There are not many examples globally where governments have successfully led “non-service related” businesses profitably and are “leaders in class”. In the mining sector the keys to success are to have a high quality orebody and world class management approaches, which implies a world class team.
In practice this means to be highly safe, to design your business processes to keep unit operating costs at low levels, to deliver capital projects on time and to budget and to achieve the fair market price for your product.
Investors and financiers look for these attributes from those company’s seeking to raise finance. They also look very closely at the shareholders, their motivations and the support of the government for business and the judicial system that presides over the borrower.
Mr. Byambasaikhan faces challenges both inside his holding company and with his shareholders. Gaining alignment as to the changes required and the rewards that may follow will be his immediate challenge.
- Byambasaikhan is the CEO of Erdenes Mongol LLC, the nation’s largest investment holding company that is comprised of Erdenes Tavan Tolgoi JSC, Oyu Tolgoi LLC, Erdenet Mining Corporation, Shivee Ovoo JSC, and Baganuur JSC. He also chairs the Business Council of Mongolia which represents 260 active companies.
*What is the key difference in your new role from previous roles?
I am now in charge of a portfolio of companies in which the GoM is a shareholder. For SOEs, there are different sets of legislation and rules, which means that I can’t manage Erdenes MGL like a business. These companies currently are not making money for shareholders.
*What is your vison for EMGL?
To transform its value for the shareholders–make it cash positive and leverage the value to help and grow the Mongolian economy. First, we need to make these companies healthier and start contributing to the investment vehicle, so there’s a turnaround, and then implement a growth strategy. And then this Mongolian Investment Company will be able to look at making a contribution to the economy on an ongoing basis.
*What are your short term plans for EMGL?
To understand the performance of the businesses and areas for improvement, which include transparency, quality of governance, and best business practices.
*What are the problems you need to overcome?
There are problems at 2 levels:
- Government involvement in business and the negative international perception of this.
- Raising money and attracting talent to turn these businesses around.
*You have said Mongolians consider themselves poor. Why is this?
This is a prevailing mindset in Mongolia. I disagree with this. You have people who own their homes, own their own cars, and still think they are poor.
Most never think about mortgaging their home to get more value from such an existing asset. Or the land where the ger areas are located: each family is given a plot of land which can be turned into a mortgageable asset. And the government thinks the same. Then you have Erdenet, Baganuur, Shivee Ovoo, Tavan Tolgoi… all these assets, if properly managed and valued, are worth a lot!
So one reason is tradition – people use their assets but are not leveraging those assets. The legal system also hasn’t supported this practice.
*Is government a good manager of business?
Government’s job is to ensure that proper economic policy is made, and to ensure rule of law for all, not to manage business. It is poor at raising investment capital, poor at shareholder relations, poor at project delivery and at profit generation.
*So why are you taking this job on? Are you doomed to fail?
A lot of people tell me that. Yes, it is a difficult job, and the past approaches must be changed. The past can’t be the future. I will fail if I do not work according to international standards. Literally, I would be wasting my time if I continue to follow the old patterns that have been used up to this point.
*Are there examples of large successful businesses being established in Mongolia?
The correct [better] question is: are there Mongolian businesses being run according to international best practices? The answer is “yes.” but those businesses are not in the majority.
We need to transform all of our locally based businesses into ventures run according to international standards and world best practices.
*What are the Mongolia “positives” that your want to build on?
Our laws are not bad for running a business, and a number of laws have been improved lately. The important thing is that people need the right attitude, transparency, etc. There are challenges but I am in a position where I can be a positive influence.
Whatever way you measure it, Mongolia is still a democracy. Yes, there are many problems, but still I would much rather be in here than Kazakhstan, for example, where the economy is 20 times larger than Mongolia’s current economy. The freedom that I get here is something that people take for granted. Mongolians have property and opportunity, but we take it for granted.
There are concerns regarding government interference in business, the way the judicial system works, and penalizing the business leaders. International business and lenders want to see the rule of law and the sanctity of the contract prevail in Mongolia.
*What are the long term objectives for EMGL?
My main objective is to turn these assets into more profitable and valuable businesses. We need to make them more profitable, expand them, get the earnings, and use them for other purposes. This means to restructure and reform these companies and raise money.
*Can you do it faster than a Temasek?
There are three things that I can do to make this journey shorter:
- Temasek took 40 years, but Mongol Temasek could do it in 10 years thanks to experience, and technology.
- Proven business model and world-defined standards – the Temasek model is proven.
- Qualified HR base – We live in an international world. Countries that are highly successful capture an international perspective by leveraging the best people from wherever in the world. We are behind in Mongolia so we need to take shortcuts wherever we can. That means leveraging technology, relationships, etc.
What you are doing is basically applying already existing principles and standards into very fertile ground. It took certain economies and countries 30-40 years to transform to this level. We could take great strides over the next 10 years. We have already had property ownership rights for 25 years. Now let us take it to another level.
*What changes do you need from GoM?
Not so much changes in the law, but it is important to have a fair judicial system which protects businesses and helps make them competitive.
Government should help business not hinder. A government-owned business is no different than any other business. The government is just a shareholder. The business needs to be profitable and bring value to its shareholders. Governments don’t have the right to run the businesses badly. Private companies, and all companies for that matter, have to be well-run to survive.
Political stability and a stable business climate is also very important.