Publication: Eurasia Daily Monitor Volume: 2 Issue: 24

Russian officials have claimed there are no problems in their relations with Mongolia, with which Russia shares a 3,500-kilometer-long border. However, despite official claims to the contrary, the once-close economic and political ties between the two Cold War allies have been sluggish for quite some time.

Economic issues have dominated recent top-level discussions between Russia and Mongolia. On January 27, Sergei Mironov, speaker of the Federation Council, the upper house of the Russian parliament, told visiting Mongolian parliamentary speaker Nambaryn Enhbayar that state support was needed to back bilateral joint ventures in Mongolia. In response, Enhbayar also expressed interest in increased Russian investments, notably in the Ulaanbaatar railway, originally built with Soviet loans and aid (regions.ru, January 27).

In recent years, there has been no deficit in high-level meetings between the two countries. Russian President Vladimir Putin traveled to Mongolia in 2000, and then in March 2002, Russian Prime Minister Mikhail Kasyanov became the first head of government to come to Mongolia since 1971. In a June 2003 meeting with the visiting Enhbayar — at that time the Mongolian Prime Minister — Putin stated that Russia attached great importance to its relations with Mongolia and that he was pleased with the development of bilateral ties. “Mongolia, for Moscow, is an old and very reliable partner” (People’s Daily Online, July 3, 2003).

Yet despite optimistic official pronouncements, there have been some irritants in bilateral relations as well. Over the past four years, Mongolian border guards shot 17 residents of Russia’s Tuva region, killing nine of them. Notably, on October 27, 2004, Mongolian border guards shot and killed three residents of Russia’s Kungurtug village, who allegedly had crossed Mongolian border illegally (regnum.ru, November 16, 2004).

During the Soviet era, Mongolia was almost exclusively dependent on its northern neighbor. Moreover, the Mongolian economy heavily relied on massive Soviet loans and aid. In all, over 720 projects were built, including the Darkhan and Erdenet power stations, Ulaanbaatar’s third and fourth electric power stations, the Baganuur, Aduunchuluun, and Sharyn Gol coal mines, and over 1,000 kilometers of roads.

As a legacy of these close bilateral ties during the Soviet era, Russia still maintains certain economic positions in Mongolia. There are 265 joint ventures in Mongolia, with combined Russian investments of $20 million. The Erdenet power plant and Ulaanbaatar railway top the list. Russia has held a 49% stake in Mongolia’s major copper producer, Erdenet Mining.

However, Russian joint ventures in Mongolia have been struggling due to inadequate management. In November 2004, Russia’s Audit Chamber announced it had discovered irregularities in managing Russia’s state-owned 49% stakes in Erdenet and Mongoltsvetmet joint ventures. In 1991-2002, Russia’s dividends amounted to $96.6 million, including $93 million from Erdenet. However, in 2003 Russia received no dividends at all, and the Audit Chamber believes that payments for 2004 are unlikely due to lax supervision by Russian officials.

The Soviet collapse in 1991 left Russia holding the note for Mongolia’s huge Soviet-era debt. Roughly three-quarters of Mongolia’s total borrowing was used to fund infrastructure projects. In an apparent attempt to give bilateral ties a much-needed boost, Moscow opted to forgive the bulk of Mongolia’s debt. In December 2003, the Russian government decided to write off 98%, all but $300 million, of Mongolia’s 11.4-billion convertible-ruble debt to Russia, once valued at $11 billion.

In June 2004, Russian Agriculture Minister Alexei Gordeyev held talks with Enhbayar and President Natsagiyn Bagabandi. Gordeyev said Russia had decided to write off the debt because it views relations with Mongolia from a long-term perspective.

Ulaanbaatar also offered some gestures towards Moscow. Earlier this year, the Mongolian government moved to scrap import tariffs levied on Russian wood (The UB Post Weekly, January 19). Between 80 and 100 rail cars loaded with logs are currently transported from Russia via the Mongolian railway to China and South Korea each day. However, this move was designed to cater to China’s, rather than Mongolia’s, economic needs.

Russian officials have complained about sluggish bilateral trade, urging at least a doubling of trade figures. On January 28, Boris Gryzlov, speaker of the State Duma, the lower house of the Russian parliament, told Enhbayar that bilateral relations had not reached their full potential. In recent years, annual trade turnover between Russia and Mongolia has amounted to little more than $200 million, primarily Russian petrochemical exports.

Most of Russia’s ties with Mongolia are limited to border trade. Siberian regions are responsible for 70% of Russia’s overall trade with Mongolia, including some 80% of Russian exports. The Irkutsk region is responsible for some 60% of Russia’s trade with Mongolia. On November 24-25, 2004, Irkutsk region governor Boris Govorin traveled to Mongolia for talks with President Bagabandi, who reportedly expressed interest in tapping the riches of Irkutsk’s Kovykta gas fields (RIA-Novosti, November 26, 2004).

Some Russian regional companies still eye projects in Mongolia. In the wake of Govorin’s trip, Vladimir Kolmogorov, head of the regional electricity facility Irkutskenergo, announced his company’s plans to export electricity to Mongolia and bid for Mongolian energy facilities in privatization tenders. However, it remains to be seen whether Russian pledges to invest in Mongolia will be backed with actual moves.