TAVAN TOLGOI AND TAVAN CHALLENGES
February 20, 2013
If there are no certain laws that put some sort of restraint on the government and its authority, politicians will readily do anything in order to be re-elected. In Mongolia, a new and young democracy, lawmakers managed to seize the executive power for themselves. This turned the government upside down, altered the meaning of public governance and allowed the government structure to serve small interest groups instead of the people.
Due to distortion in public governance, our economy is experiencing many negative consequences as well as failing to decrease the inflation rate and reduce poverty. Therefore, if we don’t identify the underlying reason of this risk our governance is facing and resolve it properly, some serious harm will begin to threaten our national security.
Five clear challenges faced by Mongolia’s public governance today are illustrated here by the example of the Tavan Tolgoi deposit, which is partly owned by the central government. Recently this has caused much doubt and suspicion, despite the faith and hope it has carried from the beginning.
CHALLENGE I: OVEREXPANDING GOVERNMENT
Government involvement in the economy shrank for the first ten years that followed the democratic revolution. However, it has been expanding back over the last ten years. In spite of big expectations to strengthen the principles of a market economy and democracy, the “reformist” government is encouraging this trend where the government is more involved in the economy.
Cases such as Erdenes Tavan Tolgoi and MIAT have unveiled the corruption nest in state-involved companies where it is possible to steal from public money and property. Furthermore, the government is establishing more state-owned companies regardless of the fact that they witness previous companies like these going bankrupt. When one takes all of these things into consideration, it is absolutely intriguing why the members of parliament are opposed to the idea of privatizing those state-owned companies.
As the government is expanding, more public money is being lost to the wrong hands and our debt is increasing. No one takes any responsibility for the badly planned factories of different kinds that were built with billions of tugrugs. However, it has become a common phenomenon that their deficit is compensated by the money accumulated from taxes paid by ordinary citizens and businesses. Political parties are still building palaces for themselves and dignitaries keep riding their luxury cars.
When there is a decline in the prices of coal, copper, and gold, the government (who got used to toying with the money from public budget) is increasing tax rates instead of cutting its expenditure. Instead of facing and managing a crisis, they are making the people bear every burden. As a result, the private sector can no longer create a surplus and everyone is trying to work for the government.
Our national debt has become twice as big as it was before the negotiations were made with Russia to “fully settle” the debt. And, the Russian debt was the biggest debt Mongolia had ever had. The government today has found a “clever” way to make up its deficits by acquiring foreign loans to implement projects.
The two political parties that formed the government together gambled on the future sales of Tavan Tolgoi coal and received advance payments in order to live up to their previous election promises by distributing cash to people for free. Erdenes Tavan Tolgoi is a state-owned company, which means that the government used the capital of this company for political reasons and misspent it through the Human Development Fund.
We need to undertake privatization in state-owned companies that have no certain owner and allow inappropriate involvement of politicians. We need to introduce a system where representatives of shareholders are given a term to have a seat on their representative board.
CHALLENGE II: UNACCOUNTABLE GOVERNMENT
Public property now belongs to whichever political party wins the election and is only serving the interests of a certain group. Accountability is overly dependent on the relationship between political parties, which is why some corruption cases have a culprit and some don’t.
When the business environment is unstable and confusing, no investment – domestic or foreign – is made in the economy. There are now changes made in laws before almost every election destabilizing the business environment in Mongolia. This is causing foreign investors to demand for a stable agreement. As a consequence of making these special agreements, many different business environments are set in one country which makes it impossible to provide supervision and oversight.
Politicians are not held accountable for the decisions they make. So, they are comfortably making changes to the laws anytime they want and are creating favorable conditions for companies they like. There is an absence of an opposition party that is supposed to provide scrutiny over decisions and the two winning political parties usually establish a coalition government. On top of that, members of parliament are appointed as ministers. Therefore, an accountability system in governance is on the verge of vanishing.
The younger generation of Mongolians are all aspiring to get into politics because politicians, especially those who get to have a seat in the parliament or government, are provided with every chance that allows them to chase their own interests without being held accountable for their unlawful actions.
The current Prime Minister and other ministers were all present when Erdenes Tavan Tolgoi established an agreement with Chalco. It is an utterly irresponsible action that, after the two political parties spent all that cash for election purposes, they are now attempting to make changes to the agreement claiming it does not benefit Mongolia.
CHALLENGE III: BAD GOVERNANCE
It seems that the workforce policy of the government only exists on paper. Efficiency and quality of public services are falling hard because public servants are hired based on their political party preference or place of origin instead of knowledge, education and skills.
Public office has become a tool to serve self-interests and, as soon as a new political party wins an election, almost all of those positions are newly appointed. In a way, they have no other way but to replace some officials because they were appointed to their positions without having the necessary knowledge or skills.
The new government recently announced that the Erdenes Tavantolgoi Agreement was a bad one. They say it needed changes so that Mongolia would benefit from it. It is true that, despite the market price of coal was USD $90, they agreed to sell the first million tonnes of coal for USD $70 a tonne. Also, the agreement set out that, after the first million tonnes, the price of coal will be multiplied by changes in four kinds of price indices (not changes in the price, but changes in the price indices). Therefore, they are now going to sell the coal for a cheaper price that actually outweighs the cost. If there had been a skilled, knowledgeable team, they would have never made such an agreement. On the other hand we see that Oyu Tolgoi has already sold its first three-year’s worth of copper concentrate which hasn’t even been produced yet, for a considerably high price.
CHALLENGE IV: RENAISSANCE OF AUTHORITATIVE GOVERNANCE
Because it is not based on principles, our governance is experiencing changes as time goes by. The principal characteristic of a weak government is authoritative governance. Firstly, it makes numerous structural changes, and then strictly defines what one can do and cannot do. After that, it spends a fortune to check if its implementation is going the right way. This will then comprise the largest proportion of total expenditure. Due to lack of a clear, transparent system that is based on principles and correctly measured results, every action is perceived and assessed by emotions only.
Rights and responsibilities of judicial and enforcement agencies have been greatly extended and the number of postponed court hearings has started to rise significantly. Law enforcement is becoming more and more dependent on political views, positions, connections and election terms. Also, personal or group interests are now more prioritized than the public interests are.
Chief officials in state-owned companies today are sending their resignation letters claiming they are quitting for personal reasons. Even the chief of Erdenet suddenly requested to “step down.” The ruling political party then just appoints one of its members to the newly vacated position. This is often before resignations letters are even sent. Changing positions in public office by means of “personal reasons” or “threatening” is much easier for these people because it is not followed up with questions and inquiries.
Furthermore, there is a trend that middle-and lower-level officials in public governance are being threatened to be held accountable and replaced. This sort of replacements is definitely not a sign of an improvement in public governance. It is a sign that public offices have turned into a tool for trading. Governance over public property has become more secretive.
There is an emerging desire to set prices with an authoritative approach rather than by market economy principles. The supply of certain goods can be altered in the short term by creating a reserve, but it cannot be accomplished in the long term. In order to avoid a shortage of goods, market competition must be created. A monopoly supply, on the other hand, has to be broken down using authoritative measures so that consumers will have a broader range of choices.
CHALLENGE V: LACK OF VISION
Every branch of government operations is now governed by election terms. However, a proper policy in public governance should be based on long term outcomes and public interests rather than short term outcomes and the interests of a select few.
The Mongolian government’s short term policy is now aimed at chasing away investment from third neighbor countries and letting the two neighbors to fill in that gap. However, Russia and China are not trying to attract foreign investment; they are working to acquire more technology.
Due to the increasing lack of long term policy and vision, our economy is going after short term income instead of improving its competitiveness. Therefore, social labor productivity is not increasing. Basically, despite owning no capital, we have begun to dismiss foreign investment.
We are misusing and wasting our long term capital because we fail to have a long term vision. No one is saying a word about the Pension Fund anymore. They had no interest to maintain the Resources Fund. That is why they turned it into the Human Development Fund and used it only for bribery during elections.
There is no long term thinking, which is why air pollution is only discussed in autumn and winter, but gets totally forgotten about in summer. They are going to lay the foundation stones of the 5th power plant for the seventh time because construction will take more than five years.
In summary, we, the Mongolian people, are losing our reputation due to our inability to overcome these five abovementioned challenges. A business agreement is not something you can toy with. The fate of a market economy is closely dependent on contract enforcement. However, our government is far from enforcing an agreement because it does not even manage to follow the agreement they established. Politicians and their associates who lack knowledge and skills are representing the government and conducting poor negotiations with foreign countries and companies. A Mongolian should always live up to his promises. We have a saying, “A lost horse can be caught, but a given promise cannot be retrieved.”
If they want a change now despite having already established the agreement during the coalition government, will future governments keep making the same demand?
The government is a governance structure and it does not belong to any political party. Therefore, it has to inherit everything, both good and bad, from the previous government. Isn’t it clear that, if there is no inheritance, it will eventually pose a risk to our economy and national security?
We, the Mongolian people, have to stand together as one and successfully overcome these five challenges with all costs. Let us have a vision that is as wide as our beautiful steppe.
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