CABINET TO HAND OUT SHARES OF ERDENET TO PUBLIC
In a move overturning the recent decision by the Supreme Court of Mongolia, Cabinet decided to purchase the Erdenet Mining Corporation (EMC)’s 49 percent from Mongolian Copper Corporation (MCC).
During a regular session of Cabinet on January 11, a decree was signed to transform the EMC into a joint stock company and distribute shares amongst all citizens. The move is reminiscent of the distribution of shares in the state-owned Erdenes Tavan Tolgoi to 2.45 million citizens in 2012.
According to Cabinet, there are 10 measures that need to be taken such as an international audit before the process of turning EMC into a joint stock company and distributing shares. However, as Cabinet officials have noted, Parliament has the final say on the matter. Based on Parliament’s previous resolution on February 10, 2017 to wholly take back EMC, it is highly probable that it will back Cabinet’s proposal to purchase the 49 percent stake.
Cabinet has said that it will draft an official proposal to Parliament, detailing exactly how many shares of EMC will be distributed to citizens and the terms and conditions of the ownership.
Among the 10 measures that have to be taken, a valuation of assets will be conducted. EMC is considered to be one of the biggest ore mining and ore processing factories in Asia. At present, it is a fairly large complex processing 26 million tons of ore per year and producing around 530,000 tons of copper concentrate and around 4,500 tons of molybdenum concentrates annually. In 2017, EMC saw 273 billion MNT in profit after a down year in 2016.
Cabinet has said that the “illegal” loans provided to the Trade and Development Bank of Mongolia from the central bank and the Development Bank of Mongolia to buy EMC, the concession agreement, and the dividends that MCC received during its 49 percent ownership of EMC will be deducted from the amount that will be paid for the purchase of the 49 percent stake. Finance Minister Ch.Khurelbaatar has said that this amounts to one trillion MNT for the sale.
Initially, following a probe that concluded that the 400 million USD transaction by MCC to buy Russia’s 49 percent stake in EMC was illegal, Parliament made its initial decision to transfer the minority share back to the state. The resolution invalidated an earlier government decision that authorized the sale of 49 percent of both EMC and Mongolrostsvetmet LLC to MCC.
The fortunes of MCC turned around on December 7, 2017 with a ruling by the Supreme Court of Mongolia in favor of the company. MCC had their minority ownership officially reinstated by the Government Agency of Intellectual Property and State Registration and issued a renewed certificate of legal entity on December 28.
MMC said that the official reinstatement is an important development and commended the current Cabinet for its decision.
“The current government’s action shows critical aspect of the rule of law’s system by rescinding the previous government decision, which was determined to be illegal by the Supreme Court,” MMC stated.
Responding to Cabinet’s most recent decision to purchase EMC’s 49 percent, MCC stated that its negotiations with the government was still pending and that Cabinet was “misrepresenting” when it claimed that it had reached an agreement with the company.
“The Constitution of Mongolia does not authorize the government to amend or overrule any judgment of the Supreme Court to achieve its political promises,” MCC said in a statement published on its website.
“The above actions of the government are in violation of the Constitution of Mongolia, the Civil Code and other related laws. The government is repeating the previous government’s mistake. It is unfortunate that the government of Mongolia is deliberately confusing the public and giving false information to mislead the truth to justify its illegal actions,” the statement continued.
MCC has said that it will fight the decision and take the case to an international arbitration court. Chairman of MCC M.Munkhbaatar was reportedly in London earlier this week to meet with law firm Omnia Strategy.
In light of Cabinet’s move to buy back EMC and distribute shares among citizens, many have raised concerns over the government’s insufficiencies in handling of such measures, evidenced by the Erdenes Tavan Tolgoi share handout controversy. Only time will tell if the government was able to learn from its mistakes in the management of distributing shares to citizens.
Head of the Government Agency for Policy Coordination for State Property, Ts.Nyam-Osor took questions from the media after the decision to discuss the reasoning behind the decision and the process of purchasing EMC’s minority stake.
Cabinet has made the decision to allow citizens to own shares in EMC. What is the significance of this?
In the Law on Mineral Resources, there is an article that allows the government to distribute up to 10 percent of shares in strategic mines to citizens free of charge. Based on this article, the decision was made to give our citizens the ownership in the Erdenet mine. The shares will be provided free of charge. Exactly how many shares will be distributed will be clear after an audit is conducted by an international firm. The Mongolian people will come to realize the value of shares and stock once they own a stake in a company that is profitable. This move will also help the Mongolian Stock Exchange. The governance of EMC will also improve. If the public keeps EMC in check, corruption issues at EMC will be eliminated.
Would it then be correct to assume that a similar measure will be taken on all strategic mines to impose public accountability on operations?
That is correct. The process to provide shares of state-owned companies that have stable operations to our citizens begins with EMC.
The 49 percent stake in EMC is very disputed. Wouldn’t providing shares to citizens only aggravate the issue?
That will not be an issue as there is no dispute about the 51 percent stake owned by the government.
Erdenet copper mine
Concentrators of Erdenet Mining Corporation