“It is not true that all State entities run at a loss”

Ts.Nanzaddorj, the new head of the State Property Committee, tells O.Khostsetseg of the tasks ahead and privatisation plans.

What are the main activities of the State Property Committee (SPC) at the moment?

State and local authorities’ assets have to be freshly enumerated every four years, according to the State and Local Property Law. We have finished listing the assets of nearly 1,000 organisations and are now preparing the final report. Since this has to be submitted to the Government in November, this is our main work for now. Following the changes made in the structure of ministries and agencies, we established sub-committees to record changes of ownership of property and to transfer ownership of assets held by agencies that had been closed down. These call for a lot of paper work. We also have to provide the newly established ministries and agencies with things they need for their regular work. The Government has decided to dispose of the movable assets -- such as furniture, equipment and vehicles -- of the agencies that have been disbanded, and this is also the SPC’s responsibility.  

We have also begun preparations for selling 24% shares of Baganuur Company on the Mongolian Stock Exchange. The offer will be made in late November or early December. The expectation is that MNT60 billion will be raised from the sale. We are ready with a plan on how the money will be used. The first priority is upgrading the technology and then the drainage system.

Will the Board of Directors of Sainshand industrial complex be selected any time soon?

The legal entity to be in charge of the complex has already been established through a Government decree. The newly appointed secretaries of the ministries have only recently started their work, and the Board of Directors will be selected once everything is in order.

Have you replaced the former head of the SPC on the Board of Directors of Erdenes MGL LLC?

No. My predecessor B.Zayabal is still there. Erdenes MGL has been brought under the Human Development Fund according to the Human Development Fund Law. The company is thus no longer directly connected with the SPC.

What are you doing about the Prime Minister’s instructions to do something about unprofitable State companies?

The Prime Minister held a meeting with the directors of Baganuur, Shivee-Ovoo and MIAT – three companies considered to be the most unprofitable -- and asked us to take the necessary corrective measures. We explained to him that the single most important reason behind their unprofitability is the State regulating the coal price and supplying coal to power plants at a price much lower than the market rate. Management is also an issue. We are trying to improve things even as we prepare to raise funds on the Stock Exchange.

Altai Gold Company is profiting from mining in an area under licence to Baganuur LLC. Is it not possible to take the area back?

One of Baganuur’s main licences was transferred to a private company as Baganuur was in a critical financial situation. Altai Gold bought a licence over a small area quite cheap thinking that nobody would be able to claim the site from them because exploration there had been done with State funds. But Baganuur LLC had already reimbursed the State the exploration costs which means all the licences were now unencumbered. The Mineral Authority of that time acted illegally in selling a licence to a private company and keeping it secret for two years. Baganuur went to court to get the area back, but the court ruled the matter had become time-barred. We are now exploring other options. The Prime Minister instructed us to take steps on this issue as well.

Did the Prime Minister accept your argument that failure to make a profit is largely because the State fixes the coal price?

Our argument is nothing new. The Prime Minister said, and rightly in my view, that price regulation did not mean operations and management practices of the deposits could not be given a shake-up. We are taking necessary steps, but the matter of price control should also not be ignored.

If the State agrees to increase the coal price, electricity and heating charges will go up. Should that be not a concern of the State?
 
That is the traditional justification for the State policy. But keeping electricity charges artificially low actually causes more damage than increasing coal price will. Now power plants are almost bankrupt and Baganuur mine is forced to work without dated technology. Extension of coal mining is a long-term exercise. Water removal work should begin 2-3 years in advance and soil removal should start a year before extraction. This means that if we want to extract coal next year, we should be already done with water removal and begin soil removal without delay.We cannot do this because of financial constraint, and are restricted to extraction from only a small area. There is also risk in oversupply, which could cause much more loss than selling at a low price. With soil removal work way behind the schedule, even if  financial issues are settled, we shall need another 2-3 years to start increasing output.

You have talked about the need for thermal power companies to improve their management. If they fail to do so, will they be privatised?

Our experience in this has not been happy. When the Baganuur thermal power plant was privatized,the city remained frozen. The same thing happened in Shariin Gol and Berkh in Khentii aimag. The Uvs power plant has been privatised and people in the aimag are worried about their lot in the coming winter. We shouldn’t be playing with privatisation and freeze our cities, only to ask the State to regain control. That is a total waste of public funds.

If power plants go into private hands before the coal price is deregulated, their profits are unlikely to be used for technological upgrading and proper winter preparation. As such, we shall not talk about privatising existing thermal power plants for the next several years. However, we shall welcome private investment in building new power sources.

Which State companies are likely to be privatised in the coming years? Is MIAT among them?

We are legally required to submit to the State Great Khural this year general recommendations on privatising State entities and we are currently working on them. There is no question ofprivatisingcompanies that work for the benefit of the people in areas where prices are controlled by the State. It will be different for those that operate in a free market.

MIAT’s operations continue to be unprofitable but there are reasons for this. Each flight to Europe loses the company $50,000 in summer and $100,000 in winter. The idea is to recoup the loss with its short-haul flights, but this doesn’t work out in practice in the face of competition. MIAT’s flights to and from Hong Kong used to be full, but with other Mongolia-based airlines now operating on the same route, the occupancy rate has been halved. Such competition between a State company and a private company is unprofitable for both. The solution is to have an agreement on seat sharing, and if talks with private airlineson rearranging flight schedules are successful, there will be no need to privatise MIAT. Since the airline sector in Mongolia is not really , cooperation rather than competition is what all should look for.

The cost of aviation fuel adds to MIAT’s woes. We hear from the newly established ministries that the State will take control of petroleum import. If this really happens and we are rid of private importers’ monopoly, the price pressure will ease.

This has been talked about for quite a while. Do you think the State taking control of petroleum import can be feasible, and not make things only worse?

It is not true that all State companies work at a loss. Some do make good profit. This year, the State has earned MNT113 billion in dividends from them. So there is no reason to predict that the state will fail as a petroleum importer. Allow me to repeat that most state entities that run at a loss do so because the State policy is not to increase the pressure on citizens. Properly managed State companies working in the free market can surely be successful.