Australia lifts role in
Mongolia By Alicia J Campi
While Western financial blogs in 2012
decried the rise of Mongolian resource nationalism
as well as continuing corruption in Mongolia's
mining sector, Australia, cautiously yet
successfully, has maneuvered through the same
environment to significantly increase its
investment and political footprint.
Mongolia's super-hot mining boom cooled
down last year - 2011's record 17.3% growth slowed
to 12.3% in 2012 - because of decreasing exports
to China and foreign investor concerns about
restrictive tightening of its mining regulatory
regime.
Nevertheless, the Economist
Intelligence Unit in January predicted that the
country's economy would grow in 2013 an enviable
18.1%. In the next five years, foreign investment in
Mongolia's mineral sector is
forecast to exceed US$10 billion for a country
that had a GDP in 2011 of $13.4 billion.
Much of this growth is connected to
Australia's mineral investments and savvy
diversification of its trade relationship with
Mongolia despite facing serious hurdles in its
relations with the landlocked Asian country during
the past year.
In addition to fending off
renewed political attacks over the terms of
Australia's largest mining investment at Oyu
Tolgoi (OT), there was the very high profile
detention of Australian lawyer Sarah Armstrong,
counsel for Rio Tinto-controlled South Gobi
Resources. Armstrong was held for several months
for questioning about bribery and tax evasion. Her
Christmas Day release ended a dispute that clouded
the entire bilateral relationship.
Despite
the establishment of diplomatic relations in 1972,
both nations had only modest economic and
political interest in the relationship, even
though Australia has provided Mongolia with $81
million in development assistance since 1995.
Mongolia's first president, Punsalmaagiin
Ochirbat, visited Australia in 1997, yet Australia
waited until 2007 to appoint an honorary consul
for trade. Mongolia opened an embassy in Canberra
in 2008, after Australia transferred the
responsibility for Mongolia from its ambassador in
Beijing to one residing in Seoul.
On March
30, 2012, an Australian Consulate-General, managed
by the Australian Trade Commission, was opened in
Ulaanbaatar. Bilateral trade between the countries
only totaled $47.5 million in 2011-2012 (though
still up from $32.9 million in 2010-2011). This is
comprised mostly of Australian exports of
engineering equipment, measuring instruments, oil
additives, vehicle parts and other mining industry
machinery.
Mongolia's main exports to
Australia are vegetables, telecommunications
equipment and parts, as well as floor coverings.
The impetus for Australia's new prominence
inside Mongolia emanates from the Anglo-Australian
giant Rio Tinto's step-by-step takeover in the
past three years of the OT deposit, one of the
world's largest copper and gold mines, from
Canadian-owned Turquoise Hill (formerly Ivanhoe).
Commercial production and export of ore
concentrate to China will begin in the second half
of this year. OT's underground copper mine is
scheduled to be operational by 2016 and in full
production in 2018, which then could supply about
3% of the world's output - all destined for the
Chinese market.
The significance of this
one investment is seen in the fact that OT's
managing company already has paid $803 million (1
trillion Mongolian togrog) in taxes and fees to
the government of Mongolia through August 2012,
and OT at full production is predicted to increase
Mongolia's GDP by 30-35%.
However,
Australia's investment in Mongolia's mineral
sector is much more than OT and Rio Tinto. There
are over 50 Australian companies active in the
country, including
Leighton Holdings (contract mining for
Khushuut and Ukhaa Khudag coal mines, road
construction, and installation of Mongolia's first
large-scale wind farm at Salkhit);
McMahon Holdings (contract mining);
Legal firms (Minter Ellison, Allens);
Financial-sector firms (Macquarie Bank, CPS
Securities, Garrison Capital), and
Australian company Aspire Mining administers a
$2.2 billion coal mine - Ovoot - estimated to hold
the second-largest coking coal reserves in
Mongolia - and a 580-kilometer rail project in
northern Mongolia. The face of new Australian
ventures in the country, Aspire's investments may
provide Mongolia with access to a Russian port and
thus open Mongolian coal to a route and markets
beyond China - which has been a primary goal of
the government in Ulaanbaatar.
Australian
Foreign Minister Bob Carr, on his October 2012
visit to Mongolia, noted that Mongolia's mining
boom was primed by Chinese demand and Australian
investment. In a radio interview, Carr stated that
Australia was now the biggest mineral investor in
Mongolia, and he rejected the notion that the
Mongolian business climate was uncertain.
He acknowledged that Rio Tinto was worried
about the possibility the Mongolian government
would seek to overturn the terms of the present OT
agreement, but he emphasized that Australian
companies were generally satisfied with the
present regulatory environment. He singled out
Leighton's very positive view of Mongolia's
business climate, mine productivity, employee work
ethic, and approach to occupational health and
safety issues.
Present forward momentum in
economic ties can be traced back to Mongolian
Prime Minister Sukhbaatar Batbold's February 2011
visit to Australia. At that time, memoranda of
understanding (MOU) were signed on vocational
education cooperation to build the capacity of
Mongolia's mining workforce. The MOUs also covered
sharing wool and meat sector technologies;
cooperation on enhancing transparency and public
access to information; and collaboration in
geology, water resources and agriculture.
Today, Australians are partnering with the
World Bank and the United Nations Children's Fund
on Mongolian water projects in the Gobi Desert and
the northwest. People-to-people contacts are
vibrant, with about 700 Australians living in
Mongolia, including volunteers such as Australian
Youth Ambassadors for Development who work in
public health, environmental engineering and
business development projects.
The
government-sponsored Mongolia Australia
Scholarship Program (MASP) has allowed about 240
Mongolians with families to study in Australia.
This program, considered by the government to be
the "mainstay of Australian bilateral aid to
Mongolia" is bolstered by some 400 private
Mongolian students per year, a quarter of them
sponsored by the Oyu Tolgoi company. As a result,
an influential network has developed of Mongolian
alumni of Australian universities, many of whom
are parliamentarians and government officials.
Australia believes it can be a strong
"third neighbor" to Mongolia because its companies
are well placed to assist in the development of
Mongolia's resources sector. Concurrently, this is
a way for these companies to lessen the impact of
Mongolian minerals replacing Australian ones in
the Chinese market. A
Although the
political controversies around revising Mongolia's
foreign investment laws and reopening the OT
agreement with Rio Tinto are serious concerns for
Australia, the Australian Ministry of Foreign
Affairs and Trade, out of belief that Australia
can be Mongolia's model for managing its mining
economy and mineral wealth, has made Mongolia a
priority country under its Mining for Development
initiative.
Dr Alicia Campi has
a PhD in Mongolian Studies, was involved in the
preliminary negotiations to establish bilateral
relations in the 1980s, and served as a diplomat
in Ulaanbaatar. She has a Mongolian consultancy
company (US-Mongolia Advisory Group), and writes
and speaks extensively on Mongolian issues.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
