The international financial institutions (IFIs)’s strategic plan for Mongolia is focused primarily on the principle of “mining for sustainable development” in an attempt to help the country take advantage of its vast mineral resources.
However, the expansion of IFI financing of extractive industries in Mongolia raises several major concerns for civil society groups, including environmental risks and governance issues.
Mongolia joined the World Bank Group (WBG) and Asian Development Bank (ADB) in 1991 and the European Bank for Reconstruction and Development (EBRD) as a country of operation in 2006. The IFIs have already approved more than $3.14 billion combined to projects in Mongolia, with many more in the pipeline. In April 2007, Mongolia’s government signed a Memorandum of Understanding (MOU) with the World Bank, EBRD, and ADB on the development of the country’s mining sector, where more than 300 mining companies are currently operating. The MOU signals growing interest on the part of the IFIs in expanding activities in this sector, which represented about 18% of the country’s US$10.27 billion GDP in 2012. Coal, gold and copper account for a large percentage of this income.
As a result, BIC has determined that the extractive sector is a key issue to monitor and has urged the IFIs to adopt the best international social and environmental standards for all mining projects that they finance in Mongolia.
BIC’s current activities in Mongolia are limited, but staff are actively monitoring two World Bank Group projects:The IFC/EBRD-financed Oyu Tolgoi Copper-Gold Mine, and
The World Bank’s Mining and Infrastructure Investment Support Project.
Extractive Industry Project Developments
IFI investment in Mongolia’s extractive sector has focused on large companies and immediate export, rather than developing the country’s capacity to process and add value to its resources. Illegal exports to China and South Korea also remain problematic. Recent exploration has made Mongolia’s mining sector even more important. The two largest sites, Oyu Tolgoi (copper and gold) and Tavan Tolgoi (coal), could bring in $5 billion in foreign investment, or roughly half of the country’s GDP in 2012. NGOs have raised concerns over the transparency and management of these deals. Mongolia is also seeking to develop its uranium mining capabilities with Russian assistance, but it is unlikely the IFIs would become involved with uranium projects.
In February 2013, both the EBRD and the IFC approved $1 billion in loans ($400 million each from their own accounts) to support the $12 billion Oyu Tolgoi (OT) project in the South Gobi, which makes it the single largest investment either IFI has made to Mongolia. In 2011, the World Bank also approved a $25 million technical assistance project called the Mining Infrastructure Investment Support (MINIS) project. CSOs such as Rivers Without Boundaries are concerned about two of the subproject feasibility studies the Bank is financing. The two projects – the Shuren Hydropower Plant and the Orkhon-Gobi River diversion – are anticipated to negatively impact Lake Baikal in Russia, which is fed by the rivers the projects are located on, among other concerns.
The EBRD in particular has invested in a number of extractive industry projects besides Oyu Tolgoi, ranging in investments as little as $10 million in equity in Altan Gold to finance their exploratory operations to investing $245 million in loans and equity to the three companies who operate the Ukhaa Khudag coal mine (part of the Tavan Tolgoi complex) and $350 million to fund the development of the Tsagaan Suvarga copper mine by the Mongolyn Alt Corporation. Both Ukhaa Khudag and Tsagaan Suvarga are located in the Southern Gobi.
Extractive Industry Transparency Issues
In the past, BIC and other civil society organizations advocated for payments made by mining companies to the government be transparent and published. The Mongolian Government’s commitment to the Extractive Industries Transparency Initiative (EITI) in December 2005 was a step in the right direction, but the IFIs can do more to require that projects be transparent. A National Council and Multi-stakeholder Working Group, both established in 2006, monitor the EITI process, but civil society complained of inadequate representation. The NGO Coalition for Transparency in the Extractive Industries was formed in 2006. Mongolia has been EITI Compliant since October 2010. The country’s latest reports can be found on Mongolia’s EITI webpage.
The IFIs have shown their eagerness to support Mongolia’s EITI initiatives through a number of grants and technical assistance projects. The World Bank, for instance, has approved three grants totaling $830 thousand to facilitate and deepen the implementation of EITI in Mongolia both prior to and following compliance in 2010. Both the ADB and the World Bank have also approved projects intended to strengthen the government’s capacity to manage mining revenues, state equity, and the regulatory framework. This includes two development policy loans (DPLs) from the World Bank totaling $69.7 million and a technical assistance grant from the ADB totaling $150 thousand.
Civil Society AnalysisA Golden Opportunity? – Unpacking the Relationship between Mongolia and the World Bank, June 2012
Spirited Away: Mongolia’s Mining Boom and the People That Development Left Behind, January 2012
Official DocumentsMemorandum of Understanding between Mongolia and the World Bank Group, EBRD, and ADB, 30 Apr 2007
A Review of Environmental and Social Impacts in the Mining Sector, World Bank, May 2006
Terms of Reference of the Mongolia EITI Council, National Council, 2006
Mongolia EITI Reconciliation Reports, Mongolia EITI Secretariat website
Useful WebsitesNatural Resource Governance Institute (formerly RWI), Mongolia country page
EITI, Mongolia country page
World Bank, Mongolia country page
International Finance Corporation, Mongolia country page
Asian Development Bank, Mongolia country page
European Bank for Reconstruction and Development, Mongolia country page
Country Manager, Mongolia
Tel: +976 7007 8200
5th Floor, MCS Plaza Building
Country Director, China, Korea, and Mongolia
Tel: +86 010 5861 7600
Level 16, China World Office 2
No.1, Jian Guo Men Wai Avenue
Communications Officer, Mongolia
Tel: +976 11 312 647
5th Floor, MCS Plaza Building
Seoul Street 4
Regional Manager, China, Korea, and Mongolia
Resident Representative, Mongolia
Tel: +976 7007 8280
4th Floor, MCS Plaza Building,
Seoul Street 4
Communications Officer, China and Mongolia
Tel: +86-10 5860 3000 (China)
Country Director, Mongolia
Tel: +976 11 329836/323507
Mongolia Resident Mission Contact Information, ADB website
Executive Director for Mongolia
Tel: +44 20 7338 6432
Fax: +44 20 7338 6048
One Exchange Square
London EC2A 2JN
Matthieu Le Blan
Head of Office, Mongolia
Tel: +976 11 317 974/298
Fax: +976 11 315 844
3rd Floor, MCS Plaza
Seoul Street – 4A
Manager, Europe and Central Asia Program
Tel: +1 202 624 0625
For other regional contacts, please see BIC’s ECA Program page.