I attended the “Khutul Economic Forum” on August 16, 2022. This first forum jointly organized by “Cement Lime” SOJSC and Saikhan soum Governorate of Selenge Province had around two hundred attendees present, who held discussions to thoroughly exchange opinions as panelists presented opportunities and challenges facing the city’s development as well as its short-term and long-term plans.
Khutul is a town built around an industrial complex, which was given the status of a city through Resolution 58 by the Parliament in 1994. Since 1983, this town has grown around the cement and lime factory, reaching a population of ten thousand, of which more than 820 are employed at the factory. The development of this factory is directly correlated to the development of this soum or region.
The road leading to development has not been smooth, which most likely will be the same in the future. However, with the right visionary, just governance, and perseverance, Khutul can become a new great city with a prospering population.
History
This Khutul plant was built in 1983 with Soviet technology involving wet process of cement manufacturing to produce 500,000 tons of cement annually, but the production never reached its full capacity, merely exceeding 360,000 tons per year. In 2001, the government transformed the structure to a joint-stock company.
In 2010, the Parliament approved the main policy of privatization and reorganization of state property. The then government (PM Su.Batbold) has decided to attract foreign and domestic investment on the condition that the cement production technology of Khutul “Cement Lime” SOJSC is upgraded to the dry method. On January 17, 2011, the SPC (State Property Committee) led by D.Sugar ratified an investment agreement signed between the SOJSC and “Basement” LLC.
On October 19, 2012, “Basement” LLC received a loan of 61.3 million US dollars from the Development Bank for a period of five years, with an annual interest rate of 8.1 percent. With this loan, the goal was to transfer the line II of clinker production technology to the dry method, to increase the cement production capacity to one million tons per year, and to develop an open-pit mine and transportation complex. The dry cement processing plant was commissioned May 2014.
However, since it became “unprofitable”, in 2015, the government (Ch.Saihanbileg) privatized the company along with its debts, assets, and deposits, and SPC (Ts.Nanzaddorj) sold it to “Basement” LLC for 1.3 billion tugriks. The price of this factory with decades of potential including its deposit, thermal power plant, infrastructure, building and inventory, could not measure up to the price of a single house in Zaisan foothill. This is how D.Erdenebileh, the owner of TDB, who specializes in “purchasing” public assets using public money in collaboration with politicians, made his next notorious move. A few months later, the name of “Basement” company was changed to “Khutul” LLC. They did the same fraud scheme on “Erdenet” factory in the 1990s.
At the time of privatization in 2015, Khutul already had two limestone deposits, a stable production, certified product quality, good infrastructure, qualified and experienced workforce and had transitioned to dry process technology. However, only a fraction of the revenue generated from the sales went to the producers, while most of it went to the middlemen associated with the TDB. They were buying from the factory below the market price, and in some cases even cheaper than the production cost, and selling it at a high price in the market, which led the factory to lose money, unable to repay the loan nor pay the employee’s social insurance premiums.
“In early 2015, the people who privatized the Khutul cement-lime factory for 1.3 billion tugriks received an interest-free and unsecured loan of about 300 billion tugriks from the Development Bank, but they have not yet paid a single tugrik, and they still owe 20 billion tugriks in taxes and social insurance, said the Deputy Prime Minister S.Amarsaikhan at the meeting of the Standing Committee on Justice.
Khutul now
On March 23, 2022, the government discussed Khutul cement-lime plant issue and made a resolution to make it state property again. During the discussions on the 12th of May to cancel the 2015 decision, member of parliament B.Enkhbayar said “This privatization is a fraud. The privatization process happened in a day. The founder of this company is the father of Supreme Court justice M.Batsuuri. At that time, he was Head of Legal Department at the Trade and Development Bank.”
Normally, the wrongdoings must be found by court decision and the state can confiscate. But Mongolian courts are no longer impartial, and this kind of cases take years in court. Regardless, the new director was de facto appointed by the government and started the work right away.
Article 62 of the Law on State and Local Property states that the privatization will be deemed illegal and annulled if “the privatized party did not pay the price of the asset, other payments specified in the law or the contract during the contract period, or the payment was made illegally;”, “the acquiring party was given more discounts and privileges than those prescribed by law;”, “the acquiring party did not properly fulfill their obligations under the contract on privatization in time;”. Also, Article 8.1.2 of the Law on Concession prohibits “making a decision to privatize concession items during the concession contract period”.
The new director L.Naranbaatar and his team have revived the factory which had 120 billion tugriks in debt just four months ago thanks to removing the robbers from the middle of the chain. In four months, from April to July, the enterprise had a profit of 13.5 billion, and had paid off its 17.5 billion tugrik’s debt to the social insurance, with 81 thousand tugriks remaining in the bank account. Now the enterprise has 10 billion tugriks in the bank. The employees are now paid double of what they used to receive, bringing the average salary to 2.5 million tugriks.
Now, the 60-meter-long furnace, which has not been used by the book for many years, is undergoing technological repairs and upgrades, such as replacing the inner walls. Due to the pandemic and the closure of the Chinese border city of Ereen, the refractory bricks arrived one month later than expected, but the factory team will renew the furnace lining within 21 days and start supplying cement from October 1. As a result, 400,000 tons of cement will be produced this year, setting a historic record.
We can see how big of a difference it makes when the SOJSC leaders are not robbers.
Khutul in future
Khutul can become a major city and a development hub considering its natural position and industrial experience.
Khutul is located in the middle of the road connecting the three major cities of Mongolia, Darkhan, Erdenet, and Ulaanbaatar, connected to all three by road and rail, making it the center of that golden triangle. The main engine of development there is the “Cement Lime Plant”. As industrial, energy and infrastructure projects are implemented in accordance with the government policy to develop production clusters, particularly the creation of an integrated transport and logistics network; the demand and consumption of cement are bound to increase, and domestic cement producers will work at full capacity and continue to grow. The Khutul factory can fully supply the demand of construction materials in the Central and Khangai regions.
The factory supplies Khutul city with heat and Erdenet factory with lime. There is also a reinforced concrete sleeper factory in this city. This factory was commissioned in 1997 with the capacity to produce 180,000 pieces of concrete sleepers for railway per year.
Investment of more than 320 billion tugriks is required to implement the general development plan that will shape Khutul, Saikhan Sum in the future. Updating the equipment and technology of the Khutul Industry will take up to 160 billion tugriks from this amount. To attract such a large amount of capital, requirements of international investors must be carefully considered. Major investors consider not only financial factors to calculate material risks and opportunities to increase their capital, but also non-financial context such as environmental, social, and governance factors.
In the meantime, the cement-lime plant aims to adopt a new environmentally friendly technology that employs separation in extraction instead of blasting. Wirtgen SM 2200 machinery is to be purchased, which saves mining costs of processes such as drilling, blasting, and crushing. This way, one million tons of limestone will be extracted annually. Dust will be significantly reduced around the premises. This machine was successfully tested in Shivee Ovoo.
In terms of social development, with wages having been doubled and the social insurance debt paid off, commercial banks are now able to provide housing loans to the employees at the factory. The management is to begin taking step-by-step and concrete measures, such as technical assistance in building residential complexes, providing or guaranteeing advance payment of housing loans for employees.
In terms of governance, transparency is established, which sets a good practice among SOJSCs. Great changes or reforms can be made with the virtuous leaders, transparent governance, clear visionary and collective perseverance.
What is more, Khutul’s funds can be raised through IPO, provided that the project is presented and understood well all around the country. The recent 2.8 trillion tugriks raised from the people through coins show the potential for this.
All we know for now is that Khutul cement-lime plant’s management and the staff have already started their journey leading Khutul to development.
2022.09.27
Trans. by Munkh-Erdene.D