Digging into Erdenet reveals rotten corruption
Last week, some light was shed on the issues surrounding the ownership of Erdenet copper mine, dubbed the nation’s “cash cow” as it played a crucial role in state revenue in the past.
The Constitutional Court on Wednesday said it backs the government’s resolution to buy back Erdenet’s 49 percent from Mongolian Copper Corporation of the Trade and Development Bank of Mongolia as the court believes that the company “violated Mongolian laws” to purchase the stake from Russia in 2016.
The main argument surrounding Erdenet’s 49 percent share put forward by Cabinet and some Mongolian People’s Party members is that the government should have been given a privilege, that is to say the Russian stakeholder of the mine were contractually obligated to gives Mongolia an offer first before going to find other buyers. The propagators of the government resolution to buy back Erdenet’s 49 percent say it was “illegal” for the previous cabinet led by former Prime Minister Ch.Saikhanbileg of the Democratic Party to allow the sale to go forward without an offer from the government first.
The Constitutional Court ruling is in contradiction with a prior ruling in December by Supreme Court, the top authority on all matters aside from the Constitution.
Essentially, this issue is a tug of war between the government and Mongolian Copper Corporation, but it seems that tax payer money will be spent on purchasing back the 49 percent, which the government claims was “illegally” obtained.
So who is the real winner here? If the government buys the shares, the Trade and Development Bank makes money through Mongolian Copper Corporation, and Mongolia’s “cash cow” is transferred to the state. This might be beneficial for the people since copper prices are rising thanks to a global surge driven by the electric car industry. But Mongolians also know that state-owned companies hardly ever operate profitably, and usually become deeply infested with corruption. Even if the mine keeps on producing more than half a million tons of copper concentrates a year as it does currently, companies under state ownership find a way to spend extravagantly so it can report a deficit and claim finance from the state budget.
... The authorities need to set an example and give a little hope to the people
that justice exists in this country. If those that committed such blatant thievery of public wealth and resources are allowed to get away, political instability will arise due to weakened public trust in state
authorities...
Indeed, one could argue that Erdenet is already a prime example of a failed state owned venture because last week some lawmakers made extremely worrisome revelations about the fate of the state’s 51 percent stake in the mine.
It was reported by local media that the former Head of Erdenet Ch.Ganzorig and Director of Just Group Sh.Batkhuu failed to repay the hefty loan they took out from the Standard Bank of South Africa by putting up the Erdenet mine as collateral. Reportedly, the issue went through the London arbitration court and the mine was decided to be given to the Standard Bank, whose major stakeholder is Industrial and Commercial Bank of China Limited.
Lawmakers T.Ayursaikhan, L.Oyun-Erdene, Kh.Nyambaatar, Kh.Enkhbold, and J.Enkhbayar said they asked the prime minister to clarify the issues surrounding the 51 percent stake and received a response.
Apparently, the Independent Agency Against Corruption is still investigating whether the 109 million USD loan Just Group’s Sh.Batkhuu took out from the Standard Bank since 2009 with Erdenet’s guarantee were obtained legally.
The lawmakers were told that Sh.Batkhuu forged documents related to the loans as the Erdenet board of directors didn’t approve the loans. The economic crimes division of the General Police Department started investigating the case in 2013, and transferred it to the Independent Agency Against Corruption in 2015.
The lawmakers gave names of other people involved in the issue and reported that as the loans were not paid, the Standard Bank demanded Erdenet provide the 86.95 million USD guarantee issued for the 109 million USD loan through the London arbitration court.
In May 2016, the arbitration decided that Erdenet should pay 50.98 million USD to the Standard Bank. Although a repeal attempt was made, it was denied as it required Erdenet to place the 50.98 million USD with the arbitration court. Reportedly, the Standard Bank last year demanded through arbitration that the company pay the interest for the loans and court fees, which amounted to around 44 million USD as of August 2017. Erdenet is reportedly still in the process of preparing a repeal against this decision.
In 2017, the Standard Bank asked the arbitration to claim the assets of Erdenet and got a ruling in their favor.
On January 31, the government gave Erdenet directives to immediately start talks with the Standard Bank to cut a deal in relation to the arbitration’s decisions.
COMMENT
The issue regarding the 51 percent was talked about ever since the 49 percent dispute. Some believed it to be a farce to distract the public away from the 49 percent dispute, but all the worst claims seem to have been true. While the government was battling over Erdenet’s minority shares, it seems to have already lost its claim to the majority stake.
This is a prime example of the depth of corruption and rottenness at state-owned companies. Which is why I say that all state owned companies be privatized in a transparent and fair manner so that the looting and thieving of the nation’s wealth can end. Plus in a capitalist society, state owned enterprises have an innate conflict of interest as they are under the same authority as the institutions that set the rules of the game. Regardless of the justification that “strategic” sectors should be state owned, when state entities compete in a market regulated by the state, private businesses get pushed around and eventually lose out.
In Erdenet’s case, the people responsible for the “illegal” activities ought to be held accountable. As a Mongolian citizen, I don’t understand why the nation’s resources are being given away to a foreign bank when the authorities already seem to know who is to blame. Why aren’t Sh.Batkhuu, Ch.Ganzorig and their gang being tried for their crimes made to pay the debts they incurred if the authorities know they forged documents to obtain it. Why isn’t Just Group being seized and liquidated to pay off the loans, rather than allowing Erdenet to shoulder the burden. Why aren’t Ch.Saikhanbileg and his cabinet members who allowed the so called “illegal” transaction of the 49 percent being punished?
The authorities need to set an example and give a little hope to the people that justice exists in this country. If those that committed such blatant thievery of public wealth and resources are allowed to get away, political instability will arise due to weakened public trust in state authorities.
Corruption has plagued Mongolia long enough; it is chipping away at our prospects for a better future. The people of Mongolia demand an end to impunity for those who robbed us of our wealth.