Mongolia has repeatedly insisted that it wants to open its doors for business to all countries with a genuine interest in participating in the country’s sustainable growth. How much of this policy is lip service though and how fair is the bidding process for prospective foreign investors? Mongolia’s long awaited initial public offering (IPO) for its lucrative coal mine in Tavan Tolgoi will have to wait at least until 2013 according to recent remarks by government officials. The repeated delay of one of Mongolia’s signature markets is sending mixed signals to foreign investors and has the potential to erode investor confidence in the resource-rich Central Asian country.

Tavan Tolgoi represents one of Mongolia’s most important chips to foreign investors as the company controls an area that is believed to contain the world’s largest undeveloped coking-coal deposit. The mine is situated in Mongolia’s southern Gobi desert which has made it an appealing location for Chinese investors. In July 2011, China’s Shenhua Group was awarded a 40% stake in the mine. The remaining investment contracts were awarded to a Russian-Mongolian consortium (36%) and American mining company Peabody (24%). It was believed that this trilateral group would jointly develop the mine, but government officials in Ulan Bator demurred on their decision after Japanese and South Korean companies began protesting that the bidding process had been unfair.

The uncertainty has created a five-chair shuffle in which East Asia’s largest power brokers are competing to have a lasting economic footprint in Mongolia. Mongolian President Tsakhia Elbegdorj has cautioned that the contract for developing the mine is not a done deal after rejecting a previous decision to hand the majority of the mining rights to the Chinese-backed consortium. Elbegdorj insisted that it is “essential that it (developing the mine) is in line with policies and in line with our national security. We have two big neighbors and we need investment. I think the door is still open in the negotiations with big national investors.”

The underperforming price of coal in the financial markets is pushing the IPO deeper into 2013 as investors wait for an opportune time to establish a market presence. The Tavan Tolgoi IPO, which is expected to be offered at U.S. $3 billion, has also been pushed back due to legal constraints involved in listing Tavan in three international markets – London, Hong Kong and Ulan Bator. Reports of the delayed IPO come amid frustrations with Hong Kong’s increasingly complicated legal frameworks and restrictions. Mongolian officials are working to amend their legal securities framework to allow the IPO to list on all three markets.

Despite this apparent sign of retrenchment, Mongolia maintains a strong desire to increase its economic integration with China. Ulan Bator realizes that China is its biggest and most convenient market for exports and investors. However, Elbegdorj still needs to cater to influential pockets of nationalist sentiment in Mongolia that are wary of too much engagement with China. According to a report this week from the Associated Press, Mongolian sends 90 percent of its exports to Chinese markets and two-way trade with Beijing constitutes 75 percent of Mongolia’s entire economy.  

Earlier this year, Elbegdorj met with former Chinese President Hu Jintao on the sidelines of the Shanghai Cooperation Organization leader’s summit held in Beijing.  Both sides took the opportunity to emphasize the need to bolster economic and security ties. Elbegdorj noted at the summit that “Mongolia has growing interest in cooperation with China in the frame of SCO, especially in infrastructure, energy and agriculture.” Hu extended this a bit further by noting that “Mongolia and China should continue deepening mutual trust and grasp the overall direction of the ties from a strategic height and a long-term angle.” 

Elbegdorj’s foreign economic policy seems to be increasingly about diversity both thematically and regionally in order to shake Mongolia’s reputation as a “mineral-state in Asia.” He recently told the Mongolian press, “The Mongolian economy mostly has one color, and we would like to make this a rainbow economy. I have a message to our investors – don’t see Mongolia as only mines. There are great opportunities in investing in other sectors.”

However, Mongolia still has a considerable amount of work to do before it sufficiently assuages the concerns of Western investors about corruption and pegged contracts. This seems to be a priority for Elbedorj who is a strong proponent of Mongolia’s model to the region as an open democracy, which stands in stark contrast to the corrupt kleptocrats that populate much of Central Asia.

Elbegdorj has also stressed his commitment to foreign investors underlining that “corruption makes Mongolia look awful, ugly. Corruption is the daunting enemy of a free society, it is the main brake for the further growth of a free society. Corruption is associated with the governance, state structure and its policies. Therefore, I set this both as a goal and a call: let’s make the coming 4 years the years of fixing the wrongs in the state, in the government.”

Curtailing corruption itself has at times proved controversial, however. This is especially true in the case of Elbegdorj’s predecessor, former President Nambaryn Enkhbayar, who was sentenced to four years in prison earlier in 2012 for political corruption stemming from his time in office. Many charged that Elbegorj pursued Enkhbayar’s prosecution for political reasons rather than a desire to clean up the country.

With this recent turmoil in mind, a smooth IPO of Tavan Tolgoi would demonstrate to investors in the West and elsewhere that Mongolia is a safe and profitable place to do business. Government officials point to 2013 as a new timeframe for the IPO – but it is best to wait for the ink to dry first.