The State Privatization Commission was set up in 1991 and the main privatizations, some 400 have been completed so far. However approximately 70% of the shares ended up in the hands of only 1500 individuals, even though the voucher system was expected to produce a wider share ownership of assets. This seems to have resulted from a narrow understanding by the population at large about the process and ‘insider information’ by Government and elites according to the USAID Report. In addition there is overlap between various ministries (Industry and Trade, Finance, with little cooperation between them.
The Guidelines for further privatization 2001-2004 and again for 2005 –2008 have been issued. The target dates for the nine organizations for the first phase, including a Bank, a spa resort, mining, wool processing construction have not been met. Eleven organizations are to be privatized by 2008 during the second phase. They include Mongolia Telecom (55% state owned), Darkhan Makh expo (51% state owned), Mongol Rostsvetmet (51% state owned), MIAT, and Mongol Kino Unit which will be reorganized.
Privatization of formerly state-owned assets has been regarded as key components in the economic stabilization programs and socio-economic reform. It also reflects a commitment of the Government of Mongolia to the creation of a favorable environment for business and investment in the country.
From 1991 to 1994, all or parts of 4,500 Mongolian state-owned enterprises were transferred to the private sector through a voucher privatization program. Each citizen of Mongolia was issued vouchers to be exchanged for shares in enterprises, or in the case of rural dwellers, for a share of state-owned farms and livestock. However, the state retained control of the key industrial enterprises and other properties. Trading of company’s shares, privatized under the voucher program began in 1995 on the Mongolian Stock Exchange.
In 1996, the Government of Mongolia selected certain properties for immediate privatization and the State Property Committee conducted auctions for those properties in Ulaanbaatar. Since that time more than 70 previously state-owned properties have been privatized, including real estate and enterprises. The privatization program, approved by the government in July 1997, outlines a plan to privatize the remaining state-owned assets in Mongolia, which total over one-third of GDP.
From 1996 to 2000, 942 enterprises and assets were privatized through sealed bid auctions, English auctions, sales of shares through the Mongolian Stock Exchange, and other methods raising approximately MNT48 billion (over US$65 million) in revenues for the budget.
In summer 2005, the Government issued a resolution to privatize some state entities and make a list of those which will be restricted in preparation for privatization. The resolution is based on the state concept for privatization and recognition of state organizations in the period 2005-2008, which was approved by the 48th parliament resolution and Law on State and Local Property.
The Government now seeks to shift the focus of its privatization efforts to the country’s largest firms and their divestiture by transparent, credible “case by case” methods that permit and encourage new business entrants and aim at attracting direct foreign investments.
Opening ownership of large privatized firms to external investors is expected to bring needed capital, market access, managerial know-how, technological and product development improvements, operational efficiency, and customer- and service- oriented mentality to privatized companies. The sale of state-owned assets to reputable, internationally recognized firms is expected to have a major, positive impact on the overall economic situation in Mongolia.
