Problems at the world's largest coking coal mine escalate

Mongolia’s state-owned mine Tavan Tolgoi has been forced to freeze its coal sales and postpone a planned public listing after having to fund cash handouts to the electorate. The troubles are the most recent of a long list the project —supposed to become the propeller for Mongolia’s economy— has faced in the last two years.

Tavan Tolgoi’s financial woes stem from a government decision to give 1,072 shares in the company to every Mongolian citizen, in an obvious but effective way to win votes. But the authorities did not stop there. Right before last year’s elections, they introduced a buyback plan letting citizens exchange their shares for about $760 (1m tughrik).

In a nation where the per capita annual income is $3,000, reports FT.com (subscription required) the sum offered by the government was certainly welcome, but it left Mongolia with a bill close to $1 billion, at a time when Tavan Tolgoi itself was barely breaking even.

Now Mongolia's government is planning to cancel a $250 million coal-supply deal with Aluminum Corp. of China Ltd. claiming it is undervalued, a move that analysts think will likely deepen distrust between Mongolia and its neighbour.

Chinese state-owned aluminum producer, Chalco, said it hoped Mongolia would honour the contract. But a senior official from Mongolia's Ministry of Mining, quoted by the Wall Street Journal, said the country it is seeking to renegotiate.

Mongolia is walking a diplomatic tightrope with Tavan Tolgoi, which boasts a 6 billion tonne resource. Aside from closer ties with China it wants to use the project to strengthen its long-time political and cultural links with Russia and at the same time make room for the US as a geopolitical balancer in Asia.

(Image: Nadaam Festival, traditional Mongolian wrestling by oksana.perkins / Shutterstock.com

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