China and the World

Power struggle

Russians cry foul over Chinese-financed dam in Mongolia

Russian President Putin speaks during a state awards ceremony in Moscow's Kremlin

Dam angry with China

China’s ‘New Silk Road’ is supposed to herald a golden era of cross-border trade and investment, stretching out through a series of ‘economic corridors’ into neighbouring countries.

One of the corridors for the ‘One Belt, One Road’ (OBOR) programme will link China with Russia through Mongolia. But a row over plans for dams – located in a part of Mongolia that supplies the world’s deepest lake with water – has highlighted some of the difficulties in deepening the collaboration between the three countries.

The Selenga River Basin serves as the primary source for Lake Baikal in southern Siberia, and the Russians are fearful about the impact of the proposed hydropower projects on the lake’s water levels. Of particular concern is the Egin Gol dam on one of the Selenga’s tributaries. Last year China Export-Import Bank committed $1 billion in loans to the Mongolians for a hydroelectric plant on the river and China Gezhouba Corp has started building roads and bridges for the project. The Russians are furious, saying that the two partners have disregarded promises to conduct environmental assessments first, and warning that Baikal could suffer the same fate as the Aral Sea, once one of the four largest lakes in the world, but now largely dried up because of the diversion of rivers for irrigation.

The lake has World Heritage status, thus Mongolia has also come under pressure from UNESCO to review the construction at Egin Gol, while Russian officials are arguing that the project is a black spot for the OBOR blueprint.

“The initiative clearly states that conservation of biodiversity and cooperation on preservation of World Heritage [sites] are key priorities,” the Russian authorities complained in an open letter to China’s Ministry of Commerce this year.

The Mongolian response is that water levels have been falling in Lake Baikal for natural reasons and that the building of the dam may make it easier to regulate the outflows of water from the lake.

Another interpretation of the dispute is that it is more about politics over energy security, because hydropower from the dam will help to reduce Mongolian dependence on Russian electricity.

The Chinese haven’t made an official comment on the matter, although a few official newspapers concur that the Russians are more concerned about losing their grip on Mongolia’s energy market.

The Russians insist that the environmental risks are real. But they have countered with an offer to send cheaper energy into Mongolia through a new power line, which could be extended across the country into China, earning the Mongolians extra cash.

Moscow has let it be known that Vladimir Putin is monitoring the dispute personally, amid a wider context in which the Russians are keenly aware of threats to their influence in Mongolia. In fact, the challenge from China is even more pronounced in Central Asia, where Putin has launched an alternative grouping called the Eurasian Economic Union in an effort to bolster Moscow’s position. But progress has been slow and the former Soviet republics are now trading much more with the Chinese than with Russia (as well as welcoming huge amounts of Chinese investment).

China has built oil refineries, power stations and cement plants in the smaller republics of Kyrgyzstan and Tajikistan, and Beijing has given approval for a vast new network of infrastructure across Central Asia. Chinese firms now own a large chunk of Kazakhstan’s oil production and they have replaced Russia’s Gazprom as the dominant buyer of gas from Turkmenistan, which holds the world’s fourth-largest gas reserves.

Chinese investment hasn’t been quite as expansive in Mongolia. But aside from the threat to Lake Baikal’s water reserves, Putin will be determined to prevent Russian influence there ebbing away.

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