being neighborly

Mongolia is developing closer and closer ties with their two neighbors--China and Russia. China, which has traditionally had somewhat antagonistic relations with Mongolia, is now trying to purchase major mineral-extraction resources inside the country. Their state-owned energy company has about 9 billion dollars to shop with, and they're looking for deals inside Mongolia.

At the same time, Mongolia has nearly reached the stage of strategic partnership with Russia. The Mongolian prime minister is about to visit Moscow to further this relationship. Part of their discussion will focus on cooperation in uranium production and the building of nuclear power plants. While nuclear energy might be a good solution to the pollution crisis in UB, I think it is good that Mongolia is also talking to Japan and France about uranium processing. It would seem so easy for them to slip back into being a Russian satellite nation.

In the meantime, Mongolia is still debating their policy on mineral extraction. Foreign investors, such as Rio Tinto, are getting nervous because the Mongolian government is debating taking 51% of the profits from large mining operations rather than the 34% to which they originally had agreed. This may represent a real roadblock to future foreign investment. Bold Luvsanvandan, chairman of the Mineral Resources and Petroleum Authority of Mongolia, says, "The main danger is if we worsen the investment climate, the only investors we are left (with) will be neighboring countries China and Russia." It may be economically dangerous for Mongolia to trade only (or primarily) with Russia and China, but the geographic and political realities are making it hard to do otherwise.

Further complicating matters is the lack of infrastructure that makes it difficult to exploit Mongolia's resources. For example, the Ulaan Ovoo mine possibly has a 35-40 year supply of coal but is 120 kilometers from the Trans-Mongolian Railway. Numerous scenarios have been developed for resolving this issue, but all are extremely expensive. Mongolia is also interested in a "coal-to-liquids" technology, but pipelines would necessarily have to run into or through one of their two neighbors.