The following is an unofficial summary and translation of Prime Minister S.Batbold’s speech in Parliament on 7 October on the performance of the Government as regards implementation of the platform for its 4-year term.
The Speaker and Members of Parliament, Let me report on the implementation of the Government platform, our achievements and unfinished projects, and some pressing issues. A few more months are left before the coalition government finishes its term. It will be worthwhile for the Government to detail and explain to you as also to the people how measures undertaken by it have borne fruit and also to discuss openly the challenges before the country in the near future.
Members of Parliament, A coalition government was set up following the general election in 2008, to address social, economic and development problems of the country. This was at a time of a global financial and economic crisis, posing severe challenges to our Parliament and government. Our immediate response in 2008-2009 was in the form of adopting and implementing a Stand-By Program in cooperation with the IMF. Major mining and infrastructure projects were taken up in 2010, measures that laid the foundation of development in the 21st century and ignite the engine of rapid progress.
The major objectives of our platform have been achieved since. Let me give a few figures to support my claim.
The rate of economic growth in the crisis years plunged to minus 1.6%, while it reached 6% last year. It is expected that it would reach 20% by the end of the present year.
Currently, the GDP per capita is around USD3,000. If present trends continue, this would be USD5,000 by the end of 2012, as envisioned in the platform.
In the last 3 years, the revenue of the state budget rose 88.6% and expenses 72.9%. Budgeted investments have grown steadily by 28.6% and the budget deficit has declined by 42.1%. Tax revenue this year has been 50.3% more than in the same period last year, with customs tax receipts growing 1.6 times, to reach MNT1,23,000,312,000 (MNT one trillion, 23 billion and 312 million).
A management team has been selected to help develop the domestic capital market, and a cooperation agreement signed with the London Stock Exchange. The actual work began in July this year.
The present year was demarcated as the Year of Supporting Employment and, until now, the goal of generating 60,000 new jobs has been achieved 90%, with 54,700 working places created in the first 3 quarters of this year. A World Bank survey found that the unemployment rate dropped to 8.7% in the second quarter. The fact that the rate was a one-digit figure was a great success compared to indicators in previous years and to the situation in other countries.
The UNDP has ranked Mongolia among countries in the middle rungs of the Human Development Index. Mongolia was one of the lowest achievers in human development 5 years ago in the Asia Pacific and Eastern Asian countries, but now it has reached the world average. Human development indicators have shown an unprecedented and dramatic rise in the last 3 years.
These indicators cover performance in a country’s health and education sectors besides income. The Government is working hard to meet targets in the social sector, with allotment of MNT1.5 million to every Mongolian as a priority. The Human Development Fund started cash distribution in stages in 2010. As of August 30, 2011, a total of MNT475.8 billion has been spent, with each citizen receiving MNT120,000 as a lump sum and MNT21,000 every month. MNT 2.3 billion was paid as a form of health insurance premium and MNT66.4 billion went to the state tuition fund. MNT1.5 billion was given to help 9,053 citizens invest in programs to create jobs.
The social welfare program of the Government was focused on the target groups chosen because of their vulnerability and protected such families against food price increase by distributing food vouchers of MNT10,000 and MNT5,000 to each adult and child in 2011.
Members of Parliament,
The progress that I have detailed has been achieved by joint efforts pursued with zeal and determination by all state institutions in a bid to ensure rapid economic development. It is clear that economic growth leading to lowered unemployment and higher individual and state income was possible because of he substantial growth and progress in mineral, infrastructructure, agriculture, construction, financial and service sectors.
I would like to emphasize that success in reaching economic growth and meeting social objectives is the result of approving projects and starting economic activities in strategic mineral deposits and new projects on infrastructure, railway and auto roads. The first of these was the signing of the Oyu Tolgoi investment agreement and its implementation. I would like to share with you the good news that construction of the project is 50% complete at the moment.
Over 11,000 Mongolians are now directly or indirectly involved in the project construction and it is expected that around 600 jobs will be created in its open pit by the end of this year. When the project enters the production stage over 90% or 3,500 of its workforce will be Mongolians. Over 2,500 registered Mongolian suppliers of goods and services are now associated with the project. The total value of their contracts with the company has exceeded USD240 million this year. USD19.2 billion in tax will accrue to the state budget of Mongolia, part of the total USD29.1 billion that is to be the earning from Mongolian shareholding. Mongolia stands to claim 59% of the total profits of Oyu Tolgoi in tax, fees, and dividends. The signing of the Oyu Tolgoi investment agreement has not only helped our rapid economic development but has also raised Mongolia’s reputation internationally. Looking ahead, the successful implementation of the project will be pivotal in safeguarding Mongolia’s economic security as another global financial crisis looms.
I would not say that everything about the Oyu Tolgoi agreement and operations is perfect. The Government understands this very well. Accordingly, an amendment was made in the Shareholders’Agreement in June to insert a provision financially very advantageous for Erdenes MGL, representing the Mongolian Government. It was also agreed that Rio Tinto will seek the written approval of the Mongolian state before offering or transferring its shares to any state-owned entity.
On September 23, the Government proposed amendments to the investment agreement to reflect the intent of a resolution by Parliament’s Standing Committee on Security and Foreign Policy, and the two parties have been exchanging opinions on the matter. A joint statement was issued yesterday saying that Ivanhoe Mines and Rio Tinto understand the Government’s position and agree that amendments can be made to the investment agreement with the consent of both parties. Ivanhoe Mines and Rio Tinto respect the position of the Government and are happy that it continues its support in the implementation of the investment agreement.
Members of the National Security Council have unanimously agreed on Mongolia continuing to implement the Oyu Tolgoi project and to support further mining operations. The Government will insist that Oyu Tolgoi LLC take more steps to support Mongolian suppliers and help in the country’s economic diversification by encouraging more business development. The agreement obliges the company to invest in infrastructure. We shall firmly demand this be expedited and Mongolian businesses are given orders.
Mongolia will work actively to ensure 90% share of Mongolians in the workforce and their promotion to management levels.
Another project the Government is focused on relates to the Tavan Tolgoi coal deposit.
After Parliament approved two resolutions to start operations in Tavan Tolgoi and issued a set of guidelines, Erdenes Tavan Tolgoi, a state owned enterprise, started mining and has paid MNT16 billion to the budget and the Human Development Fund. The company hopes to export 1 million tons of coal this year and 3-4 million tons next year. The Government kept its word on letting Mongolians have 10% of the ownership of Erdenes-Tavan Tolgoi LC by by offering 536 shares to each citizen in March 2011, thus preparing for transactions in foreign and domestic stock exchanges.
The Government is working on implementing Parliament’s resolution 39 of 2010, calling for announcing an investment bid and negotiations with consortiums on transit transport, value added production and advance payment. Initial talks were held on selecting a foreign investor for the western Tsanh area and a report presented to the National Security Council. The NSC made certain recommendations and further negotiations are under way.
A number of new mines have started operations and the mineral sector is gaining momentum. The number of new mines was 14 in 2009, 12 in 2010 and 19 as of September 2011. These have created 8,700 new jobs and around 50,000 people are employed in the mineral sector. Arrangements have been made to bring small scale miners under the law, setting out their working conditions, obligation to pay tax and fees, and right to receive social welfare benefits.
Coal export was 3.9 million tons in 2008, 7.5 million tons in 2009, and 15 million tons in 2010. It is expected to reach 24 million tons this year, six times more than in 2008.
In 2005, the number of mineral licences was 5,913 covering 44.5% of Mongolia’s territory. Revision and rationalization have reduced this number in September 2011 to 3,908, of which 1,207 are for mining and the remaining 2,701 for exploration. Together, these cover 15.3% of our nation’s territory.
The coalition government has made sustained effort to address the housing issue and is set to start the 100,000 Apartments program. It has been decided to limit the mortgage interest rate to 0.6% per month to make it possible for ordinary people to buy the apartments. The program is certain to give a much needed fillip to the construction sector. As of 2011, reliable electricity sources were set up in 18 soums and 2 bags of Gobi-Altai aimag and in 21 out of the 24 soums of Zavkhan aimag.
In the road and transportation sectors, earth moving work has been started by Mongolian Railway, the state owned company that has been entrusted by Government resolution 283 of 2010 to lay the foundation structure of the new 1,100-km railway. Its tracks will run from Dalanzadgad-Tavan Tolgoi-Tsagaan Suvarga and from Sainshand-Baruun-Urt-Khuut-Choibalsan as stipulated in the first stage of the State Railway Policy.
In the aviation area, MIAT LC has signed an agreement with Boeing to purchase one Boeing 767-300 aircraft and two Boeing 737-800 aircraft. The proposed State Policy on Aviation is due to be presented shortly to Parliament.
Along with industrial, construction and mineral sector development, the Government has focused on agriculture, another core sector of the country’s economy. Our goal is to have a modern economy, driven by the twin engines of natural resources and agriculture.
Dear Members of Parliament,
All are agreed that the outlook for the global economy is grim, likely to pose greater challenges for us. This week, the IMF expressed concern that the financial crisis originating in Europe would spread and major economies slow down. Some economists fear the coming crisis may last even longer than the one we have now.
It is important to decide on how Mongolia will face this approaching challenge. It is imperative to maintain the present momentum of rapid development if we are to be among the highly rated countries in human development in the coming 10 years.
The key to poverty alleviation lies in continued investment and creation of new jobs. A favorable and competitive environment encourages invesment, investment leads to economic growth, economic growth creates jobs, and jobs alleviate poverty. Any break in the chain will set us back.
As Greece has shown, there is no long term benefit to the economy if we depend solely on state investment of money collected as tax. The way to economic sustainability and not stepping back from rapid development is to have competitiveness that encourages investment and productivity. We shall overcome challenges only when this concept is implemented in practice.
From a policy point of view, I see it as imperative to fully utilize the Oyu Tolgoi and Tavan Tolgoi deposits and to start other mining projects as well.
Similarly important is the need to industrialise and to develop the processing sector. The Government favours coal liquefaction to strengthen the economic security of the country. The most effective way to do this should be adopted, with the state guaranteeing sales, and the investment following the PPP model.
General plans and feasibility studies have been made and work started on mega projects such as the Sainshand industrial park, the new railway and economic utilisation of the Darkhan and Selenge iron ore deposits. It has also been decided to build an oil refinery. All these will be reality before long.
Active negotiations have been started with Russia on amending the 1949 agreement on Ulaanbaatar Railway to give Mongolia 51% equity. Following a decision to inject USD250 million in the joint venture, Mongolia has made provision for its share of USD125 million in the 2012 draft budget.
In the agriculture sector, the Atar 3 campaign will be continued to facilitate food security and to avoid dependence on imports. The Mongol Livestock program has been taking animal husbandry to a new and advanced level, with export orientation.
The Government will work actively on building the 5th power plant, set up power sources in the Gobi region, provide railway and paved road connections to all aimags and encourage infrastructure investments.
Wages and allowances, already inreased by 30%, are planned to be raised by over 50% in two stages next year. This will make them on average double what was paid in 2008.
We are considering paying MNT1 million in cash to elderly and disabled citizens, in addition to continuing the allocation from the Human Development Fund. Similar measures could cover other people also.
The Government will fulfil pledges and start infrastructure projects in the 2012 budget that is to be presented to Parliament in due time.
I feel confident that the standing committees and members will carefully consider and support the draft laws and resolutions proposed to make all the above possible when they are placed in the current session of Parliament. Their adoption will be instrumental in implementing economic and social reform policies and measures.