Coals to Newcastle - via Mongolia

Image via Wikipedia

There is a very thin line between funding genuinely useful development projects and those that are established merely to spend money. I suspect the recently announce tender by the MCC in Washington is the latter.

Training of Herders and State Officials in Pasture Land Management in Mongolia

The original Mongol or proto-Mongol people, composed of a myriad of periodically warring tribes, were first chronicled around 200 BC. They were – you guessed it – nomads and herders living off various pastures in the regions now known as Mongolia and Inner Mongolia (part of China) and were similar to the other nomadic groups further to the west in Central Asia.

Mongol society, however, threw up one of the greatest military forces in history which, under Genghis Khan forged an empire stretching from Hungary to Korea and from Russia to modern day Iran and China. They were herders, among other things, and developed one of the most sophisticated legal and administrative systems the world has ever seen. It included rules on land management and animal husbandry.

The unified Mongol Empire began in earnest about 800 years ago and came to an end only recently – perhaps 600 years ago – breaking up into family khanates. Marco Polo visited the largest and wealthiest group in a China ruled by Kubilai Khan. Perhaps you’ve heard of this.

I am sure, in searching for the best project team, the key members will be required to have at least five to ten years experience in pasture maintenance and herding, preferably in Central Asia and they will intensely and sincerely instruct the modern day Mongols on both.

US taxpayers would probably be interested to know how their money is being disbursed. But, then, maybe not.

MCC Crash and Burn Redux

I feel compelled to apologize to MCC Washington on the story regarding the Mongolian Railroad project a couple of days ago. It was not entirely their fault.

Since local - and not DC - MCC offices prepare projects under country compacts, MCC/Mongolia was at fault. Twice. The project was first tendered in July 2008 and pulled when an agreement with the railroad (read "the Russian side") could not be reached.

So, it was tendered again and DC were assured by MCA/Mongolia that the ownership of the railroad (the Mongolian and Russian governments)had bought into the project. This was decidedly not the case - with the unsurprising result.

I've also been told that the bidding contractor did not attend a bidder's meeting to ask any questions and prepared a proposal for a contract that was never going to be signed, much less implemented. They didn't attend the bidder's meeting because it was too expensive. Gentlemen - the cost to attend would have been far less than proposal preparation.

MCC needs more control over its local representative offices, the local offices need to tell the truth and bidders should perform some minimal due diligence.

Truly Bizarre MCC Project Dies

In a bizarre report, an RFP issued by MCC for modernizing the Mongolian rail system has crashed and burned. The result should not have been a surprise - the fact that it ever even got past the drawing board (or indeed past the first snicker in the board room) is beyond the pale. To protect the innocent, I have not identified the source; but the source is very reliable.

The MCC issued an RFP to modernize the rail system for the purpose of preparing it to carry an increased load of minerals from mines, including heavy strikes of gold, copper and uranium. The rail system is owned 50% by the Mongolian government. The other 50% is owned by the Russian Federation.

What could be the problem with this? Anyone...anyone...Bueller?

To implement the project a leasing company would be established that would be wholly owned by the Mongolian government. MCC would acquire the rolling stock, signaling and track maintenance equipment, which in turn would be provided to the leasing company. The leasing company would retain title to all the equipment and lease it to the railroad.

So, what is wrong with this?

I'm glad you asked.

The leasing company, wholly owned by the Mongolian government would be leasing the equipment to the railroad - 50% of which is owned by the Russians. Did anyone at MCC pass this by the Russians even if it was a wise deal (which it was not)? Apparently, no.

On May 18 MCC cancelled the entire program. The Russians - astoundingly - would not agree to an audit of the railroad's books. That must have shocked the experts in Washington. To be fair, MCC had included the audit provision as a condition to moving ahead with the project. But...

MCC has put a bunch of people and firms to a great deal of effort and expense preparing proposals but they did not vet this first with the Russian owners? This should have been a major consideration in having the project move forward, but as is all to frequently the case, the funding agency, in this case MCC, simply made at best, a dangerous assumption or, at worst, was negligent and should pay the firms for their time and costs in developing bid proposals.

The failure by the MCC would be excused under several scenarios. First, if the MCC had revealed all the above (and I have not read the RFP)and the bidders did not ask any questions, then the bidders assumed a major risk. Second, if the railroad parties and the Mongolian government agreed to the audit, but lied, then everyone was deceived; and, third, if the bidders knew all the risks and assumed them, well - greed is not often a virtue.

The story, however, gets a little worse. The Mongolian rail system is not only 50% owned by the Russian, but it is considered "sovereign territory" and therefore exempt from Mongolian laws. So, to actually make any contracts enforceable, conditions would need to have been attached to the MCC agreement and the leasing contract that Mongolian commercial (at the least) laws would apply.

Finally, my contact said, as reported in the news, that Putin was in Mongolia last week, offering the Mongolian railroad loans to buy rolling stock from the Russians and - yes it gets worse - recommended that the rail system purchase equity stakes in the mines that they intend to serve.

What was MCC thinking? And - how would a default in the leasing agreement be handled by MCC or the leasing company (such as a repo of rolling stock). Does anyone remotely think the Russians would honor the contract?

Many thanks to my source.