First evidence analysis hearing held for Development Bank cases

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The ad hoc committee responsible for reviewing the implementation of projects and programs financed by Development Bank of Mongolia, results, loan issuance and repayment progress organized a public hearing on Monday at the State Palace. 

Head of the committee and member of Parliament B.Enkhbayar remarked, “The committee has previously held two to three review and general hearings. Today’s hearing is the first evidence analysis hearing held under the Law on Parliamentary Supervision, which opens a new page in the history of Parliament of Mongolia.”

The public hearing is scheduled to take place in three stages. In specific, during the first hearing, which will last until January 20, the spending of 77 loans directly granted by Development Bank will be heard in detail, experts’ opinions will be reviewed and the relevant witnesses will be asked. In the second stage, or the evidence analysis hearing to be held from February 13 to 17, the utilization, expenditure and results of loans granted to 355 projects and measures with the condition of repayment from the state budget will be reviewed. During the third phase of the hearing, which will take place between March 13 and 17, the spending and results of 2,550 project and program loans provided through commercial banks with the resources of Development Bank will be evaluated, according to B.Enkhbayar.

He also highlighted that the results of these hearings will be combined and presented at the 2023 spring session of Parliament. Representatives of four non-governmental organizations such as Open Society Forum, Intellectual Innovation, National Center for Comprehensive Development, and Youth Watch Policy participated in the hearing as auditors, experts and external observers appointed by the ad hoc review committee.

Head of the Inspection and Evaluation Department of the Office of Parliament J.Lkhagvasuren reported, “The head of the ad hoc committee signed the notices to be delivered to 121 witnesses. Of these, 45 notices were handed over to witnesses, while 30 notices were handed over to related parties. We could not contact six witnesses.

A total of 82 out of 121 witnesses announced that they will participate in the hearing. Seven people are participating with their lawyers and representatives. Moreover, 11 witnesses did not clearly state whether they would participate, while 28 witnesses submitted in writing that they would not be able to participate.”

B.Enkhbayar underlined that during this hearing, regardless of whether the loan taken from Development Bank was paid or not, the committee checked whether the spending was according to the intended purpose or not.

“We have never conducted such a large-scale analysis hearing before. A month and a half ago, more than 1 million bank account transactions were checked, and as of yesterday, the experts have informed me that they have checked 3 million transactions. I think this analysis will last until April. I would like to emphasize that the witnesses should not be taken as guilty,” he added.

At the first hearing, evidences related to 11 companies’ loans were analyzed. These include Beren Group, Zest-Undur LLC, Mongol Meat Expo LLC, Mongol Em Impex Concern, Mongol Dry Milk, Gazimport LLC, Monlaa LLC, Vertex Mining Partner LLC, H&H Remicon LLC, Inside LLC and Imperial Gold Mining LLC.

We are presenting the hearings of the following two companies.

GAMBLING ISSUE RAISED AGAINST BEREN GROUP DIRECTOR

The expert who analyzed the loan spending of Beren Group said, “The company received the Development Bank loan by submitting request No. 13 dated August 21, 2013 based on Government Resolution No. 256 approved on July 6, 2013 to implement its action plan for 2012 through 2016. A total of three loans were granted to Beren Group. In 2014, 22.7 million USD loan was granted to the rebar factory with an interest rate of 8.59 percent. The second loan of 4.5 million USD was issued on June 14, 2018 with an interest rate of 9.26 percent. The third loan of 11.7 million USD was provided on October 3, 2017 for the purpose of financing apartment construction.”

Mentioning that as of December 31, 2022, the balance of the principal loan is 93.7 billion MNT, interest payment is 50.7 billion MNT, increased interest payment is 3.3 billion MNT, or a total of 147.7 billion MNT, the expert stressed that on October 30, 2017, a loan of 11.67 million USD with an interest rate of 9.3 percent was granted for the project of financing the housing complex for 840 households. The term of the loan expired on October 23, 2020, and it was classified as a non-performing loan. A total of 3.6 billion MNT of the loan has been paid. The principal loan balance is 32.7 billion MNT, the interest balance is 7.2 billion MNT, or a total of 39.9 billion MNT, he informed.

The expert concluded that a certain part of the loan has been misused. “When the first financing was granted by Development Bank in 2014, there were violations such as non-fulfillment of the collateral requirements stipulated in Clause 5 of Article 6.1 of the Law on Development Bank. The bank also granted an additional loan although the company violated the repayment schedule specified in the previous loan agreement. The loan of 7.2 million USD was misused.”

Parliamentarian and former Premier N.Altankhuyag commented, “On July 6, 2013, the government issued a resolution to support the metallurgical factory. The draft resolution had three articles. The resolution stated, ‘Mongolia needs an iron ore concentrator and build rebar factory. The necessary funding of up to 50 million USD should be approved.’ This case was initiated in 2018. I do not know it well. The 12th meeting of the Policy Council was held on July 8, 2013. After three meetings, we discussed whether to support the metallurgical factor or not. Most recently, on July 9, 2013, the government discussed this and decided to support the iron and steel factory project. But they say that I told them to give me 50 million USD. There are four company names in the attachment of the resolution. There are two tables of those four companies. The National Security Council made a resolution to support the industrial infrastructure and not to give more than one third of the total investment.”

“Four companies, such as Mongol Metal Mining Holding, Monlaa LLC and Mongolrostsvet, asked the Policy Council for a loan of 152 million USD to invest in establishing factories in Mongolia. Corresponding ministers explained that up to 30 percent or 50 million USD will be given as a loan. However, there was no provision of 50 million USD in the government’s resolution. Personally, I have not received a single money from Development Bank. I don’t know anyone in Beren Group,” he added.

Head B.Enkhbayar asked, “Active 100 percent shareholder of Beren Group is B.Munkhtur. When checking the bank statements of the company transferred between the banks, a total of 7.2 million USD transactions were made. Of these, 1.5 million USD was transferred to the bank account of B.Munkhtur, which was used for personal use. There was evidence that the remaining 5.7 million USD dollars were spent on loans and loan interest payments of Atar Urguu, Beren Trade and other related parties. Do you agree with that?”

B.Munkhtur responded, “Even though this money was transferred to my bank account, it can be understood that it is being spent on the project. In other words, building a steel plant requires a lot of capital. We are trying to build it in Mongolia at the cheapest possible price. Therefore, when ordering some auxiliary parts, the payment is made in cash. The feasibility study of large steel plants is 10 million to 20 million USD. Therefore, contracts are made with foreign professional companies to make feasibility studies cheaper. Certain payments are made in cash when the contract is concluded. My lawyer has warned me not to talk about more details.”

During the hearing, when B.Enkhbayar asked him if he gambles, B.Munkhtur rejected it. The legislator noted, “A large amount of cash was withdrawn from the Hong Kong Macau Free Zone Casino ATM from your account transaction. Therefore, I asked it. Evidence is displayed on the screen. Since January 31, 2018, you have also received cash from Singapore casino ATMs. Do you know then-minister T.Badamjunai?” The director of Beren replied, “I don’t agree. It will be proven in court. T.Badamjunai is an elected politician from Arkhangai Province. He is our local politician. I met him in Singapore.” 

Lawmaker T.Dorjkhand also expressed, “Those who are supposed to attend the hearing as a witness but do not show up will be prosecuted under the Law on Infringements. Former Prime Minister N.Altankhuyag, his former ministers and former executives of the Development Bank were called as witnesses. Considering the audio recording of bond council meeting, then-government ignored ‘loan issuance requirements’ and ‘gave loans at will’. The government needs to evaluate and analyze loans like commercial banks to issue business loans.”

ZEST-UNDUR MISUSES 3.9 BILLION MNT LOAN

The expert explained, “Shiren-Ovoo Iron Ore Deposit Project is being implemented for open pit exploitation in Halkh-gol soum of Dornod Province. Zest-Under received a loan from Development Bank for this project. Sutai Resources owns 49 percent of the company’s shares, Nachu 12.9 percent, B.Ganzorig 33 percent, D.Tamir 2.55 percent and D.Tana 2.55 percent. The amount of the loan agreement is 813.5 million JPY or 18.6 billion MNT. A total of 0.002 million JPY in principal and 0.6 million yen in principal interest were paid. As of the end of 2022, the balance of loan payments is 11.44 billion MNT. The interest penalty is 0.8 billion MNT.”

“On August 21, 2019, the company transferred more than 3.1 billion MNT to repay the loan of Zag Engineering Company. According to this account statement and documents, Zag Engineering spent 830.8 million MNT from loan financing on its operational expenses. It spent 3.11 billion MNT to close the loan, which is not compatible with the purpose of using the loan specified in the loan agreement. The Zest-Undur’s infrastructure work related to electricity transmission has not been completed. Therefore, 3.9 billion MNT of the total 9.7 billion MNT was spent in violation of the purpose specified in the loan agreement,” he concluded.

N.Batbold representing the company emphasized, “The company’s CEO N.Erdemjargal resigned at the end of 2019. A new CEO has been appointed. I am participating as a witness because I personally know this loan process from the beginning until now. N.Erdemjargal no longer has any relationship with the company. Zag Developer Company owns 51 percent of Sutai Resource Company of Zest Yoko Company, while 90 percent of Zag Developer is owned by Zag Company. Zag Engineering is a related party.”

Misheel Lkhasuren

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