Privatization phases and the activities implemented

The socio-economical, political reforms started in Mongolia since the beginning of 1990’s were targeted to remove the system with the monopolistic mechanism of the state property, centralized planning, top to bottom management line and equal distribution and to completely renew the property relations serving as social base.

The Government of that period specified in its Action plan the issue of reforming property relations through privatization of the state properties as one of its main objectives. The Working Group on development of the privatization concept in Mongolia was established in October, 1990.

In the privatization concept paper it was specified during the first phase to privatize fully 44 percent of all properties of the national industries like trade, public catering facilities, household service centers, animal husbandry, agriculture, light and food industry, wood and construction. However it was decided to leave education, health and other sectors under the government power and regulation. Due to insufficient cash accumulation to buy and privatize a state property /cash savings of the individuals were equal less than 3% of all properties planned to be privatized/ and to provide all people with similar conditions for privatization, it was decided to choose the method of issuing vouchers.

The main idea of this privatization tool was to divide the properties to be privatized into large and small ones. There was the policy to privatize large enterprises with blue vouchers restructuring them into joint stock companies and small enterprises like small trade and service centers, buildings and others through public auction including pink vouchers into the payment.

During the first phase of privatization the properties with total value of MNT 21.0 bln had been privatized by issuing the vouchers of MNT 10000 to every citizen of Mongolia.

The first auction for privatization of the state properties was hold on June 24, 1991 mostly including some shops and public catering facilities thus ratifying the beginning of privatization process.

Privatization of over 2100 catering facilities and 2500 household service centers through auction has contributed to eliminate shortage of the products and promoted the interest of the people to run own business.

The issue of raising public awareness about the benefits of privatization, build their confidence in it and promote their interests to participate in the privatization process was the significant component of the privatization work. With this view in first phase of privatization the population was provided with the right to participate in this process free of charge using their vouchers.

As a result the whole population of 1.3 mln people could become shareholders and the members of the cooperatives, their families and the employees of some soums had privatized 24.6 mln livestocks free of charge. It was the Government policy to provide equal opportunity to the people at all social levels to obtain wealth which they created.

The privatization hold in the period 1990-1995 was a totally new era in the economy of Mongolia.

During this period the large properties of MNT 14.0 bln and small properties of MNT 6.0 bln were privatized accordingly thus demonstrating the successful accomplishment of the objectives of the initial concept. The main feature of this time was that the Mongolian society has started realizing the benefits of private sector.

Moreover that period over 20 mln livestocks which were the property of the partnerships were privatized by distributing them free of charge to the members of the cooperatives.

The second phase of privatization was in the years 1996-2000 when the privatization was introduced by cash. In May, 1996 the Parliament endorsed the Law on State and Local Property creating the legal basis to implement privatization by using more sophisticated methods. Hence the share packages of the state properties and large state –owned enterprises were privatized through public sealed auction.

For example about 1000 immovable properties and business entities were successfully privatized by this method including veterinary, drugstores, uncompleted constructions likely to stop their operation, or disappear or considered with high risks.

Another important component of the 1996-2000 state property privatization was privatization of residential units. By adopting in 1996 the Law on Privatization of Residential Units and the Law on Condominium the decision was made to privatize the Apartments free of charge. There were estimation to privatize free of charge 83800 apartments of total 2.4 mln m² valued at MNT 400 bln (rate of given time). So nowadays over 80 per cent of total apartments in the regions and over 95 per cent in Ulaanbaatar have been privatized.

During the third phase the large enterprises with economic significance were privatized and the government policy to attrack foreign investment was implemented. Although this period was characterised by strengthening of private sector in economy, the economic goals to increase efficiency of the factories or companies and to sell the state property at higher price were prioritized rather than the government policy to develop private sector.

In addition it was the period when the operation of the stock exchange and brokers streamlined and the foundation was put for company auditing, for introduction of the international accounting standards and for creation of management and marketing mechanism of the privatized companies. To address those critical issues the role and assistances of the international organizations and donor countries were essential.

The main benefit of this privatization was formation of economic basis with different ownership in Mongolia in compliance with the world economic tendencies.