The state should improve business ‘game’ rules
It is clear now that MPRP and DP that seem to be eternal opponents to collaborate in Government level, neglecting differences in views and directions. Prime Minister and Leader of MPRP S.Bayar promised a rapid development by putting mineral deposits into economic turnover when initiating a step to put an end on a messy politics heated by July 1 riots. We invited H.Naranhuu, Minister of Industry and Commerce of former Cabinet for an interview. He speaks about present and future of mining and minerals sector.
How successful the office of Minister of Industry and Commerce of Mongolia which is dependent upon imports on gas relies on world market prices. However it is interesting what have you done for a period of a half year being the Minister.
– Gas and oil price went up much during the office of this Government. This is the second time when gas price increased dramatically since power crisis in the world in 1973. It affected adversely on Mongolian economy and therefore the public might be unsatisfied with our work because MIC plays an important role in regulating the aggregate economy. Looking back, it has been taught that free market deals with problems itself since 1990. And as a result there is no regulation in the market. Regulations have not been performed by the MIC. Though everyone begins to realize now and everywhere that the Government must be engaged in the market. Thus, the MIC has to find out the mechanisms for market regulations. I think the new Cabinet would focus on it.
How many factories started operating during the term of your office as the Minister? How is the new industrial tendency?
– In fact, no new factory was operated. Industries and factories referring to our Ministry are all private companies. As mentioned above, our Ministry has no obligations to regulate them directly due to lack of specific regulatory mechanism. No funds for forming a new factory have been invested to Mongolia until now and no budget investments were made. In recent 3 years mining product prices went up, benefiting the budget. But we spent it for consumptions like child money and couple money, instead of forming new factories. Actually Mongolia cannot reach the level as of 1990. Thus the reason why the economy was not going up for 18 years was discussed at the MPRP conference. The reasons are political. We came as of today not being able to get out of the evil circle in which one party wins the majority and the minority opposes everything blindly without weighing what’s right and what’s not. And out party initiated a change to adjust such politics.
In what stages are the projects to ensure Mongolia’s independence from petroleum and gas imports? Last spring your vice minister informed that coal would be liquefied in a year.
– We’ve talked about it for the whole spring. The Government formulated mid and long term measures and submitted to the Parliament for adoption. Mongolia tried out petroleum products at the beginning of 60’s, however it has been stopped due to high values and costs. For the first time, since then a crude oil has been found after two years. About 830 thousand barrels of crude oil has been mined in Tamsag, Dornod and Dornogobi. It accounts for 10 percent of gas consumption of Mongolia. Not bad. Agreements and deals are being negotiated with China, Petrochina company in order to accelerate exploration and mining in the future. Mongolia takes 40 percent of oil, mined in Mongolia. Negotiations are concentrated on not selling crude oil to China but on processing and getting end products. China shows positive attitudes. If exploration and mining reaches to a satisfactory level, a processing plant shall be formed in Mongolia. Several companies carry out technical and economic researches. We completed full researches at the Japanese company assistance and Japanese bank loans. We are going to submit this to the Government in the near future. A numbers of companies are operating in this field. The Government shall select profitable, valuable, effective, eco-friendly and appropriate one. Oil is close to Mongolia. Mongolia is not rich with oil but it ranks among 10 in the world for its coal. At this time it is necessary to extract liquid and gas fuel from coal. Mongolia has a promising future in this regard. Surveys are being carried out in this direction. Companies develop technical and economic conditions. Our companies studied German technologies during the visit of the German president. Operations are accelerated.
You won the Parliamentary election with your agenda “Mongolian gas-Gobi development” from Dornogobi province. Is it because 50 percent of brown coal resource is in Dornogobi province?
– According to researches Dundgobi has rich resource of brown coal. The province is close to the railways. Brown coal is very appropriate for liquefying so I took responsibilities from provincials to perform duties in this regard. Evsh gol coal samples have been sent to foreign laboratory for analysis. If the results are good, actions shall be carried out.
You don’t agree with economists saying that Mongolian Government is helpless at the time when gas price goes up in Mongolia while it falls down in the world market, do you?
– I’ll take criticisms from ordinary people far from economy. I won’t get it if economists do so. Economists must be aware that gas price imported from Russia goes behind world market price by 1 or 2 months. Or maybe some of them don’t know. Gas price, to be imported from Russia, shall fall down by USD100-150 starting from this month. In the future, world trends shall be followed.
How will falling prices of copper affect on budget income? Copper price reached USD 8800 but today it is USD 7200.
– When I was a Director of Erdenet enterprise, copper price was USD 1290 in 2000. Isn’t it 5 times higher than that? It can be taken that copper price is not bad. Also we take 68 percent windfall tax. Therefore I believe budget income would not fall down. Though falling price of copper is a big caution to Mongols and the Government of Mongolia too. It is wrong to increase consumption highlighting one or two products. Budget money from copper shall go up and down. What if rates fall down to 1200? Thus it is time to realize to invest in other industries and productions with a part of income. I wish the new Government would work in this direction.
You have just mentioned your hopes to 68 percent tax. Foreign investors complain about it all the time. They criticize windfall tax as “re-socializing policy”. Isn’t the income fall down due to high tax?
– 68 percent windfall tax is taken from copper and gold only. The only copper enterprise Erdenet is a public one. It can’t be said that its business has been adversely affected. There are 150 gold mining companies. 68 percent windfall tax is a very high one for them. The Government planned to adjust 68 percent windfall tax into more flexible one last spring. A draft law on increasing and decreasing royalties depending on market prices has not been decided because the two argued on it. It is for sure that 68 percent windfall tax affected on the budget income. Some gold companies have less interest in increasing gold mining. Hope the parliament would solve it. I understand complains of foreign companies and investors bur environment recovery shall be taken along.
H.NARANHUU: IN FACT, NO FUNDS WERE INVESTED
INTO NEW INDUSTRIES
Most of investors coming to Mongolia aren’t the people we expected
How about investments in minerals sector? I realized from my previous interview with you that Mongolian Government has no policy of encouraging private funds in mining sector.
– That is not my intention. The Government should regulate mining sector well. Many foreign investors come to Mongolia nowadays. However most of them are not the ones we expected. Who we need is those who gained much experience in mining sector, had technologies, equipments, money and personnel. But unfortunately companies with money but without experience and who heard Mongolian mining sector is profitable. That is why they don’t recover the environment and not inform to the local residents. I say it again, the state should regulate this. Regulation doesn’t mean that the state doesn’t encourage private business. “Game” rules must be improved. As per major strategic deposits, the state should definitely participate.
When is MPRP distributing the money-MNT1.5 million?
– As sooner as possible and before the next election it will reach its promise, I think. In order to do so, the Government should be formed and the Parliament should roll its sleeves. Mining sector policy should be sophisticated, by adjusting the 2006 legislation.
How about economic turnover on Tavantolgoi deposit? There is no news since transferring the license to Erdenes Mongol company.
– Erdenes Mongol Company has been established in order to represent state participation in the mining sector. The state takes the mining license of Tavan tolgoi deposit and gave it to this company. Shivee Ovoo coal mining license has been transferred to Erdenes Mongolia Company. Asgat shall be transferred soon. Activities of this company shall be active when the new Government is formed and regulations are in order. Tavantolgoi issues are pending. Agreements concluded with investors are stagnant at the Parliament and rejected to the Government. The Government should complete the agreements with foreign investors in a short period after the Government passes new law.
Project on mining Asgat deposit has been sensational for a period and became silent. Did Russians take back their proposals?
– The Parliament got it, but it just politicized the issue. If we collaborated with them at the time they were interested in Asgat, actions would be aggressive. Unfortunately, Russian company didn’t go after Asgat that willingly.
What are you going to do with uranium? The state is going to take it under control 100 percent and to establish a company. But it is silent till now. Since it is a strategically important subject, many foreign and domestic economist and politicians are interested in it.
– There are 5-6 foreign companies operating in uranium sector in Mongolia as of today. A lot of exploration has been carried out. Minerals resource commission of our Ministry has confirmed its explorations. It is time to establish an agency responsible for uranium and atomic sector. A package draft laws has been submitted to the Government discussions and to the National Security Council and a direction should be released. The draft law is on x-ray, atomic power and uranium. And then the draft law package shall be submitted to the new Parliament. Since uranium is a significant mineral, state participation should be significant too.