Tavantolgoi mess
Tavantolgoi coal deposit, one of the largest coal deposits in the world, is a project that could have a huge influence on the future of Mongolia. One of the biggest challenges of Mongolia’s society and government today is to make efficient use of this deposit located right next to the world’s largest consumer and to turn it into the basis for our country’s rapid development.
Instead of viewing this challenge as a golden opportunity to diversify its economy, the Government of Mongolia has been using Tavantolgoi as a mere tool to win elections and its operations were solely directed at raising money to be spent on fulfilling the last election’s promises.
As the 2012 parliamentary election is coming up, the progress of this huge project is going like a sailboat floating around in a vast sea controlled by nothing but wind. The boat’s destination is not clear and it does not know where to go.
The mess
A company issues its shares for sale in order to raise capital needed for its further operations, not to distribute money to people. People who fail to understand or choose to ignore this simplest kind of a procedure are leading the nation and before starting to use this huge deposit, Mongolia already made a state owned company and issued its shares for distributing 20% of it to every citizen. That is how our government counted its chickens before they hatched and, when the due date draws closer, it does not know what to do and turns the whole thing into a big mess because the chickens have not hatched yet. As a result, Tavantolgoi has become a mess rather than a coal deposit.
According to the 39th resolution issued by the parliament of Mongolia in July 2010, “Erdenes Tavantolgoi” company was granted the right to mine and operate Tavantolgoi coal deposit and the government was ordered to give 10% shares of the company to people for free, sell 10% shares to private entities at nominal prices and trade 30% shares on domestic and international stock exchange. Being given 536 shares each, people were happy, but the ones who did not own companies opposed to the idea of selling shares to private entities at low prices.
Then there was the 57th resolution issued in March 2011, which gave 20% shares of the company for free to people allowing every citizen to have additional 536 shares in order to fulfil the election promise to allocate MNT 1.5 million and 1000 USD to everyone. Despite what they did, there was no money falling from the sky.
In April 2012, the Government of Mongolia announced that people had a choice to sell the additional 536 shares for MNT 1 million. The government made a decision to sell the shares they would buy from people at low prices to all private entities at equal, but higher prices.
Today, people are wondering whether to sell their shares or to keep them. If every citizen can get MNT 1 million in exchange for their 536 shares, the total price of 15 billion shares issued by “Erdenes Tavantolgoi” company will be MNT 28 trillion, which is $23 billion. This deposit which holds 7.5 billion tonnes of coal, including coking coal and energy coal was extremely undervalued at only three dollars a tonne and those who own shares of the deposit are the same as the goose that laid golden eggs. However, they will have to either sell their shares for MNT 1 million or wait for profits to be produced so that they can get dividends.
Instead of devising a long-term plan with technical and economic feasibility studies and creating a general layout to make efficient and full use of this strategic deposit, our government has been operating with short-term goals to raise cash and live up to their election promises.
That is why they divided Tavantolgoi deposit into two parts and sold the right to operate a mine in the East Tsankhi at $70 a tonne to “Chalco” company, which paid an advance payment of $250 million to the government. The government used this money to provide every citizen with monthly allowances of MNT 21,000 through the “Human Development Fund”, which gave many people a reason to drink and not to work. Also, the government did not leave money even to cover the operating expenses of “Erdenes Tavantolgoi” company, which halted their operation as there were not enough funds to continue mining.
Even though it has been months since it was announced that companies to operate in the West Tsankhi had been chosen as well as international banks to underwrite the initial public offering (IPO) on international stock exchanges in order to raise capital needed for further operation, there is still no news about this.
In order to raise capital on an international stock exchange needed for constructing roads and infrastructure that are required to operate a coal mine, a company must maintain high standards of corporate governance in terms of transparency and its board of directors must not have any conflicts of interest and should be trustworthy.
By looking at the development of Tavantolgoi, the East and West Tsankhi will both have a power station while each will build roads and railway that go to the southern border. Instead of regulating all this, the government has cornered “Erdenes Tavantolgoi” company when they ordered the company to find additional MNT 344 billion in order to fulfil their promise to give MNT 1 million to elderly and disabled people before May 20th.
There is no need to wonder why Mongolian state-owned companies run losses because our Minister of Finance is not aware of the fact that, after receiving a loan, a company does not become a charity but makes investments in its own business.
“Erdenes Tavantolgoi” company, which is carrying the dream of Mongolians, lacks good governance as there is actually no governance at all. It is proven by the fact that the company still keeps silent even after receiving loans only to be spent on fulfilling the election promises of political parties. This means that they are doing political work, not business.
Meanwhile our government is currently paying $95,000 every day in vain for the interest of the $600 million of funds raised by issuing bonds from the Development Bank of Mongolia as the projects to finance it are not ready to start. The Chairman of the Board of this bank was saying recently “We have no choice but to buy the Mongol Bank securities ” in order to limit the loss somehow.
First step of the new government
The first thing the new government to be formed after the election must do is to clean up this mess and treat the Tavantolgoi project with economic sense and recreate the investment re-estimation and operational plan.
But the new government cannot afford to take back 20% of the total shares distributed to every person due to election promises, and have to start raising capital by IPO of 30% shares on the international capital market to begin this large project.
Political and economic risks also have to be taken into account as this project is almost entirely dependent on only one country. Companies that have reputation in their sectors and have followed the best international standards for mining and restoration must be chosen as operating companies. Half of the selling price should reflect payments for all investments that are made by sellers and other participants of the project. If we fail to do so, the bitter experiences of many countries will become a reality for us; huge loans are received and spent on only one infrastructure project and if buyers stop buying the economy goes bankrupt, becoming incapable of paying the interest and political instability hits the country, which could ultimately lead to a civil war.
If there are no regulation made to give people the right to sell only half of their 1076 shares on the secondary market and make sure that the other half cannot be traded allowing people to receive dividends and own the shares by generations, poor people will only stay poor after selling all of their shares for cash as soon as they can.
Time demands that the new government should keep in mind that Tavantolgoi deposits must become the realistic basis for Mongolia’s future development and people must oversee the government and make sure that the deposits do not become a tool to get rich for the few at the top. This is a one-time opportunity because the resources cannot be acquired again.
Translated by B.AMAR
Instead of viewing this challenge as a golden opportunity to diversify its economy, the Government of Mongolia has been using Tavantolgoi as a mere tool to win elections and its operations were solely directed at raising money to be spent on fulfilling the last election’s promises.
As the 2012 parliamentary election is coming up, the progress of this huge project is going like a sailboat floating around in a vast sea controlled by nothing but wind. The boat’s destination is not clear and it does not know where to go.
The mess
A company issues its shares for sale in order to raise capital needed for its further operations, not to distribute money to people. People who fail to understand or choose to ignore this simplest kind of a procedure are leading the nation and before starting to use this huge deposit, Mongolia already made a state owned company and issued its shares for distributing 20% of it to every citizen. That is how our government counted its chickens before they hatched and, when the due date draws closer, it does not know what to do and turns the whole thing into a big mess because the chickens have not hatched yet. As a result, Tavantolgoi has become a mess rather than a coal deposit.
According to the 39th resolution issued by the parliament of Mongolia in July 2010, “Erdenes Tavantolgoi” company was granted the right to mine and operate Tavantolgoi coal deposit and the government was ordered to give 10% shares of the company to people for free, sell 10% shares to private entities at nominal prices and trade 30% shares on domestic and international stock exchange. Being given 536 shares each, people were happy, but the ones who did not own companies opposed to the idea of selling shares to private entities at low prices.
Then there was the 57th resolution issued in March 2011, which gave 20% shares of the company for free to people allowing every citizen to have additional 536 shares in order to fulfil the election promise to allocate MNT 1.5 million and 1000 USD to everyone. Despite what they did, there was no money falling from the sky.
In April 2012, the Government of Mongolia announced that people had a choice to sell the additional 536 shares for MNT 1 million. The government made a decision to sell the shares they would buy from people at low prices to all private entities at equal, but higher prices.
Today, people are wondering whether to sell their shares or to keep them. If every citizen can get MNT 1 million in exchange for their 536 shares, the total price of 15 billion shares issued by “Erdenes Tavantolgoi” company will be MNT 28 trillion, which is $23 billion. This deposit which holds 7.5 billion tonnes of coal, including coking coal and energy coal was extremely undervalued at only three dollars a tonne and those who own shares of the deposit are the same as the goose that laid golden eggs. However, they will have to either sell their shares for MNT 1 million or wait for profits to be produced so that they can get dividends.
Instead of devising a long-term plan with technical and economic feasibility studies and creating a general layout to make efficient and full use of this strategic deposit, our government has been operating with short-term goals to raise cash and live up to their election promises.
That is why they divided Tavantolgoi deposit into two parts and sold the right to operate a mine in the East Tsankhi at $70 a tonne to “Chalco” company, which paid an advance payment of $250 million to the government. The government used this money to provide every citizen with monthly allowances of MNT 21,000 through the “Human Development Fund”, which gave many people a reason to drink and not to work. Also, the government did not leave money even to cover the operating expenses of “Erdenes Tavantolgoi” company, which halted their operation as there were not enough funds to continue mining.
Even though it has been months since it was announced that companies to operate in the West Tsankhi had been chosen as well as international banks to underwrite the initial public offering (IPO) on international stock exchanges in order to raise capital needed for further operation, there is still no news about this.
In order to raise capital on an international stock exchange needed for constructing roads and infrastructure that are required to operate a coal mine, a company must maintain high standards of corporate governance in terms of transparency and its board of directors must not have any conflicts of interest and should be trustworthy.
By looking at the development of Tavantolgoi, the East and West Tsankhi will both have a power station while each will build roads and railway that go to the southern border. Instead of regulating all this, the government has cornered “Erdenes Tavantolgoi” company when they ordered the company to find additional MNT 344 billion in order to fulfil their promise to give MNT 1 million to elderly and disabled people before May 20th.
There is no need to wonder why Mongolian state-owned companies run losses because our Minister of Finance is not aware of the fact that, after receiving a loan, a company does not become a charity but makes investments in its own business.
“Erdenes Tavantolgoi” company, which is carrying the dream of Mongolians, lacks good governance as there is actually no governance at all. It is proven by the fact that the company still keeps silent even after receiving loans only to be spent on fulfilling the election promises of political parties. This means that they are doing political work, not business.
Meanwhile our government is currently paying $95,000 every day in vain for the interest of the $600 million of funds raised by issuing bonds from the Development Bank of Mongolia as the projects to finance it are not ready to start. The Chairman of the Board of this bank was saying recently “We have no choice but to buy the Mongol Bank securities ” in order to limit the loss somehow.
First step of the new government
The first thing the new government to be formed after the election must do is to clean up this mess and treat the Tavantolgoi project with economic sense and recreate the investment re-estimation and operational plan.
But the new government cannot afford to take back 20% of the total shares distributed to every person due to election promises, and have to start raising capital by IPO of 30% shares on the international capital market to begin this large project.
Political and economic risks also have to be taken into account as this project is almost entirely dependent on only one country. Companies that have reputation in their sectors and have followed the best international standards for mining and restoration must be chosen as operating companies. Half of the selling price should reflect payments for all investments that are made by sellers and other participants of the project. If we fail to do so, the bitter experiences of many countries will become a reality for us; huge loans are received and spent on only one infrastructure project and if buyers stop buying the economy goes bankrupt, becoming incapable of paying the interest and political instability hits the country, which could ultimately lead to a civil war.
If there are no regulation made to give people the right to sell only half of their 1076 shares on the secondary market and make sure that the other half cannot be traded allowing people to receive dividends and own the shares by generations, poor people will only stay poor after selling all of their shares for cash as soon as they can.
Time demands that the new government should keep in mind that Tavantolgoi deposits must become the realistic basis for Mongolia’s future development and people must oversee the government and make sure that the deposits do not become a tool to get rich for the few at the top. This is a one-time opportunity because the resources cannot be acquired again.
Translated by B.AMAR
Comments
Post a Comment