The Ministry of Health reported today, October 17 that 1,897 new cases of COVID-19 have been reported in the past 24 hours. Specifically, 1,121 cases were confirmed in Ulaanbaatar city, with 776 cases in rural regions.

Today, the total number of confirmed COVID-19 cases in Mongolia has reached 338,405. 5,968 patients have made recoveries in the past 24 hours.

Furthermore, 15 new COVID-19 related deaths have been reported, raising the country’s death toll to 1,469. Currently, 18,833 people are receiving hospital treatment for COVID-19 whilst 55,853 people with mild symptoms of COVID-19 are being isolated at home.

Shares in Canada’s Turquoise Hill Resources (TSX, NYSE: TRQ) cratered on Friday after the company shocked the market late on Thursday by announcing the ongoing expansion of the massive Oyu Tolgoi copper mine in Mongolia required $1.2 billion in additional funding than previously expected.

The Vancouver-based miner, in which Rio Tinto (ASX, LON, NYSE: RIO) has a 50.8% stake, lost almost 22% of its value on Friday in both New York and Toronto, with the stock dropping to $12.09 and C$14.88 respectively in early trading.

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Delays in underground mining as well as some deferred open-pit metal production have caused an increase in estimated incremental funding requirement to $3.6 billion — up from the $2.4 billion expected in July.

Total costs for the move underground is now approaching the approved total budget of $6.75 billion, which already is significantly higher than the original $5.3 billion set in 2016.

Some metal production from open-pit mining is expected to be delayed to beyond 2024, the company said, partly due to under way impacts of on-site covid-19 curbs and geo-technical events that have resulted in delayed waste movement.

BMO analyst Jackie Przybylowski said it was unclear how such a material change to sequencing and cost emerged over the past three months. The project is quickly approaching its authorized spending, she said, and all work could be halted if further investment is not approved by the Oyu Tolgoi board, she wrote.

“In our view, successful execution in terms of timing, budget, and securing the required financing is increasingly risky,” Przybylowski said.

Turquoise Hill noted further delays would increase the incremental funding requirement further yet, and would also likely in turn adversely affect the ability of both the company and Oyu Tolgoi to obtain additional funding, or re-profile existing debt as set out in an agreement with Rio Tinto inked last April.

The miner’s disclosure could stoke tensions with the Mongolian government, which has called for more transparency from Rio Tinto and its development vehicle on the problems at Oyu Tolgoi. It comes as financial regulators in the UK and US examine Rio’s disclosures about issues previously announced.

Rio Tinto last month challenged the findings of an independent review into $1.4 billion in cost overruns and delays at Oyu Tolgoi, saying the project’s troubles were caused by unpredictable geology issues.

The Independent Consulting Group’s (IGG) report concluded last month that poor management was the main reason the mine’s underground expansion has run into problems affecting its cost and timeline.

The company said its copper production rose 16% to 41,935 tonnes in the third quarter from a year ago, while gold output more than tripled to 130,799 ounces.

It also said copper and gold production guidance for 2021 remains within the ranges of 150,000 to 180,000 tonnes and 400,000 to 480,000 ounces respectively.

Once completed, Oyu Tolgoi’s underground section will lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, which is now expected by 2025 at the earliest. This would make it the biggest new copper mine to come on stream in several years.

The mine is the country’s biggest source of foreign direct investment, having created thousands of jobs and generated almost $3bn of taxes and fee revenue over the past decade.

The Mongolian government holds a 34% stake in the Oyu Tolgoi project, with Turquoise Hill holding the remainder.

(With files from Reuters)

Asia is home to diverse and vibrant culinary cultures. Traditional nomadic meals in Mongolia, however, generally require only two basic ingredients: meat and flour. Even now, with all the choice brought by the global market, many Mongolians keep to simple diets of meat and flour for their day-to-day meals, making flour an irreplaceable strategic resource.

In this background, Oeg Flour LLC, a flour producer from rural Mongolia, succeeded in uplifting their business and began exporting internationally with business expertise from the EBRD and the European Union (EU).

Competition in the Mongolian flour market

Oeg Flour LLC began its operation in Darkhan-Uul Province, Mongolia, in 2011 with the aim to supply 100 per cent of rural regional flour demands, then expand to the capital city of Ulaanbaatar. Today, Oeg is a well-established flour brand in Mongolia with a market share of 20 per cent and has positioned itself as a major regional flour distributor.

“Many people only think of Darkhan as the third largest city in Mongolia. While we are distant from the capital, people in rural areas still require new opportunities,” says Ms. Oyunsuvd Enkhbold, General Manager.

However, to truly become a major competitor and take their business to the next level, they lacked a number of essential ingredients in their operations.

With 68 per cent of the country consuming flour-based food and 35-45 per cent cooking with flour daily, the Mongolian flour market provides opportunities for growth and expansion. However, this also means there is fierce competition among Mongolian flour brands.

While Oeg boasted high sales figures, concerns over product quality, malfunctions in production processes, flour wastage and unmonitored inventory meant the company needed to urgently overhaul its business practices.

“Despite our best efforts to set high standards, the fluctuation in product quality has been exceptionally high. We were gaining notoriety for poor quality and losing customers,” she says.

EBRD and EU’s role in Oeg’s revival

In 2019, government agencies from Mongolia and China reached an agreement to allow flour exports to China, creating an exciting new opportunity for Mongolian flour producers. Oeg needed to act quickly to seize this chance or it would fall behind the competition.

The company approached the EBRD’s business advisory service team with their issues in 2019 and Observe Consulting LLC were selected to introduce a Hazard Analysis and Critical Control Point (HACCP) quality management system.

The consultants identified that Oeg had retained the same management structure and style since 1997 and had not evolved to fit the changing market environment of the past decades.

“Had flour not been such an important part of the Mongolian diet, we might have faced business challenges years ago. The popularity of the product had made the management less keen on pursuing innovation and development,” Oyunsuvd reflects.

Throughout the advisory project, the consultants identified several major issues and introduced some notable key solutions. They helped Oeg obtain the quality management standard ISO 9001:2015 and introduced HACCP controls to maintain food safety standards.

With revitalised management, many of Oeg’s troubles, including procurement, quality control, and lack of oversight and bookkeeping, became things of the past. The business was now not only ready to re-establish itself as a stronger competitor in the Mongolian flour market, but poised to enter the lucrative Chinese market.

Firm foundations for regional growth

Since 2019, Oeg has continued to hit new milestones in sales. In Mongolia, Oeg’s management created a plan to establish a reliable supply chain encompassing all activities from wheat planting to delivering flour to consumers. They are now eyeing the patisserie market.

For the international market, the company has submitted a formal application to the Mongolian Ministry of Food, Agriculture and Light Industry and are expecting to be among the pioneering Mongolian flour exporters to China by 2022.

Thanks to joint support from the EBRD and the EU, Oeg Flour is now a well-established business that is making signification contributions towards its community’s sustainable growth. The producer has become a role model for many other businesses – and an inspiration to those studying and developing rural supply chains.

Source: EBRD

In the third quarter of 2021, 5.8 thousand foreign citizens from 74 foreign countries were working in Mongolia with labor contract with the purpose of earning wage and income or voluntarily without purpose of earning wage and income. The number of foreign workers increased by 495 (9.4%) from the previous quarter. In terms of gender of all foreign workers with labor contract in Mongolia, 5.2 thousand (89.4%) were male and 0.6 thousand (10.6%) were female.

In terms of country of all foreign workers in Mongolia, 65.3% is from China, 4.2% is from Vietnam, 3.7% is from Russian Federation, 3.2% is from South Korea, 3.0% is from India, 2.5% is from United States, 2.0% is from Philippines, 1.1% is from Great Britain, 1.1% is from Australia, and remaining 13.9% is from other countries.

By age groups of foreign workers, the highest percentage or 16.7% was persons aged 50-54, 15.9% was persons aged 45-49, 14.3% was persons aged 35-39 and the lowest percentage or 2.5% was persons up to 24 years.

By region, 2.7 thousand foreign workers (47.0%) of total foreign workers were in Ulaanbaatar, 2.1 thousand (35.9%) were in Central region, 0.4 thousand (7.0%) were in Eastern region, 0.3 thousand (5.3%) were in Khangai region and 0.3 thousand (4.8%) were in Western region.

By education attainment of the foreign workers, 2.3 thousand (39.4%) had diploma or bachelor degree, 1.9 thousand (34.3%) had technical and vocational education, 1.1 thousand (18.9%) had upper secondary degree, 0.3 thousand (5.8%) had specialized secondary degree and 0.1 thousand (1.6%) had lower secondary degree.

In terms of the occupation of foreign workers, the highest percentage or 2.7 thousand (47.5%) were professionals and the lowest percentage or 3 persons (0.1%) were skilled agricultural, forestry and fishery worker.

In the third quarter of 2021, 1.7 thousand workers (29.6%) are working in construction sector, 1.6 thousand workers (28.0%) are working in mining and quarrying sector, 597 workers (10.4%) are working in education sector, 526 workers (9.1%) are working in manufacturing sector, 443 workers (7.7%) are working in transportation and storage, 351 workers (6.1%) were working in wholesale and retail trade, repair of motor vehicles and motorcycles, 91 workers (1.6%) are working in administrative and support service activities, and 434 workers (7.5%) are working in other sectors. Compared with the previous quarter, the number of foreign workers in construction sector increased by 721 (73.5%) and by 237 (2.2 times) in transportation and storage sector.

Source: National Statistics Office of Mongolia

In June 2021, Ukhnaagiin Khurelsukh, the former chairman of the Mongolian People’s Party (MPP) and prime minister, became the sixth President of Mongolia. The run-up to the presidential election was turbulent even by the standards of modern Mongolian politics.

Russia's President Vladimir Putin, Rossiya TV presenter Sergei Brilev, Kazakhstan's President Kassym-Jomart Tokayev and Mongolia's Prime Minister Ukhnaagiin Khurelsukh attend a plenary session as part of the 2021 Eastern Economic Forum at the Far Eastern Federal University on Russky Island, Vladivostok, Russia, 3 September 2021 (Photo: Reuters/Mikhail Tereshchenko).

The incumbent president Khaltmaagiin Battulga of the Democratic Party — who had been blocked from running for a second term by the MPP-dominated parliament — sought to mobilise popular support by gathering mass rallies in the main square of Mongolia’s capital Ulaanbaatar. Yet Khurelsukh mostly relied on support from the bureaucracy and law enforcement.

Khurelsukh’s presidency is unlikely to affect Ulaanbaatar’s relations with Moscow. Russia, along with China, is a critical neighbour and partner for Mongolia. 2021 marks the 100th anniversary of the establishment of diplomatic relations between Russia and Mongolia, with Moscow becoming the first foreign power to formally recognise Mongolia’s sovereignty in 1921.

Despite former president Battulga’s reputation as a politician with pro-Russian sympathies, Moscow remained neutral in Mongolia’s domestic political struggle. After the election was decided, the Kremlin promptly congratulated the newly elected president. Russian President Vladimir Putin and Khurelsukh spoke in July confirming ‘their mutual resolve to continue developing friendly ties and comprehensive strategic partnership between Russia and Mongolia’.

In September, Khurelsukh made a virtual appearance at the Eastern Economic Forum in Vladivostok. In his remarks at the forum, Khurelsukh made noted that Mongolia supports both Putin’s foreign policy vision of the Greater Eurasian Partnership and Chinese President Xi Jinping’s Belt and Road Initiative. Khurelsukh also mentioned the possibility of a free trade agreement between Mongolia and the Russia-led Eurasian Economic Union. So far Mongolia’s only free trade agreement is with Japan.

Yet concerns over Mongolia’s plans to build river dams that may impact the fragile natural environment of areas across the border in Russia’s eastern Siberia remains an irritant in Russian–Mongolian relations and is likely to continue under Khurelsukh. Partly because of Russian pressure, Mongolia halted projects to build hydropower plants on the Egiin Gol and Shuren rivers — tributaries of Selenga river which feeds into Russia’s Lake Baikal.

Still, Mongolia has launched the construction of a dam on the trans-border Uldza river. The dam is needed to divert water for mining projects in Mongolia’s southern Gobi region. The Uldza dam, if completed, may disrupt the ecology of the unique Torey Lakes in Russia’s Daursky Reserve, a UNESCO World Heritage Site. Despite Moscow’s concerns, Mongolia’s Foreign Minister Battsetseg Batmunkh made it clear that the country will not abandon its ambitions in hydropower and dam construction, which Ulaanbaatar views as a path to energy self-sufficiency.

Despite disagreements over dams, Russia and Mongolia are pressing ahead with the Soyuz Vostok natural gas pipeline project that would transport gas from Russia’s western Siberia into China via Mongolia. A feasibility study is nearing completion, with Russia’s Gazprom expecting to start the construction next year. If realised, the pipeline will become the biggest joint undertaking by Russia and Mongolia since the Soviet era. Russia and China have the option of constructing a gas pipeline from western Siberia directly into western China via the Altai Mountains. Yet, the Mongolian route would bring gas directly to the areas of China that need gas.

The pipeline route through Mongolia is not completely risk-free. Mongolian resource nationalism has troubled foreign investors in the country. The pipeline traversing Mongolian territory could potentially hold the project hostage to Mongolia’s turbulent domestic politics. This may be one reason Beijing has not yet signed off on a binding contract for the pipeline. An energy crunch that is now afflicting many parts of China could prompt Beijing to make a final decision in favour of the Mongolian route for Russian gas.

The election of Khurelsukh has not changed the patterns of Mongolia–Russia military collaboration, which remains active. In September and October, Russian and Mongolian units conducted the annual Selenga bilateral exercise. Taking place in Mongolia, it involved around 1,400 servicemen from both sides. Still, Russia is watching warily as Mongolia pursues its ‘third neighbour’ policy and develops military-to-military ties with the United States. Moscow is especially uneasy with Mongolia hosting the Khaan Quest international exercises, which are conducted in close collaboration with the US Indo-Pacific Command.

Mongolia’s establishment of a ‘strategic partnership’ with South Korea, agreed at a September virtual summit between Khurelsukh and South Korean President Moon Jae-in, is another example of Mongolia’s pro-active multi-vector foreign policy. South Korea became Mongolia’s sixth strategic partner, after Russia (2006), Japan (2010), China (2014), India (2015) and the United States (2019).

Ulaanbaatar’s foreign policy hedging is also visible in Mongolia’s vaccine diplomacy, with the country receiving vaccines from Russia, China, India and the West. Mongolia initially ordered 1 million doses of Russia’s Sputnik V vaccine, but as of July had received only 80,000 doses, apparently due to production bottlenecks in Russia. The majority of the jabs administered in Mongolia have been China’s Sinopharm vaccine.

Regardless of who holds the presidency in Mongolia, Ulaanbaatar will continue to have a vital interest in strong relations with Moscow. Despite Mongolia’s pro-active multi-vector foreign policy, Russia, rather than distant ‘third neighbours’ will remain the ultimate guarantor of Mongolia’s security and sovereignty.

Alexey Mikhalev is Director of the Center for Studies of Political Transformation, Buryat State University, Ulan-Ude.

Artyom Lukin is Associate Professor at the Institute of Oriental Studies, Far Eastern Federal University, Vladivostok.

(Bloomberg) -- Rio Tinto Group has delayed the start up of

its $6.75 billion Oyu Tolgoi underground copper project in

Mongolia by at least three months after Covid-related

restrictions hampered progress, further adding to cost overruns

at the troubled venture.

First sustainable production will be no earlier than

January 2023, the company said in a quarterly update on Friday,

later than the previous forecast of an October 2022 start. The

cost of additional pandemic-related constraints is estimated at

about $140 million, Rio said, while it continues to assess the

full impact on the cost of the project from the latest delay.

Rio said in December that development costs were expected

to be to be about $1.4 billion more than originally planned

after stability risks were identified underground. Meanwhile,

revised plans to cover the extra cost have led to the Mongolian

government threatening to cancel a 2015 agreement with Rio that

underpins the mine development. Mongolia holds a 34% stake in

the project.

“All key stakeholders have stated that they remain

committed to moving the project forward and reaching a long-term

solution to the issues under discussion,” Rio said. Still, the

company said it needed government agencies to sign off on an

updated feasibility study before it could start work on crucial

elements of the project. The board of Oyu Tolgoi also needed to

approve the additional investment needed to bring the mine into

operation.

Rio is looking to expand its copper output in the years

ahead to tap into a bullish long-term demand outlook for the

metal, which is a key material in the clean energy transition.

As well as headwinds in Mongolia, its Resolution Copper project

-- potentially one of the biggest copper resources in the U.S. -

- faces opposition from Native American tribes as well as

potential legal hurdles.

By James Thornhill

Ulaanbaatar /MONTSAME/. At the plenary session of the parliament on October 14, the first discussions are taking place for the bills on the 2022 State budget, the 2022 Budget for the Social Insurance Fund, the 2022 Budget for the Health Insurance Fund, and the 2022 Budget for the Future Heritage Fund.

Highlighting that Mongolia is currently in a risk of having a budget deficit of 12 percent of the GDP, and losing 250 thousand jobs due to factors related to the COVID-19 pandemic, including disruptions in the export of goods and decrease in the speeds of freight and transport circulation by 5-9 times, the Prime Minister noted that the only solution to overcoming the challenging circumstance without much losses is vaccination. As of today, 65.6 percent of the total population of Mongolia have been fully vaccinated against COVID-19, with over 350 thousand people involved in an additional dose of the vaccine to restore the vaccine’s efficacy. A study has also found that the lives of 46 thousand citizens would have been put in risk if the vaccination drive had not been quickly launched, he noted at the start of his remarks.

“International organizations continue to warn that the crisis in the transport sector, shortages of goods, and increase in prices are likely to continue due to the pandemic in the first half of the coming year. Moreover, international organizations have yet to determine how many times the pandemic circumstance will change in the future. Thus, we must face and overcome the challenges by adapting to the situation. As such, we drafted the next year’s budget with positive expectations, and have presented a bill with a budget of MNT 18 trillion to the parliament for the very first time.”

The 2022 Budget focuses on expanding the economy and strengthening the public-private partnership. Furthermore, the budget also focuses on supporting the processing industry and the sectors of tourism and IT alongside mining, underlined the Prime Minister. The Government aims to not only put launch underground mine operations by advancing the talks on Oyu Tolgoi, but also accelerate the projects such as the construction projects for the oil refinery as well as the Tavan Tolgoi power plant and Erdeneburen hydropower plant.

The 2022 State Budget bill: Despite having an economic growth of -4.6 percent and a budget deficit reaching 12 percent of the GDP as infections began to rise from 2020, the Government of Mongolia implemented a MNT 2.6 trillion package measure to protect public health and support the private sector.

By implementing the MNT 10 trillion Comprehensive Plan for Health Protection and Economic Recovery from February 2021, and involving target groups in COVID-19 vaccinations from April, corresponding restrictions were lifted in phases to allow the operations of entities and businesses to resume, which brought the country’s economic growth in the first half of 2021 to 6.3 percent. As a result of the MNT 10 trillion comprehensive plan, loans in the banking sector were kept at an increase rate of 6.5 percent - and the total amount of loans reached MNT 18.1 trillion, restoring it to the pre-pandemic levels in 2019.

With a budget policy to support ‘LABOR, PRODUCTIVITY, GROWTH’ by fully lifting the restrictions on business operations, increasing export, launching large-scale projects, and expanding the economy with a focus on infrastructure projects in 2022, the economic growth for Mongolia has been estimated to be 5 percent.

In order to reduce budget expenditure, it has been reflected that ALL LEVELS OF GOVERNMENT ORGANIZATIONS WILL BE SAVING ON COSTS through measures such as more effectively distributing funds and digitizing government services.

The budget also reflects creating a SMALL YET SKILLED AND RESPONSIBLE TEAM OF CIVIL SERVANTS through methods, such as procuring certain services and operations that can be run by private entities instead of running by the government and making payments for services based on STANDARD-QUALITY-COMPETITIVENESS, and having public organizations that provide basic social services become “semi-independent” financially.

As for the healthcare sector, the reforms that began to be implemented this year will be accelerated, involving CITIZENS IN ANNUAL EARLY-DETECTION CHECKUPS. From 2018, the Health Insurance Fund has been providing financing for involving citizens aged over 18 in a package of 12 types of diagnostic tests ranging between MNT 43,000-75,000 at hospitals. Statistics for the year of 2020 shows that 7.9 percent of citizens aged over 18 have been involved in the package diagnostic tests. Thus, in aims of increasing its range, it has been planned to renew the package, and launch works to involve the population in annual checkups from 2022.

Another measure reflected in the budget is the program, ‘CHILDREN WITH SAVINGS’. Aimed at improving access to income being earned from natural resources, and helping children learn about the importance of savings, and grow up to become citizens that are properly informed and have financial capability, the Future Heritage Fund was added to the budget. The fund’s source of income is planned to be transferred to each child’s savings account at commercial banks.

Reforms will be implemented to transition FROM WELFARE TO LABOR by supporting citizens with low income through employment rather than welfare, and further specifying the requirements for some welfare programs.

The 2022 state budget bill estimates equilibrated revenue to be at MNT 15.8 trillion or 33.7 percent of GDP, and expenditure to be at MNT 18.2 trillion or 38.8 percent, with a deficit of MNT 2.4 trillion or 5.1 percent of GDP which is a decrease of MNT 1.3 trillion.

SHANGHAI, Oct 13 (Reuters) - China's Premier Li Keqiang said in an online meeting with Mongolian Prime Minister Oyun-Erdene Luvsannamsrai that he would be "happy to see" an expansion in the volume of coal traded between the two countries, the official Xinhua news agency reported late on Tuesday.

Li said "energy security is related to the national economy and people's livelihoods," the agency reported from the video meeting which took place on Tuesday afternoon.

He said China has abundant coal resources and hopes to develop diversified energy cooperation with Mongolia, the agency reported.

Near-record high thermal coal prices and electricity shortages have prompted power rationing across China and dented the country's industrial output, threatening its economic growth.

(Reporting by Engen Tham; editing by Richard Pullin)

((min.zhang@thomsonreuters.com; (8610) 5669-2105;))

ULAANBAATAR -- Located just steps from downtown London landmarks like Harrods department store and Hyde Park, The Knightsbridge Apartments, a luxury residential building in the eponymous upscale central London neighborhood, advertises itself as "private homes enjoying levels of service and facilities to rival any five-star hotel."

Boasting white limestone floors, hardwood timber features, a pool, spa, and a feng shui garden, two bedroom flats sell for between $4 million and $8 million according to London estate agents. Residents, meanwhile, like their privacy. Many of the residences are owned by corporations aimed at camouflaging the ultimate owner.

Keeping such secrets is getting harder, however, and earlier in October the Pandora Papers, a massive data leak on offshore finance published by the International Consortium of Investigative Journalists, revealed the existence of two flats purchased in 2006 by a company operating on behalf of Batbold Sukhbaatar, a former prime minister of Mongolia.

They appear to be the same flats in The Knightsbridge Apartments that were the subject of an injunction in November 2020 by a U.K. high court pending legal proceedings in Mongolia against Batbold. One flat was sold in an apparent arms-length transaction in 2017, while in 2018 the remaining flat was transferred to a corporation controlled by individuals. In granting the freezing injunction, the U.K. high court judge said he was "satisfied" that the evidence established that these individuals were "proxies for Mr. Batbold."

A lawyer for Batbold, however, said the former prime minister bought the flats legally when he was a private businessman, before holding high office, and has since sold them. "Now he doesn't own the property in question or, indeed, any assets in the UK" he said. The legal proceedings in Mongolia, referenced by the U.K. high court ruling, were opened in October 2020 by the Metropolitan Prosecutor's Office accusing Batbold of using proxies to siphon hundreds of millions of dollars from local mining companies.

Batbold's lawyer said that there is no truth to the accusations and the cases against him are inspired by political enemies in Mongolia. Furthermore, he said, Mongolia's prosecutor does not have the authority to bring the case on behalf of the government agencies and entities named in the suit. "Mr. Batbold was an object of coordinated media and legal attacks orchestrated by his political opponent through shady figures" he said.

While Mongolian politicians agree that the accusations against Batbold may be politically motivated, they also agree that the case raises questions about what has become of billions of dollars in mineral wealth generated over the past decade and a half by a mining boom, as Australian, Canadian and Chinese companies have moved in to develop lucrative deposits of coal, silver, gold and copper.

The Pandora Papers made headlines throughout Mongolia, with the revelations going viral on social media. The country's two major political parties, the ruling Mongolian Peoples' Party and the opposing Democratic Party, however, have thus far remained silent on the issue.

According to a report by the World Bank, Mongolia has produced $28 billion worth of mineral outputs since 2004. Of this, taxes and royalties amounted to nearly $9 billion in the past 15 years, while the government has borrowed $8.7 billion, mostly by leveraging its mineral revenue. Of that amount, as of 2019, $200 million remained saved as deposits in the Stabilization Fund and the Future Heritage Fund.

"Mongolia has not only consumed almost all its mineral outputs, but has also borrowed heavily against them, bequeathing negative wealth to the next generation," the report says. "Mongolia risks resembling a 'resource curse' economy in a few years."

The term "resource curse" was first used by economist Richard Auty to describe how an abundance of natural resources can lead to underdevelopment. It is an all too familiar story: A country strikes it rich, but the new avalanche of wealth poisons the political process, corrupts its institutions, distorts the economy and even creates pressures for secession.

For every Botswana, which after the discovery of diamonds has one of Africa's highest per capita incomes, or Qatar, where the discovery of gas in 1995 has helped to boost gross domestic product to $175 billion from $8 billion, there is a Nigeria or a Sierra Leone, where mineral reserves have been directly linked to dysfunction and even conflict.

Mongolia's mining boom was the lucky -- or unlucky -- result of events far beyond its borders. In 2010, Australia's coal mines suffered their worst floods in decades, halting coal exports to China. Chinese iron ore smelters began to increase coal imports from their northern neighbor. In 2011, Mongolia's GDP surged 17% in 12 months, primarily due to a coal deposit at Tavan Tolgoi, located 240 km from the Chinese border, and a nearby copper deposit at Oyu Tolgoi.

Today, mining accounts for nearly one-quarter of GDP, and mineral exports represent 26% of fiscal revenue, up from 10% in the early 2000s. Surveys have revealed deposits of coal, copper, gold, rare earth minerals and uranium worth an estimated $2.75 trillion. For a country with a population of 3.3 million, that is enough to make everyone a near millionaire.

But due to unequal access to opportunities, the boom-bust cycle, and corruption, most Mongolians have been unable to benefit. The country's poverty rate of 28% and wealth gap remain unchanged from early 2012.

Paul Collier, who studies resource economics at Oxford University's Blavatnik School of Government, says that governance is the key to avoiding the "resource curse." Countries that already have strong governance in place when they strike it rich tend to use any windfall wisely, such as what happened with Norway after the discovery of offshore oil. But an influx of resource wealth can be particularly toxic for countries without strong established governance, like Nigeria.

"The real tragedy, however, is countries where the government looks to be strong but can't handle the stress of all the money," Collier said. "This is a real tragedy because it can bring an otherwise healthy country down."

Patronage politics

Mongolians are acutely aware that their resource patrimony is in the process of being squandered. What to do about it remains elusive, and the anger has been manipulated into an effective political instrument by some of the most egregious offenders.

The country's new president, Khurelsukh Ukhnaa, was elected in June after he ran on the slogan, "Mongolia is the owner of its resources" and showered pensioners with cash from the state budget that he insisted was not an attempt to buy votes.

Beginning last year, when he was prime minister, Khurelsukh paid off 695 billion tugrik ($243.7 million) worth of pensioners' debts by selling bonds backed by state-owned silver deposits. Then, a month before the election, the cabinet, under the control of Khurelsukh's party, transferred 216 billion tugrik to debt-free pensioners. Again the money came from bonds backed by state silver deposits.

Khurelsukh repeatedly promised during his campaign that "Mongol citizens must be owners of its natural resources," as he vowed to establish a Natural Resource Public fund and invest in infrastructure developments that would "pay dividends directly to the people."

Patronage politics have become routine in Mongolia, where elections have turned into cash giveaways and the country has very little to show for the fire hose of wealth that has been largely consumed by political handouts and corruption.

Pensioners, as aptly demonstrated by the 2021 election, are the key to political power. Of Mongolia's retirees, 75% vote, compared to 50% of 18- to 25-year-olds. In June, Khurelsukh won 68% of the vote.

"The political parties don't need smart voters who are equipped with critical thinking," said Gerelt-Od Erdenebileg, a political scientist at Mongolian National University of Education. "They need poor voters that are easily manipulated [with cash] when they need to be."

Andrei Mikhnev, country manager at the World Bank, cites the bank's estimate that for every dollar of mineral wealth that has been generated during the past 20 years, Mongolia has consumed 99 cents and saved a mere one cent.

Buying elections wholesale began in 2008, when the Mongolian People's Party made a campaign promise to pay $700 to each citizen from mining revenues. The following day, its opponents, the Democratic Party, pledged $1,000. The amount would have totaled 60% of the country's entire GDP at the time.

The MPP won and as a result in 2011 the government borrowed $350 million from the Aluminum Corporation of China, better known as Chalco, with the aim of making good on the election promise, and repaying the loan with coal. But when the world price of coal subsequently fell by nearly 50%, Erdenes Tavan Tolgoi, a state-owned enterprise that owns the coal deposit, struggled to repay the loan, taking six years to make good on it.

"Mongolia didn't spend mining revenue that was already gained," said Dorjdari Namkhaijantsan, country coordinator of the advocacy group Natural Resource Governance Institute. "The country borrowed money based on the belief that it would gain that revenue from mining in the future."

The spending got so outrageous that in 2012, parliament amended the election law, prohibiting political parties from directly paying voters and promising cash. But there was a loophole: The law only prohibited promising cash, it did not prohibit promises to repay loans or offer dividends from mining companies. In 2017, presidential election winner Battulga Khaltmaa, whose term expired in June 2021, vowed to pay off all citizens' debts with revenues from the Tavan Tolgoi coal mine.

This was followed three years later by Khurelsukh's bid to pay pensioners' debts when he was prime minister. In addition to winning the presidency this year, the pledge aided Khurelsukh and his Mongolian People's Party to a landslide parliamentary victory in 2020, winning 62 of the body's 76 seats.

A month before that election, Erdenes Tavan Tolgoi paid 70,000 tugrik to 100,000 tugrik to each citizen, calling it a "dividend." The payments have left the company unable to make basic investments, and it has had to borrow to complete an unfinished railway line, power plant, and coal washing plant.

Off the grid

While Mongolia's GDP has increased at a rapid clip -- averaging a 6.5% increase per year between 2010 and 2020, according to World Bank statistics -- most residents do not feel like they are experiencing an economic boom. Instead, they are struggling to keep up with an endless cycle of price increases.

"In Ulaanbaatar, you can't live unless you have a side income from your full-time job," said Sansartuya Bazarsad, a mother of two and a botanist at a National Park. She and her husband have a monthly salary of 1.3 million tugrik ($456). Thanks to their herder parents, they do not have to worry about meat or wood to burn.

Such rapid economic growth initially led to a sharp decline in poverty from 38.7% in 2010 to 27.4% in 2012, though the rate remains at 28.4%, according to the latest survey by the World Bank, in 2018.

In the past 10 years, lifestyles in the capital have greatly changed. Coffee shops, Pilates studios, shopping malls, high-end international hotels and specialty shops targeting the environmentally conscious and vegans have sprung up.

The Bazarsads moved to Ulaanbaatar nine years ago and bought their house and land for roughly $16,000 in the ger district, where residents live in traditional yurts surrounded by wooden fences, and where homes are not connected to the city's central heating and sewer systems. Residents get water from wells and burn wood and coal to heat their homes. Some 1.5 million people in Mongolia, roughly half the population, still live in these tents.

Her family spends $385 of their monthly earnings repaying loans, leaving $70 for necessities at the end of the month. Saruultuya, their daughter, was born with a cardiac condition, so they receive 190,000 tugrik a month for her treatment. Sansartuya also sells Russian beauty products on the side.

With total monthly income of 1.6 million tugrik, the family is in the top 25% in terms of household income.

Mongolians characterize their middle class as having a mortgage and a 10-year-old secondhand Prius from Japan but no savings. If a family member is diagnosed with cancer or a similarly serious disease, they say they must sell everything to pay for medical care. According to national statistics from 2018, only 23.7% of the population had a savings account.

"I write down every expense in a notebook to make our finances wise," Sansartuya said. She and her husband bought a 10-year-old Prius a few years back but needed to use the car as collateral for a loan to pay for their daughter's cardiac surgery.

The only thing Sansartuya wishes is that banks could give her lower interest rates. "Almost 40% of my loan payments only cover interest," she said. "It would be such a big support for us if the credit interest rate were to drop."

Jargal Lodoi, 51, is a herder who has moved from the steppes to the outskirts of Ulaanbaatar. The resource boom has raised the costs of traditional herding, which used to be the occupation of the majority of Mongolians. He is also a climate-change migrant, saying the pastureland his goats used to flourish on has dried up. He used to have almost 1,000 goats but last fall sold 550 as meat. He now keeps only 300.

Cashmere is Mongolia's third-largest export, after copper and gold. Its 30 million goats in 2020 produced 215 tons of dehaired cashmere, and the country provides 40% of the world's luxury cashmere. The industry employs over 100,000 people, far more than the mining industry.

Jargal moved near the city because there is no more grass for animals to feed on in his native Bayan-Undur, 200 km from Ulaanbaatar. Jargal and his wife, Delgermaa, have two sons, both of whom live in Ulaanbaatar. They bought a two-bedroom apartment in the capital for their sons, using their cashmere revenue.

"Thanks to cashmere, we are able to live a decent life," Jargal said. "However, it is better for us herders to have fewer but more profitable animals. But I have no idea where to find such extremely productive animals. I have no such knowledge in my veterinary livestock in Bayan-Undur."

Chronicle of a bust foretold

What is remarkable is how aware Mongolia's leaders were of the literature on avoiding the resource curse and how anxious they were not to repeat the past mistakes of previous resource-cursed countries.

"Mongolia cannot be Qatar but it will be Niger if we fail to implement vice revenue management," current Prime Minister Oyun-Erdene Luvsannamsrai said in 2015. "At this moment Mongolia seems to be Niger."

In the early 2010s, the government established a revenue management strategy and national development plans, along with a budget stability fund meant to smooth budget volatility due to seesawing commodity prices. In 2011 the government started to save some of the revenue in stabilization and heritage funds.

However, funds and plans were not enforced, and the budget continued to be used mainly for politically popular spending. The plans have largely failed. "Although it is natural to see some volatility in resource-dependent countries, macroeconomic volatility in Mongolia is higher compared to other commodity exporters," World Bank country manager Mikhnev told Nikkei Asia.

The root of the problem may not be economic but rather political. Difficult decisions come up against opposition from an entrenched political class that has done uniquely well during the boom, and few Mongolian politicians are untouched by some sort of scandal.

The best-known is the case against Batbold. Mongolia's Metropolitan Prosecutor's Office, along with two state companies and a government agency, launched a civil case in October 2020 that accuses the former prime minister of using several offshore shell companies to siphon hundreds of million dollars from mining operations. The Mongolian government, according to a filing in New York State Supreme Court last November, sought "to recover losses suffered as a result of illegal and fraudulent acts in connection with two of Mongolia's most prized natural resources, the Erdenet copper mine and the Oyu Tolgoi copper-gold mine." The latter is 66% owned by Turquoise Hill Resources (formerly Ivanhoe Mines), whose largest investor currently is Anglo-Australian mining giant Rio Tinto.

Using a team of international lawyers, the Mongolian prosecutors have secured injunctions from courts in England, Hong Kong, Jersey and Singapore against Batbold and people named as his proxies in court documents for assets in excess of $70 million, according to the claimant's attorneys. In addition, they sought an injunction in a New York State Supreme Court filing last November, withdrawing it in January after the defendants agreed not to sell or transfer two condominiums without notifying the plaintiffs.

In written comments sent to Nikkei, the lawyer representing Batbold insisted the accusations were "groundless and false," part of an organized operation designed to "damage the reputation of Mongolian People's Party, its leadership, and especially against S.Batbold."

The lawyer said some state companies named as claimants in the original civil suit have denied they gave consent to their involvement in the case, adding the that Metropolitan Prosecutor's Office "violated the law and exceeded his authority" in launching the suit. A spokesperson for the prosecutors office contacted on Oct 12 said the case is " is still under investigation" but declined to give further details.

Batbold's representative added that the New York court declined to freeze Batbold's assets in the U.S., implying the case lacked sufficient merit. Lawyers working for the Mongolian prosecutor's office said that the agreement by defendants not to sell or transfer the property pending resolution of the case in Mongolian courts made an injunction unnecessary.

Opposition politicians say the case against Batbold may indeed be politically inspired but that the information the case has brought to light offers a sobering view of Mongolia's political class. Munkhdul Badral, secretary of the National Labor Party, a third force in parliament, asserted that the legal efforts against Batbold were championed by Battulga Khaltmaa, the former president and Batbold's political rival. "I have no doubt that Mongolian politicians use tax havens and proxies to hide their illicit assets abroad," Munkhdul said. "But this might be the first instance where the Mongolian government has used foreign experts and courts to pursue such a case.

"I doubt, though, that the current government and ruling party has the enthusiasm to push through this case" as Battulga is now out of office, he said.

Said Rio Tinto: "We operate in line with local and international laws and regulations, and our values. There is no claim or court case in New York in relation to Oyu Tolgoi's Investment Agreement or Underground Development Plan (UDP). Neither Rio Tinto nor Oyu Tolgoi LLC have been named as parties in the case and these claims do not allege any improper conduct by Rio Tinto or Oyu Tolgoi LLC."

Mongolian lawmakers in 2018 sought to close some loopholes for corruption by establishing a beneficial ownership disclosure law. It requires mining companies to register their beneficial owners with the National Registration Authority and the National Intelligence Authority.

However, the law has been criticized for lacking teeth. "There is no punishment if companies do not register their beneficial owner," Erdenechimeg Dashdorj, extractive sector program manager of Open Society Forum in Ulaanbaatar, told Nikkei. She said that since approval in 2018, only 37% of mining companies have registered their beneficial owners. "The law enforcement still has room for improvement," she added.

Taking action against abuses has met with political pushback from established interests in government. For example, when then Prime Minister Altankhuyag Norov resolved in 2013 to investigate cost overruns at Oyu Tolgoi, his own party's members in parliament suddenly voted to dismiss him.

"Altankhuyag's cabinet was an obstacle for senior officials whose interests were to benefit from several mining deals," said Temuujin Khishigdemberel, a former parliament member who was Minister of Justice in Altankhuyag's cabinet. "The cabinet didn't make decisions as the officials asked. I can't deny that there was a corrupt and powerful system that emerged from mining money, and that it is powerful enough to change the fate of the entire government," Temuujin said.

The next prime minister, Saikhanbileg Chimed, forgave the cost overrun and signed an additional contract financing the second stage of the project, which is an underground mining construction development for $5.3 billion.

"Somehow, Rio Tinto persuaded the Mongolian government to accept the cost exceeded and even wrote in the agreement that there was no misunderstanding nor negative impacts related to the exceeded costs of the open-pit mine. Sadly, they didn't add any new clause into the agreement regarding what will they do if costs are exceeded again," said Bayasgalan Enkhbaatar, member of the Board of Directors of Oyu Tolgoi. Bayasgalan represents the Mongolian government, which retains the 34% of Oyu Tolgoi not owned by Turquoise Hill.

That episode was followed by another, ongoing, confrontation with Rio Tinto. Last December, Rio notified the government that the underground mine development project will overshoot original cost estimates by $1.5 billion and be delayed by two years.

The cost overruns represent substantial damage to the government's interest in the project. Bayasgalan cited calculations showing that the government cannot expect to start receiving dividends from its 34% ownership of the mine in 2032 as originally expected. Rather, due to the delay and the jump in costs, the government is concerned it may not receive any dividend before the mine's reserves are depleted.

Rio Tinto has solely financed the construction and operation of the mine, and has provided Mongolia with a loan to finance its 34% ownership of the mine. The loan specifies that it needs to be repaid in full before Mongolia can receive any dividend from the Oyu Tolgoi mine. The annual interest rate of the loan is LIBOR plus 6.5%.

Seven years after Oyu Tolgoi started production, the balance of the outstanding loan payment showed that Mongolia owes $2.2 billion to Rio. Any increase in fixed costs will make it harder for Mongolia to receive any dividends.

Rio argues that the Oyu Tolgoi project pays annually around $300 million in taxes to the Mongolian government from its $1 billion sales income.

In April 2018, Mongolia's Independent Authority against Corruption arrested two former prime ministers as part of an investigation into suspected misuse of power related to negotiations over the Oyu Tolgoi mine. Bayar Sanj, prime minister when the original 2009 investment deal was signed, and Saikhanbileg Chimed, prime minister when the expansion agreement was inked in 2015, were both detained. Saikhanbileg was later released from detention for medical reasons but flew to the U.S., where he remains. Bayar was sentenced in 2020 to five years in prison.

Said Rio Tinto, "As with all of the OT [Oyu Tolgoi] agreements, we negotiated the UDP in good faith and always acted in accordance with Mongolian and international laws and standards."

A new dawn?

The scandals have emboldened a new generation of Mongolian politicians who think the situation can be salvaged by getting rid of the previous generation.

Bulgantuya Khurelbaatar, former vice finance minister before she was elected to parliament in 2020, is the face of this bright young generation that says it is fed up with the patronage politics of previous administrations. With her reputation as a corruption fighter, she says Mongolia needs better regulations and better laws to impose transparency, budget discipline and improve the governance of state-owned companies.

"We must not repeat past mistakes, such as increasing spending instead of being optimistic about the next [commodity] supercycle. We also need much more public accountability. I want to encourage people to at least monitor the policies and budgets of the sector they work in" said Bulgantuya.

"We have learned a lot from the growth and depreciation of the mining sector over the years, but we are also aware of the risks. If we get involved in too many giant mining projects, like Erdenes Tavan Tolgoi, and do not learn lessons from the early days, such as the importance of reducing our dependence on mining, we will face much more hardship than we already have," she added.

Bulgantuya explained that the Future Heritage Fund, established in 2017, was approved to ensure some savings for future generations. The laws surrounding the fund prohibit any withdrawals, apart from management fees, until 2030. For Bulgantuya's generation, the fund acts as a small but significant symbol of hope for the future.

Oct. 12 (Xinhua) -- Chinese Premier Li Keqiang met with Mongolian Prime Minister Luvsannamsrai Oyun-Erdene via video link on Tuesday.

Noting that China and Mongolia are close neighbors with sound relations, Li said both countries face tasks of handling the COVID-19 pandemic, developing their economies and guaranteeing people's livelihoods.

Enhancing cooperation between the two countries benefits not only China and Mongolia, but also the region, he added.

Li said China stands ready to enhance cooperation with Mongolia to strengthen development strategy synergy, explore cooperation in key areas, expand bilateral trade, and facilitate port clearance and increase port throughput under the premise of effective pandemic prevention and control.

China hopes the two countries will further implement cooperation in preventing and curbing desertification to jointly build a clean and beautiful environment, the premier said.

China will, as it always has, support Mongolia to develop its economy, improve its people's livelihoods and fight COVID-19, Li said.

He stressed that energy security is a matter that concerns national interests and people's livelihoods.

Though possessing abundant coal resources, China is willing to carry out diversified energy cooperation, Li said, adding that China welcomes a larger volume of coal trading between the two countries to achieve win-win results.

Li said China encourages and supports enterprises from the two countries to actively carry out cooperation in line with market principles and business rules, and ensure a smooth and safe energy supply chain with reasonable and stable prices in the long term.

Noting that Mongolia and China have a shared future, Oyun-Erdene commended China's neighborhood diplomacy of amity, sincerity, mutual benefit and inclusiveness.

Oyun-Erdene thanked China for providing COVID-19 vaccines to Mongolia and said the cooperation between the two countries in the fight against the pandemic has set a model for the international community.

He expressed the hope that the two sides will strengthen cooperation in the fields of minerals, infrastructure construction, and desertification prevention and control, and that the two sides will increase their port clearance volume and promote the greater development of bilateral relations.