By Terrence Edwards
ULAN BATOR (Reuters) - A Mongolian court has jailed former president Nambaryn Enkhbayar for four years for corruption, a move that could threaten the government's fragile coalition and increase uncertainties for foreign investors.
Resource-rich Mongolia is in the middle of a mining boom that is set to transform its tiny economy, but political uncertainties have threatened to overshadow its efforts to attract the foreign investment needed to develop mines and build vital infrastructure.
After a three-day trial, Enkhbayar was found guilty of charges that include the illegal privatization of a hotel and newspaper and the misuse of donated television equipment to broadcast from his own television station, the government said late on Thursday.
Mongolia held parliamentary elections in July and the ruling Democratic Party, which won just 31 out of 76 seats, was forced to form a coalition with Justice Coalition, which is led by Enkhbayar's Mongolian People's Revolutionary Party.
Although Enkhbayar was barred from taking part in the elections, he remains as the chairman of the MPRP, which won the third-largest block of seats in parliament.
"The Democratic Party needs the Justice Coalition ... without them, it doesn't work and the partnership may now fall apart," said Luvsandendev Sumati, director of the Sant Maral Foundation, a polling agency.
The election result has already left more than a quarter of parliament in the hands of politicians who advocate local control of mines. Investors said the latest episode could worsen the political gridlock and increase uncertainty for foreign investors.
"The most likely scenario is that the Justice Coalition will remain in the ruling coalition despite condemning the conviction," Dale Choi, an associate at Origo Partners MGL, a private equity investment company which advises investors on Mongolia, said in a note.
"The coalition parliamentarians will fight to free Chairman Enkhbayar and there may be further concessions from the Democratic Party to the Justice Coalition."
Key decisions pending for major mining projects, such as the development of the massive Tavan Tolgoi coal mine, may also be delayed.
Enkhbayar, who served as president of the landlocked central Asian country from 2005 to 2009, has called for the $13 billion Oyu Tolgoi copper and gold mine project with Ivanhoe Mines to be renegotiated to grant better terms to the government, and also wants to keep the coveted Tavan Tolgoi coal mine, potentially one of the world's biggest coal suppliers, in local hands.
Rio Tinto has a majority stake in Ivanhoe and has full operational control over the Oyu Tolgoi mine, which is due to start production this year.
The court also ordered Enkhbayar to pay more than 54 million tugriks ($40,000) in damages.
Enkhbayar, whom some Mongolians see as a fighter for common people, has called the charges groundless and politically motivated, according to local media reports. His lawyers said he will appeal against the sentence.
(Editing by Fayen Wong and Nick Macfie)