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Business / Mongolia News / Politics / February 13, 2015

Dispute over 17.5 billion MNT

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Five members of Parliament submitted a draft resolution calling for the resignation of Cabinet Secretariat S.Bayartsogt for alleged embezzlement of public funds last Friday. This is the first draft resolution demanding for someone’s dismissal received by the two month old Ch.Saikhabileg government.
MPs S.Ganbaatar, Kh.Bolorchuluun, Ts.Davaasuren, G.Uyanga, and L.Tsogt stated, “Under the guise of receiving legal advice for state-owned company Erdenes Oyu Tolgoi, S.Bayartsogt incorporated 17.5 billion MNT into the budget amendment for a U.S. company consisting of two of his family members, Painter Law Firm PLLC. 455 million MNT was transferred in 2014. This is an act of embezzling public funds collected from taxpayers as well as an illegal spending on an unauthorized objective.”
In accordance with the law, the issue will be discussed at the associated Standing Committee meeting for a week. Parliament will have to “prosecute” itself if the draft resolution is discussed.

Cabinet Secretary signs all resolutions to be presented to Parliament

Approving resolutions to be submitted to Parliament is the duty imposed by the law to the Cabinet Secretariat. Accordingly, Chairman of Standing Committee on Budget B.Bolor received and signed a list of projects and programs to be financed by the Development Bank of Mongolia under repayment terms from government sources and state budget during the plenary session. Several MPs kept this document as evidence.
Until 2015, Mongolia had three separate budgets; state budget, bonds, and the Development Bank. The three were integrated into the state budget in 2015 due to criticism from opposition parties. At the time, Minister of Finance Ch.Ulaan briefed that the budget deficit increased by 4.5 percent. During N.Altankhuyag’s government, it was decided that this amount of capital from the Development Bank will be spent on hiring highly-qualified legal, financial, and public relations consultants from abroad from 2014 to 2016. Therefore, over 260,000 USD (approximately 455 million MNT at the time) was issued to provide annual salary for Robert Painter, an attorney and member of Painter Law Firm PLLC, in 2014.
Robert Painter worked for a year at Erdenes Oyu Tolgoi LLC. The remaining money of the 17.5 billion MNT is currently saved at the Development Bank, and will be used to hire more consultants. S.Bayartsogt wasn’t part of former Prime Minister N.Altankhuyag’s cabinet, meaning that he signed the resolution to integrate bonds and Development Bank financing with the state budget as Cabinet Secretariat. In this case, grounds for his resignation is beside the point as S.Bayartsogt isn’t related to the case. This means that the five MPs have wrongfully accused him with something not related to S.Bayartsogt.
Minister S.Bayartsogt wanted MPs to first realize their mistake of attributing the previous government’s decision onto him. He said that he will complain to the Sub-Committee on Ethics of Parliament if the MPs don’t admit their mistake.

Are expensive foreign consultants necessary?

Experts speculated that Mongolian lawyers and attorneys are capable of taking on the tasks that the government hires foreign experts for, so such large sums of money shouldn’t be spilled out from Mongolia to foreign consultants.
Mongolia has rarely heard good news from International Court of Arbitration. The latest example is a 326 million USD international arbitration action against Mongolia for the illegal expropriation of its asset, launched by Canada’s Khan Resources Company. Despite fighting with the best local legal organizations and lawyers, Mongolia still lost the case. This type of issue is likely to arise as megaprojects are being commercialized at the moment.
Even though people are complaining about the high salary, Mongolia is in need of capable foreign consultants and attorneys. Spending several thousands of USD will help protect Mongolia’s resources worth several billion USD. Erdenes Oyu Tolgoi LLC had its reasons to hire an attorney. Investor of Oyu Tolgoi project, Rio Tinto, delayed the launch of its underground mining operations for nearly two years because of a disagreement with the government over fiscal terms. Rio Tinto sent a draft memorandum of understanding to begin underground mining. The 48 articles in the draft with 53 chapter were breaching investment agreements and applicable laws. The Oyu Tolgoi investment agreement was developed based on the feasibility study approved by the Mineral Resource Authority.
The initial investment was negotiated to be 5.1 billion USD. Yet, Rio’s side changed it to 9.4 billion USD. By the end of initial investment, 7.1 billion USD of this amount became an international loan. During disputes over the draft memorandum, the copper concentrator at Oyu Tolgoi copper and gold mine in Mongolia had been resuming operations and earning revenue. Rio could’ve used profits from the concentrator to finance the underground mine, but they ceased further work at the underground mine. Some experts suspect that Rio is using the profit to repay its debts, and “collateralizing” Oyu Tolgoi’s underground mine to escape from all risks. The Mongolian side disapproved the draft memorandum, and is developing an arbitration case against investors who violated the Mongolian Law. Under this condition, the best and most experienced lawyers who specialize in international law are essential for Mongolia.
Mongolians wouldn’t want to be left with nothing after letting foreigners use Mongolia’s resources. Mongolia will be able to reach favorable negotiations with Rio Tinto only with capable and experienced legal, financial, and public relations consultants. As for Robert Painter, he remained and fought along Mongolia’s side since the auction of Tyrannosaurus bataar skeleton until the fossil was returned to Mongolia. His great efforts were rewarded with the Order of Altan Gadas (Order of the Polar Star), bestowed by Mongolian President Elbegdorj.
Mongolia chased away many foreign investors and lost their trust. Now, the nation is doing everything it can to bring them back. Mongolia will face even greater loss if capable consultants are driven away because of disputes like the recent case involving Cabinet Secretariat S.Bayartsogt and the concerning 17.5 billion MNT. Mongolia’s reputation has already fallen considerably among other countries.


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