MP Z.Enkhbold: Will give order to amend OT agreement

Dec 14 • Companies, Laws, Mining • 755 Views • No Comments on MP Z.Enkhbold: Will give order to amend OT agreement

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MP Z.Enkhbold, the Chairman of the Standing Committee on Foreign Policy and Security, gave interview to Daily News Newspaper on December 8 2010. Business-mongolia.com extracts business related part of the interview to its readers.

Mortgage market will develop intensively

Q: There is wide criticism on that Democratic Party shall leave coalition Government and take its role of strong opposition. What is your stance towards this criticism?

Z.Enkhbold: It is so good if actions of illegal Government shall be suspended as soon as possible.

Q: During the budget hearing and discussion, DemParty group was quite active, imposing threat to take break during the session, and managed to insert two alternatives of “grant” distribution to the people. Can it be effective?

Z.Enkhbold: Two alternatives will be offered. It allows opportunity to those who want to run business, or alternatively, those who want cash; they can get ₮21,000 each month. Using this opportunity people can create cooperatives between its relatives, neighbourhoods, developing to the bigger companies. I believe this will encourage cooperation and strengthen trust between people.

Q: Demparty group initiated to fund mortgage loan financing using the social insurance fund, can you share some details?

Z.Enkhbold: If social insurance tax payers are retired, they can get their pension from their pension fund starting from 2015. That fund shall be established already. But, the state has huge payable to the fund. Once the state has very little chance to pay it back, Demparty group initiated new policy of solving this issue after consulting with the Government and the Mongolian People’s Party group. As the result, the Government will issue guarantee on the payables and get loan of ₮400 billion from Mongolbank, to fund the pension fund. Therefore, the Law on Social Insurance Fund will be amended and after the amendment, the social insurance fund will buy stocks from mortgage bills from the secondary market (stock exchange). The profit from the mortgage bill to the social insurance fund will be three percent. Mortgage will be handled by the social insurance, but according to the law, mortgage companies or banks will handle the mortgage. Those organizations will benefit three percent per annum for handling the mortgage. End customers will get soft loan with 6 percent interest rate per annum for up to 30 years, for their housing. Through such measures, we are striving to formulate the mortgage market correctly from its very beginning.

Q: Based on what calcualtions, financing of ₮400billion came from?

Z.Enkhbold: Now, families pay over 10% of interest rate for 10-15 years housing loan. Around ₮200 billion will used to prolong loan term up to 30 years and decrease interest rate down to 6%. Upon the completion of such measures, mortgage market will become stable and healthy. The remaining ₮200 billion will be used for those who want to have mortgage loan. Based on such simple calculation, ₮400 billion will be used at first phase. Furthermore, the state will not have payable or obligation for the social insurance fund, after the Government guarantee, in return mortgage market will develop. It will have many effective results, therefore, we are working on such multi-beneficial policy.

Will give order to amend OT agreement
Q: Heard that the Standing Committee of Foreign Policy and Security prepares send letter to the Government regarding Oyu Tolgoi agreement. What is it?

Z.Enkhbold: The Standing committee appointed MP Sh.Saikhansambuu as head of the working group on it. The Standing Committee will make its decision next week during its meeting. Based on the working group findings, the related order will be sent to the Government.

Q: What orders will be sent to the Government?

Z.Enkhbold: The Government agreed to start talks with Oyu Tolgoi investors according to the given directions. SGK adopted resolution 57 giving guidance and limitations to the agreement building on Oyu Tolgoi deposit. The Standing Committee will issue its conclusion on the Government’s performance on Oyu Tolgoi agreement. SGK ordered to the Government to build agreement with clear provisions such as to increase Mongolia’s ownership up to 50% upon pays back its investment and minimum 34% of the total shares, But the Government failed on this provision. It agreed on the term of 30 years, actually, it should have agreed on not specific date but on the date of paying back of the investment. It will completely pay its investment even less than 30 years when copper price is so high. Therefore, agreement’s term shall be decreased. Also, shareholder’s agreement has difference than the Investor’s agreement. Investors’ Agreement says that 34% of ordinary shares goes to the Mongolian side, but Shareholders’ Agreement limits the Mongolian side involvement in the additional share issuance. According to the Company Law of Mongolia, there is no limitation in shares, such as ordinary shares and primary shares. Therefore, the Mongolian share will face risk of dilution if one party doesn’t have rights in the primary share issuance.

There are three ways of fundraising are stated in the Shareholders’ Agreement. If our partner will choose to issue primary shares and blocks the Mongolian side involvement, Mongolian share would be diluted. Oyu Tolgoi Board will discuss this issue. The Mongolian side is interested in other methods of fundraising, if this method is inevitable, then Mongolia wants its involvement. We are correct our mistake in such a way. Ivanhoe Mines is going to issue additional shares and then it will give us loan with interest rate of 9.9% using the raised fund, even it will include inflation rate of USA. Mongolia’s rating was increased up to B+, and when its rating was B only, it could find loan with interest rate of 8%, now its rating was increased, so the interest rate shall be decreased. Why we should choose higher rate if we still have an opportunity to get softer loan? We shall discuss on interest rate and the inflation of USA.

Q: Will Sliding tax on Resource be imposed on Oyu Tolgoi?

Z.Enkhbold: Windfall Tax will become ineffective from January 1 2011. Therefore, Sliding Tax on Resource shall replace it. SGK gave direction to build an agreement according to the effective laws of Mongolia. But the Government removed Windfall Tax imposition form the agreement. It has chance to correct its mistake also.

Q: Once the agreement is built and signed, we can’t amend it, can it?

Z.Enkhbold: The Government’s position is waiting for the Standing Committee findings, but there is nothing is eternal and unchangeable on the earth.

English version of Shareholders’ agreement can be downloaded HERE

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