it really looked like things were falling apart.

Ulaanbaatar Heritage

An intern working for us this summer has made an interesting website discovery. Well, it is a discovery like Columbus discovered America. He was scooped by Chris Kaplonski who has a link to the website on his own website, and, of course, the people who made the website knew about it. Nonetheless, it is a nice find.

A Japanese anthropologist, according to Chris Kaplonski, in collaboration with Mongolian counterparts, developed a survey of Ulaanbaatar architectural heritage. Dozens of buildings and other structures in Ulaanbaatar have basic metadata entries, pictures, and maps of their locations. The metadata entries cover the basic stats and history of the buildings. It's a neat site, and I am trying to think of ways to raise awareness about it. This blog entry is one way. Maybe someone will see it and have a burning desire to add to it, too. It definitely needs work, but nevertheless it is a good first start.

The site is at: http://ulaanbaatar.m-heritage.org.