If foreign companies want to pay protection money, maybe
Back in July, I wrote about Mongolia’s ambition to create data centers. There, I wrote mostly about current PM Uchral’s comments about Mongolia’s various advantages with regard to AI:
- Mongolia is a non-aligned nation
- Data sovereignty
- An abundance of land in Mongolia
- Mongolia is land-“linked” (i.e., close to China)
Since I wrote that article, a new draft law has been submitted to Parliament titled simply “About Data” (Өгөгдлийн тухай). I originally wanted to write an article about the financial viability of a 100 MW AI data center in Mongolia. I went deep into costs, electricity prices, fiber capacity, and more. Then I read the draft law. I ended up with more questions than answers, and no clear way to get answers to those questions.
So rather than talk about a hypothetical data center, I wanted to comment on several provisions of this draft law. I’m relatively positive about the direction this law takes data policy in Mongolia, but I also feel it is important to give my perspective on where things aren’t as good.
Encouraging foreign investment…for a price
This draft law takes a very notable step toward creating protections for foreign data centers built on Mongolian soil.
13.2. Data and information of foreign entities placed in a foreign data center shall be inviolable, and except as provided for in international agreements, Mongolian authorities shall be prohibited from accessing, physically or electronically inspecting, seizing, or suspending the operations of the data center.
This is a pretty remarkable set of protections for foreign data centers. In addition, and perhaps with a nod to my previous post, Mongolia is attempting to address the issue that data will flow across the borders of Russia and/or China.
13.6. In order to ensure the inviolability of foreign data center transit traffic passing through the territory of neighboring countries, special negotiations will be held with neighboring countries and an international agreement will be concluded with Mongolia.
13.8. In order to ensure the safety and reliability of the data center transmission network and to prevent potential technical risks, Mongolia shall organize at least three geographically and technically independent and unrelated international Internet gateways.
If AI tokens are a new type of “electricity,” having those tokens pass through a foreign power might not make a lot of sense. Energy independence is something most countries put considerable effort into. With AI, being “land-linked” isn’t currently seen as an asset, but rather as a liability.
These protections come at a price. In fact, they have a literal price tag. Emphasis is my own:
13.12. A benefit-sharing agreement will be concluded with a foreign entity that has requested to operate data center services in Mongolia, and the agreement will include the following terms:
13.12.1. In the event that the special protection and inviolability of the data center specified in Articles 13.2 and 13.5 of this law is guaranteed, the payment for the inviolability guarantee shall be deposited in the state budget at the established rate;
13.12.2. In the case of providing data transmission and export services using low-orbit or other satellite networks, regardless of the infrastructure of the Mongolian Communications Authority, special service fees to ensure network spatial independence shall be paid to the state budget based on the amount of exported data;
13.12.3. If you create an independent energy source using renewable energy sources to power your own data center, the energy independence fee shall be calculated based on the amount of energy generated and deposited into the state budget;
13.12.4. If the data center is powered by natural resources and generates its own independent energy source, the energy independence fee shall be calculated based on the amount of energy generated and the greenhouse gas emission offset fee shall be deposited in the respective state budget until the carbon emissions are reduced to net zero;
13.12.5. Create conditions for Mongolian government organizations, research and educational institutions to use a certain percentage of the data center’s computing, backup and storage equipment free of charge;
That’s a lot of fees! The biggest problem isn’t the fees themselves. The real problem is that the amounts are not set in the law and will instead be determined by the government later. This creates the possibility that the methodology or rates could also change later.
Foreign investors require consistency and trust before they will be willing to invest. We saw what happened with the Oyu Tolgoi negotiations, which were repeatedly mired in disputes and accusations of corruption. A better approach would be a static fee arrangement that is publicly defined and cannot be changed for the duration of the project.
I am not aware of another country that imposes this particular set of fees specifically on foreign data centers. It is also notable that domestically owned data centers would not have the same fees.
Tokens as electricity, and national security
I did some back-of-the-napkin math on building a 100 MW AI data center in Mongolia. My estimate puts the investment at around $6.7 billion, including dedicated power generation. Any foreign entity investing this much money in Mongolia will want serious stability, very much unlike what has been seen in mining in the past. The capital expenditure breakdown is:
- NVIDIA GB300 NVL72 systems: $3.17 billion
- Networking and storage: $0.67 billion
- Buildings, site, cooling, electrical, and backup power: $1.3 billion
- Delivery, spares, and IT contingency: $0.50 billion
- Dedicated wind, solar, and batteries: $1.06 billion
This would be a construction project with a very high initial capital cost, but a relatively modest land requirement of perhaps 30–60 hectares. It’s easy to see why Mongolia wants to attract this type of business. It is also easy to see why these businesses, in my opinion, will most likely stay away from anything approaching this scale in Mongolia.
If LLM tokens are such an important resource, akin to electricity or even labor, nation-states may prefer to keep this generation capability within their own borders. Perhaps Mongolia could be a destination for training open-source models or running inference on them. For this to happen, a clear value proposition will have to be made, with transparent taxes and fees that investors can rely on without fear of later changes or renegotiation.
