EurasiaNet Business & Economics - Russia Presses for Stronger Ties with Mongolia

BUSINESS & ECONOMICS

RUSSIA PRESSES FOR STRONGER TIES WITH MONGOLIA
Sergei Blagov 5/30/07

Moscow is eager to reassert its influence in Mongolia, which during the Communist era was often portrayed at the "16th" Soviet republic. Mongolian leaders, however, appear intent on keeping their economic options open.

As has been Russia’s pattern since leader Vladimir Putin moved into the Kremlin, trade is acting as the spearhead of Russia’s geopolitical thrust into Mongolia. Several high-profile Russian delegations have visited the Mongolian capital Ulaanbaatar in recent weeks, all of them devoted to stimulating trade, mainly in the mining sector.

On April 13, for example, Sergei Kiriyenko, head of Russia’s Nuclear Power Agency, Rosatom, held talks with Mongolian President Nambaryn Enkhbayar, Prime Minister Miegombo Enkhbold and Finance, Trade and Industry Minister Nadmidyn Bayartsaikhan. Kiriyenko and Bayartsaikhan signed a tentative agreement on bilateral cooperation to mine uranium deposits in Mongolia. Both sides set up a joint working group which is due to announce its report by July 2007.

During a May 13-17 visit, Federation Council Speaker Sergei Mironov explored other mining deals, in particular the development of Mongolian coal deposits. Following talks on May 15, President Enkhbayar announced that his administration would welcome Russian investment and cooperation in developing the country’s coal reserves, including the Tavan Tolgoi mines in southern Mongolia. He also said that Russia’s Polymetal was still interested in Mongolia’s Asgat silver deposits located near the Russian border in Bayan Olgii. At the same time, the Mongolian leader offered no concrete commitments, and stressed that any Russian cooperation would have to take place "within the framework of Mongolia’s laws."

Mironov was not the only Russian official visiting Mongolia in May. On May 17-20, a delegation of the Russian State Duma, headed by Viktor Voitenko, chairman of Russia-Mongolia parliament group, traveled to Ulaanbaatar to discuss economic ties, border trade and visa issues. Russian deputies lamented that the Russian language was disappearing from Mongolian schools, while their Mongolian counterparts complained about red tape in terms of access to the Russian market for Mongolian exports.

Russian officials have long had their eye on the Tavan Tolgoi coal field. Russia’s Severstal, leading steel and mining concern, is leading the charge to extract Tavan Tolgoi deposits. To encourage Mongolian officials to go along with Severstal’s plans, company representatives have argued that developing Tavan Tolgoi coal reserves could raise Mongolia’s GDP by 25 percent. The coal field has estimated reserves of up to 6 billion tons. Late last year, Severstal forged a consortium with other Russian entities with the aim of speeding the development of Tavan Tolgoi. No specific development deals have been announced to date, however, even after Enkhbayar’s visit to Russia in December.

It has been much the same story with silver mining. A Mongolian-Russian joint venture, in which Polymetal was a major player, clinched a tentative deal on the Asgat deposit last December. However, the agreement sparked domestic controversy and the Mongolian government had to cancel it in January 2007.

Beyond uranium, coal and silver, Russian entities are interested in projects involving Mongolia’s substantial copper, silver and gold reserves. But again, no specific plans for cooperation exist.

Despite the evident reluctance to act, Mongolia continues to profess a desire to expand commercial relations with Russia. Both sides pledged to prioritize trade during an April 26 meeting of the bilateral sub-commission on regional and cross-border cooperation, held in Irkutsk. The sub-commission reiterated plans to raise trade turnover between Russia and Mongolia as high as $700 million. That figure, if attained, would represent a more than 100 percent increase over the trade level in 2006, and almost a nine-fold increase over turnover in 2000. Roughly 90 percent of Russian exports to Mongolia are connected with the energy and petrochemical sectors.

During the Soviet era, Mongolia was member of the Kremlin-dominated Communist bloc of states and was dependent on economic assistance from Moscow. In the post-Soviet era, efforts to strengthen trade ties were hampered by the issue of Mongolia’s Soviet-era debt. In December 2003, the Russian government decided to write off all but $300 million of Mongolia’s estimated $11 billion debt to Russia. Even that significant economic gesture, however, proved unable to significantly stimulate bilateral trade and investment.

A major reason why Mongolia has been able to withstand Russian pressure for closer ties is rooted in geography. Mongolia’s southern neighbor is China, and officials in Ulaanbaatar have so far been able to play Moscow and Beijing off each other, thus buying some room for independent maneuver.

Editor�s Note: Sergei Blagov is a Moscow-based specialist in CIS political affairs.

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