Asia-Pacific Policy Papers Series
THE NEW GREAT GAME IN NORTHEAST ASIA:
POTENTIAL IMPACT OF ENERGY MINERAL DEVELOPMENT
IN MONGOLIA ON CHINA, RUSSIA, JAPAN, AND KOREA
By Dr. Alicia Campi
Johns Hopkins University The Paul H. Nitze School of Advanced International Studies
tel. 202-663-5812 email: [email protected]
THE NEW GREAT GAME IN NORTHEAST ASIA:
POTENTIAL IMPACT OF ENERGY MINERAL DEVELOPMENT
IN MONGOLIA ON CHINA, RUSSIA, JAPAN, AND KOREA
By Dr. Alicia Campi
The Edwin O. Reischauer Center for East Asian Studies
Established in 1984, with the explicit support of the Reischauer family,
the Edwin O. Reischauer Center for East Asian Studies at the Paul H.
Nitze School of Advanced International Studies (SAIS) actively supports
the research and study of trans-Pacific and intra-Asian relations
to advance mutual understanding between North-east Asia and the
United States.
The first Japanese-born and Japanese-speaking US Ambassador to
Japan, Edwin O. Reischauer (serv. 1961–66) later served as the center’s
Honorary Chair from its founding until 1990. His wife Haru Matsukata
Reischauer followed as Honorary Chair from 1991 to 1998. They both
exemplified the deep commitment that the Reischauer Center aspires to
perpetuate in its scholarly and cultural activities today.
Asia-Pacific Policy Papers Series, No. 15
©2013 by the Edwin O. Reischauer Center for East Asian Studies
Johns Hopkins University – SAIS
1619 Massachusetts Avenue, NW
Washington, DC 20036
All rights reserved
Cover design by Automated Graphics Systems, Inc., White Plains, MD
About the Author
Dr. Alicia Campi, a former Department of State officer, has been an American leader in all
aspects of relations with Mongolia, including mining and financial consultancy, for many
decades. Since March 2007, Dr. Campi has been President of The Mongolia Society of
Bloomington, Indiana. In 1991, she founded the U.S.-Mongolia Advisory Group (USMAG), a
company specializing in finding Mongolian partners for western companies, and two years later
she established the private charity Chinggis Khan Foundation to promote small-scale assistance
projects in Mongolia in education, environment, culture and the arts. Dr. Campi received her
A.B. in East Asia History from Smith College in 1971 and obtained an M.A. in East Asian Studies
with a concentration in Mongolian Studies from Harvard University in 1973. She received a
Ph.D. in Mongolian Studies (Department of Central Eurasian Studies) with a minor in Chinese in
1987 from Indiana University. While serving in Tokyo in the mid-1980s, Dr. Campi conducted
preliminary negotiations leading to the establishment of diplomatic relations between the U.S.
and Mongolia. In July 2011 she received the “Polar Star”—Mongolia’s highest honor—from
President Ts. Elbegdorj for her contributions to U.S.-Mongolia bi-lateral relations. The National
University of Mongolia awarded her an Honorary Doctorate in September 2007. Dr. Campi in
2009 published a book on The Impact of China and Russia on United States-Mongolian Political
Relations in the Twentieth Century and has published over 80 articles on various aspects of
Mongolian studies. She is currently a Visiting Scholar in the Edwin O. Reischauer Center for East
Asian Studies."
1
THE NEW GREAT GAME IN NORTHEAST ASIA: POTENTIAL IMPACT OF
ENERGY MINERAL DEVELOPMENT IN MONGOLIA ON CHINA,
RUSSIA, JAPAN, AND KOREA
Dr. Alicia Campi
Geopolitics is the defining of the circumstances under which a nation will always act to
protect its national interests. It is commonplace to analyze the major nations of Northeast Asia—
China, Russia, Japan, and the Koreas—from this perspective, because their historical and
contemporary rivalries impact the entire Asian region, the United States, and at times even world
peace. However, it is only in the last few years that the nation of Mongolia, a landlocked bridge
between Northeast and Central Asia—has become part of the region’s energy security
calculations. That mineral-rich Mongolia is now part of this new “great game” and that the
young Mongolian democracy has its own strategy in the game is a surprise, although perhaps it
should not be. Mongolia traditionally has played a linchpin role in Russia, China and Japan’s
strategic views about Northeast Asia. In today’s 21st century world of new economic and
political realities since the break-up of the Soviet Union and the rise of China, Mongolia has
become even more prominent in their self-interested calculations. Now the need for key minerals
to feed the Chinese economic juggernaut, as well as the advanced economies of Japan and South
Korea, has attracted the attention of the global political and financial investment communities.
Mongolia, home to vast resources of coal, copper, rare earth minerals, uranium, gold and silver,
had a 17.3% growth rate in 2011 and 12.3% in 2012. Some have called it the ‘Asian Wolf.’ It has
the potential to strongly influence the political, economic, and environmental atmosphere of its
North Asian region. Mongolia’s version of resource nationalism is not only of concern to the
regional players, but also to the United States’ strategic and political interests in Asia for the next
several decades. Nevertheless, there has been insufficient analysis by researchers on the potential
impact of the boom in Mongolian mineral development on the eco-political and strategic
2
policymaking of these states, not to mention on Mongolia’s own views about its role in balancing
its two giant neighbors with other nations in the Asian region including the United States.
Introduction:
Mongolia’s energy security faces a number of domestic and regional challenges. Firstly, the
country’s energy planners face obstacles in meeting the increasing demands of domestic consumption,
including dependency on foreign imports of energy supplies, and huge infrastructure shortcomings. The
country’s landlocked status also imposes an obstacle to export its vast energy commodities, as exports
must go through either Russia, or China – the world’s largest consumer of energy–in order to find other
potential buyers. In light of the country’s geostrategic location, rivalry by both neighbors to gain access to
mineral and energy deposits has also created new challenges for its political autonomy. How the country
balances its neighbour’s vested interests in its energy deposits, in light of complicated historical political
relations, is vital. This research study also looks at how China impacts Mongolia’s energy security. While
the role of China as chief customer of Mongolian energy commodities and biggest investor in the
development of the country’s energy sector creates opportunities for growth, this emerging dependency
also brings with it numerous risks. Alongside China’s enhanced role in Mongolia’s energy sector is
evidence of new threats to the country’s political autonomy in energy related decision-making. The way
Mongolia manages this risk will determine the country’s future domestic energy security, as well as its
role as a regional energy supplier.
The Mongolian energy security debate warrants attention for two reasons: firstly, Mongolia is
increasingly seen as a future source of energy resources. Its abundant supplies, particularly of coal, are
seen as an emerging new source to meet the energy demands of a number of Northeast Asian consumers.
How Mongolia’s own domestic energy scene is developing has broader implications not only for
Mongolian energy policy makers but also for potential investors and governments in the region and
abroad. Therefore, as an emerging energy-exporting nation, how the Mongolian government manages the
development of the industry and trade of its commodities impacts a range of stakeholders. Secondly,
3
because of the Mongolia’s geostrategic positioning, how the country responds to the involvement of other
countries in its domestic energy scene warrants attention. Mongolia’s position, sandwiched between two
giant neighbours, has serious implications for the sovereignty of the country, as it seeks ways to balance
both China and Russia’s vested interests in its energy resources. While Russia’s status as Mongolia’s
traditional “big brother” is significant, the emergence of China in Mongolia’s energy sector is
increasingly important. The formula Mongolia will employ to manage its economic growth and
development—and face up to its energy security challenges with Beijing’s new political and commercial
interactions—has not been clearly articulated. This paper aims to set a baseline for China’s role in
Mongolia’s energy security so changes in the future can be measured.
China for more than a decade has been both Mongolia’s largest trading partner and
largest foreign investor with 51% of investment in 2011, while Canada is in second place with
8%. Approximately 65.3% of Chinese FDI in Mongolia is in the “geological prospecting” oil
exploration and mining sector. 1 In 2012 89% of Mongolian exports, the vast majority being raw
minerals such as coal, went to China. 2 Trade volume between the two countries in 2012 was $6.6
billion. The amount of coal mining in Mongolia increased 23%in 2011alone. While China imports only
8% of its coal from overseas, 43% of that now comes from Mongolia. Over 5,000 Chinese firms
operate in Mongolia, with a combined investment of around $2.5 billion, 3 with $1.4 billion
invested by PetroChina. 4
Russia, on the other hand, which had subsidized one-third of Mongolia’s budget in the
communist era and together with other Cocom countries supplied 95% of Mongolia’s trade in the
1980s, imports only about 2% of Mongolia’s exports in 2011. However, Russia’s influence over
Mongolia today comes from the fact that Mongolia purchases 95% of its diesel and petroleum
products and about 90% of its electrical power from Russia. Mongolia is developing a conscious
policy to diversify its oil imports and eventually refine its own crude, but this is in the initial
4
stages. The United States’ economic position in Mongolia has been steadily eroding. In 2011 U.S.
investment was ranked 9th with 2.39%, while 15 years ago it was No. 1. In 1992 the U.S.
imported $6.9 million in Mongolian goods and exported only $2.3 million worth of products to
Mongolia. By 2004 the U.S. was importing $239.1 million, mainly in cashmere and camel wool
textiles. However, today after the collapse of Mongolian textile production in the mid-2000s, the
U.S. imported only $4.7 million in goods but exported $457.7 million due to the sale of several
new Boeing planes in 2011 and 2012. 5 It should be noted that despite the great increase in trade
turnover during the last twenty years and the recent runaway economic boom generated by the
mineral sector, the Bank of Mongolia 6 reports a persistent and growing trade deficit with
Mongolian imports exceeding exports.
CHART 1: Mongolian mineral resources
` Coal
18,473.2 mil.ton
` Copper
83.807 mil.tn
` Zinc 26.3 mil.tn
` Iron
1,046.6 mil.tn
` Silver 231.87 thou.tn
` Molybdenum 963 thou.tn
` Rare-earth elements 1,459.01 thou.tn
` Tungsten 287.35 thou.tn
` Pewter (tin) 55.8 thou.tn
` Cadmium 6.2 thou.tn
` Arsenic 25.13 thou.tn
` Antimony 74.52 thou.tn
` Uranium 90.03 thou.tn
` Bismuth 17.06 thou.tn
` Gold /earthen/ 221.47 tn and Gold /main/ 2180.94 tn
` Rhenium 9.8 tn
Statistics from 1.01.2012, Mongolia’s Mineral Authority
5
For several decades Mongolia’s largest money earner has been the Russo-Mongol copper
state-owned joint venture at Erdenet, which is the 4th largest copper mine in the world. As
Mongolia’s largest company, in 2011 it accounted for 13% of the country’s GDP. However,
Mongolia is a land rich in unexploited and poorly explored vast mineral resources, and is at the
beginning of a boom cycle of development. In the beginning of 2013 private companies,
domestic and foreign-invested, held 2,239 mining exploration licenses over 20 million hectors of
land. In 2008 such exploration licenses numbered 4,111 over nearly 50 million hectares. 7 Since
2010,4000 licenses were returned or cancelled without compensation for environmental
violations. Many of these licenses were for placid deposits along river sources and water basins,
which subsequently were banned for environmental pollution reasons in 2010 by Parliament. The
Mongolian Mineral Authority which is responsible for all licensing has indicated it will continue
cancel up to 1400 licenses by 2014, and stopped the granting of new private licenses until
2017. 8During this time period, mineral exploitation will proceed only in the 15 strategic deposits
that have been designated by Parliament in its 2006 Mining Law. 9 These deposits are required to
be at least 50% state-owned, except for Oyu Tolgoi (OT) copper-gold project, which was
licensed for development back in 2003 as part of a deal to resolve Mongolia’s outstanding debt
to the Soviet Union.
CHART 2: MONGOLIA’S STRATEGIC MINERAL DEPOSITS
Deposit Name
Mineral Type
Location-Province
1.Tavan Tolgoi
Hard Coal
Omnogobi
2.Nariin-Sukhait
Coal
Omnogobi
3.Baganuur
Brown Coal
Ulaanbaatar City
4.Shivee Ovoo
Brown Coal
Gobisumber
6
5.Mardai
Uranium
Dornod
6.Dornod
Uranium
Dornod
7.Gurvan Bulag
Uranium
Dornod
8.Tumertei
Iron Ore
Selenge
9.Oyu Tolgoi
Copper,Molybdenum,Gold
Omnogobi
10.Tsagaan Suvarga
Copper,Molybdenum
Dornogobi
11.Erdene
Copper, Molybdenum
Orkhon
12.Burenkhaan
Phosphorus
Khubsgol
13.Boroo
Gold
Selenge
14.Tumurtein Ovoo
Zinc, Lead
Sukhbaatar
15.Asgat
Silver
Bayan-Olgii
OT was originally conceived as a 100% owned Canadian investment and later
renegotiated to give the Mongolian Government a 34% interest. Rio Tinto Corporation in 2009
bought into the project and early in 2012 took majority control of the foreign-owned 66%,
although the original Canadian company, Turquoise Hill, 10 remains as a minority partner in the
project. According to Rio Tinto, OT by 2012 had contributed over US$2 billion to the
Mongolian economy through technology, jobs, and other revenues. With estimated development
costs in excess of US$7 billion and a 40-year plus mine-life, OT is conservatively expected to
double Mongolia’s annual GDP by the time it reaches full production around 2017. Initial
production of copper concentrate is on schedule to commence in mid-2013, although the
controversial project has been plagued by production delays and Mongolian Government threats
7
to
reopen
the
working
agreement
to
give
the
Mongol
side
more
control.
The Russian Bear’s “Energy Game Plan”
It has been said that nobody in Russia understands the global energy security issues better
than Putin. Putin’s concept of Russia as “energy super power” is to exploit energy assets for
specific political goals and to use energy companies as an instrument of foreign policy. He was
quoted as saying: “Russia enjoys vast energy and mineral resources which serve as a basis to
develop its economy; as an instrument to implement domestic and foreign policy. The role of the
country in international energy markets determines, in many ways, its geopolitical influence.”11
Andrei Illarionov has called the Russian model as the “resource curse” (increasing dependency
on export revenues and declining growth) combined with the “state curse” wherein the quality of
institutions managing the mineral wealth is so undermined that the governance system becomes
corrupt and political expediency triumphs over economic common sense to created ‘energy
egoism.’ 12
8
Anita Orban sees the primary motive of Russia’s energy imperialism as to increase its
power and the most effective means is expanding its political-economic presence in energy
sphere: “These aims are conditioned by the Russian leaders’ perceptions of the country’s role in
the balance of power and the resources available to the Russian state.” 13 Pavel Baev analyzes
Russian policy as a process of reconstituting the Soviet empire as an oil and gas cartel by
focusing on maximizing control over energy resources and flows. 14 Putin’s actions have three
overarching themes—restoring military security, using energy development to obtain security,
and rebuilding Russia greatness. 15 After a 2004 spike in oil prices, although Russian net amount
of energy exported did not increase in any large quantity, the value of exports increased so it
could be used as an “energy weapon.” Russian energy policy is a key issue for global energy
security, and it is crucial for Russia’s development. The price of oil in 1998 was US$10-15 per
barrel. In 2008 it was $140 per barrel. Prices have slumped with 2008 crisis so in recent years it
has fluctuated in the $75-100 range. Nevertheless, this price increase is what has revived the
Russian economy. 16
One-half of Russian crude oil is exported. This is because Russia’s energy policymaking
is not just about producing sufficient domestic energy, but also about ensuring an exportable
surplus that generates revenues. Russian modernization is dependent on this large and
sustainable revenue from the resource sector. 17 When the Russians saw the stagnation of their
major market in Europe during the last recession, they decided to move more vigorously into the
East Asian market. In 2009 China, Japan, and South Korea accounted for almost 17% of world
oil consumption and 21.6% of imports. This trend motivated an “impressive eastward shift in oil
and gas development in Russia” 18 in a quite successful campaign to partner with China to
develop energy trade. The Eastern Siberia Pacific Ocean (ESPO) pipeline project Rosneft
9
became exclusive supplier of crude to China in 2009. It is also the supplier of Mongolian oil at
higher than market prices. 19 Thus, when Putin called ESPO a ‘geopolitical’ project, he was
saying that for Russia geopolitical goals outweigh business consideration. 20
Putin has renationalized Russia’s energy resources industry and eliminated many
inefficient mines and fields, although unprofitable coal mines remain in state hands where they
guarantee regional energy supply. This required expanding the state’s role in the economy
through powerful corporations, termed ‘national champions,’ to compete in the world market.
These state companies get preferential treatment from the government. Because of a revised tax
regime, imports of oil, gas, and even coal from Central Asia and Caspian countries has become
cheaper than developing new Russian fields in Siberia and the Far East. 21 According to Russia’s
Energy Strategy (Govt. of Russia Federation, 2009), eastward export share of crude and
petroleum products was 8% in 2008, but expected to reach 22-25% in 2030. Gas exports to Asia
were expected to grow from almost 0% in 2008 to 19-20% in 2030. 22
The Russian Strategy to 2020 projected increasing coal use in the heat and power sector
to lower domestic dependence on gas, so that the gas could be exported at greater profit. Russia
plans called for increasing power from coal from 20% in 2000 to 21-23% in 2020. This would
mean that coal production would have to rise almost 75% by 2020. However, there are problems
about achieving this goal: 1) the coal sector does not attract sufficient investment; 2) its
competitiveness with natural gas; and 3) environmental implications. 23 At the same time after
1999,Russian coal exports to Asia surged, and prices increased after 2000. It is clear that further
increasing future coal exports depends on development of port capacity in the Pacific.
Russia has leveraged its abundant energy resources and energy wealth to restore the
Russian economy, consolidate power domestically, and then project it abroad. 24 Putin’s plan to
10
use oil and gas exports as a cartel to rebuild Russia was aided by the steep rise in hydrocarbon
prices in the last decade. Published energy strategy pronouncements under Putin have
emphasized that energy security is the most important element in Russia’s national security. 25 An
important element of this strategy was creation in April 2002 of a list of strategic natural
resources, including fossil fuels and mineral deposits above a certain size that was codified into
legislation in February 2004. 26 The Russian state became the developer of “strategic” businesses
and forced out the private sector. 27 Foreign invested deposits were confiscated for “booking”
reserves not developing them. 28 Windfall taxes imposed on energy profits generated billions of
dollars supposedly to fund energy investment in developing new deposits, but were mainly
distributed for politically popular social benefits and pensions and to build up a Reserve and
National Wealth Fund. 29 This policy later became a blueprint for the Nambaryn Enkhbayar 30
Government in Ulaanbaatar to develop its Strategic Mineral Deposit list and 2006 Mining Law.
Russia expects in the next decades that West Siberia will continue to be the major domestic
supplier of oil, gas, and coal, even though these West Siberian fields are 65-75% depleted. East
Siberia and the Far East will become net exporters of these same energy products, although less
than one-tenth of Eastern Siberia actually has been explored for fossil fuels.
Putin in the middle of the 2000s also felt it necessary to re-engage with Mongolia, which
had become overwhelmed by Chinese investment. Since then, he has reinvigorated ties with the
former satellite through high-level state visits and more economic and military aid. But at the
same time, Putin has strong-armed the Mongolians by cutting off already paid for diesel and oil
supplies at different times. The most famous example was in May 2011 when he interjected
Russia in a non-transparent fashion into the short-list for foreign investors for the giant Tavan
Tolgoi (TT) coal mine 31 by forcing the Mongols to include the Russian state-owned Russian
11
Railway Company which had not even made a bid. His desire to be involved in TT is not just for
the strategic reason of not ceding TT’s fields to the Americans and Chinese, but also because it is
evident that with Russian domestic coal production faltering but coal demand growing, the
exploitation of Mongolian coal resources is a cheaper alternative for Russia than finding and
extracting coal from inhospitable East Siberian deposits. Putin particularly desires TT’s uranium
resources in order to strengthen his control over the world’s uranium market price.
Mongolian policymakers have noted that despite Putin’s success is restoring Russia’s
economy and projecting outward Russian power through his energy security policies, his actions
have not resolved the population crisis Russia faces in its eastern provinces. While the Russian
population in 2000-2010 saw a total population decrease of 3.4%, in the Far East the decrease
was 6.8% because of unemployment and quality of life issues. Of greater concern is the
accompanying trend of Chinese traders and illegal migrants pouring into Siberia and the Far East
in numbers which threaten Russian control of major cities such as Vladivostok. If this migration
is permitted to continue, it is easy to imagine the loss of a great amount of Russian territory in
the east to China or to regional independence movements. Mongolia views such results as
particularly dangerous to its national sovereignty.
Chinese Dragon’s “Great Game”: The Outgoing Strategic Policy
A Chinese energy specialist has stated that “The fundamental aim of China’s energy
strategy is to support and guarantee the successful attainment of its social and economic
development goals.” 32 Among these goals are: 1) provide support for an average growth rate of
7.5% and meet people’s energy consumption demands; 2) bring production and consumption of
energy in line with population changes, resources and environment; and 3) enhance security in
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the energy supply. China’s key concerns regarding energy and energy minerals are to increase
the overall capacity of energy supply, especially oil, and reduce insecure elements; increase
clean energy supply; reduce pressure on resources and the environment; improve energy
efficiency, conservation and reduce consumption; diversify the energy supply while reducing the
risks to ensure energy supply security; strengthen the role of the market in allocation of resources
while always maintaining the government’s strategic leading role as well as its policies in
guiding energy development and conservation; and reduce price distortions. 33
By 2005 China accounted for 13.6% of total world energy production. Although the 2nd
largest energy-producing country in the world next to the US, it also is the 2nd largest consumer
of energy resources, especially in coal, because China’s energy power policy is based on coal
production and usage. 70% of its energy consumption is supplied by coal, 75% of its energy
production comes from coal, and 50% of coal is used for electricity generation. 34 In 2005 oil and
natural gas only supplied 24% of its power while hydro and nuclear power represented 7.3%. In
the 2000s China was importing 10% of its energy products. China imports 80% of its growing oil
demand (predicted to reach 490-520 million tons in 2015 and 560-600 million tons in 202035
from insecure Middle East and African sources.
The all-important coal industry in China intersects politics and economics. It was a pillar
of China’s planned economy and industrialization under Mao. China’s total verified basic
reserves of coal are estimated at 114 billion tons. 36 Although coal prices were deregularized in
the 1990s, in the 21st century the country still has not switched its energy to oil like other modern
economies. Whole regions of China have their growth tied to coal mines and the accompanying
environmental damage and deaths have led to populace social unrest and desertification. After
2002, China’s position in the international coal market changed dramatically. It experienced
13
domestic energy shortages so it reduced its coal exports. However, in 2006-2007 the
Government changed its tax structure to encourage coal imports by abolishing the tax incentive
for coal exports and the coal import duty. Even though China in 2009 produced 2,971 million
tons of coal, 37 that same year it registered an import balance of over 100 million tons. In recent
years much of the imported coal came from Australia, but in 2011 China’s major coal partner
became Mongolia.
China Climate and Energy Map Project, Natural Resource Defense Council, 2012
One of the keys to understanding Chinese energy strategy is to recognize that, although
China has the 3rd largest reserves of coal resources after Russia and the U.S., these are not well
placed in the country. The geographical separation of coal production and consumption is a
14
major problem. Shanxi province and Inner Mongolia account for one-half of the reserves and
over 40% of production, but the industrial regions on the southeastern coast are the main coal
consumers. 38 Moving coal from producing sites in the north ties up railroad traffic. Another
significant factor is that the quality of most of China’s coal is poor. It is short of high-quality
coking coal, which must be imported.
Furthermore, because of the explosive growth in the economy, China’s coal reserves only
will last a few more decades into the future. Nevertheless, its medium and long-range sustainable
development strategy for the energy sector continues relying mainly on domestic coal supplies
and maintaining coal as the energy foundation; accelerating large coal field production;
diversifying development of new resources including more nuclear power; and increasing the
import of oil and gas from outside China. 39 Today China’s coal industry is the world’s largest,
but it already is importing a small, but growing, amount. In 2006-2007 the government changed
its tax structure to encourage coal imports so that by 2009 it was importing 100 million tons of
coal more than it was exporting. It is believed the coal reserves will only last a few more decades.
Does China have an energy security policy? Several years ago, this question did not have
a clear answer. According to Roger Robinson, Jr., Chairman of the U.S.-China Economic and
Security Review Commission, and C. Richard D’Amato, Vice Chairman, the answer is YES:
“China has a comprehensive energy security strategy, consisting of demand reduction,
diversification, leveraging bilateral relationships with key Middle East suppliers, building
stronger ties with Russia, and establishing a market position in Central Asia.” 40 These
Congressional leaders believe that to achieve its energy goals, China deals with terroristsponsoring states so its growing energy demands “pose economic, environmental, and
geostrategic challenges to the United States.” 41 Kang Wu, head of the China Energy Project at
15
Honolulu’s East West Center, has concluded that because of the rise of oil imports and price
volatility in global oil markets, energy security is a big issue in China. This was evidenced in
China’s 2001-2005 10th 5-Year Plan. It mentioned energy security and ensuring energy supply
security for the first time as a precondition for implementing China’s overall energy strategy.
Among its policy goals were diversifying sources of energy; increasing oil and gas imports from
Russia and Central Asia; increasing overseas investments by state oil companies; broadening
ways of trade to avoid risks; increasing investment in oil and gas infrastructure and opening
more import channels; participating in the formation of a regional community; and establishing a
regional energy security system. 42 For the future, the Chinese believe that oil is not a likely
replacement for coal, but natural gas is a better possibility. Nevertheless, with Chinese
dependence on oil imports, the country has been acquiring interests in exploration and
production abroad, including in Mongolia.
Yet Dean P. Girdis, Director of PFC Energy (a global energy strategy firm), believes
there is no Chinese comprehensive energy security strategy, only a leveraging of bilateral
relations using political clout and market advantage by supplying money and weapons, and a
desire to build stronger energy ties with Russia. 43 He sees Chinese state-owned companies
(SOCs) aka national-owned companies (NOCs) as vehicles to improve China’s overall energy
security by promoting investment in overseas gas and oil. Such support is created by high level
political delegations and infusions of capital. However, he does not see any clear SOC
investment strategy, because they “are increasingly pursuing strictly commercial investment
strategies that may not fully take into consideration broader objectives of energy security for
China.” 44
16
It would appear the question finally was answered when in January 2010 the National
Energy Commission (NEC), headed by Premier Wen Jiabao with Vice-Premier Li Keqiang as
deputy, was established to take charge of the country’s energy policies for better coordination in
formulating strategy and planning development to maintain Chinese Communist Party legitimacy
while China concentrates on energy supplies and relies more heavily on imports. The
commission is responsible for drafting national energy development plans, reviewing energy
security, and coordinating international cooperation. 45 Part of the overall strategy has been to
deliberately nurture closer relations with Russia, and use the Shanghai Cooperation
Organization(SCO) to build trust so that Russia sees China as a preferred economic partner over
Japan.
China has seen Russia as a strategic partner since the mid-1990s. In principle, it seems
there is a good match for future energy cooperation between Russian natural resources and the
Chinese market. Development of Sino-Russian energy ties is the most important factor driving
“strategic convergence” of China and Russia. 46 Russian supplies can be brought overland
through Central Asia and Mongolia—an overland route that has strategic significance for China.
However, there are significant points of tension, including slow Russian development of its
resource deposits and transport (pipeline) infrastructure; the unpredictability of Russian decisionmaking and verbal agreements; Sino-Russian traditional rivalry in Central Asia and Mongolia;
and attempts by Russia to play off China and Japan. Russia’s deliberate inaction and ambiguous
energy and export strategies have led the Chinese to look to other Asian mineral suppliers such
as Kazakhstan and Mongolia.
This researcher believes China does have a general energy security model based on the
successful experience of its SOC oil companies throughout the last two decades of globalization.
17
This Out-Going Energy Strategy utilizes SOCs to buy up and exploit diverse mineral deposits
overseas and is the system China has employed in Mongolia. There is an opaqueness even in
Beijing about its Mongolian mineral investment strategy. A well respected Chinese mineral
expert advising the PRC State Council and state-enterprises investing in Mongolia explained in a
private meeting with this author in June 2012 that the Chinese are not interested in Mongolian
minerals but invest in Mongolia only for political reasons, because they are concerned about
“terrorists” from Inner Mongolia receiving assistance from independent Mongolia. However,
other Chinese mineral experts disagree with this analysis and maintain that, of course, the
Chinese economy needed Mongolian coal and copper for its factories. For example, Zhang
Xiaoqiang, deputy director of China’s National Development and Reform Commission, on a
January 2013 visit to Ulaanbaatar during the third meeting of the China-Mongolia Cooperation
Commission on Mineral Resources and Energy stated that the two countries should work more
closely to jointly develop large-scale mining and construction transportation projects. 47
Even if one originally believed China’s mineral’s acquisition policy in Mongolia was
based just on national security and “anti-terrorist” objectives, there are now strong indications
that the Chinese methodology that had caused the SOEs in their overseas operations to
reorganize and concentrate more on business functions ignoring local politics is at a crisis point
and certainly is less and less effective in the Mongolian case. Chalco (China Aluminum
Corporation), for example, was barred by the Mongolian Parliament from taking over control of
a Canadian coal operation called South Gobi Resources near the Chinese border in April 2012
and in early 2013 had its coal transport contract for TT suspended. China has permitted its SOE
investment strategy to negatively affect bilateral relations. This is because its out-going energy
strategy and execution are in the hands of culturally-ignorant economists and SOC business
18
executives, not the Chinese foreign policy specialists on Mongolia who know Mongolian
mentality, history, and the significance of regional geopolitics. If this trend continues, the
Chinese will see the balance of economic power swing more toward Mongolia.
Japanese “Game Plan”
Resource-scarce Japan has few domestic energy resources and is only 16% energy selfsufficient as of 2012. It is the world's largest importer of LNG, second largest importer of coal,
and the third largest net importer of oil. Its total import of mineral fuels in 2011 amounted to
$274.3bn tons, compared to $198.6bn tons in 2010, an increase of 38.1%. The ratio of Japan's
mineral fuel imports to her total imports soared to 32.04% in 2011 from 28.60% in 2010, mainly
due to increases in the volume of import of petroleum products. 48Meanwhile, Japan's growing
need for even more gas, oil and coal to offset lost nuclear power generation after the Fukushima
accident in March 2011 pushed imports even higher as the country posted a trade deficit in
January-June 2012 of 2.9 trillion yen ($37.4 billion). This was due to a rise in fuel imports for
power plants, after the shutdowns of all but two of the country's 50 nuclear reactors. 49
In recent years Japan’s plan for resource mineral acquisition has been one of
diversification from heavy reliance on Middle Eastern petrofuels. Nuclear energy was the
original preferred solution for decades with natural gas a strong second. Today with the
uncertainty about Japanese nuclear energy policy going forward, Japanese policymakers are
looking at immediate alternative power sources even more intensively. Natural gas is
increasingly important in Japan’s energy planning and is currently the preferred fuel-of-choice
for the shortfall in nuclear capacity. 50 This meshes well with the Japanese desire to increase its
Russian hydrocarbon imports, which in 2010 were only 7% of oil and 8.6% of natural gas.51
19
Increased import of natural gas thus was made necessary, even in the backdrop of a global
escalation in the prices of mineral fuels. 52
Although Japan mainly relies on oil for energy, oil’s share of total energy consumption
has declined from about 80% in the 1970s to 42% in 2010. Modern Japanese history has the
recurring theme: “securing stable supply of mineral resources is a matter of national importance,
namely maintaining and strengthening the industrial competitiveness is, in other words, an
imperative issue for Japanese economic security.” 53 In recent decades Japanese national energy
strategy is based on the concept of companies seeking high-profile upstream exploration and
production projects involving major investments in overseas ventures with government backing.
The government’s 2006 Energy Strategy Plan encouraged such projects around the world to
secure a stable supply of oil and natural gas. The Japan Bank for International Cooperation offers
loans at favorable rates which enable Japanese companies to win bids in key producing countries.
“The government's goal is to import 40 percent of the country’s total crude oil imports from
Japanese-owned concessions by 2030, up from the current estimated 19 percent.” 54 The overseas
oil projects are primarily located in the Middle East and Southeast Asia, and involve major
Japanese oil companies such as Inpex, Cosmo Oil, Idemitsu Kosan Co., Japan Energy
Development Corporation, Japex, JNOC, Mitsubishi, Mitsui, and Nippon Oil.
Coal remains an important fuel source and accounted for 43% of fossil fuel-fired
generation in 2011, according to the International Energy Agency. Domestic coal production in
Japan came to an end in 2002. Japan imported 207 million short tons in 2010, mainly from
Australia. Coal-fired power plants still provide about 25% of Japan's power. With three facilities
presently under construction and the potential to increase the output of existing plants, coalpower generation could jump. However, several coal-fired plants were damaged in the 2011
20
earthquake and have yet to resume operations. Because of this, coal has not been used as a
substitute for nuclear power and actually experienced a negative growth in 2011. An additional
factor is that more coal usage would violate Japan's 2010 Basic Energy Plan, which called for
reducing coal power from 25% to 10%. Nevertheless, new clean coal technologies are being
considered to meet environmental targets.
The present Japanese power crisis and the growing importance of Russia and its
transportation network 55 to solving Japanese energy resources supplies all are impacting on the
approach of Japanese policymakers to Mongolia and its minerals. Although the most generous
aid donor to Mongolia in the past 2 decades, Japan considered Mongolian minerals mainly
within the context of selling to established Chinese customers, rather than bringing the minerals
back long distances to Japan. Japanese advisers to Prime Minister Yoshihiku Noda in June 2012
told this researcher that the Japanese Government still did not understand that Mongolia is
important within NEA, nor did it support a trade diversification policy which fully includes
Mongolian mineral products.
In the past decade, Japanese investment in Mongolian minerals was supported by METI
(Ministry of Trade and Industry) as a minor part of its diversification and long range mineral
acquisition strategy. Sources in METI explained that interest in Mongolia had been high in the
mid-2000s, but because of failure to turn negotiations into working contracts, pursuit of
Mongolian mineral joint ventures had fallen off. The Japanese government and businessmen feel
they have trouble communicating with Mongols. 56 They negotiate but do not make progress in
implementing agreements. The Japanese were particularly angry when shut out of the short list
for the TT coal project and are uncomfortable with the Mongolian counter-suggestion to partner
with the Russians as a way to become active in it. Since the Japanese now are cooperating with
21
the Russians on new pipelines for natural gas and building new LNG facilities on the Pacific
coast, there is the potential to expand this Russo-Japanese cooperation into Mongolian mineral
development, such as participating in Mongolian natural gas and oil extraction. Because of the
present anti-nuclear climate in Japan, interest in Mongolian uranium deposits and arranging a
nuclear waste storage facility for Japanese waste materials inside Mongolia are on the
backburner. The Japanese also hold strong interest in rare earth mineral development in
Mongolia. Nevertheless, rail and pipeline transportation problems remain major inhibitors to any
major increase in Japanese mineral investment.
South Korean and North Korean Strategies
South Korea
South Korea (ROK) has limited mineral resources, possessing only 10% of the coal and
iron deposits on the Korean peninsula. The vast majority are located in North Korea (DPRK).
Yet, South Korea already is one of the top 10 energy consumers in the world, and the
International Energy Agency expects its power needs to increase 37% between 2006 and 2020.
The ROK is the world’s fourth largest oil importer and second largest coal and LNG importer
after Japan. Because of the division of the peninsula, all energy imports arrive by sea, 85% of
which from the Middle East. This situation explains South Korean interest in diversification.
“Because of its high dependence on external sources for energy and mineral resources,
Korea’s strategies to secure them are in essence diversification of energy and mineral supply
sources and their overseas development.” 57 For energy, in particular, South Korea seeks to
secure a stable, cost-effective, and environmentally-friendly energy supply. The government
focuses on natural gas, bituminous coal and nuclear power, while seeking to reduce its reliance
22
on imported oil. Even after the nuclear accident in Japan in 2011, the ROK sees its nuclear
power (15%) as an increasingly important part of its energy strategy despite the fact that it must
import all uranium fuel. Korea has invested in numerous overseas resource projects to secure
supplies and has set targets to import an increasing portion of imports from Korean-owned
foreign operations. It is especially interested in developing Russian oil deposits. However,
South Korea’s energy strategy is complicated by the North Korean situation and any conflict or
unification scenario would increase energy demand.
South Korea in 2011 was the 3rd largest trading partner of Mongolia and the 4th largest
FDI investor with an investment value of over US$255 million since 1990. It was also a key
donor, providing $137 million since 1990 in loans and grants. 58 South Korean major
investments are in real estate, telecommunications, and banking, but it has moved into the
mining sector. The state-owned Korea Resources Corporation, steelmaking company Posco,
and Korea Electric Power Corp. made an unsuccessful bid to participate in the TT Western
Tsankhi coal field. Nonetheless, in March 2011 a Lotte E&C-led South Korean consortium
signed a preliminary deal with Mongolian Railways to build a 1,040-kilometer railway in
Mongolia that could carry TT coal product. This will link up to the Russian-gauge main northsouth railroad in Mongolia which goes across the border through Siberia, and thus may be the
catalyst for South Korea to acquire Mongolian raw minerals such as coal.
North Korea
The DPRK has substantial mineral deposits, including magnesium, iron, tungsten,
anthracite coal, molybdenum, and gold. Most presently are unexploited, but if they are
developed in the future, these could compete with Mongolia’s deposits. Mining operations are
few due to lack of electricity, materials and equipment, although since 2000, iron ore and coal
23
production has increased slightly. 59 Foreign companies from China, Japan, U.S., and UK have
participated in about 25 mining projects. China is the major trade partner with 58% of total
DPRK exports represented by minerals and mining products in 2009. Chinese companies have
aggressively been involved in 20 mining projects since 2003. 60 North Korea was China’s 2nd
ranked anthracite coal supplier in 2009.China holds 75% of the North Korean known foreign
joint ventures and is the major supplier of petroleum to North Korea.
The Rajin-Sonbon (aka Rason) region in North Korea has strategic significance as the
northernmost year-round ice-free port in Northeast Asia. This site was identified in the United
Nations-backed Tumen River Development Project as a potential geostrategic transit point for
the shipment of goods to landlocked Northeastern China, Mongolia, and the Russian Far East.
North Korea has tried to involve Russia in a competition with China for access to the port by
pursuing deals with both sides simultaneously. The Chinese Chuangli Company contracted to
develop Rajin’s port number one, reportedly for a period of only ten years, while Russian
investors have been offered a fifty-year deal to develop the second part of Rajin. Initial plans
are to export Chinese coal to Southeast Asia and Japan. 61 It is thought that China’s northeastern
provinces would greatly profit from the maritime access that Rajin-Sonbon port facilities would
bring to the East Sea/Sea of Japan. 62 South Korea and Russia are planning to build a crossborder railway link between Rajin-Sonbon Port and the Chinese border city of Hunchun, and to
rebuild a rail line between Rajin and the small Russian border city of Khasan. Such
transportation plans are strongly supported by the Mongolian government, because if
international rails are built to North Korean ports, Mongolia will have an answer to its northern
transportation route problem and a new access to Asia-Pacific markets. 63
U.S. embassy cables from as far back as 2004 released by WikiLeaks have contained
24
information about working and living conditions of DPRK workers sent to Mongolia with the
permission of Pyongyang authorities. In 2011 Mongolia raised the annual quota to 3000 North
Korean laborers with their salaries paid directly to the North Korean Government via the
DPRK embassy in Ulaanbaatar. 64 These workers are detailed to construction sites and textile
factories such as the Scottish joint venture Eermel cashmere company, but it is speculated they
could move into mining operations.
MONGOLIAN WOLF STRATEGY
In this environment how then should a small nation like Mongolia, wedged between giant
China and Russia, see its role today in the world? Mongolian officials and researchers give
many answers to the question of is there a Mongolian strategy for mineral development: ‘No,
there isn’t one,’ from the generals. ‘Yes, there is one,’ is the response of the Ministry of
Foreign Affairs and Trade and Mineral Authority (citing the 2010 National Security Concept
and 2006 Mining Law with its revisions). ‘No, but there should be one,’ replies an intelligence
community informant. A Mongolian high ranking intelligence official privately stated that
Mongolians know that when they sign a mineral contract with a Chinese state-owned company,
the Mongols do not have to follow the terms. Yet, when Mongols sign a contract with Russians,
they must fulfill the terms of the contract or are punished. After considering all these
comments, this researcher believes there is a general mineral development strategy in Mongolia
which transcends political parties and administrations—even if its details are not yet
specifically published.
Mongolian policymakers believe that geography is the major, decisive factor in shaping
the country’s destiny. Mongolia for centuries was a weak pawn whose fate was determined by
25
the nature of the Sino-Russian relationship. Its decision in the beginning of the 20th century to
align with Russia preserved its national sovereignty. When the Soviet Union disintegrated,
Mongolia had to define and pursue its own national priorities. Thus, it abandoned reliance on
just one state and one ideology and embraced a multi-pillared foreign policy. 65 It sought a
balanced, but not necessarily equidistant, relationship with its two neighbors, and declared itself
a Nuclear Free Zone. 66 It made integrating into the Asia-Pacific region a priority, and
considered its civilization and national identity as undeniably Northeast Asian. 67 It understands
that NEA’s economic growth requires secure energy resources and sees its own mineral
deposits, which include oil, natural gas, and uranium, as the motivation for regional players to
implement an ’Infrastructure Linkage Strategy’ so Mongolia can build up its poor rail and
pipeline freight transportation options to become a transit corridor. Concurrently, Mongols
believe that NEA cannot fully proceed with economic cooperation without recognizing the
remaining Cold War (Korean peninsula) and historical (Sino-Mongol, Sino-Japanese, and
Korean-Japanese) security challenges which push countries to increase bilateral defense
relations. 68 Because of this worldview, Mongolia promotes its growing military relationship
with the U.S. and NATO.
It is quite clear that since 2006 Mongolia has emulated many Russian energy security
policies and legislative forms, primarily in reaction to massive Chinese investment in its
economy. In that year it amended its liberal Mining Law to create a government-owned
strategic deposit list based on deposit size with state control of up to 50%--a Putin-devised
formula. Mongolian Mineral Authority officials forthrightly state that by 2014 this list will be
revised, and many more deposits will be added. In 2006 the government imposed a 68%
windfall tax on gold and copper, which severely delayed sizable foreign investment and finally
26
was repealed. 69 In the last 3 years Mongolia has cancelled about 4000 private mining licenses
for environmental violations and plans to cancel another 1400 for non-development.
In May 2012 Parliament passed the Strategic Entities Foreign Investment Law (SEFIL),
just before parliamentary elections. These mining law amendments govern foreign investor
participation in Mongolia’s mining sector and especially limit the activities of foreign stateowned companies (SOCs). They were in direct response to voter concerns that Mongolia’s
sovereignty was being threatened by the acquisition of mineral resource rights in legal stock
takeovers from western or Mongolian private firms by Chinese SOCs. The specific catalyst was
the attempt by the Aluminum Corporation of China (Chalco) to buy up 58% control of the
Canadian company Ivanhoe’s private coal mine called Ovoot Tolgoi that is situated near the
Chinese border. Although all Mongolian foreign and domestic observers were certain that no
new mining-related legislation would be enacted prior to the June 28th elections, the April
announcement by Chalco and Ivanhoe of their intention to finalize the deal on July 4th
provoked a violent wave of ‘resource nationalism’ sentiments from policymakers and the
populace alike. The Ministry of Mining revoked the mining license for Ovoot Tolgoi’s thriving
coal operations, and the Parliament with approval by the government rushed forward with
legislation that thwarted the takeover. The Chalco bid, after several extensions to allow for
more negotiations, finally was withdrawn on Sept. 3rd, but the new mining law amendments
remain in place.
The firestorm provoked by the Chalco attempted takeover has not and is not ended. In
June the Mongolian Cabinet and President decided that no new private mining licenses will be
distributed for the next 5 years. In September almost one-third of the Parliament in the fall 2012
parliamentary session demanded the re-negotiation of the OT investment contract. It appears
27
that the once favorable Mongolian mineral investment environment has been turned upside
down for all foreign investors. What is happening in Mongolia? What more will happen to its
foreign investment policies in mining?
Any conclusions about Mongolia and its mineral development policy should be based
on the fact that Mongolian policymakers and politicians of all political persuasions want to
modify the present foreign investor climate of the past decade because, bottom line, they see it
as a failure in many ways, despite Mongolia’s high economic growth rate. Opening Mongolia’s
economy to the outside world during the past 20 years did not prevent the monopolization of
the economy by one of the country’s two neighbors. This time it was by the Chinese, and this
simply is not acceptable or sustainable. Mongols blame the western financial experts and
multilateral organizations that have pushed the country to seek economic development
regardless of how it could hurt the country’s sovereignty and national identity and for
institutionalizing policies that promoted Chinese interests at Mongol expense. A Mongolian
official responsible for executing Mongolia’s mining laws regarding foreign and domestic
investment in minerals asserted in private conversation that Mongolia has been growing too
fast, and if the investment laws are changed to the point of discouraging foreign investors, well,
that is not a bad thing. Mongolian people were encouraged by western economic advisers and
their own politicians to think that development meant they would become rich quickly, and
now they feel that the monies realized from the foreign investments have been funneled into the
hands of foreigner businessmen and their own corrupted officials. This thinking, whether
correct or not, has not been countered by sound argumentation to dispel public concern. In fact,
the constant drumbeat of criticism by westerner observers about Mongolian “corrupt practices”
has increased the cynicism within Mongolian society and tempered its respect for free markets.
28
As a result, today Mongolian leaders are employing a resource nationalism strategy
based primarily on national security objectives, while modifying unregulated democratic, free
market structures. Mongolian policymakers for the past decade have studied the economic
development experiences of other countries, especially Russia’s, for successes and failures in
resource development. A fundamental difference between the Mongols and Russians is that the
Mongols have learned from their long history sandwiched between two giant powers to appear
to be everything to all foreign partners while in fact pursing their own agenda.
Their overall development strategy now is to rebalance to some extent Chinese trade
monopolization of Mongolian economy by expanding and diversifying the players in the
foreign investment pie and to tighten foreign ownership regulations through parliamentary
legislation with stronger central and local government oversight. This they will accomplish by
retrenching and renationalizing many existing mineral deposits through review of mining
deposit licenses which then results in outright confiscation. The strategic mineral deposits will
be developed under the aegis of large state-owned companies, much like the Russian national
champions model, that are given preferential treatment from the government. However,
because such companies only have limited expertise and manpower, they will subcontract much
of the development activity to favored foreign companies. The reasons cited for license
revocation will be that license holders have caused environmental damage and/or nondevelopment of sites. These politically correct rationales will be offered to avoid international
court cases and payment of compensation, but at the same time encourage favoritism or
discriminatory decision making that will add volatility to the investment climate.
The Mongolian government does understand that such actions over the next five years
will result in a cooling off period that will slow the pace of foreign investment and mineral
29
development in general. They are not concerned, because the policymakers believe they can
develop revenue streams from anticipated ever higher energy resource prices, ‘advanced tax
payments,’ and promises of future favors to the gullible, mineral-seeking foreign investment
community. Such a view of economics is both the result of recent Mongolian democratic
experience with a very generous foreign donor regime, as well as of successes from their
historical manipulation techniques perfected over centuries of dealing with Chinese emperors
and Russian czars.
The Mongolian government will place tax and concession revenues from the mining
sector into its Human Development Fund, but, emulating the practices of Putin, use the monies
to make payouts to the populace at times which can influence domestic elections, instead of
based on sound fiscal timing. The Mongols will revise and develop their mineral agreements to
demand that foreign investors finance power plants, mineral processing industries to produce
value-added products, and domestic rail and road transport infrastructure. They expect the
growth of domestic mineral production to fall in the near term; however, they are confident
they will receive increased revenue from these fewer higher-value products. Mongolia will ask
Japan and the Koreas to partner with Russia in building pipelines and expanding rail routes
north to the Pacific to enable Mongolia to develop access to new trade partners and decrease
reliance on the south-to-China transport route. However, Mongolia will not accept the mutual
dependence theory for its relationship with Russia. Leery of their energy dependence on
Moscow and concerned by Russia’s penchant to cut off hydrocarbon and power supplies 70 and
manipulation of energy companies as instruments of foreign policy, the Mongolian government
actively will reduce its reliance on Russian diesel, oil products and power by sponsoring quick,
home-grown alternatives, even if they are less profitable and efficient because of their small-
30
scale.
All of these policies, the major pillars of a mineral development strategy, will continue
for the rest of this decade, regardless of changes of political parties and administrations.
Nevertheless, if political and economic events in the NEA region warrant, Mongolia has the
mentality and track record to readjust its overall strategy, if necessary. Although they will make
changes in conformance to WTO and existing international legal practices, Mongols, endowed
with an impermanent, anti-legalistic cultural mindset from their nomadic ancestors, will
approach mining and economic development with great flexibility as they pursue their own
specific agenda, and thus perhaps frustrate their foreign investment partners who want stability.
For the United States, which has little need of Mongolian minerals per se, but great
interest in peace and stability in the Northeast Asian region, how this ‘great game’ in the 21st
century plays out is of great strategic importance. Our Cold War competitor, Russia, and our
present global economic competitor, China, are heavily involved in Mongolia. American allies,
Japan and South Korea, want to increase their investment and mineral trade with Mongolia to
diversify their own energy needs. North Korea, a bane to peace in the region, is a continuing
problem for U.S. policymakers, so Mongolia’s ability to work with it in mineral development
may be provide a new window to influence the DPRK regime into acting in more positive, less
disruptive ways. For all of these reasons, it is crucial that the United States, prized by Mongolia
as its Number One ‘Third Neighbor,” play a constructive and supportive role in guiding the
Mongolian Wolf Strategy towards beneficial outcomes for that nation and the region as a
whole.
31
1
Zhang Yunbi and Wu Jiao, “China, Mongolia to Boost Ties.” China Daily, January, 13, 2012.
[Online]www.chinadaily.com.cn/cndy/2012-01/13/content_14436254.htm
2
www.tradingeconomics.com/mongolia/balance-of-trade, September 2012.
3
Zhang Yunbi and Wu Jiao. $2.3 billion was the figure cited by Zhang Xiaoqiang in www.english.news.mn,
January 16, 2013.
4
www.english.news.mn, January 16, 2013.
5
www.census.gov/foreign-trade/balance/c5740.html, “Trade in Goods with Mongolia.” September 2012;
www.commerce.gov, “U.S. and Mongolia Commit to Expand Bilateral Commercial Relations and Strengthen
Cooperation on Aviation Safety,” June 16, 2011; www.infomongolia.com, “Eznis Airways has Purchases Boeing
aircraft,” June 5, 2012.
6
www.tradingeconomics.com/mongolia/balance-of-trade, September 2012.
7
B. Ooluun, “Dependence on foreign oil products to be reduced,” The Mongol Messenger, March 22, 2013.
8
Orally told to the author in Ulaanbaatar by Altansukh, Head of the Mineral Authority in June 2012.
9
According to the 27th Resolution, Article 8.1.4 of the Minerals Law of Mongolia. See www.infomongolia.com,
“Strategic Mongolia’s Strategic Mineral Deposits,” September 15, 2011. The Mongolian Government is considering
adding new deposit sites to this list and in November 2012 started the procedure to add the Khushuut coal mine.
10
The name was changed in 2012 from Ivanhoe.
11
Roman Kupchinsky, “LNG—Russia’s New Energy Blackmail Tool,” Eurasia Daily Monitor, Vol. 4, Issue, 77,
Jamestown Foundation, April 22, 2009.
12
Pavel K. Baev, Russian Energy Policy and Military Power, Putin’s quest for greatness, London and NY,
Routledge, 2008, 164.
13
Anita Orban, Power, Energy and the New Russian Imperialism, Praeger Security International, Westport, CT and
London, 2008, cited in Russia’s Energy Policies, National, Interregional and Global Levels, ed. by Pami Aalto,
Edward Elgar, Cheltenham, UK and Northampton, MA, 2012, 12.
14
Baev, 130.
15
Ibid, 2.
16
Pami Aalto, Russia’s Energy Policies, 3.
17
Michael Bradshaw, “Russian energy dilemmas: energy security, globalization and climate change,’ in Russia’s
Energy Policies, National, Interregional and Global Levels, ed. by Pami Aalto, Edward Elgar, Cheltenham, UK and
Northampton, MA, 2012, 208.
18
Shinichiro Tabata and Xu Liu, “Russia’s Energy Policy in the Far East and East Siberia,” in Pami Aalto’s Russia’s
Energy Policies, 175.
19
According to Mongolian Mining Minister Davaajav Ganhuyag, in 2013 the cost of one ton of oil from Rosneft
Company is US$200-300 more than from South Korea, Switzerland, or Chinese suppliers. Ooluun, The Mongol
Messenger, March 22, 2013.
20
Nina Poussenkova, “’They West East, They went West….: the global expansion of Russian oil companies, ’”
Pami Aalto’s Russia’s Energy Policies, 202.
21
Russia Energy Survey 2002, International Energy Agency 2002, Paris, 135.
22
Tabata and Xu, 159.
23
Russia Energy Survey, 149.
24
Russian Energy Security and Foreign Policy, ed. Adrian Dellecker and Thomas Gomart, Routledge, London & NY,
2011, introduction. Putin’s 1997 thesis at the University of St. Petersburg was on the role of natural resources in
economic development (Vladimir Putin, ‘Mineral’ no-syr’evyeresursy v strategiirazvitiârossijskojèkonomiki’, pub.
in N. Marfenin, Rossiâ v okruzausem mire: 2000, Moscow MNEPY, 2000).
25
EnergeticheskayastrategiyaRossiina period do 2020 goda, Pavitel’stvo Rossijskoi Federatsi iUkaz 1234, 28
August 2003 and modified in EnergeticheskayastrategiyaRossiina period do 2030 goda on November 13, 2009.
26
Alexander Sutyagin, Monitoring BTS/Bellona, St. Petersburg, 6 May 2004,www.bellona.ru and Alexander
Sutyagin, “Russia: Top secret oil,” Energy Bulletin, Apr 28 2004 by Pravda online,
Englishwww.energybulletin.net/stories/2004-04-28/russia-top-secret-oil
27
He put 1000 enterprises under state ownership via List of Strategic Enterprises and Strategic Joint Stock
Companies. Most were in the defense-industrial complex but the list also includes state-controlled energy
companies including Transneft, Transnefteprodukt, Gazprom. The list has been revised several times. Philip
Hanson, “The Sustainability of Russia’s energy power,” in Russian Energy Security and Foreign Policy, 6 &40, nt.
66 (See “On Approving the List of Strategic Enterprises and Strategic Joint Stock Companies,” VremyaNovostey, 6
August 2004) .
32
28
Robert E. Ebel, The Geopolitics of Russian Energy, CSIS, July 2009, 53.
Russia’s Energy Policies, National, Interregional and Global Levels, ed. By Pami Aalto, Edward Elgar,
Cheltenham, UK and Northampton MA, 2012, 11. Gaddy and Ickes argue that Russia did not suffer so much from
‘resource curse’ because of these policies.
30
Mongolian Prime Minister from 2000-2004, Speaker of the Parliament 2004-2005, President from 2005-2008, and
arrested, convicted, and jailed for corruption since 2012.
31
The Mongolian government has promised every Mongol citizen 1,072 shares of common stock in the company
that runs TT. This deposit is being developed by the country’s larges state-owned coal company, Erdenes Tavan
Tolgoi LLC and is thought to hold 6.4 billion metric tons of coal reserves.
32
Que Guanghui, China’s Energy Sector—A Sustainable Strategy, Foreign Language Press, Beijing, 2007, 16.
33
Ibid.
34
Tim Wright, The Political Economy of the Chinese Coal Industry, Routledge, London and New York, 2012,33-34.
35
Tabata and Liu, 159 quoting Xinhuanet, 2010.
36
National Bureau of Statistics estimated ensured (verified) reserves in 2009 at 319 billion tons. Western estimates
of recoverable reserves in 2005-6 were 114 billion tons (EIA 2010). See Wright, 19-20.
37
Ibid., 35. The U.S. was the number 2 producer (919 million tons) and India was ranked third with 526 million tons
produced.
38
Ibid., 20.
39
China’s willingness to import hydrocarbons and energy minerals from Russia is seen by Chinese imports: 2.1% of
its oil for its energy production in 2000, over 10% in 2005 and 2006, and 7.5% in 2009. Tabata and Xu, 171.
40
Letter of Dec. 17, 2003 to Sen. Ted Stevens and Rep. J. Dennis Hastert, Speaker of the House, in China’s Energy
Needs and Strategies, Hearing before the U.S.-China Economic and Security Review Commission, October 30,
2003, Washington, DC, iii.
41
Ibid., iv.
42
Testimony of Kang Wu, China’s Energy Needs and Strategies, 42.
43
Testimony of Dean P. Girdis, ibid., 45-46.
44
Ibid., 50.
45
Wang Zhihong, “Wen heads ‘super-ministry’ for energy,” China Daily, January 28, 2010.
46
“Chinese perspectives on Russian oil and gas,” Indra Overland and Kyrre Elvenes Braekhus, Russian Energy
Power and Foreign Relations—Implications for Conflict and Cooperation, ed. Jeronim Perovic, Robert W. Orttung,
Andreas Wenger, London and NY: Routledge, CCS Studies in Security and International Relations, 2009, 214.
47
www.englishnews.mn, January 16, 2013.
48
“Japan’s imports from the GCC surges,” JETRO, updated May 28, 2012, www.ameinfo.com/cgibin/cms/jump.cgi?ID=299817
49
Elaine Kurtenbach, “Japan Back to Trade Deficit, $6.5 billion in July,” The Big Story, AP, August 22,
2012.bigstory.ap.org/article/japan-back-trade-deficit-65-billion-july
50
Energy Information Administration of US Dept. of Energy, “Japan”, Country Analysis Briefs, June 4, 2012,
www.eia.gov/cabs/japan/Full.html
51
Tabata and Xu, 159,170, 171.
52
Bloomberg, Aug. 22, 2012, www.businessweek.com/ap/2012-08-21/japan-reports-6-dot-5-billion-tradedeficit-injuly-as-exports-sink-imports-of-gas-surge
53
Shuhei Kojima, Stable Supply of Mineral Resources, Mineral and Natural Resources Division, Ministry of
Economy, Trade and Industry, Tokyo, July 12, 2002.
54
Energy Information Administration, June 4, 2012.
55
Russia and Japan are cooperating to modernize Russia’s fossil fuel power plants and exploring ways to develop a
power bridge between Russian and Japan or Eastern Siberia to China. See Russia Energy Survey 2002, International
Agency, 2002, Paris, 203, 215, 216.
56
Two different high-placed Japanese officials in different meetings in June 2012 in Tokyo asked me: “Are
Mongolians Asian people?” Another Japanese official who has led several mineral-related negotiating teams to
Ulaanbaatar said that the more he is in contact with Mongolians the less he understands them and their goals.
57
O. Yul Kwon, “South Korea’s approach to energy and resource security,” 24 Nov 2010, 2.
58
“Korea and Mongolia,” Eurasia Capital, June 6, 2011. www.eurasiac.com/korea-and-mongolia
59
Choi Kyung-soo, “The Mining Industry of North Korea, The Korean Journal of Defense Analysis, Vol. 23, No. 2,
June 2011, 211.
29
33
60
Ibid., 212.
Global Times Online, March 10, 2012.
62
Scott Snyder, “Rajin-Sonbong: A Strategic Choice for China in Its Relations with Pyongyang,” China Brief, Vol:
10, Issue: 7, The Jamestown Foundation, April 1, 2010
www.jamestown.org/programs/chinabrief/single/?tx_ttnews%5Btt_news%5D=36215&cHash=b8c79b916c
63
“North Korea’s ports Mongolia’s gateway,” Bloomberg, June 19, 201.
http://gulfnews.com/business/shipping/north-korea-s-ports-mongolia-s-gateway-1.823264
64
Simon Ostrovsky, “North Koreans working in Mongolia,” North Korean Economy Watch, October 14, 2011.
www.nkeconwatch.com/2022/10/14/north-koreans-working -in-mongolia/
65
Outlined in Mongolia’s “Concept of Foreign Policy” and “National Security Concept of Mongolia” in June 1994
and updated in the “National Security Concept of Mongolia” of July 15, 2010.
66
Proclaimed by President P. Ochirbat to the 47th session of the United Nations General Assembly on September 25,
1992.
67
AdiyagiinTuvshintugs,“The Role of the Small State in International Relations: Mongolian Perspective,” paper
presented to “Asia-Pacific security situation,” December 3-5, 2002, Mongolian External Security Environment After
Cold War (Selected works), National Intelligence Academy, Ulaanbaatar, 2012, 50.
68
Tuvshintugs, “National Perspectives on Linkage Strategy: Mongolian Perspective,” paper presented to “Political
Economy of the Northeast Asian Regionalism: Linkages between Economic and Security Cooperation symposium
of June 29-30, 2006, Mongolian External Security Environment, 488-490.
69
Rescinded January 1, 2011.
70
For example, on January 1, 2009 Russia cut Ukraine’s natural gas in a dispute over transit fees which crippled
Western European customers. See Robert E. Ebel, The Geopolitics of Russian Energy, CSIS, July 2009, 10.
61
Asia-Pacific Policy Papers Series
Contributing actively to public-policy debate in the nation’s capital, the Reischauer Center
publishes occasional papers disseminating its analytical work. Subjects of concern include:
the Korean nuclear crisis, Northeast Asian relationships with the Middle East; Asian energy
prospects; and assessments of Japanese economic reform.
No. 1
The North Korean Nuclear Crisis and American Policy
No. 2
Japan’s Stealth Reform: The Key Role of Political Process
No. 3
China’s Energy Diplomacy and Its Geopolitical Implications
No. 4
Stabilizing the US-Japan-China Strategic Triangle
No. 5
Enhancing Japan’s Energy Security
No. 6
Moving (Slightly) Closer To Iran
No. 7
Japan’s Asianism, 1868-1945
No. 8
The Politics of the Futenma Base Issue in Okinawa
No. 9
The Reischauer Heritage in the Twenty-First Century
No.10 Demystifying FTAs
No.11 Central Asia’s Oil & Gas Sector Since the 2008 Financial Crisis
No.12 Cracks in the Alliance? Futenma Log: Base Relocation Negotiations
No.13 A Changing Arctic and the Trans-Pacific Relationship: American Perspective
No.14 Toward a New Era of Trans-Pacific Energy Interdependence