Deputy Min­is­ter of Min­ing ad­dresses po­ten­tial fuel price in­creases and com­ments on Oyu Tol­goi

The UB Post - - BUSINESS & ECONOMICS -

As re­ported by the Au­thor­ity for Fair Com­pe­ti­tion and Con­sumer Pro­tec­tion, some fuel im­port­ing com­pa­nies have been lim­it­ing fuel sales at cer­tain sta­tions. A com­mit­tee com­prised of rep­re­sen­ta­tives from the gov­ern­ment, fuel com­pa­nies, and civil or­ga­ni­za­tions de­ter­mine the price of fuel on a col­lab­o­ra­tive ba­sis.

Deputy Min­is­ter of Min­ing D.Zagd­jav is the chair­man of the com­mit­tee and over­sees the whole process. He re­cently gave an in­ter­view re­gard­ing the re­cent con­tro­versy of fuel com­pa­nies de­lib­er­ately lim­it­ing sales.

The ex­cise tax was in­creased as part of the IMF pro­gram that Cabi­net is im­ple­ment­ing. The de­ci­sion to in­crease the tax was post­poned two times. There had been dis­cus­sion lead­ing up to the new year that the ex­cise tax would in­crease in 2018. Will the ex­cise tax on fuel in­crease?

We are start­ing to see some en­cour­ag­ing signs in the Mon­go­lian econ­omy. As likened to by the prime min­is­ter, Mon­go­lia is like a per­son who is sick and on life sup­port and we need to work fast to re­cover from this. In or­der to ac­com­plish this, Cabi­net is im­ple­ment­ing the ex­tended fund fa­cil­ity with IMF. In ac­cor­dance to the pro­gram, the de­ci­sion was made to re­verse the tax dis­counts that had been pro­vided for fuel on July 1, 2017 and Oc­to­ber 1, 2017.

In Novem­ber 2015, the ex­cise tax per ton of gaso­line was 400,000 MNT and 520,000 MNT for diesel. In 2016, af­ter the new Cabi­net was formed, the tax was de­creased to 260,000 MNT for gaso­line and 280,000 MNT for diesel. Again in Novem­ber 30, 2016, the ex­cise tax per ton of gaso­line was low­ered to 160,000 MNT and 180,000 MNT for diesel fuel. Even­tu­ally, the ex­cise tax on gaso­line was low­ered to 50,000 MNT per ton and 70,000 MNT for diesel fuel.

Af­ter the ap­proval of the IMF pro­gram, it was de­cided that the cuts in the ex­cise tax would be re­versed stage-by-stage. The ex­cise tax is not be­ing in­creased at all. It is only a mat­ter of re­vers­ing what had been cut be­fore. IMF rec­om­mended that we re­verse the tax dis­counts on July 1, 2017 and Oc­to­ber 1, 2017.

The fuel price com­mit­tee was sup­posed to con­vene be­fore this year but the meet­ing was post­poned due to the ab­sence of most of its mem­bers. Was the ex­cise tax dis­cussed by the com­mit­tee?

There is a uni­fied com­mit­tee com­prised of rep­re­sen­ta­tives from the gov­ern­ment, pub­lic sec­tor, and civil or­ga­ni­za­tions that is man­dated to or­ga­nize and reg­u­late the sta­bil­ity of the price and sup­ply of petroleum prod­ucts. The is­sue of the re­ver­sal in tax cuts was dis­cussed in the com­mit­tee sev­eral times. For in­stance, the com­mit­tee pro­posed to post­pone the de­ci­sion to re­verse the tax cuts on July 1, 2017.

Also on Oc­to­ber 1, 2017, the com­mit­tee rec­om­mended Cabi­net to post­pone the re­ver­sal. The com­mit­tee con­vened twice to draft a rec­om­men­da­tion to be sent to com­pa­nies and sev­eral rel­e­vant agen­cies to in­flu­ence the pol­icy of price on the global mar­ket of petroleum. Pre­vi­ous cab­i­nets have taken steps to pro­vide dis­counted loans and ex­change cur­ren­cies for cheaper rates as part of the price sta­bi­liza­tion ef­forts when the price of petroleum was rel­a­tively cheap on the mar­ket. The com­mit­tee pro­posed tak­ing steps to in­flu­ence prices on the global mar­ket. For ex­am­ple, it was pos­si­ble to es­tab­lish agree­ments with large petrol com­pa­nies com­pet­ing on the global mar­ket to sup­ply petroleum at global mar­ket prices in Mon­go­lia. Most of the petroleum im­ported into Mon­go­lia is from the Rus­sian Ros­neft and some co­op­er­ate with Chi­nese petrol com­pa­nies. We looked at ways to not in­flu­ence the price of fuel im­ports for the largest im­porters.

The min­istry and other rel­e­vant agen­cies have said that fuel re­serves have not been de­pleted and prices have not in­creased. In re­al­ity, A-92 oc­tane gaso­line is be­ing lim­ited and some places are not even sell­ing it. Why is this?

Mon­go­lia has around 80 com­pa­nies im­port­ing fuel. Na­tion­ally, the fuel re­serve stands at 38 days. The price of fuel did not in­crease nor did it de­crease. Ros­neft com­pleted a ren­o­va­tion on its petroleum pro­cess­ing fac­tory in An­garsky this past sum­mer. Cur­rently, the fac­tory is up and run­ning and back to nor­mal. Sup­ply is sta­ble. There are no ex­ter­nal fac­tors that would cause a short­age in re­serves. There is prob­a­bly a short­age due to the in­ter­nal man­age­ment and or­ga­ni­za­tion of com­pa­nies.

The gov­ern­ment is say­ing that the re­serve is enough and prices will not be in­creased while the com­pa­nies on the other hand are say­ing that re­serves are de­pleted and that is the rea­son for the short­ages. The com­pa­nies are also say­ing that the price of fuel will likely in­crease? Who is telling the truth here?

Some fuel im­port­ing com­pa­nies del­e­gate their rep­re­sen­ta­tion in a uni­fied man­ner. How­ever, all de­ci­sions are made on a col­lab­o­ra­tive ba­sis. My per­sonal view is that the le­gal en­vi­ron­ment of the petroleum in­dus­try was scraped to­gether in a hurry. How­ever, the gov­ern­ment is co­op­er­at­ing and col­lab­o­rat­ing with pri­vate busi­nesses and civil or­ga­ni­za­tions. The price com­mit­tee was sup­posed to con­vene be­fore 2018 but was not able to. A meet­ing will be called soon and the is­sues sur­round­ing the sec­tor will be dis­cussed.

Who has the au­thor­ity or the fi­nal say in the com­mit­tee? When the de­ci­sion was made on a col­lab­o­ra­tive ba­sis, why are some com­pa­nies go­ing off on their own to limit sales and in­crease prices?

Tra­di­tion­ally, rep­re­sen­ta­tives from the gov­ern­ment, pri­vate sec­tor, civil or­ga­ni­za­tions, fuel im­port­ing com­pa­nies, and those rep­re­sent­ing the in­ter­ests of cit­i­zens and busi­ness own­ers get to­gether to draft a rec­om­men­da­tion that is sent to Cabi­net and other rel­e­vant agen­cies. As re­ported to me by the Au­thor­ity for Fair Com­pe­ti­tion and Con­sumer

Pro­tec­tion, there have been no in­creases in fuel prices.

There were re­ports that fuel prices would in­crease in Rus­sia. Un­der­stand­ably so, there has been con­cern that this might have an ef­fect on the price of fuel in Mon­go­lia. Do you think this will come into fruition?

In July 2017, the price of petroleum on the bor­der was around 45 to 50 USD per ton. Now it is 66 USD. In or­der to pre­vent this, we opened up many op­por­tu­ni­ties for pri­vate com­pa­nies to es­tab­lish price sta­bi­liz­ing con­tracts. All sides must work to main­tain prices. If the price of im­por­tant com­modi­ties such as fuel in­creases, the stan­dard of liv­ing for cit­i­zens and the coun­try’s econ­omy will be neg­a­tively af­fected. There­fore, we must be very care­ful and re­spon­si­ble in han­dling this sit­u­a­tion. The price com­mit­tee will ul­ti­mately de­cide the is­sue of in­creas­ing fuel prices.

When the price of fuel on the global mar­ket in­creases, it in­creases the prices in Mon­go­lia and we have had to adapt to this. What ac­tion must be taken in re­gards to es­tab­lish­ing petroleum re­finer­ies in Mon­go­lia and sup­ply­ing do­mes­tic de­mand?

Mon­go­lia uses one mil­lion tons of petroleum an­nu­ally. We have the op­por­tu­nity and the re­sources to fully sup­ply do­mes­tic de­mand in Mon­go­lia. Since 1990, our oil fields have been ex­tract­ing and ex­port­ing mil­lions and mil­lions of bar­rels of petroleum to our south­ern neigh­bor China. At that time, there was no le­gal mech­a­nism al­low­ing us to es­tab­lish a pro­duc­tion shar­ing agree­ment, nor do we have that ca­pa­bil­ity now. There is an un­der­ly­ing need for us to im­prove upon the agree­ment with China re­gard­ing the oil fields. In early 1990’s, Rus­sia rat­i­fied its law on pro­duc­tion shar­ing agree­ments and China did so in the mid 1990’s. Today, our Par­lia­ment ap­proves many laws that are not en­forced in real life. But they have still not ap­proved a law on pro­duc­tion shar­ing agree­ments, a crit­i­cally im­por­tant mat­ter. Cabi­net has set forth a goal to de­velop and op­er­ate re­finer­ies and pro­cess­ing fac­to­ries. As a part of this, with a one bil­lion USD credit line from In­dia, a petroleum re­fin­ery is in the process of be­ing de­vel­oped. We could have the ca­pa­bil­ity to sup­ply all do­mes­tic de­mand if we build re­finer­ies such as this one. Mon­go­lia neigh­bors two large su­per­pow­ers that own around 70 per­cent of the nat­u­ral re­sources in the world. It is our own fault that we are this poor next to neigh­bors that rich.

You re­cently said dur­ing a Cabi­net meet­ing that the oper­a­tions of Oyu Tol­goi need to be halted. Can you ex­plain your rea­son­ing for this?

The profit that Oyu Tol­goi makes is not reaped by the Mon­go­lian pub­lic nor the coun­try’s econ­omy. In the rel­a­tively short past, Oyu Tol­goi has ex­ported around three mil­lion tons of cop­per con­cen­trate. More than 600,000 of pure cop­per was ex­ported. All of this amounted to 1.2 bil­lion USD. Mon­go­lia is not see­ing any of this. Re­cently, Rio Tinto raised 5.4 bil­lion USD us­ing Oyu Tol­goi and Mon­go­lia’s name. One bil­lion USD of this was in­vested into Oyu Tol­goi and 4.4 bil­lion USD were dis­trib­uted to share­hold­ers ex­clud­ing Mon­go­lia as div­i­dends. The loan and in­ter­est of Mon­go­lia as a 34 per­cent stake­holder amounts to around two bil­lion USD. Why did they not in­vest this two bil­lion USD? This was a huge po­ten­tial rea­son for a stand­still in the op­er­a­tion of Oyu Tol­goi. Mon­go­lians had no idea about this. This is a very un­for­tu­nate sit­u­a­tion. This is why I said that the oper­a­tions of Oyu Tol­goi need to be halted dur­ing a Cabi­net meet­ing. There is a limit to pa­tience. My pa­tience and the pa­tience of the Mon­go­lian peo­ple is run­ning low.

You are a rep­re­sen­ta­tive of Cabi­net. What pol­icy is Cabi­net abid­ing by when it comes to Oyu Tol­goi? Will the pol­icy change in the fu­ture?

It is un­for­tu­nate that we are los­ing our nat­u­ral re­sources to a third party when we are lo­cated be­tween two nu­clear su­per­pow­ers with per­ma­nent seats on the UN Se­cu­rity Coun­cil. There­fore, I be­lieve that in stop­ping its oper­a­tions and chang­ing the agree­ment to be more prof­itable for Mon­go­lia is cor­rect. The world’s big­gest cop­per mine is in In­done­sia. Around 50 per­cent of this mine is owned by the United States and 20 per­cent is owned by Rio Tinto. In­done­sia has started to re­sist and put up a fight against Rio Tinto. We must re­search this case. Depend­ing on the ge­o­graphic lo­ca­tion, geopol­i­tics, and the de­vel­op­ment of a coun­try, many coun­tries tend to get pushed around by multi­na­tional cor­po­ra­tions.

Deputy Min­is­ter of Min­ing D.Zagd­jav

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