CALAMITY INSURANCE

Ub Post

March 18, 2011

The most countries require by law that citizens have proper insurances of life, house, vehicle, property etc against natural calamities.

Not public but private firms are responsible for property insurance and small insurance companies purchase an insurance from another big company as a means of risk management. Reinsurance companies are mostly big and transcontinental financial corporations.

In Mongolia, in order to get a housing credit or buy movable and immovable properties on leasing, it is a requirement that the property is insured against risks such as fire, flooding, quake and other calamities.

Basically, the only mean to protect private or public properties from all risks that might happen due to natural calamity is insurance.

17% of all properties damaged and destroyed by 9.0-magnitude earthquake that spawned a deadly tsunami into northeast coast of Japan had earthquake insurance and American AIR Worldwide experts estimate that the amount of loss to be paid by insurance companies is approximately US$35 billion.

As earthquake insurance premium rate is very high in this regularly-shaking nation, not everyone affords to get insurance coverage. Though this type of service is not common for this reason, almost one sixth of its population had earthquake insurance.

The Japanese earthquake is the second costliest natural catastrophe for insurance companies after Hurricane Katrina (US$100 billion).

It means $35 billion of the total loss will be paid not by the Japanese government but by international insurance companies altogether.

Share price of insurance companies is dropping in big stock exchanges. Share price of insurance and reinsurance companies such as Munich Re, Allianz, Swiss Re, Hanover Re, Admiral, RSA and Prudential went down to 1.1- 5 percent on the quake day.

International insurance and reinsurance system has already suffered the loss of US$10 billion due to recent earthquake in New Zealand and US$8.0 billion from unrest in Mid-East and Arab.

Anyway, almost every nation has insurance system under, which any loss caused to property due to an incident or calamity is compensated if it has insurance coverage and some countries even has a law which rules the deadline to complete insurance compensation or states that in case of becoming homeless, the cost spent to reside in another place must be compensated.

Insurance is a capital that makes up the largest portion of financial market. The insurance accumulation in developed countries serves as a bearing column for capital market and a leverage to stimulate securities trading. At the end, shares of big insurance companies are placed in relatively stable and long-term investment funds. In any country, social, health, pension and risk insurance funds serve not only as a core of capital market but also a reliable source of risk management.

Then, where Mongolia’s insurance capital is accumulated and how much it has been growing? This question has been put many times by Mongolians, especially NGOs headed by Ganbaatar from Trade Unions, but the authorities seem like not willing to give certain answer.

There is no warranty that a natural calamity would hit Mongolia. Does anyone know how much real estate is in Mongolia and how much of them have insurance?

In order to have an estate insured, first it needs to be registered. Then, how much of all real estate has registrations? It is already the time to register the property of citizens, bring them into economic circulation and protect them from risks through insurance.

It was reminded two years ago by well-known economist Hernando de Soto during the 2010 Mongolia Economic Forum and a whole sub-session was dedicated to risk management during this year’s Economic Forum.

Time has come to Mongolia to develop risk management institutions, including insurance system, immediately and ensure its proper function as to market principles, before getting into mining mania. A natural calamity is never predicted.

In a democratic system, under which the government is replaced as result of elections, an extraordinary duty of the government is to establish and develop a reliable insurance system, which is a crucial tool to protect the society from risks.

PS: I extend my deepest sympathy over terrible tragedy the Japanese people suffer.

I would like to note here that the patience, mental strength and unity of Japanese people made me wonder, respect and prideful.

Translated by P.Shinebayar

Mining Mania

Ub Post

March 15, 2011

A regular Mongolia Economic Forum closed few days ago. There is almost no developing and democratic country in the world, except Argentina of President Perona’s time, who satisfactorily managed to use rich mineral resources to make the country develop properly. Almost every state who managed to develop its country based on mineral resources, had totalitarian regimes. Chris Devonshire, who attended the Forum, wrote that the rest of the world closely watches how Mongolia that cannot no longer exercise democracy properly and pass non-democratic decisions, would deal with a challenge to make its natural resources a fundamental for development.

Mining mania mentioned several times during the forum by attendees, including President Elbegdorj, has already started to happen in all government and socio-economic levels of our country. Today, all affairs that the country faces, are connected to future mining income and any work or business not related to mining is no longer go further.

The government’s size and spending is getting bigger and bigger and the government’s budget expenditure accounts for 2/3 of the country’s economy. The government’s expenses boosted by rumors of mining income even exceed expected high income and its difference is about to reach to rate equivalent to 11% of the country’s economy.

As the next parliamentary elections get closer, political parties and authorities only talk about how to distribute shares of Tavan Tolgoi and whom to give it to or whom not. The authorities are spending sleepless days to look like they fulfilled their pre-election promises by distributing shares to the people. It has started to count chickens before they are hatched.

They say that shares are not available for children who would be born after the last day of this year. It appears it is the fault of these children that they are born not in right time. They also state that only those with incorporated company can buy shares cheaply and those without a company can blame themselves. According to authorities, all city problems including smoke, traffic and water, will be settled by the money to come from mining. And no one talk about how they are spending existing money.

Everyone knows that high school principals in ‘close cooperation with politicians’ have been stealing open sport-grounds inside the school yard to build residential buildings for their own wallet, but no one dares to say it loud. Everyone is expecting big money. Those who exenterated funds of social care, pension and health, are also hungry waiting for next bait to come from natural resources. I do not think that current social insurance system that cannot function properly, would suddenly begin to work well even there is more income to come.

A person in mania gets separated from reality and normal standards and sometimes does shameful things. Exactly the same acts are happening in all government levels. Press and media also suffer from this disease, writing only about mining income and issues surrounding Tavan Tolgoi shares. An expectation that Mongolia will develop and each citizen will get rich thanks to massive income soon to come from Oyu Tolgoi and Tavan Tolgoi, is spreading across the society. In order to manage this expectation properly, we need no efficiently marry and co-ordinate mining industry with the rest of economic fields.

Every company needs to find their place and supply their goods and services to accumulate capital, based on fair competition by undertaking the above co-ordination effectively. Besides, such a big expectation can lead to inflation only if there would be no increased economic productivity and final victims would be consumers, especially those with low income. If mining income cannot support and increase economic productivity at all and produce only inflation, then economic growth can become a castle in the air.

Only the economic growth that is capable of making a particular industry competitive in international market can ensure a real and long-term development only. Thus, I demand politicians and the government stop their mining mania and carry out realistic activities.

Translated by Shinebayar

Gerege of the Mongol

UB Post

March 04, 2011

The time has come for us to find the most rational and efficient way to possess underground resource of Tavan Tolgoi deposit and benefit from its fruits from generation to generation.

The country’s future, social stability and order as well national security will depend on how we deal with such a new intellectual challenge. The Government of Mongolia decided to sell 10% of Erdenes TT to domestic professional investors and give 10% free to its people, 30% to international investors and own remained 50%. So far, it selected Deutsche Bank (Germany) and Goldman Sachs (the U.S.A) as underwriter for IPO and BNP Paribas (France) and Macquarie Bank (Australia) to involve in the sales and brokerage activities.

Shares in state-owned company Erdenes-TavanTolgoi will be sold within 2011 and each citizen is expected to receive 550 shares.

If the shares would be sold as to this government version, in a country like Mongolia where the half of its population lives only for daily foods to eat, the people will hurry to sell their free shares at first chance to do so.

All capital will concentrate in hands of few people and after some time the poor will remain poor. Mongolians will be begging money from donors sinking in debts.

The two political parties in power are doing this with final purpose of looking as if they fulfilled their pre-election promises. Since it is going to take more time for us to receive real money after Erdenes TavanTolgoi make initial profits and distribute its dividends, I suggest to make a little change to this.

1. It is necessary to ensure that 10% of existing and to-be-determined reserve of Tavan Tolgoi Deposit should be always equivalent to 10% of total shares of Erdenes Tavantolgoi Ltd. Otherwise; there is possibility that by issuing additional shares, the value of previously existed shares is diluted.

2. Let us give 500 shares to existing population of Mongolia.

3. Though it might be a good idea to sell 10% to national companies, it is a burdensome task. It would be unfair to sell shares at nominal price by comparing Erdenet Mining Corporation or Mobicom Company with those passive companies that did nothing for ten years and did not pay a single penny to tax and this is the discrimination of citizens with no company. Instead, let us distribute this 10% in shares, 500 shares per new-born citizen of the country. It means our current population of 2.7 million can double to 5.4 million. After that, we can look back again to improve our system.

4. I propose to hand over 500 shares together with the Gerege or certificate of the Mongol to each citizen and to new-born child citizen to certify that the holder is a real owner of the country’s treasure. But do not make it a political game.

5. But the Government will own 30% and let us develop secondary market of securities by means of selling another 20% at domestic stock market. Anyone with wealth can acquire and sell it freely.

6. Let us apply this model not only in Tavan Tolgoi but also in all of other strategic deposits. The Gerege should play a basic role in ensuring that that being a free and happy citizen of independent and democratic Mongolia is the guarantee of good life. If we manage to effectively coordinate this capital with hard work and commitment of every single person, then the proud to be a Mongol will arise. In order to make the Gerege a guarantee for each Mongolian person to live in wealth, a law including the following provisions needs to be adopted.

а. Open personal account for each person with the Development Bank or with the Human Development Fund and deposit dividend from 500 shares to this account on annual basis. Let us state in the law that owner of the shares is not entitled to sell his shares and can use certain amount of his dividend on specified conditions. He only can spend that amount for limited purposes such as buying or repairing apartment, paying tuition fee or treatment. The government can also spend the capital to deal with such issues. The goose that laid golden egg in Aesop’s fable would be this share.

b. Shares can be transferred to children and grandchildren under a will. By doing so, Mongolians all generation can own apartment despite they might be poor ones. c. It would be fair if the Development Bank pay an interest equivalent to the long-term apartment purchase loan to the balance of long-term personal account.

Besides, this capital can be spent to issue credits to big infrastructure projects. Generally, in some countries, pension and health funds are brought into circulation in this way. Only in this way, we can provide each family with modern apartment and deal with almost all urgent problems in Mongolian society.

This model was successfully implemented by Singapore to achieve today’s progress. We should raise initial funds of operation by selling 30% at foreign stock markets. Basically, shares are usually issued piece by piece to sell by constantly increasing the price. Anyway, up to 80% of total shares will be circulated at free market and remained 20% will not be for sale to be distributed as dividend.

It is also required that one third of company’s board of directors is civil representatives and that all information is open and transparent.

The Gerege of Mongol would be a real step towards making Mongolians prideful, self-confident and respected. Thus, let us give every single citizen an opportunity to work, create and live well in own country.

Translated by Shinebayar

“Ulaan Qatar”

UB Post

February 25, 2011

This week Mongolia is about to make a historical decision. It will announce contract miner for Tavan Tolgoi, the world’s largest unexploited coking coal deposit with estimated reserve of 6.5 tons and banks to manage an IPO worth up to US$5 billion for the deposit.

For the first time, our government is about to implement this ambitious project to make a historical change in the country’s economy by hiring international capital market players and attracting billions of investment, without the participation of a foreign country.

More than 150 representatives from over twenty biggest world banks including “Morgan Stanley”, “Goldman Sachs”, “Macquarie Group”, “Citigroup”, “JP Morgan Chase & Co”, “Deutsche Bank”, “Credit Suisse Group and UBS” and many others gathered here in Ulaanbaatar to present their proposals battling for a piece of the country’s upcoming coal IPO.

These banks see the deposit not only as an opportunity to make astronomical profit but also as a matter of reputation and prestige as Mongolia is the first developing country in the world to raise such a big capital from mining industry.

Beside the deposit, three or banks to be shortlisted will also get a piece of financing of enormous infrastructure projects related to the deposit’s development. For this reason, The Wall Street Journal reported that giant banks fight each other in Ulaanbaatar to do extraction in Mongolia.

Western press say that it is estimated to raise up to US$5-billion by selling a 30% stake in Erdenes Tavantolgoi Co., the state-owned coal company.

You have to wonder whether, with Mongolia’s citizens entitled to share of any state-owned assets listed on the exchange, the country’s 2.8 million people may one day enjoy GDP per capita akin to Abu Dhabi or Qatar.

According to “Financial Times”, if 2010 was the year when equities on the exchange in Ulaanbaatar, the capital, skyrocketed, then 2011 looks like the year they went into orbit. They also wrote that the country’s 2.8 million people may one day enjoy GDP per capita akin to Qatar and that its capital may become not Ulaanbaatar but Ulaan Qatar.

Qatar with population of only 1.5 million, is the world No.1 gas exporter and its GDP per capita recently reached up to US$100,000 leaving behind Switzerland and the United States of America, becoming one of the richest state in the world.

Though we can be Qatar in terms of mineral resource, we are much better developed in terms of government and social structures, human rights and freedom. This country with absolute monarchy system may see political crisis like it is happening in neighboring Bahrain.

Mongolians had completed the democratic revolution which has just started in Arabian countries, some twenty years ago. The independent democratic country is supposed to use own mineral resources more efficiently than the dependent countries with monarch system.

Unfortunately, it is still likely that in Mongolia, only those in power and their accomplices become richer and richer like in Qatar, while the majority of population stays poor like in northern Yemen.

The Government of Mongolia decided to sell 10% of Erdenes TT to domestic professional investors and give 10% free to its people, 30% to international investors and own remained 50%.

Each of Mongolian citizens started to register to get 550 shares and the State Property Committee head announced that the shares’ distribution is expected to complete before Naadam Holiday in July.

There are two methods only to make a profit in shares. The one is dividend and the other is capital appreciation. In a country like Mongolia where the half of its population lives only for daily foods to eat, the people will hurry to sell their free shares at first chance to do so.

Today I see the picture of next ten years as follows. Deceitful and shrewd ones would buy and collect all shares in legal and fraudulent ways and after a decade the most of population would remain poor like today and become the slave of few people who managed to centralize all resources in their hands.

In democratic but poor Philippine, 19 families only own all resources and capitals of this country.

Mongolians have not forgotten how some twenty years ago the authorities “distributed” the asset that the Mongolian people created for sixty years, exactly in the same way today.

It is time to search for the ways to use our God-given resources in a way beneficial to each single citizen from generation to generation, in order to become “Ulaan Qatar” not in statistics but in reality. This is a new intellectual challenge that Mongolians face. The bell of history is ringing only about this.

Translated by Shinebayar

The Guulichid

Ub Post
February 18, 2011

What the parliament have done to take a break, wondered a correspondent as the Parliament closed the fall session and the question was warmly supported by many citizens. Though they say with proud that they worked hard whole winter to adopt and amend 150 laws, indeed thirty of these laws have been passed at the same day or the last day of fall session.

A reason why a law becomes a “guuli” /Mongolians say a law turn into “guuli” when a law is of poor quality and is not enforced properly after the adoption/ is that the parliament passes a bulk of laws within two or three days just before the break of spring and fall sessions.

A principal duty of lawmakers is to draft and pass a law.

Because our dear members treat to their principal duty not seriously and even miss sessions if an agenda is not of their personal interests, the quality of their work is very poor. It is becoming a normal habit for parliament that it passes the law that requires constant amendment and alteration or do not live for three days or that is never realized.

Every law must be obeyed and implemented properly. If it is not, it is a basic principle of relations of democratic society that a lawbreaker is subject to legal responsibility.

The Government should lead the implementation of law and every citizen and cooperative should comply with it, but judicial institutions must control its process.

Since there is no one to comply with laws and laws turn into “guuli” because of their poor quality, we, the citizens, are wondering to find out an answer to only one question. Do parliament members pass such “guulis” by accident or by purpose?
Looking back thoroughly, it can be concluded that two political parties who ruled the country independently or jointly, have been passing the laws with bulk of defects by purpose.

Since political parties have no established economic program and doctrine in Mongolia and there is no principal difference what they say and do, it is easily seen that they do not undertake long-term farsighted policy and research regarding serious socio-economic issues before passing related law.

Simply for this reason, parliament members who managed to have seats in parliament using the name of their political party, play their own game, treat to principal duty from the point of personal interest only and pass or amend laws solely for the purpose of personal benefit and business income. Probably it can be said that there is institution called political party in Mongolia.

The brightest example is the recently-passed law on Prohibition of Mineral Prospecting Exploration in Water Basin Areas and Forest Areas. The law, widely called as “the Long-Name Law” is a clear demonstration of all-time parliament members’ lack of vision and their parochialism.

Few parliament members have recently proposed to amend this law that it is not realizable in reality though it was passed in 2009. Where were they and why were they silent when the law was debated and passed?

The reason why the laws are not implemented has deep root. Far early 1990s, the parliament comprised of the two political parties’ members passed the law which gave green light to gold exploration in any place regardless of mountain, steppe, forest and river.

The cabinets of that time also contributed to this by uncontrolled grant of prospecting and exploration licenses flourishing the license-based jobbery, for own wealth and pocket.

Companies owned by all-time parliament members, cabinets they formed and “bosses” they appointed were the pioneers to mine gold in that river basins where the exploration was the fastest and most cost-efficient for them.

They left the area not undertaking any post-mining rehabilitations, after digging up every fragment of gold. They also re-sold licenses at double or triple prices. You can find their names on any newspaper.

Hundreds of rivers dried up and disappeared and when local communities stand up to protect what is left today, they are trying to cancel that law by obscuring it with various new clarifications, explaining that the country will have to pay billion dollar compensations if the already-issued licenses are taken back by the government.

It is obvious that the “long-name law” is not implementable in this way and will remain in history as a classic example of “guuli”.

Exactly the same tactics is being used by politicians in order to legalize what they are doing on territories of all national parks. Soon they will re-set the boundary of the Bogd Khan National park in an attempt to legalize the money laundered by selling the lands of Ulaanbaatar City.

The people see and know that such a well-performed show is behind every law almost and that those in power misuse Mongolia’s natural resources and lands for own profit humiliating and making nasty fun of its people. Mongolian people sacrifices their environment and children’s future in order to pay for politicians’ robbery costs.

It is very strange that the “guulichid*” /makers of such “guuli”/ of Mongolian parliament not only do business in law, flourish their private business in the name of lawmaking, launder money and play with the money of taxpayers by passing the laws with defects and loopholes, but also are going to take a vacation at our expenses.

Should we allow a group of few narrow-minded and unprincipled people, who cannot think beyond washing brains of low-educated people by making fake promises to win elections and by passing such “guuli” based on no certain studies and researches, play with another twenty year of our life?

Translated by Shinebayar

Costs of Promise

Ub Post

February 11, 2011

Two ruling parties managed to win the recent parliament elections thanks to their pledges to distribute big cash to each citizen; one pledged 1.5 million cash, while another one promised US$1000 cash.

Consequently, these two parties formed a joint coalition government. Because, from the very beginning, their promises were only to take as much as votes but not to give such big cash indeed and lacked accurate and real calculations, now they started to fight like a cat on hot bricks since they realize that their promises were lies as next elections approach’s day by day.

It is not possible to find five billion dollars, twice more than the country’s economy, within seventeen months.

This money can provide 140 thousand families with one-room apartments. It is enough to turn ger districts of Ulaanbaatar city into modern dwelling apartment blocks.

Or it can increase the country’s population of livestock by ten million. Any international institution will refuse to issue credits as everyone knows that this year Mongolia government has a budget with a major deficit.

The government cannot issue bonds too. The only mean left for them is to take mineral deposits as security. They are trying to collect that money by means of developing strategic mineral deposits quickly and “racketeering” foreign investors.

For instance, they already used their “smart idea” to take US$100 million from Oyu Tolgoi to distribute it to citizens and hope to get additionally US$150 million in this way.

Even if they manage to sign a good agreement on Tavan Tolgoi with a foreign investor, they cannot pull out US$250 million from the foreign investor.

It can be possible only if the government would make an ENORMOUS CONCESSIONS in favor of the investor and sell important deposits at quite cheaper price.

The deposits will go to someone who would pledge more money before others.

No matter the government could or could not give such a big money to keep their words, final losers would be the people of Mongolia because the people pay for real costs of promises indeed.

Maybe they find a way to give; the result would be inflation surge, price growth of all goods and devaluation of citizens’ deposits.

It means you will pay MNT5000 to buy the stuff that was MNT1000 before the inflation.

The people who ruled the country with their narrow ability to foresee elections only, have not done a single farsighted ambitious projects, infrastructures and constructions in the past.

Ulaanbaatar City would not look like as today even the city’s planning is done by enemies.

There is no free land or playground left in Ulaanbaatar City because every possible lands, grounds even schools’ sport fields were stolen by politicians and their relatives, to build dwelling apartments to make money. Plus all mountainsides were also stolen and sold.

Mongolia has lost BIG OPPORTUNITY of development.

Like this way, politicians make promises and do everything beneficial for them on the name of the state, while the people pay for the cost of their promises.

How long we, the Mongolians, must stand the swindlers who play trick on the people making badly-computed false promises and steals peoples’ properties and money on the name the state? We need a law which prohibits the participation of political party in political elections if they pledge cash money to voters.

Translated by P.Shinebayar

Ice Home

Ub Post

February 1, 2011

There is an ice hotel in Japanese northern island of Hokkaido, which is said to be making a good profit. Though a single room with ice bed, ice table and ice seat costs US$500 per night, all rooms were occupied many months ago. Such a kind of demand can be a good opportunity for residents of Ulaanbaatar City.

It is enough for us to invite all Japanese people willing to stay in ice hotel and let them stay in our homes.

Ulaanbaatar residents will surely get rich only by charging $100 per person while suffering no expense. You may ask why? The answer is the most of 130 thousand apartments in the city is as cold as that Japan’s ice hotel.

The majority of apartment residents in Ulaanbaatar suffer the cold below minus 13 degrees, living like a хөрвийн аргаар. We stay home in outerwear and go to bed not taking off dress. Young children get sick and get pneumonia. Going out, we are hit by poisonous smoke.

Residents from khoroos No.3 and 4 in Sukhbaatar District went through all administrative levels to deliver their complaints about this problem, but their effort yielded no results.

Their apartments have no heating and they reside in ice halls. Offices in charge of apartment management and maintenance and heating supply bodies always blame each other for such inconvenience, while they still dare to take whole heating fee almost forcefully.

Heating system body is in charge of main systems of the city, apartment maintenance bodies are in charge of branch systems and apartment owners association is responsible for vertical systems. Residents pay for maintenance costs of all systems, after which these bodies share the money.

It has been a long time since these bodies freeze consumers instead of heating in return for the money which consumers pay. Erecting a new building in every space available in a particular area, without any planning, causes overload for heating system.

Officials from central, metropolitan and district administrations are believed to behind all these shelters. If to investigate the reason of such ice houses, irresponsible and negligent activities of officials from bodies in charge of heat supply will be exposed.

Since their activity is not open and transparent, consumers suffer, while particular officials make profit from it.

Instead of performing their duties borne before the public, they put their personal interest before the public one, causing the conflict of interests.

For instance, Apartment Maintenance and Public Utility Office #1 responsible for 14163 persons from 465 families in 100 apartment buildings with total area of 192.3 thousand square meter and 330 business entities and organizations and three big centers located in the territory of khoroos No.1,2,3,4 and 5 in Sukhbaatar District, was privatized and re-structured as “SUN COMFORT” LLC. In principle, this company must be a shareholding one, not a private one.

Income and expenditure statements of that and other similar companies should be open to the public. Residents should know how much of total income is paid to heating system, how much is spent to repair and replace pipelines.

Everybody understands that a money owner must know where their money is stored and how it is spent. Exactly such a requirement must be in place for all apartment owners associations.

All bodies have possibilities of administering their respective websites displaying all these information and updating it on daily basis. Such an activity is cheaper than a mobile phone.

The only thing the city and district authorities did in the past, instead of administering and managing such actions, was to find empty land space in order to sell it for personal interest.

The city and district authorities had no interest to make the information open to the public from the first beginning when apartment maintenance and public utility bodies were privatized.

They never had a desire and willingness to make public governance transparent and they are happy when information is closed and not understandable to residents. The main reason is that city and local authorities are not elected by residents, but appointed by political party.

For them, it is a sole purpose to serve for their political party not for residents.

It is because they are replaceable not by residents but only by party head.

The question is which temperature degree the residents live and how many of them is at risk of freezing to death is just statistics for them. Few people are playing with lives of our Ulaanbaatar residents this way.

It has been many years since the most of us feel cold no matter we are home or outside, are poisoned by poisonous smoke and traveling in a frozen bus. How many winters we must pass further in this way?

Translated by P.Shinebayar