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Mongolia Flooded With Millionaires from Minerals

21 Jun

 

 

Mongolian Tughrik banknotes

Mongolian Tughrik banknotes

 

 

 

 

 

 

Sitting in his traditional tent, Khaidav, a retired teacher, dreams of the  wooden house he will build after one million tughrik ($760) lands in his bank account this summer.
More than a million Mongolians like Khaidav, who goes by one name,  will become tughrik millionaires as they sell shares in Tavan Tolgoi – the world’s third-biggest coking coal deposit which is helping fuel the country’s resources boom – to the government.
Mongolia, a resource-rich country of 3m people with a per capita  gross domestic product of less than $5,000, has introduced policies to  share its growing mineral wealth with its citizens.

One measure involved spreading 20 per cent of the shares in Tavan Tolgoi  among the entire population. Until recently, people were unable to cash  in because the planned public listing of the mine has been delayed.
But in May, ahead of parliamentary elections slated for next week,  the government offered citizens a choice: sell their stake back to the  state for one million tugrik or keep the shares and wait for the public  listing.

More than half of the country opted for the cash, handing the  government a bill of roughly $1bn, or a tenth of the country’s GDP.  However, many Mongolian elites criticise the handouts as premature  because the mine, which is barely developed, has yet to produce the  revenues that are expected.
Politicians have defended the buyback programme, saying they are just giving Mongolians a chance to participate in the mineral wealth.
“That was our biggest election campaign [promise] in 2008, and we  fulfilled it,” said Chimed Saikhanbileg, a candidate for the Democratic  party. “Every citizen in Mongolia now owns 1,072 shares of Tavan Tolgoi, the equivalent of one million tugrik.”
The Democratic party will next week face off against the Mongolian  People’s party in parliamentary elections that will determine who  governs the country for the next four years.

The two centre-left parties who are campaigning on similar platforms, including using mining  revenues to benefit ordinary citizens, have ruled together in a  coalition for most of the past four years.

Tavan Tolgoi was supposed to set the standard for how the country  would handle its mineral resources. Instead, it has become a cautionary  tale, as the project has been delayed by politics in Ulan Bator and by  geopolitical wrangling between China, Russia and other countries that  want to play a part in its development.
The listing has also been delayed by uncertain global markets and the slow progress producing a new Mongolian securities law that will create the legal framework necessary for the three-city listing.
Mongolia is trying to wean itself off of the handout culture that  flourished in previous elections, in which campaigns competed for who  could promise the most cash to voters. After passage of a new election  law, candidates are now barred from making election promises about money or employment.

Tavan Tolgoi is a good example of how election promises can lead to  mismanagement. As the government buys the Tavan Tolgoi shares back, it  will resell some to Mongolian companies for the same price to reduce its bill.
“The 2008 campaigns were about who will give more cash. It cost us  quite dear in the last four years because there was no money to  implement this,” says Oyun Sanjaasuren, head of the Civil Will Green  party, which opposes cash handouts.

“Tavan Tolgoi is quite a big,  complicated equation, with a lot of unknowns still, like how do we deal  with geopolitics, neighbours, and strategic investors.”
Other critics say the buyback scheme is taking badly needed cash away from the mine, which is very short of cash, mainly because it still  produces only a small fraction – 4m tonnes a year – of its potential  output.

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Posted by on June 21, 2012 in International News

 

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