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![and understand the great difference between the two. We in the MPP are not worried that our
history and record of 90 years can be usurped so easily.‖
Read more…
Mr. Enkhbayar‘s reaction to this was to say it is ―absurd to talk of owning history‖. The history of
the MPRP ―is the nation‘s history and, accordingly, part of every Mongolian`s history‖, he said. His
party will certainly participate in next year‘s election to expose the coalition government which ―is
almost dictatorial in its unconcern for people‘s interests‖. He was particularly worried that ―no
progress has been made on important matters like identifying those guilty of the July 1 riots and
changing provisions of the Tolgoi agreement‖.
Asked by media about possible efforts to overturn the Supreme Court decision, Mr. Enkhbayar said
there was no scope for an appeal. As the MPRP has been registered officially, ―according to Article
8.7 in the law on political parties, it now becomes illegal for any organization or individual to put
any pressure on an established party or on any Mongolian citizen who works for one‖.
Source: English.news.mn
LUNDEEJANTSAN RESIGNS, MPP MPs ELECT ENKHTUVSHIN NEW HEAD
The MPP group in Parliament got a new head and deputy head last week after both incumbents had
resigned. No reason was given for the resignations, either by Mr. D.Lundeejantsan and his deputy,
Mr. D.Dondog, or by the party but MPs criticized their decision to quit at a time when important
matters like the draft law on election are being discussed. A special meeting of the group elected
Mr. U.Enkhtuvshin as the new leader. He polled 22 of the 41 votes against the other contestant, Mr.
Ts.Munkh-Orgil. Mr. Su.Batbold is the new Deputy Chief of the group.
Source: Ardiin Erkh
COURT TO RULE ON KHURTS‟S APPEAL AFTER TWO WEEKS
A London court will give its ruling on the case of Mr. B.Khurts, Head of Administration at the
National Security Council, after two weeks. Mr. Khurts‘s appeal against extradition to Germany was
heard on June 23-24. Mr. Khurts was arrested at Heathrow airport in September on the strength of a
long pending European Extradition warrant against him on the charge of kidnapping a Mongolian
citizen from France, driving him to Germany, drugging him and then taking him to Mongolia.
During the two days of hearing, the court heard how the UK visit of Mr. Khurts, who looked after
intelligence issues, was sanctioned at the ―highest level‖ although he was arrested for kidnap on his
arrival. The lawyer for Mr. Khurts claimed he had been lured to Britain on a government mission
and is entitled to diplomatic immunity.
The Court of Appeal heard that Mr. Khurts was visiting Britain to talk about closer security links
between the countries. His visit followed a meeting between the Mongolian Ambassador to London
and Mr. William Nye, Director of Britain‘s National Security Secretariat. Mr. Khurts was supposed to
meet Sir Peter Ricketts, the head of the National Security Council, who reports to the Prime
Minister, although the meeting was never formally agreed.
Read more…
When an official from the Serious and Organized Crime Agency (SOCA) heard about Mr. Khurts‘s
planned visit, the UK Border Agency (UKBA) delayed his visa application while a copy of the
European Arrest Warrant was obtained from Germany. A UKBA official offered to ―contact the
applicant and ‗apologize‘ for not being able to issue his visa in time‖ according to one email
disclosed to the court while another official offered to ―ask more questions‖.
Mr. William Dickson, the British Ambassador to Mongolia, warned the Foreign Office that he would
be ―hauled in at the weekend for a protest and explanation and thrown to the media‖, the court
was told, and added, ―Obviously we need to get our lines sorted out by cop [close of play]
tomorrow.‖
The following day a business visa was issued, marked ―has been authorized at the highest level‖.
The Foreign Office has said it ―did not consent to his visit as a special mission, no invitation was
issued, no appointments were arranged, no subjects of business were agreed or prepared.‖
But Mr. Alun Jones, appearing for Mr. Khurts, told the Court of Appeal that Mr. Dickson had
encouraged the visit and talked of the need for ―new horizons in relations between Britain and
Mongolia‖ and the need to fight the ―continued growth or Islamic extremism‖ in the country,
although he was apparently unaware of the intention to arrest Mr. Bat at the time.
Mr. Jones said the ―clear encouragement‖ for the visit meant that Mr. Khurts was entitled to be
considered a special envoy under the UN convention. ―Consent in international law cannot mean,
‗You know I consented but I crossed my fingers at the time,‘‖ he added.
Mr. Khurts was arrested on board a Russian plane when it landed at Heathrow on September 17 last](https://image.slidesharecdn.com/bcmnewswireissue174-160215145821/85/01-07-2011-NEWSWIRE-Issue-174-16-320.jpg)
![you sing about the land, your horse, your mother, and then you sing about your loves and
relationships. Mongolians are better at communing with nature than with each other. You live on
the steppes in a ger. You don't need to know what your neighbor is thinking." Nomads are also used
to "singing outside, so you need to listen in a big space".
Thanks to its years under Soviet rule, Mongolia has a literacy rate of 98 percent, as well as 151
universities where 70 percent of the students are female. A less fortunate hangover from Soviet
rule is the rate of alcoholism, especially among Mongolian men, up to 25 percent of whom are
classified as alcohol-dependent. I traveled to an orphanage in Mongolia's second-largest city,
Darkhan, about a three-hour drive from Ulan Bator, where some of the 40 or so orphans had ended
up because of the alcohol problems of their parents. "You can buy a bottle of vodka for 75 cents,
less than a cup of coffee," says Meloney C. Lindberg, country representative for Mongolia of the
U.S. NGO the Asia Foundation. I was told that if you collapsed on the street in the capital from a
heart attack, no one would help you because they would probably think you were drunk. "We never
before used hard drink like vodka," B. Baabar, one of Mongolia's leading intellectuals, tells me. "Our
alcohol came from milk like sake [from rice]."
Baabar is one of the best-loved figures in Mongolia. He gave up his job as a biochemist to become a
historian, writer, publisher and activist. He led the project to translate the Encyclopedia Britannica
into Mongolian and was jailed by the Russians, whom he clearly does not like. He believes that the
Mongolian government today is still too reflexively Socialist and the central-planning Russian model
of state paternalism too often prevails. "The people here who are running the system still think like
Communists or Socialists," he says. "Every five years the Soviet Union gave Mongolia $5 billion. This
supplied Mongolian industry, agriculture and military. On the other side, it made Mongolia fully
dependent."
He is angry that the Mongolian government started giving cash handouts that he calls "economic
infantilism", a product of those educated under the Soviets. "Members of Parliament must go
through elections and make many promises to the people. If the people are fed like children from
this guy who acts like the father and promises cash money, free education and everything free
because the state is getting richer and richer—that is the bad side of this sudden wealth."
The inner sanctum of the cash cow that everyone hopes the Oyu Tolgoi copper-and-gold project
becomes is the Ulan Bator office of Cameron McRae, the redheaded, 52-year-old Australian CEO and
president in charge of the site construction. The "first step" investment of Ivanhoe and Rio Tinto is
$7 billion, he says, and they are currently spending $7 million a day to dig the mine.
His computer contains numerous animated models of the construction site, where a tiny Eiffel
Tower is used for scale, towered over by the vast project. "We are building at a scale never tackled
in this country," McRae says. "We are facing a shortage of artisans and technologists and people
with large-scale construction experience." At its peak, the construction site will require 17,000
people and when completed, the mine is expected to produce 50 to 55 million tons of ore annually.
The government has already received about a half billion dollars in fees and taxes and has not had
to put up a penny. Yet because of a lack of technically trained Mongolians, two of the mine's major
contractors are Chinese—the mine is located only 28 miles from the Chinese border and up to 80
trucks a day from China carry in necessary building supplies. "We made a commitment to the
Mongolian government to train up to 5,000 Mongolians," McRae says. Once the mine is built, "a
minimum" of 90 percent of the workers will be Mongolian.
The mine's remote South Gobi location requires considerable amounts of power and water, not to
mention an airport. "We'll help bring power to Gobi and upgrade roads. We'll build a powerline to
China and tap into the Chinese grid," McRae says. But the amount of water required, especially in a
desert, is unprecedented. "We're exploring for water. We found a very large ancient aquifer in a
gravelly area not related to anything else." I ask McRae where he thinks they will be in five years.
"We'll be the second-largest copper mine in the world with a very inexperienced workforce with a
big training program."
Before World War II, Mongolia served as a buffer state between Japan and the Soviet Union, and
after, between the USSR and China. Beijing is just 340 miles from the southern Mongolian border
and the Great Wall was constructed mainly to keep out the Mongols; 70,000 Russian troops were
once stationed in Mongolia. Those old enmities are hard to overcome. For example, the Trans-
Mongolian Railway conforms to the gauge of the Russian railroad, not the Chinese one, so each train
to China from Mongolia must go through a tedious re-fitting process. Under the guise of "national
security concerns" there is now a major debate going on in Mongolian business and political circles
over how to export the coal from Tavan Tolgoi—by rail to Russia or by truck to China? It would
require hundreds of miles of new rail to be constructed to ship out through Russia, or the coal could
simply be trucked 150 miles to the Chinese border.](https://image.slidesharecdn.com/bcmnewswireissue174-160215145821/85/01-07-2011-NEWSWIRE-Issue-174-24-320.jpg)
![―National security concerns is code for concern about the possible use of the railway for military
intervention," says Graeme Hancock, who until recently was the senior mining specialist for the
World Bank in Mongolia. "These Cold War concerns are still being played out all over Mongolia. They
consider the Russians their Big Brothers, their friends, and for 70 years they've been told there's a
big yellow evil to the south." He adds, "From our perspective, Mongolia places too much [emphasis]
on national security interests and not enough on economic interests. Instead of basing decisions on
what's good for the economy of Mongolia, decisions are based on geopolitical considerations." I
actually came across the lingering reverence for Russia in, of all places, Mongolia's only five-star
hotel resort, the lavishly appointed Terelj. I was startled to find the deposed statue of Lenin ousted
from the main square of Ulan Bator in 1993 stuck behind the building in one of its gardens.
Changes in Mongolia are happening so fast that L. Sumati, the country's leading pollster, says it is
impossible to group people into social classes—mobility is too rapid. At the same time the situation
is made more complicated by the fact that almost all of the poor have accumulated in the ger areas
of the capital city, many forced there after the horrendous winter of 2009–2010 caused nearly six
million of their livestock to die. "An army of the poor is besieging UB. Any political party standing
for election has a tough time negotiating with these people," Sumati says. "They are very volatile
and just asking for survival. In some ways they are angry. They see a widening gap between the rich
and the poor and they see no way out." I ask him why he can't classify who is wealthy. "We have a
group of very rich people supported by their access to power," he says, referring to the crossover
between business ownership and government. "The rich are not a class yet because there is still
very high mobility both up and down." Although Mongolia has strict laws requiring top officials to
publish their assets and a lively media that includes 22 daily papers in Ulan Bator plus 21 TV news
channels, there is no freedom of information act and cross-ownership of media and business
interests abound. I'm told editorial control is nearly always held by owners and there are ways to
pay to get a story on the news.
Corruption here is endemic. The Asia Foundation pays Sumati to poll a thousand households
quarterly to benchmark attitudes toward corruption and how many bribes they have paid in the
previous three months—usually to doctors, teachers, administrators and police. The last poll
showed that Mongolians consider corruption to be the government's third most serious problem
after unemployment and poverty, and that while the number of bribes decreased from 16 percent
of households in March 2010, to 13 percent in September 2010, the amounts of the bribes more
than doubled. Of course, these surveys do not address the big guys and government officials who
somehow may be secretly attached to these lucrative concessions, a lot of which are done on an
all-cash basis, the preferred method of the Chinese. "The Chinese come in with a suitcase full of
cash," says banker Lambert. "A Chinese guy buys a bottle of vodka and he will buy your mine for $7
million with no due diligence. Even though the
The transition from Communism is still being felt. The alphabet is Cyrillic and there are many parts
of the capital that look a lot like old Moscow. The era after the Soviet Union collapsed is still
recalled painfully. Those who made out like bandits were similar to the apparatchik of Russia—
people who had had contact with the West. One such person is national rich guy Kh. Battulga, one
of the most controversial figures in political and business life today. He is a former national judo
champion, a man who drives a Bentley and paid $10 million out of his own pocket to build the
gargantuan statue of Genghis Khan on Mongolia's steppes. Battulga is a developer—he is turning the
land around the statue into a resort—and also happens to be the minister of road, transportation,
construction and urban development and a powerful leader of Parliament. He traveled the exterior
as an athlete, started trading by selling electronic appliances from China, graduated to computers
and now owns a large meat-processing plant that supplies the country. In 2004, "my own needs
were met," he says, so he decided to run for Parliament.
Today, his grand vision is to build a $10 billion industrial complex the Mongolians call a "production
city" named Sainshand, also in the middle of nowhere in the Gobi, 300 miles from the Russian
border, 125 miles from China and about 200 miles northeast from the proposed Tavan Tolgoi coal
mine. It would be connected by highway and rail to the capital and by rail only to Russia. Instead of
selling unrefined ore and coal to the Chinese, who collect it in trucks, Sainshand would process the
minerals and refine the oil. Mongolia could then sell its commodities at an increased profit of at
least 30 percent, according to estimates, and create hundreds of thousands of new jobs. But first
the city has to be created from scratch. Then the coal will have to travel 3,000 miles from the
mine, including a connection to the Russian railroad, before reaching the port of Vladivostok.
Battulga told me he got the Sainshand idea because a Buddhist thinker in the 19th century
predicted that one day a great metropolis would grow there.
All over Ulan Bator I hear naysayers on Sainshand. The local gossip is that Battulga is in cahoots](https://image.slidesharecdn.com/bcmnewswireissue174-160215145821/85/01-07-2011-NEWSWIRE-Issue-174-25-320.jpg)
![INFLATION
Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)]
Year 2007 *15.1% [source: NSOM]
Year 2008 *22.1% [source: NSOM]
Year 2009 *4.2% [source: NSOM]
Year 2010 *13.0% [Source: NSOM]
May 31, 2011 *4.2% [source: NSOM]
*Year-over-year (y-o-y)
CENTRAL BANK POLICY LOAN RATE
December 31, 2008 9.75% [source: IMF]
March 11, 2009 14.00% [source: IMF]
May 12, 2009 12.75% [source: IMF]
June 12, 2009 11.50% [source: IMF]
September 30, 2009 10.00% [source: IMF]
May 12, 2010 11.00% [source: IMF]
April 28, 2011 11.50% [source: IMF]
CURRENCY RATES – June 30, 2011
Currency Name Currency Rate
US dollar USD 1,258.64
Euro EUR 1,821.06
Japanese yen JPY 15.66
British pound GBP 2,011.87
Hong Kong dollar HKD 161.73
Chinese Yuan CNY 194.72
Russian Ruble RUB 45.16
South Korean won KRW 1.18
Disclaimer: Except for reporting on BCM‘s activities, all information in the BCM NewsWire is
selected from various news sources. Opinions are those of the respective news sources.](https://image.slidesharecdn.com/bcmnewswireissue174-160215145821/85/01-07-2011-NEWSWIRE-Issue-174-30-320.jpg)
Uploaded byThe Business Council of Mongolia
01.07.2011, NEWSWIRE, Issue 174
This document summarizes news from the Business Council of Mongolia newsletter dated July 1, 2011. It highlights several stories on business and economic news in Mongolia, including: Aspire Mining raising the production target for its Ovoot coal mine, which would make it one of the largest coal mines worldwide; Prophecy Coal's first coal shipment from Mongolia to Russia; new wells being drilled by petroleum companies; and airlines and transportation projects expanding services. It also summarizes updates on the Mongolian economy, including inflation reaching 9.8% and sovereign wealth and private equity funds investing in Mongolia. Politics news included the registration of an opposition party and changes in government. The monthly Business Council meeting recap
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Similar to 01.07.2011, NEWSWIRE, Issue 174
01.07.2011, NEWSWIRE, Issue 174
- 1. BUSINESS COUNCIL ofMONGOLIA NewsWire www.bcmongolia.org info@bcmongolia.org Issue 174, July 1 2011 NEWS HIGHLIGHTS: Business: Raised output target makes Aspire‟s Ovoot mine among the world‟s largest; Prophecy‟s landmark shipment of coal to Buryatia; Petro Matad spuds new well; Eznis Airways‟ new jet starts scheduled services on July 1; Prophecy advances Ulaan Ovoo and Chandgana projects; Xanadu and C@ shares rise on coal finds; Auditor says Mongolia Energy could incur “significant impairment loss”; MIAT passengers stranded after South Korea refuses extra flights; Eznis Airways to use BAE Systems‟ "Total Support" package; Petro Matad breaks winning streak as DT-6 well comes up dry; Underwritten private placement of CAD10-million East Asia common shares; Marubeni to build Ulaanbaatar underground railway; Local company seeks permission to extract copper from Erdenet waste; SouthGobi Resources appoints new CFO; MRC presentation at Emerging Growth Equities Summit in New York. Economy: Inflation reaches 9.8%; Mongolia whittles down number of TT bidders, asks them to form group; Choir-Sainshand Highway Project in sudden jeopardy; Government accepts in principle MPs‟ demand not to sell TT shares to businesses; Bechtel report on Sainshand complex by November 27; Central Bank had deficit of MNT253.8 billion in 2010; Sovereign funds, private equity flocking to Mongolia; IFC invests in Mongolia‟s first private equity fund to support SMEs; Energy reliance on Russia, China a key risk in Mongolia; Toronto, London stock exchanges abort merger plans; Standing Committee against using HDF allowance to repay debts; Supplying to OT is a learning experience for Mongolian companies; IFC helps improve food-related inspections through business reforms: Indicator minerals show gold potential in Mongolia; Korean help for savings insurance; More robots may plug labor crunch in Australia‟s mines; Brazil eyes new tax on big mining projects; Beijing opens up fund sales market; China's latest toxic export: fraudulent listings. Politics: Supreme Court registers Enkhbayar‟s party as MPRP; Lundeejantsan resigns, MPP MPs elect Enkhtuvshin new head; Court to rule on Khurts‟s appeal after two weeks; Russian media talk again of the „debt‟ and want it repaid by control over resources;
- 2. Mongolia hasmade “amazing progress on its democratic journey”; Russia links fuel supply to other issues, Zorigt tells PM; Rosneft renews demand to set up 100 gas stations in Mongolia; Rosneft offer is just history repeating itself; World journalists‟ body begins campaign to get Mongolian Editor freed; Road traffic apt metaphor for „rule-of-law‟ in Mongolia; Removing parking areas will make matters worse; ADB to help choose teams to build power plant; China inaugurates bigger border post at Erilen; PM sees state service reform as essential; Women outnumber men in Mongolia; More money for prison workers from next year; Lawyers discuss increase in theft cases; Proposal to grant some districts city status; Mongolia‟s nomadic society is putting down some rich roots. *Click on titles above to link to articles. BCM MONTHLY MEETING RECAP The monthly meeting on June 27, with Mr. Peter Morrow in the chair, was attended by 78 members. Vice Director Ser-Od Ichinkhorloo reported that membership now stood at 184, as against 147 in the corresponding period last year. Five new members have joined since the last meeting. They are: 1. United Management Corporation (UMC), which specializes in retail financial services, investment management and co-investment, private equity, and real estate portfolio management. 2. Credit Suisse, which provides companies, institutional clients and high-net-worth private clients worldwide with advisory services, comprehensive solutions, and excellent products in areas such as private banking, investment banking and asset management. It employs 50,100 people in 405 offices in 55 countries. 3. Mongolian Economy Magazine, which aims to provide accurate news of and informed insight into what happens in the Mongolian economic, financial and business sectors. Apart from raising public awareness, the bilingual magazine hopes its contents will help strengthen interaction between domestic and foreign business institutions, and public-private partnerships. 4. CIS Mongolia, the local unit of the international organization which, since its founding in 1992, has specialized in providing catering services in challenging environments to some of the world's leading petroleum, mining, civil engineering and engineering companies, as well as to the armed forces of many different nations. 5. Allens Arthur Robinson, an international law firm with offices throughout Australia and Asia. Seventy-seven of Australia's, and 55 of the world's, top 100 companies choose Allens Arthur Robinson as their legal adviser. With more than 30 years' experience on the ground in Asia across a broad range of industries, the firm offers clients technical excellence combined with business and cultural insights. The first presentation of the evening was by Mr. David Lawson, Trade Commissioner, Australian Trade Commission, on "Austrade: Enhancing Business between Australia and Mongolia". There are now 87 Australian companies in Mongolia, and the number is set to grow. Austrade‘s mission is to provide help to Australian exporters and investors. Any Mongolian company that wishes to access information on business with and in Australia can also approach the recently opened Austrade office in Mongolia. It has a Website in Mongolian. Mr. Andrew Orgill, Director of International Office, Santis Educational Services and President of Inlingua, titled his presentation "Recent Development in Education". Ulaanbaatar alone has 94 state and 84 private schools, and its 23 universities are among the 200 or so nationwide. They will all have to adapt to emerging global changes in the concept and structure of education which include
- 3. stronger response tomarket signals, accountability and diversification. Santis offers language services specific to business and mining needs, but its emphasis is on enhancing English language skills for use in various other areas in several ways, including through online learning which is low- cost and flexible according to the needs in remote provinces. Prime Minister S.Batbold has called for ‗domestication‘ of English, and Santis gives priority to training English language teachers, especially because of the shortage in indigenous human resources. It also has special learning programs for children. Mr. D. Achit-Erdene, President, Mongolian Investment Capital Corporation (M.I.C.C.), spoke on ―The Mongolian Investment Banking Landscape‖ which, despite promise and possibilities, remains uncrowded, with not one major investment bank having an office in Mongolia. All Mongolian investment banking deals so far would total USD2.325 billion. The 51 brokers at the Mongolian Stock Exchange last year shared total commissions of just USD1.5 million. Things will change once the MSE offers more security and services to entice Mongolian and Mongolia-focused international investment companies to come here. Another encouraging step would be if the Mongolian Government would open its pension fund to be invested in the market. Ms. D. Onchinsuren, General Director, Onch Audit and Co-Chair BCM Tax Working Group, gave an update on how the group has been interacting with a national working group on tax issues. SPONSORS Khan Bank Eznis Airways Kempinski Hotel Khan Palace Mongolian National Broadcasting Mongolian Star Melchers Breakthrough PR BUSINESS RAISED OUTPUT TARGET MAKES ASPIRE‟S OVOOT MINE AMONG THE WORLD‟S LARGEST Australia-listed Aspire Mining has raised the eventual production target for its wholly-owned Ovoot coking coal project to 12 million mt/year, from 10.5 million mt/year planned previously. Recent coal washability test results confirmed a high theoretical yield of 80% with 8% ash content, giving Ovoot the potential to be the lowest-ash coking coal producer in Mongolia, Aspire has said. "It is clear from the results that coal from some areas of the deposit may not need to be washed," Aspire Managing Director David Paull said in a statement. That would result in lower operating costs and need for less coal washing capacity, he added. Accordingly, the company has raised its output projection for a second-stage development of Ovoot to 12 million mt/year, assuming run-of-mine coal of 15 million mt/year, which would place Ovoot among the world's largest coking coal mines. However, Ovoot's first stage development would be a much smaller scale project of 500,000 mt/year-1 million mt/year due to limitations of road trucking capabilities, Mr. Paull said. The first stage targets a DSO, or direct ship ore, operation that is expected to commence production toward the second half of 2012, pending the submission of a scoping study for approval this month, Mr.
- 4. Paull said. Outputfrom the first stage of development would be trucked to the nearest railhead at Erdenet and then transported via rail to eastern Russian ports, or south along the Trans Mongolian Railway to China. Read more… Production from the second phase of development is expected to start sometime in 2016, pending the results of a scoping study due for completion at the end of this year. Ovoot's proposed second stage development into a major coking coal exporter will be related to a 550-km railway infrastructure project with an estimated cost of USD1.7 billion, said Mr. Paull. The rail project involves a USD500-million, 160-km first section linking the mine site to Moron, the capital city of Khuvsgul province. He added Aspire would fund the link. The 390-km second section of the rail project envisages a roughly USD1.2-billion, 20-million mt/year connection between Moron and Erdenet. This section would also provide rail haulage to two other developments -- the Burenhaa phosphate project and the Huren-Chuulet iron ore project. Source: Platts.com PROPHECY‟S LANDMARK SHIPMENT OF COAL TO BURYATIA Prophecy Coal Corp. has exported a shipment of 650 tons of thermal coal, which is the equivalent of ten wagons, from its Ulaan Ovoo mine to Russia‘s Buryatia Republic. The coal was loaded on a train at Sukhbataar rail station which then crossed the border into the Republic of Buryatia via Naushki. The coal was sold to Energy LLC, a company registered in Buryatia, to be used in local power stations and boilers. Mr. J. Batuyev, a Minister in the Buryat Government and Official Representative of the Buryat Government to Mongolia, called this first ever shipment of Mongolian coal to Buryatia ―a historic event‖ and expressed confidence that Ulaan Ovoo coal ―will become a significant source to feed the energy sector of this region". This export trade is valuable for Prophecy as it helps the company determine local sales logistics, wagon loading times, export requirements and customs procedures to ensure smooth operations for future coal export of larger quantities. To further facilitate trade between Mongolia's Selenge province and Russia's Buryatia province, Prophecy is collaborating with a number of government and private entities towards opening of the Zeltura border post, which is 15 km from the Ulaan Ovoo mine. The opening of Zeltura would enable Prophecy to sell Ulaan Ovoo coal at mine gate to Russian industrial consumers and translate into significant transportation savings for Prophecy. Prophecy is preparing and ordering wagons for the next shipment in July 2011, destined for the port of Sovetskaya Gavani, of which the company has secured annual capacity of 300,000+ tons. Source: Prophecy Coal Corp. PETRO MATAD SPUDS NEW WELL Petro Matad has spudded the DT-7 well on its promising petroleum exploration and development block in far eastern Mongolia. The well is being drilled vertically to an estimated target depth of 1,800 meters by the company‘s contractor, DQE International. DT-7 is 2.3 km south-southwest of DT-6 and 3.2 km south-southeast of DT-2. Source: Petro Matad EZNIS AIRWAYS‟ NEW JET STARTS SCHEDULED SERVICES ON JULY 1 Eznis Airways‘ new Avro RJ 85 jet plane flew a crew of officials, celebrities and media to commemorate the opening of the new Deglii Tsagaan airport in Turgen soum, Uvs province on June 25 before beginning from July 1 to operate scheduled services from Ulaanbaatar four times a week, connecting Ulaangom and Khovd to the capital, as well as to each other. The plane will also be used by mining companies for charter flights to mining sites. Thus, within a week of its arrival at Chinggis Khaan International Airport early in the morning of June 24, the plane was adding to the growth of Mongolia‘s economy by enhancing the country‘s air transportation links. The aircraft was financed by Khan Bank, illustrating how Mongolia-based companies are collaborating to further invest in Mongolia‘s development. The 93-seat Avro RJ 85, built by BAE Systems with advanced technology, is widely used by leading European airlines, such as Swiss International Airlines and Lufthansa. It provides ample room for carry-on luggage, as well as safely operates on gravel and short runways. Additionally, the four jet engines permit fast and quiet travel, allowing for a reliable, safe and comfortable onboard experience. Read more… ―We‘re very proud to introduce the aircraft to the Mongolian skies. It will be the first jet aircraft
- 5. to fly scheduledflights domestically within Mongolia on a year round basis, offering our customers the opportunity to reach their destination faster while flying comfortably in a spacious cabin. Eznis Airways aims to be the No. 1 choice for regional air service in North Central Asia, and the arrival of the Avro RJ 85 is yet another important step in this direction,‖ stated the Chief Executive Officer of Eznis Airways, Mr. S.Munkhsukh To ensure the highest standard of maintenance and technical services for the Avro RJ, Eznis Airways has partnered with Lufthansa Technik Switzerland. Lufthansa Technik is also providing world-class technical training for Eznis engineers and technicians that will lead in-house maintenance services. Source: Eznis Airways PROPHECY ADVANCES ULAAN PVOO AND CHANDGANA PROJECTS Prophecy Coal announced positive operational results for its first quarter last week, despite widening losses. The Mongolia-focused coal development company said that its losses stem from its merger with Prophecy Holdings and Northern Platinum, since larger companies often incur greater expenses. However, the first quarter saw Prophecy repay its USD5 million debt facility, completely clearing the company of its debt. At its Ulaan Ovoo coal mine near the Russian border in Mongolia, Prophecy said it produced nearly 230,000 tons of thermal coal, removing over 1.5 million bank-cubic-meters of waste in the process. The Vancouver-based company also added 20,000 tons of coal, ready for export, to its stockyard. Similarly, the Chandgana Power Plant, Prophecy‘s flagship operation, which is located on the company's Chandgana coal project in southeast central Mongolia, is progressing. Prophecy received a mining license for 141 million tons of coal, and submitted a feasibility study to the Mongolian Ministry of Natural Resources and Energy for approval, which it hopes to receive in the third quarter. Source: Prophecy Coal XANADU AND C@ SHARES RISE ON COAL FINDS Shares in two Australian-listed companies rose sharply after they announced coal discoveries in Mongolia. Xanadu Mines says an initial drill hole at the new Nuurstei Coking Coal Project confirms a wide intersection of coal 70 meters deep. Nuurstei is part of a 50:50 joint venture between Mongolia-focused Xanadu and Hong Kong-based commodities trading house Noble Group. Shares in former health care turned resources company C@ also rose after it released positive drilling results on Wednesday. The company has made major coal finds based on results from its first two drill holes in the Ovorhangay Province, in Mongolia's south. The company has eight prospective coal licenses in South Gobi, near the Chinese border. Source: ninemsn AUDITOR SAYS MONGOLIA ENERGY COULD INCUR “SIGNIFICANT IMPAIRMENT LOSS” Mongolia Energy Corporation's independent auditor has said the Group would incur a significant impairment loss on the related mineral properties and/or exploration and evaluation assets if its five mining concessions and/or exploration concession in Mongolia worth about HKD13.2 billion is revoked due to the Mining Prohibition Law. Although the affected license holders are to be compensated, a significant impairment loss will be recorded if the compensation received is significantly less than the consideration the Group paid to acquire these concessions. As at 31 March 2011, the Group's current liabilities exceeded its current assets by about HKD2.02 billion. There are also uncertainties about the commencement of the commercial production of the Khushuut Coking Coal Mine and the related capital commitments that may cast significant doubt about the Group's ability to continue as a going concern. Source: ETNet MIAT PASSENGERS STRANDED AFTER SOUTH KOREA REFUSES EXTRA FLIGHTS Failure to get the expected permission for extra flights in summer led to about 200 passengers booked on a MIAT Seoul-Ulaanbaatar flight being stranded in Seoul airport for five days or longer from June 22. MIAT had planned two extra flights on June 22 and 23 and issued tickets for them, without waiting for approval from South Korean authorities. A MIAT spokesperson told media that the airline retuned the passengers the ticket money. She could give no reason why South Korea held back permission, saying that as a national carrier, MIAT operates under a bilateral governmental agreement. Source: News.mn
- 6. EZNIS AIRWAYS TOUSE BSE SYSTEMS‟ “TOTAL SUPPORT” PACKAGE Eznis Airways has agreed to a three-year support package with BAE Systems Regional Aircraft for its newly acquired fleet of two Avro RJ85 regional jetliners. This ‗Total Support‘ package covers JetSpares as well as ongoing Continuing Airworthiness and Technical Support. JetSpares is a customized rotable spares support program which is designed to allow an airline to concentrate on its operations while BAE takes care of spares inventory, logistics and repairs. The priority is to keep the airline‘s business running smoothly by providing a first-class support service. BAE Systems is providing an extensive on-site stock of spares at the airline‘s Ulaanbaatar base which it will manage. ―As a new operator of our aircraft, Eznis will benefit from the comfort that the JetSpares program allows them and be able to concentrate on their initial operations as they build up experience on the type,‖ said Mr. Sean McGovern, Business Director Support for BAE Systems Regional Aircraft. Eznis has also committed to a three-year BAE Systems‘ Tech 21 service for all technical and engineering support. Under this program, an annual payment entitles the airline to enjoy priority technical support (AOG), including regular customer support reviews on fleet dispatch reliability, the services of a dedicated customer engineer and continuing airworthiness support. Deliveries have just started of the airline‘s new 93-seat fleet of RJ85s – the first jet equipment to be operated by Eznis. The high wing configuration of the Avro RJ makes it readily adaptable for unsealed runway operation and BAE Systems has designed a comprehensive unpaved runway modification which is being installed on both aircraft so that Eznis can operate the aircraft safely from a number of unsealed and gravel runways on the airline‘s network. Source: AmtOnLine PETRO MATAD BREAKS WINNING STREAK AS DT-6 WELL COMES UP DRY Petro Matad‘s winning streak has come to an end. Thursday afternoon last week, it confirmed that the Davsan Tolgoi-6 (DT-6) well, on Block XX in Mongolia, had failed to find hydrocarbons. The preceding five wells all discovered oil. Chairman Douglas McGay described the outcome of DT-6 as ―disappointing (but) statistically acceptable‖. "The absence of hydrocarbons in DT-6 is disappointing,‖ Mr. McGay said. ―When taken into the context of the previous five successful wells and the complex nature of the Davsan Tolgoi Prospect, it represents a statistically acceptable result.‖ DT-6 was drilled to total depth of 1,923 meters into volcanic basement rocks, below the Tsagaantsav reservoir objectives. Petro Matad completed wireline logging and petrophysical analysis, but found no hydrocarbons through either method. The well has now been cased and cemented. Read more… The well was targeting the center of a large seismic anomaly in the Uppermost Tsagaantsav formation. In DT-6 the target was 404 meters lower than the oil accumulations encountered in both DT-1 and DT-2. Petro Matad said that the well encountered this primary objective between 1,532 and 1,690 meters, where the reservoir rock exhibited good reservoir development but negligible hydrocarbon saturation. It will now integrate the results from DT-6 and DT-5 results, along with 3D seismic interpretation. ―The presence of significant hydrocarbon saturation at DT-5 and its absence at DT-6 will require adjustment to the initial trap model for Uvgan Gol Prospect,‖ the company said. Meanwhile the site for DT-7 is being prepared. This next well is designed to test a different target, the Davsan Tolgoi Mod prospect – about 2.25 km southeast, and approximately 360 meters higher than DT-6. Mr. McGay added, ―The company is pursuing an evolving, but aggressive exploration program on Davsan Tolgoi and the data from this and previous wells are assisting our exploration professionals in their understanding of the Prospect, and the location of future drilling." Source: Petro Matad UNDERWRITTEN PRIVATE PLACEMENT OF CAD10-MILLION EAST ASIA COMMON SHARES A syndicate of underwriters has agreed to purchase, on an underwritten private placement basis, 3,450,000 common shares of East Asia Minerals at a price of CAD2.90 each for aggregate gross proceeds of CAD10 million. The Company has granted the underwriters an option to purchase up to an additional 15% of the offering. The net proceeds will be used primarily for exploration and development at the company's Miwah property and for general working capital purposes. The offering is scheduled to close on or about July 13. East Asia Minerals owns seven uranium properties, including the advanced Ingiin-Nars, Ulaan Nuur and Enger uranium projects, and two phosphate properties in Mongolia.
- 7. Source: East AsiaMinerals Corporation MARUBENI TO BUILD ULAANBAATAR UNDERGROUND RAILWAY Japan will partner with private companies to build four railway projects in Vietnam, Mongolia and Indonesia, at a total cost of USD6.60 billion, the Nikkei newspaper has said. In Mongolia, Marubeni Corp will construct a two-track underground railway in Ulaanbaatar. JGC Corp and others will prepare the feasibility studies. The total cost is expected to reach USD2.22 billion. All the projects will come up as public-private partnerships and feasibility studies will begin in August, the daily said. The undertakings are likely to be funded under Japan's official development assistance program, through JICA and the Japan Bank for International Cooperation. Source: Reuters LOCAL COMPANY SEEKS PERMISSION TO EXTRACT COPPER FROM ERDENET WASTE Mr. D.Altankhuyag, director of Share of Copper Mineral Co.Ltd, a company he says is registered with 30,000 shareholders, claims that MNT15 billion can be made from a waste dump at the Erdenet copper plant that has been there and growing for over 30 years. He says a Mongolian-U.S joint venture Erdmin has been recycling parts of the waste, which is actually soil that came up with the copper underground, and retrieves enough copper to make the business profitable. Now local citizens have formed Share of Copper Mineral and have asked for permission to use the pile to produce pure copper and other by-products. This company may well be the biggest Mongolian company in terms of the number of shareholders. Mr. Altankhuyag says the State Property Committee forwarded the company‘s proposal to the Erdenet management and after a long delay, the factory gave the opinion that the plan was not economically viable. This has surprised Share of Copper Mineral as Erdmin, which was set up with a capital of USD10 million, continues to produce over 3,000 tons of copper annually from the soil dump. Their cost of production is around USD1,800 per ton, and the sale price has sometimes been USD9,000 per ton. Share of Copper is ready to invest USD26 million in a plant with double the capacity of Erdmin‘s but they cannot proceed without the Erdenet factory‘s permission to use the dump. Mr. Altankhuyag hopes some pressure will be put on the Erdenet factory to review its decision and grant the necessary permission, opening the way for thousands of local shareholders to make some money. Source: Undesnii Shuudan SOUTHGOBI RESOURCES APPOINTS NEW CFO SouthGobi Resources has appointed Mr. Matthew O‘Kane its Chief Financial Officer, effective July 1, 2011. Mr. O‘Kane replaces Mr. Terry Krepiakevich, who will remain as a Senior Advisor to the company over the next reporting period. Mr. O‘Kane joined SouthGobi last January. Source: SouthGobi Resources MRC PRESENTATION AT EMERGING GROWTH EQUITIES SUMMIT IN NEW YORK Mongolian Resource Corporation, which is listed on the Australian Stock Exchange, was among the presenting companies at NBT Equity Group's inaugural Emerging Growth Equities Summit on June 21 at the Princeton Club in New York City. The host and moderator for the event was Mr. Tobin Smith, Founder and CEO of NBT Equity Group and contributor and guest anchor of Fox News and Fox Business Channel. Mr. Smith recently traveled to Mongolia where he met with Redwood Capital, Mongolian Resource Corporation, and Prime Minister S. Batbold. Each of the companies presenting at the NBT event was provided a 25-minute time slot, and the presentations were followed by a 25-minute breakout session and then one-on-one meeting opportunities. The MRC presentation was made by Mr. Tony Bainbridge, a member of The Australasian Institute of Mining and Metallurgy who has 30 years of experience running mine operations. Source: Redwood Group International ECONOMY INFLATION REACHES 9.8% The Central Bank revealed at its monthly press conference last week that base inflation at the end of May stood at 9.8%. The consumer price index increased y-o-y 4.2% nationwide and 2.8% in Ulaanbaatar. Prices of meat, vegetable and building materials rose mainly as fuel shortage affected supply, while large inflow of money from foreign countries was behind real estate and apartment
- 8. prices going up. TheBank has kept policy interest rate at the present 11.5% but has not ruled out an increase. The volume of bank loans increased by 44% but bad loans could also be on the rise. The Bank noted that people‘s purchasing power has improved. Source: The Central Bank MONGOLIA WHITTLES DOWN NUMBER OF TT BIDDERS, ASKS THEM TO FORM GROUP Mongolia's government has whittled down the number of companies in the running to gain rights to the country's giant Tavan Tolgoi metallurgical coal deposit and is attempting to persuade those bidders to work together to develop the mine, coal industry sources said Wednesday. "Of the six original bidders, they're now down to three or four," said Ms. Louisa Pratt, conference producer at Coaltrans, who organized a coal congress in Mongolia last week. Mr. Luiz Sarcinelli, director of Brazil-based coal consultancy Sage Consultoria Tecnica Ltda., said he was "reliably informed" that four companies or groups are still in the running, namely the consortium involving Russian interests, the consortium involving Chinese interests, Brazilian miner Vale SA, and steelmaker ArcelorMittal. The Mongolian government is working out a proposal for the shortlisted companies to work together "to get the project going more quickly", according to the consultant. Read more… Investments required to develop Tavan Tolgoi's western block -- which is to be put out to private sector operation -- have been estimated at USD7.3 billion. A Mongolian state-owned company has been slated to develop the eastern block at the deposit in the Gobi desert, which has estimated reserves of 5 billion metric tons and is expected to produce as much as 10 million tons a year of metallurgical coal for global steelmakers hungry for new sources of the raw material. However, industry observers attending a Coaltrans event in Rio de Janeiro this week said that while the Mongolian Government is seeking a "multi-company solution", companies may find managerial decision-making trickier in a bigger group. "Can we really see Vale and ArcelorMittal working together on this kind of project?" one observer said. Representatives of Mitsubishi Corp., which isn't involved in the shortlist for Tavan Tolgoi, said they foresee further slight delays in the announcement of the winners of the bid, which should be known during July rather than this week as was recently expected. Mr. Marcelo Matos, Vale's general manager of coal marketing and sales, said on the sidelines of the Rio event that Vale has a group of people in Mongolia "involved in the Tavan Tolgoi tender", declining to give further details. Vale already has an existing "large" coal exploration project in the country, he said. Source: Dow Jones Newswires CHOIR-SAINSHAND HIGHWAY PROJECT IN SUDDEN JEOPARDY The South Korean company constructing the Choir-Sainshand Highway as a Millennium Challenge Account project has declared bankruptcy and stopped all work. Faced with the possibility of the MCA halting release of funds, the director of the Auto Highway Project, Mr. P.Batsaikhan, has asked the subcontractors to carry on with the construction. Work on the highway was inaugurated at a ceremony last year that was attended by the Prime Minister and the US and Korean Ambassadors. The construction was to be completed by September 1, 2013, and the progress so far has been hailed as the best construction project that the implementing agency of the Government was handling. It remains to be seen how the unforeseen events affect the considerable amount of work remaining. Source: Udriin Sonin GOVERNMENT ACCEPTS IN PRINCIPLE MPs‟ DEMAND NOT TO SELL TT SHARES TO BUSINESSES The Government has accepted in principle a proposal made jointly by some MPs – Mr. Kh. Jeckei, Mr. D.Odbayar, Mr. Ya.Batsuuri, and D.Khaynkhyarvaa, all from the MPP, and Mr. B.Batbayar of the DP -- that Parliament should change its decision to sell 10 percent of the total shares of Erdenes Tavan Tolgoi to Mongolian businesses. Instead, these shares would be added to those to be distributed free to citizens. The MPs felt it would be discriminatory to favor entrepreneurs over others, and the present decision, if followed, would make the economy in general more dependent on mining. Source: Udriin Sonin BECHTEL REPORT ON SAINSHAND COMPLEX BY NOVEMBER 27 The National Development and Innovation Committee and Bechtel Corporation indicated last week
- 9. that they wouldpresent to the Government their basic report on setting up an industrial complex in Sainshand by November 27, which is when the six months after Bechtel was awarded the project end. The two are working jointly and intends to divide the report into 12 sections, including identifying funding sources. It will also review the feasibility of setting up the six proposed processing units, and suggest the best location for them. Bechtel, which will receive USD 2.4 million for its work, will also suggest how many companies in which areas will be needed for the total work on the complex and international tenders will be floated once the Government accepts the report. Source: Montsame CENTRAL BANK HAD DEFICIT OF MNT253.8 BILLION IN 2010 The Inspecting Council of the Central Bank recently discussed its financial report for 2010 which says the Bank ended the year with a deficit of over MNT253.8 billion, because of currency rate differences. The Council recommended issuing bonds to plug the deficit. Source: News.mn SOVEREIGN WEALTH FUNDS, PRIVATE EQUITY FLOCKING TO MONGOLIA Sovereign wealth funds, private equity and some of the world's multi-billionaires have descended onto Mongolia to sniff out investment opportunities, as they bet the country's booming resources sector will produce big winners. Mongolia, blessed with abundant mineral resources, sits on the doorstep of the world's largest resource consumer, China. But getting the minerals out of the ground to its southern neighbor and elsewhere is a big challenge with no sea port. Major infrastructure spending is also needed and it could be years before Mongolia can cash in on its untapped wealth. Still, foreign investors believe that Mongolia's proximity to China -- also called the "stomach without a bottom" -- would turn some the small exploration and mining companies in the country into sizeable producers. "We see all kinds of investments coming to Ulaanbaatar on a daily basis. These range from sovereign wealth, to private equity to high net-worth individuals to the top six of the 250 billionaires in the world," Mr. Eric Zurrin, head of boutique investment firm Resource Investment Capital, said. "It's pretty staggering. From my experience in the last 10 years in the city, the amount of capital seeking opportunities in Mongolia is amazing." Mr. Zurrin said most investors were eyeing opportunities in mining firms with quality assets, while mining equipment and services companies also rank high on their lists. Read more… Still, the risks are high. The application of laws and regulations are unpredictable, official public records to identify ownership and control of locally-registered businesses are hard to find and corruption is widespread. In November 2010, the government surprised the international community by suddenly suspending 254 gold mining licenses, citing a 2009 law which protects Mongolia's forests and river basins. Although some international companies have appealed and successfully had their licenses reinstated, others have not been so lucky. With a parliamentary election scheduled in 2012, there is a political risk also, although local observers say the chances of a regime change are slim. "Investment funds in the U.S., Australia and so on mostly hold the view that even if the government changes, the momentum to develop the resource sector is here to stay," said Mr. Jason Bahnsen, chief executive officer of Gobi Coal & Energy, which is planning an IPO on the Toronto exchange later this year. Part of the hunger for private investments stems from Mongolia's small banking sector. Its three commercial banks can only issue a maximum USD60 million in loans after syndication. "The commercial markets are too small to fund the large deals, especially in the mining sector where we are easily talking about tens and hundreds of millions," Mr. Jim Dwyer, Executive Director of the Business Council of Mongolia, said. While the Mongolian Stock Exchange has posted strong returns over the last decade, its low liquidity, restrictions on foreign investors and weak financial reporting standards, means miners often seek capital elsewhere. But there are signs of change. The exchange has sought the help of Korean, Singaporean and Hong Kong stock exchanges to help with its development and attract more foreign investment, while it has also inked an agreement with the London Stock Exchange to install a new trading platform. Source: Reuters IFC INVESTS IN MONGOLIA‟S FIRST PRIVATE EQUITY FUND TO SUPPORT SMEs IFC, a member of the World Bank Group, will provide a USD7.5-million equity investment to Mongolia Opportunities Fund I L.P., the first private equity fund in the country focused on providing
- 10. small and mediumfirms much-needed capital and expertise to help them grow and create jobs. Despite strong growth prospects, SMEs in Mongolia find it difficult to obtain financing because most investments go toward large mining projects. The fund will provide capital to companies, such as those involved in agribusiness and those along the mining supply chain but not directly engaged in mineral extraction activities. The fund will also provide quality management support to these firms. ―IFC‘s investment in the fund will have a strong impact as it will promote economic, financial, and private sector development as well as ensure social and environmental sustainability among small and medium enterprises,‖ said Mr. Mandar Jayawant, Managing Director of Mongolia Opportunities Fund. ―This is a good example of how an investment can bring development as well as commercial returns.‖ Read more… IFC will also help the fund adopt best practices in transparency and corporate governance as well as environmental and social standards. ―Small and medium enterprises, representing over 99 percent of all Mongolian firms, are important for job creation and for a diversified economy. IFC‘s investment will not only provide capital to these businesses but will also support about 400 new jobs and the development of the supply chain around the mining sector,‖ said Mr. Hyun-Chan Cho, IFC Country Manager for China and Mongolia. IFC played a strong catalytic role in mobilizing institutional investors to support the fund. IFC‘s early involvement during the formation of the fund helped it attract interest from other development finance institutions and several private institutional investors. Source: The FINANCIAL ENERGY RELIANCE ON RUSSIA, CHINA A KEY RISK IN MONGOLIA Mongolia's growing dependence on neighboring Russia and China for fuel and power poses a major risk to its booming mining sector that investors need to consider. Landlocked Mongolia, which hopes to raise some USD25 billion over the next five years to build roads, railways and mining towns, imports about 90 percent of its petroleum products from Russia, while the rest comes from China. The sprawling country, which produces only about 4 billion kilowatt hours of power annually, already relies on imports from its northern neighbor Russia for around four percent of its current consumption and is in talks to import power from China. Officials say electricity import needs are set to rise sharply. Reliance on essential energy supplies makes Mongolia vulnerable to supply shocks and price rises, especially as Russia has been known to turn off supply taps, for example during price disputes with Ukraine, according to Mr. Paul Aston, a partner at law firm Holman Fenwick William, which helps conduct risk assessments for mining companies. This vulnerability has been felt acutely this year, after Russia cut oil and diesel exports to Mongolia in April due to shortages on its own domestic market, a move that crimped mining activity while driving up pump prices and bus fares. The continued shortfall has come at a critical time, with diesel demand from construction, agriculture and mining peaking during the summer months when productivity is at its peak. According to local media, the diesel shortage has forced the Mongolian government to order a temporary halt of diesel supplies to some miners, suspend some railway operations and to dip into its emergency stockpile. Read more… Supplies from Russia have yet to resume. Some miners have now resorted to refueling their trucks from China and the Mongolian government has also been buying small amounts from China, although they are 40 percent more expensive than those from Russia. "There is a real shortage of diesel...and the impact is felt across wide sectors in the country, especially miners," said Mr. Jim Dwyer, Executive Director of the Business Council of Mongolia, representing foreign firms. "Mongolia needs its own refinery and that's the only way it can break out of its dependence on Russia for its fuel needs." Mongolia has suffered numerous fuel shortages since the 1990s after the dismantling of the communist system and the government has drawn up plans to build its own refineries. The earliest start of its first refinery is set in the autumn of 2014, under a plan by Japan's Marubeni Corp, Toyo Engineering Corp, and Mongolian Mongol Sekiyu to build a USD600-million plant in Darkhan city, about 200 km north of Ulaanbaatar. "These sort of fuel shortages can threaten project timeline and push up mining costs, so it's a risky business. There may be plans for a refinery, but that will only come three years later and construction delays are not uncommon," said a mining executive who asked not to be identified. Mongolia uses about 1 million tons of petroleum products annually, with diesel accounting for up to 60 percent of such consumption. To feed growing demand for electricity from miners, the
- 11. Mongolian government islooking to build new power plants in the south Gobi region and as well as near the massive Oyu Tolgoi copper-gold mine project. The government has also given approval for Oyu Tolgoi investors Rio Tinto and Ivanhoe Mines to build an electricity line to the Mongolia-China border to import power from China. Source: Reuters TORONTO, LONDON STOCK EXCHANGES ABORT MERGER PLANS The London and Toronto stock exchanges abandoned plans for a CAD3.6-billion merger on Wednesday, as it became clear they would not win enough shareholder support for their transatlantic alliance. In brief statements issued just one day before a shareholder vote, the exchanges said they realized TMX Group shareholders would not give them the two-thirds majority they needed to approve their friendly deal. The London Stock Exchange would have owned 55 percent of the new venture, designed as a powerhouse in resource and energy equity. It could now become a takeover target itself in the wave of global exchange consolidation. Abandoning the plan represented an embarrassing climbdown for both exchanges, but especially for the LSE, which is left red-faced after a courtship which began in February. Source: Reuters STANDING COMMITTEE AGAINST USING HDF ALLOWANCE TO REPAY DEBTS The Standing Committee on the Budget last week voted against amendments to the law on the Human Development Fund that would permit the monthly HDF allowance of MNT21,000 to be directly used to repay bank debts of herders, elders and SME businessmen. However, since the majority fell short of two/thirds, the draft will now be discussed in Parliament. Speaker D. Demberel accepted that the indebted, particularly herders, would benefit if their loans were repaid with a lump sum grant of the HDF but asked MPs to remember that this was not what the election promise of the parties was. The Finance Minister felt it would not be possible to find so much cash at one go. Source: News.mn, Zuunii Medee SUPPLYING TO OT IS A LEARNING EXPERIENCE FOR MONGOLIAN COMPANIES With the Oyu Tolgoi project expected to buy USD 2.4 billion of goods and services this year, it is a big opportunity for Mongolian companies who can supply these, says Mr. S.Balchindorj, head of the Suppliers‘ Consortium. Ten national companies formed this group, and they include construction and freight logistics businesses. Still, Mr. Balchindorj feels Mongolian companies cannot qualify for many of the more lucrative contracts as, ―to be honest, our financial capacity and customer service skills are much below what is needed to meet the requirements of a world class purchaser which works so transparently‖. Some 2,300 entities are registered as potential suppliers, but only about 60 of them have been receiving orders, mostly for minor needs. The big contracts are all going to foreign companies, but there should be no quarrel with this as ―we see how much there is for us to learn and to improve, including how to earn and retain business trust over time‖. Mr. Balchindorj sees the exposure to the sheer scale of OT as allowing Mongolian companies ―to think big, to expand and to challenge themselves‖. He feels developing business clusters in Mongolia is a sensible goal, and hopes contractor companies will use their experience of and profits from OT to eventually become investors themselves. ―It is not beyond us to buy 5% of OT shares,‖ Mr. Balchindorj feels. There is a lesson in this for ―those who wanted to stop the project and still create problems‖. Source: Udriin Sonin IFC HELPS IMPROVE FOOD-RELATED INSPECTIONS THROUGH BUSINESS REFORMS IFC, a member of the World Bank Group, and the Mongolian Food Industry Association are helping raise public awareness on food-safety issues and promote the adoption of international food-safety practices and standards among Mongolian food business operators to boost consumer confidence in their products and improve their products‘ export potential. IFC participated in the Mongolia Food Safety Forum 2011, organized by the Mongolian Food Industry Association and the Ministry of Agriculture, Food, and Light Industry, on June 24. It identified current challenges on food safety in Mongolia, suggested possible solutions, and shared its global knowledge and expertise on the issue. The forum was attended by more than 150 participants from the government, business community, and academia. ―The forum provided an opportunity for state agencies, nongovernmental organizations,
- 12. international organizations, businesses,and manufacturers to jointly discuss and exchange ideas on Mongolia‘s food safety policy and its strategy on food supply, quality, safety inspections, and prices,‖ said Mr. D. Terbishdagva, President of the Mongolian Food Industry Association and a member of Parliament. ―I fully support activities on food safety-related inspections reforms that are to be carried out by the government under the guidance of IFC.‖ Read more… Launched in 2009, IFC‘s business inspection reform program helps the government make inspection rules and practices more transparent, efficient, and less costly. It also helps introduce best practices in the inspection process of food business operators. With assistance from IFC, the General Agency for Specialized Inspections, the main inspecting body in Mongolia, has adopted more than 10 checklists this year to be used during inspections of food business operators. IFC, together with the association, also has conducted a series of training workshops on food-safety international best practices for private businesses. Source: The FINANCIAL INDICATOR MINERALS SHOW GOLD POTENTIAL IN MONGOLIA The abolition of the Windfall Profit Tax this January has seen a 15 percent increase in gold exports from Mongolia as of the end of April compared to a contraction of 47 percent last December. "Mongolia has finally arrived on the global mining scene," investment banker Boldbaatar recently told a mining executives attending a conference in Ulaanbaatar. With a banking sector that remains relatively weak, the Government is now enforcing stricter supervision regulations. Financial deepening is high on the agenda, including the development of local bond markets, with companies and the government likely to compete for long term sources of financing. Improvements in the Mongolian Stock Exchange's institutional and operational capacity are well under way, and once they are in place the focus will shift to bond markets and the Securities Clearing House. As a note of caution, Mongolia purchases 95 percent of its petroleum products and a substantial amount of electric power from Russia, leaving it vulnerable to price increases. The Government has also been involved in litigation with foreign commercial mining interests. Read more… Copper has long been used as an indicator mineral in the search for gold and diamonds, with geologists increasingly examining the chemical and physical properties of indicator minerals. The USGS has estimated nearly one-quarter of the gold in undiscovered resources is estimated to be contained in porphyry copper deposits. Last year, Mr. Peter Munk, the founder and chairman of Barrick Gold Corp., the world's biggest gold miner, underscored this thesis when he said, ―The future of gold mining likely lies in mixed-metal mines. Gold finds are becoming more and more difficult right now. What most large companies do now, they look for mixed-metal mines, where gold is a part of other metals and other minerals.‖ Ivanhoe Mines, currently involved in a joint venture to build a mine at the Oyu Tolgoi deposit, which has the potential to become one of the world's top three copper producing mines, discovered in March a new shallow copper, molybdenum and gold zone located about 10 kilometers north. Erdene Resource Development Corp. is expanding a detailed program of regional exploration to identify areas, principally in southern Mongolia, with the potential to host porphyry related gold, copper and molybdenum mineralization. Recently the company announced that drilling has commenced on the Nomin gold and copper prospect and upon completion, drilling is set to continue on the Khuvyn Khar copper and silver prospect. Source: Gold Investing News KOREAN HELP FOR SAVINGS INSURANCE A memorandum of understanding was signed between the Central, the Ministry of Finance, and the Savings Insurance Corporation of South Korea last week to introduce and popularize savings insurance in Mongolia. The Korean company would offer technical advice and assistance in setting up the system and train staff. Source: News.mn MORE ROBOTS MAY PLUG LABOR CRUNCH IN AUSTRALIA‟S MINES Some Australian mine workers may soon find themselves trading in their steel-toed boots for a headset and computer mouse, as mining companies automate to help plug labor shortages and ramp up output to feed Asia's voracious demand for minerals. Jobs in Australia's Outback mines can mean grueling 12-hour days, scorching temperatures and long commutes -- conditions perfect for
- 13. machines from driverlesstrucks to drilling robots. The resources industry has roughly USD400 billion in new projects on the drawing board in Australia and, along with the construction industry, will need an additional 260,000 workers over the next five years, according to government estimates. "There's a shortage of both skilled and unskilled workers and that tends to lead to automation," said a commodities analyst in London. The use of remote-controlled mining could even replace one of the stock characters of Australia's mining bonanza -- the truck driver without a degree who can rake in more than USD100,000 per year. A guidance system, in a box near the front bumper, and a couple of radar-dish sensors remotely steer the driverless trucks which are otherwise identical to the towering yellow-painted behemoths now in use. Read more… "They will be doing everything. The whole (mining) pit will be fully autonomous -- nothing that goes in or out of there that's not on a computer screen," Mr. Gervase Greene, spokesman for Rio Tinto, said. "It works from an efficiency point of view fantastically. You'll find load time is quicker, they are always in position, exactly the same position." Rio Tinto already runs many of its mines from a center in Perth, some 1,500 km away from the Pilbara. At the operating centre, which resembles a NASA control room and is far removed from the dusty outback, employees sit in front of desks with multiple screens detailing mine operations. From the serene atmosphere of the control room, Rio employees guide machines that do most of the work at the mines -- from loading trains and ships to controlling mine power and water supply, Mr. Greene said. Rio had even begun investing in driverless trains, but suspended the program as it tried to cut back on costs when the global financial crisis hit. Rapidly growing Asian economies such as China and India have kept Australia's miners producing at breakneck speed, 24 hours a day, seven days a week. With production set to pick up and major miners planning to pour money into expanding operations, having robots do the job speeds operations up. Machines tend not to get tired -- they will just keep doing the same thing over and over again... plus they are able to work through shift breaks and reduce travel time," a mining official said. Companies typically need to see a 10% to 20% annual saving or improved productivity to encourage investment in high-cost robots, he said. Off-the-shelf technology can take about a year to pay off, while companies developing bespoke technology can wait up to ten years to break even, he said. Some of the machines -- such as the popular Load, Haul, Dump or LHD vehicle -- can be sent into mine shafts for long periods of time, saving humans from deep descents which can put them in hazardous situations. From a mining company's point of view, cutting the number of accidents can be advantageous as well. Automation has gained cautious union support for its potential to improve safety. Although miners emphasize that they do not intend to substitute robots for people, some say union pressure could be one of the factors driving automation. Western Australia's Pilbara is not unionized, but unionized coal miners in eastern Queensland are in a dispute with BHP Billiton and Mitsubishi. "Given the current situation of the growing standoff between mining unions and some of the nations big miners, there's somewhat of a longer term incentive to potentially reduce employee numbers," said a senior resources analyst. Using robots to do some of the more backbreaking jobs is another potential advantage. "What we do is we take the people out of those jobs in the pit and put them somewhere where they are doing better stuff. They are not getting replaced by (driverless) trucks by no means -- not one person," Rio Tinto's Greene said. Some mining jobs will likely become extinct, just as the computer phased out the typing pool. Source: Reuters BRAZIL EYES NEW TAX ON BIG MINING PROJECTS Brazil could create a new tax on large mining projects as part of the government's overhaul of the mining code, a move that would be costly for mining giant Vale. The mining and finance ministries are considering imposing a so-called "special participation" tax on large mining projects similar to one that already exists in the oil sector for high productivity fields, a newspaper reported, without naming sources. The proposal would levy the tax on 25 percent of the existing mining concessions, the paper said, including the main projects of Brazil's Vale, the world's largest iron ore miner. The proposal would make up part of a broader overhaul of regulations covering Brazil's mining sector, which would also include a potential increase in royalties that companies must pay to the government. The special participation tax would be applied to gross revenues from production, and deducted from
- 14. investments in explorationand operational costs, the report said. It would come on top of royalties that mining companies already pay that currently stand at roughly 2 percent of net revenue. Analysts in recent months have said they expect the government to raise royalty rates. The mining industry opposes tax increases, particularly the royalty increase, saying that it would reduce the Brazil's competitiveness because mining companies already have a high overall tax burden. Source: Reuters BEIJING OPENS UP FUND SALES MARKET Beijing has moved to loosen restrictions on its fund industry, allowing foreign banks to sell local mutual funds and creating competition for domestic lenders, who dominate the field. The China Securities Regulatory Commission said last week that independent financial advisers and locally incorporated foreign banks would be able to obtain sales licences starting October 1. The change was brokered in talks between US and Chinese officials in May. Independent fund companies have long been barred, with sales restricted to commercial banks and securities brokerages. Under the new rules, companies with a registered capital of USD3.1 million will be able to sell fund products. Foreign banks will also be able to operate under the new rules, while individuals with at least 10 years‘ experience in the fund industry will be permitted to own shares in fund companies. There are more than 60 mutual fund houses in China with about Rmb2,400 billion under management, and 136 financial institutions in total licensed to sell fund products. Because funds were not allowed to charge higher fees for value-added services the Chinese industry has remained largely flat. Many Chinese investors have preferred offshore funds of large international asset management companies, especially those of star managers. The new rules allow fees for value-added services, which the CSRC believes will encourage fund companies and commercial banks to offer better asset management services to investors. ―The move is aimed at encouraging competition in the fund industry and raising the overall quality of professional asset management services,‖ it said. The new rules have the potential to dramatically change the mutual fund landscape in China. In the short-term, however, there will be little change as domestic banks prevail in the Chinese market. Source: The Financial Times CHINA'S LATEST TOXIC EXPORT: FRAUDULENT LISTINGS The uproar over alleged frauds at Chinese companies listed in the West is entering a new stage as accounting problems mount, higher-profile listings come under suspicion, and bigger-name investors turn out to have been hit. This is part of a pattern: First China shipped tainted pet food overseas, then contaminated toys. Now it turns out China also exported toxic listings. It's an apt comparison. Investors, regulators and commentators so far have focused on the simple fraud aspect of many of these stories: forged bank statements, falsified inventories, faked forests and factories. The food- and product-safety scandals likewise featured a heavy dose of old- fashioned deceit. But as with those earlier scandals, there's also a structural element to the stock fracas. Dangerous goods made it to market because China lacked -- and still does -- the systemic protections consumers in the West enjoy, from effective regulation to brand identity to a legal system that metes out damages when problems slip through the cracks. Structural characteristics of the Chinese economy also lurk beneath the surface of many alleged stock frauds. Read more… Consider the case of Sino-Forest Corporation. The Toronto-listed shares first came under attack from short-sellers early in June with publication of a report from Hong Kong-based Muddy Waters Research highlighting what it claimed were serious flaws with the company's accounting. Many of the company's revenues flow through so-called authorized intermediaries, companies whose relationships with Sino-Forest are at present poorly understood. Also poorly understood, and more poorly documented, is Sino-Forest's ownership of its forest assets. Muddy Waters says such "unnecessary" -- Muddy Waters' word -- complexity has been a cover for fraud. The company says it's all perfectly legitimate. They could both be right. The real purpose of these intermediaries appears to have been to make tax payments on behalf of Sino-Forest. Muddy Waters is correct that such an arrangement in a Western company would raise eyebrows. Not so in China, where executives face a bewildering array of ever-shifting local, regional and national tax burdens in what a Deloitte survey found to be Asia's most complex tax system.
- 15. The most efficientway to manage tax liabilities in such a regime -- simply to gain some level of predictability -- is to build a web of related companies among which money can be moved in ways to minimize the tax burden. Along with this strategy come a variety of tricks of variable legality, including under- or over-invoicing and potentially dodgy accounting for inventories and the like. This would count as tax dodging in the West, where rates and enforcement are predictable. In China it's a survival instinct. This illustrates the broader point that the skills necessary to stay afloat in the regulatory quicksand of China's not-nearly-a-market economy are not conducive to satisfying the nit-pickiness of Western investors. So too with the other uses of complexity and opacity. Such as self-protection for individual entrepreneurs, especially at a time when Beijing seems increasingly willing to jail businessmen who grow a little too successful. Consider Huang Guangyu, founder of Gome Electrical Appliances Holdings, a well-known retailer. Mr. Huang disappeared for months in late 2009 before surfacing in a jail cell in May 2010, whereupon he was promptly convicted for supposed white-collar crimes related to another of his companies and sentenced to 14 years. Gome's corporate complexity allowed Mr. Huang to hold onto his company in the face of this onslaught. He had wisely vested ownership of one-third of the company's stores, plus intellectual property such as a well-known former logo, in a company distinct from Gome's listed unit. Thus, when management and a foreign private-equity firm tried to exploit his legal troubles to pull the listed Gome out from under him, he had some leverage. Mr. Huang managed to keep a couple of his proxies on the listed company's board. In the West it would be absurd to think this was a good outcome. But in the West, a conviction is a somewhat more reliable indication that wrongdoing occurred. And when you can't trust the fairness of the legal system either in criminal or corporate matters and always sit beneath the Damocles sword of a corrupt and rapacious state, it pays to be prepared. All of which offers some perspective on the current spate of scandals. The Chinese corporate structure can leaves plenty of scope to defraud investors -- having set up a system to deceive regulators, why not deceive shareholders, too? The bigger problem, though, is that otherwise legitimate companies often have to resort to such tactics, too. Some argue that transparency is a Chinese company's best defense to the onslaught of Western short sellers. Good luck with that when transparency abroad risks corporate suicide at home. Chinese companies need to improve corporate governance to win and keep the confidence of Western investors. They won't be able to do it until they operate in an environment that won't punish them for good behavior. And until China's economy rewards "good" behavior, the wisdom of listing on stock exchanges designed for Western-style companies will be open to question. Source: The Wall Street Journal POLITICS SUPREME COURT REGISTERS ENKHBAYAR‟S PARTY AS MPRP The political field has been opened to all sorts of realignment with the Supreme Court granting permission on Friday last week to the newly formed political group to call itself MPRP. The court also said the group, which is led by former President N.Enkhbayar, has been formally registered as a political party under that name. The Supreme Court did not release any further detail, nor give any reason behind its decision which confounded all parties in the case, including perhaps many of those in the MPRP itself. Their leaders had asked the Supreme Court, which was considering their plea to be registered as the MPRP, to get the constitutional validity of Article 15 of the Law on Political Parties ascertained by the Constitutional Court. This says that in the event a party changes its name, members who do not agree to the change will not have the right to use the previous name. When the Constitutional Court said the article does not violate the Constitution, it was a seen as a blow to Mr. Enkhbayar and his followers. They had raised their claim after a majority in the old MPRP had decided on MPP as its new name. Indeed, one of their leaders said the ―decision was taken under orders from elsewhere‖. The Supreme Court‘s ruling may have been surprising but it is binding. The MPP which went into a huddle soon after it was announced, refused to criticize the ruling, restricting itself to saying it saw political reasons behind the decision, and asserting that ―the new party, even when it is called the MPRP, has no relation to the original MPRP that remains the forebear of the MPP‖. It said, ―The MPP is the legal and logical successor of the party which was established on March 1, 1921 and has a history that goes back 90 years. This is totally different from a party that has been registered only on June 24, 2011. We are sure that the thousands of members and supporters of our party will know
- 16. and understand thegreat difference between the two. We in the MPP are not worried that our history and record of 90 years can be usurped so easily.‖ Read more… Mr. Enkhbayar‘s reaction to this was to say it is ―absurd to talk of owning history‖. The history of the MPRP ―is the nation‘s history and, accordingly, part of every Mongolian`s history‖, he said. His party will certainly participate in next year‘s election to expose the coalition government which ―is almost dictatorial in its unconcern for people‘s interests‖. He was particularly worried that ―no progress has been made on important matters like identifying those guilty of the July 1 riots and changing provisions of the Tolgoi agreement‖. Asked by media about possible efforts to overturn the Supreme Court decision, Mr. Enkhbayar said there was no scope for an appeal. As the MPRP has been registered officially, ―according to Article 8.7 in the law on political parties, it now becomes illegal for any organization or individual to put any pressure on an established party or on any Mongolian citizen who works for one‖. Source: English.news.mn LUNDEEJANTSAN RESIGNS, MPP MPs ELECT ENKHTUVSHIN NEW HEAD The MPP group in Parliament got a new head and deputy head last week after both incumbents had resigned. No reason was given for the resignations, either by Mr. D.Lundeejantsan and his deputy, Mr. D.Dondog, or by the party but MPs criticized their decision to quit at a time when important matters like the draft law on election are being discussed. A special meeting of the group elected Mr. U.Enkhtuvshin as the new leader. He polled 22 of the 41 votes against the other contestant, Mr. Ts.Munkh-Orgil. Mr. Su.Batbold is the new Deputy Chief of the group. Source: Ardiin Erkh COURT TO RULE ON KHURTS‟S APPEAL AFTER TWO WEEKS A London court will give its ruling on the case of Mr. B.Khurts, Head of Administration at the National Security Council, after two weeks. Mr. Khurts‘s appeal against extradition to Germany was heard on June 23-24. Mr. Khurts was arrested at Heathrow airport in September on the strength of a long pending European Extradition warrant against him on the charge of kidnapping a Mongolian citizen from France, driving him to Germany, drugging him and then taking him to Mongolia. During the two days of hearing, the court heard how the UK visit of Mr. Khurts, who looked after intelligence issues, was sanctioned at the ―highest level‖ although he was arrested for kidnap on his arrival. The lawyer for Mr. Khurts claimed he had been lured to Britain on a government mission and is entitled to diplomatic immunity. The Court of Appeal heard that Mr. Khurts was visiting Britain to talk about closer security links between the countries. His visit followed a meeting between the Mongolian Ambassador to London and Mr. William Nye, Director of Britain‘s National Security Secretariat. Mr. Khurts was supposed to meet Sir Peter Ricketts, the head of the National Security Council, who reports to the Prime Minister, although the meeting was never formally agreed. Read more… When an official from the Serious and Organized Crime Agency (SOCA) heard about Mr. Khurts‘s planned visit, the UK Border Agency (UKBA) delayed his visa application while a copy of the European Arrest Warrant was obtained from Germany. A UKBA official offered to ―contact the applicant and ‗apologize‘ for not being able to issue his visa in time‖ according to one email disclosed to the court while another official offered to ―ask more questions‖. Mr. William Dickson, the British Ambassador to Mongolia, warned the Foreign Office that he would be ―hauled in at the weekend for a protest and explanation and thrown to the media‖, the court was told, and added, ―Obviously we need to get our lines sorted out by cop [close of play] tomorrow.‖ The following day a business visa was issued, marked ―has been authorized at the highest level‖. The Foreign Office has said it ―did not consent to his visit as a special mission, no invitation was issued, no appointments were arranged, no subjects of business were agreed or prepared.‖ But Mr. Alun Jones, appearing for Mr. Khurts, told the Court of Appeal that Mr. Dickson had encouraged the visit and talked of the need for ―new horizons in relations between Britain and Mongolia‖ and the need to fight the ―continued growth or Islamic extremism‖ in the country, although he was apparently unaware of the intention to arrest Mr. Bat at the time. Mr. Jones said the ―clear encouragement‖ for the visit meant that Mr. Khurts was entitled to be considered a special envoy under the UN convention. ―Consent in international law cannot mean, ‗You know I consented but I crossed my fingers at the time,‘‖ he added. Mr. Khurts was arrested on board a Russian plane when it landed at Heathrow on September 17 last
- 17. year carrying hisdiplomatic passport, working papers, internet photographs of the people he was planning to meet, and gifts from Mongolia. Ms. Clair Dobbin, counsel for the Foreign Office, said they had no interest in luring Mr. Khurts to Britain and believed he was visiting the Mongolian ambassador. Source: Ardiin Erkh, The Telegraph, UK RUSSIAN MEDIA TALK AGAIN OF THE „DEBT‟ AND WANT IT REPAID BY CONTROL OVER RESOURCES While leaders of the two countries talk of their ―eternal friendship‖ it seems Russia wants Mongolia to remain eternally indebted to it. The Russian media organization Commersant has said in a commentary on current events that the resources of Tavan Tolgoi might not be enough to settle the debt that Mongolia owes to Russia. One is surprised by the regular reappearance of this "debt" factor, as there never was a word about debt during the old times, when the USSR and Mongolia exchanged resources to mutual benefit. Government statements on the matter are ignored in the Russian media, which has been harping on the dimensions on the debt particularly since the discovery of massive resources in Mongolia. Mr. Dmitry Yakunin, a Russian Government media official, has been quoted in their press as saying, "The debt shall be repaid by Mongolia gradually by implementing mutually agreeable projects", which include Tavan Tolgoi, uranium deposits and the railway. Our giant neighbor is also showing shameless reluctance to come to an agreement on 8 residential apartment buildings the Soviet Union left behind in Ulaanbaatar. Russia has already pressured the Mongolian Government into deciding to build a new railway according to their specifications, and Commersant has said this is "one of the ways Russian officials have used to fight for TT". Creating difficulties for Mongolian coal supply to China also protects Russia‘s interests in not losing its own coal export market. Commersant has catered to popular Russian sentiments by writing, "Mongolia once was a part of the Soviet Union, when 90% of all its copper, molybdenum, coal, zinc, red meat, and animal products used to come to us. Today China imports 79%, Canada 9%, Japan, the US and others some more, leaving only 3% for us." After this, it continues, "Nevertheless, Mongolia can never stay away from us, unless it shifts geographically, and it shall resume giving its products to us." Russia forced Mongolia to forgo the Millennium Challenge Corporation grant of USD188 million for Ulaanbaatar Railway, arguing that "free cheese can be found only in a trap". We can only wonder what kind of a trap is being set for us when Mr.Yakunin of Russian Railway proposes to invest USD1.5 million in the Mongolian railway sector. The blood ties always mentioned in official statements would appear to refer only to the blood of innocent Mongolians, including monks and the intelligentsia, shed during the years of purges and persecution. Similarly all the debt is also on one side only. Source: Zuunii Medee RUSSIA LINKS FUEL SUPPLY TO OTHER ISSUES, ZORIGT TELLS PM Even as the Mongolia-Russia intergovernmental commission meets at Ulaan-Ude to discuss issues relating to Russia‘s fuel supply to Mongolia and Rosneft‘s conditional offer of regular exports, Minister for Mineral Resources and Energy D.Zorigt has told Prime Minister S.Batbold that Russia always responds to requests for increased fuel supply by raising issues of Ulaanbaatar Railway and Tavan Tolgoi. Mr. Batbold called Mr. Zorigt and the Chief of the Petroleum Authority, Mr. J.Amarsaikhan, to a meeting on Tuesday to discuss the petroleum situation. He expressed surprise and unhappiness that all sorts of contradictory rumors were being allowed to spread, adding to uncertainty and panic buying. Mr. Zorigt said the situation regarding diesel is getting normal, with supply to mining companies and to meet the needs of agriculture already stable. However, even as diesel availability eased, rumors of petrol shortage led to 5,000 tons being sold a day instead of the usual 2,000 tons. There is two weeks of petrol in stock now. Mr. Amarsaikhan also blamed panic buying and hoarding for aggravating the shortage. The Prime Minister heard them out and asked them to submit regular reports on developments so that decisions on excise and custom duty and prices could be taken. Earlier, Mr. Zorigt told oil importers at a meeting on Monday evening to immediately stop selling petroleum against cards or tokens and not to make any similar arrangement in the future. He instructed them to sell for cash from Tuesday. Mongolia has requested China for immediate supply of 22,000 tons of AI-92 petroleum and of regular monthly supplies of 10,000 tons thereafter. Source: English.news.mn
- 18. ROSNEFT RENEWS DEMANDTO SET UP 100 GAS STATIONS IN MONGOLIA The President`s Foreign Policy Advisor, Mr. L Purevsuren, last week set to rest media speculation on the contents of a purported letter from the Director of the Rosneft Group in Russia to Mr. Ts.Elbegdorj when he said there was no such letter. At the same time, an official of The Petroleum Authority revealed that a letter was indeed received by Mineral Resources and Energy Minister D.Zorigt after the President`s visit to Russia in June where talks were held on fuel supply to Mongolia. There is nothing new to Mongolians in the letter. Rosneft has merely repeated the offer to set up 100 gas stations in Mongolia that it first made in 2008 when, too, there was a fuel shortage. Implicit in the offer then, as now, was an assurance of uninterrupted supply if the demand was accepted. In the event, nothing came of the offer/demand as the crisis blew away. Rosneft can be allowed to own 100 gas stations in Mongolia only if the oil product law is changed. At present it bars exporters who supply more than 30 percent of the domestic use from selling directly in the domestic market. Source: News.mn ROSNEFT OFFER IS JUST HISTORY REPEATING ITSELF In 2008, Mongolia was at the edge of a shutdown in exploration -- no more diesel. Petrol stations ran dry (of diesel) and prices started to climb quickly as the shortage fueled (pardon the pun) a crisis. Coincidentally, there was an offer from Moscow to set up 100 gas stations and participation in an oil refinery in Mongolia, with an assurance of uninterrupted supply if the offer was accepted. Over the last 6 weeks a diesel crisis has once again emerged, this time with more severe consequences, where some of the exploration/drilling camps across Mongolia were left idle for days and weeks. Talks from the Mongolian government implying a continued shortage would result in demanding diesel be returned from the mining sector. Rosneft has again repeated its offer to establish a footprint of 100 petrol stations in Mongolia, stake ground in what many believe is already an oil rich (but unexplored) country and tap into the downstream market. A change in law is needed to allow Rosneft to enter the downstream oil market in Mongolia. For a delicate economy in its infancy, Mongolia is searching for stability that cooperates with all of its ―neighbors‖ in a path of least resistance. Maybe this time we are less likely to see history repeat itself. Source: ResCap MONGOLIA HAS MADE “AMAZING PROGRESS ON ITS DEMOCRATIC JOURNEY” In 1206, Mongols, under the leadership of Chinggis Khaan, rode out from the Mongolian steppe and, using military tactics (speed and maneuver) still in use today, and technology (a short re-curved bow easily used on horseback) the Great Khan and his successors conquered roughly 22 percent of the world‘s total land area. It was, and remains, the greatest empire the world has ever known. Over time, Mongol influence receded. It would take more than 600 years for my country to re- emerge on the world stage — in a far more benevolent manner. Last year Mongolia celebrated its 20th anniversary of democratic governance and freedom. It proved to be a time of reflection for us. Peaceful demonstrations by thousands of my countrymen led to the collapse of communist tyranny. Democratic elections were held, a new constitution was drafted (that guaranteed individual human rights, freedom of speech and assembly, and established the rule of law), and free market reforms were implemented. Read more… With generous financial and technical assistance from the U.S. and other countries Mongolians took advantage of their newfound economic and political freedoms and unleashed their creativity. Businesses began sprouting up, trade slowly increased, and gradually our standard of living began to improve. One would not recognize the skyline of our capital city from just two decades ago. Now, recent discoveries that include coal, copper, and rare earth mineral resources have set Mongolia‘s GDP to triple over the next decade. Mongolia has an open-door foreign investment policy that, coupled with investor friendly laws and transparency within the legal system is attracting attention and new businesses — especially from the West. My country has made great strides but much more remains to be done. I am committed to improving Mongolia‘s educational system and helping ensure that as we take advantage of our natural resources it is done in a manner that is respectful of the environment. By making each Mongolian a stockholder in the country‘s largest mining operation we want to ensure that the wealth extracted from our land is shared directly with our people. This will help to create a social safety net for those less fortunate and provide a revenue stream that will allow Mongols to decide for themselves how best to invest their national dividend.
- 19. I believe Mongoliahas made amazing progress on its democratic journey. If someone had told me twenty years ago, as we stood outside Parliament demanding the resignation of the Politburo, Mongolia would one day be asked to lead the Community of Democracies (CD) I would have shaken my head in disbelief. Yet this month Mongolia has assumed the presidency of the CD. We look forward to lending our guidance, advice, hard work and support to this organization as new democracies struggle to be born, and others seek to strengthen democratic governance. I believe Mongolia can be the anchor in eastern central Asia for helping to convey the virtues of democratic governance within our region. The U.S.-Mongolian bilateral relationship is based first and foremost on shared values: Individual liberties, human rights, and equal justice under laws passed by democratically elected bodies. I am proud of the fact that Mongolian soldiers have served with collation forces in Iraq and today stand boot-to-boot with U.S. troops and NATO forces in Afghanistan. It was no coincidence that my first official visit in Washington was to Walter Reed Medical Hospital. It will be a privilege for me to meet and be among those wounded warriors and their families that have sacrificed so much for the cause of freedom. My goal during my visit was to deepen and broaden U.S.-Mongolian ties. Increased trade coupled with U.S. foreign investment will strengthen economic links. Exchanges among educators and those in the think tank community can accelerate the understanding of events in our region and visits by elected officials and senior government leaders of both our countries can ensure that the roots of our relationship grow deeper. Despite the physical distance between our two countries, our values bring us close together. I am convinced that with work and effort, our friendship will grow and our peoples will prosper greatly from it. (This was written by President Ts. Elbegdorj in connection with his recent visit to the USA.) Source: The Hill WORLD JOURNALISTS‟ BODY BEGINS CAMPAIGN TO GET MONGOLIAN EDITOR FREED The International Federation of Journalists (IFJ) has, along with its affiliate, the Confederation of Mongolian Journalists, called for the immediate release of Ulaanbaatar Times editor-in-chief D. Chuluunbaatar, who has been held in custody since his arrest on March 24. The call comes as Parliament passed a new freedom of information legislation, known as the Law on Information, Transparency, Right and Freedom to Access Information. The law, passed on June 16, will take effect on December 1. The IFJ has written to President Ts. Elbegdorj to protest the continuing detention of Mr. Chuluunbaatar, 51, who was arrested on charges of ―illegal privatization and serious damage of public property‖ for his alleged involvement in the privatization of the newspaper and its offices in Ulaanbaatar in 2008. Read more… Mr. Chuluunbaatar, who is also Secretary-General of the Confederation of Mongolian Journalists, faces up to 15 years in prison if found guilty. He is held at Detention Center No. 461 and has been refused bail on nine occasions, while denying any wrongdoing. ―The IFJ is extremely concerned for the welfare of Mr. Chuluunbaatar, who has serious health problems that require urgent medical assistance,‖ IFJ Asia-Pacific Director Jacqueline Park said. ―We call on all concerned people and organizations to join the campaign to see Chuluunbaatar freed on bail so that he can seek treatment and contest the charges.‖ The IFJ has urged individuals and organizations to join the global campaign to see Mr. Chuluunbaatar freed, by writing to President Elbegdorj and sending him a message via Twitter (@elbegdorj or use #freeChuluunbaatar). The IFJ represents more than 600,000 journalists in 131 countries. Source: International Federation of Journalists ROAD TRAFFIC APT METAPHOR FOR „RULE-OF-LAW‟ IN MONGOLIA If you want a sense of the outcome of rule-of-law reform efforts in Mongolia over the last two decades, spend a few hours driving in Ulaanbaatar. Your immediate impression is likely to be one of chaos. This is especially true at any intersection where police are not present to control traffic –and drivers are thus expected to follow traffic rules on their own. At such intersections, vehicles are typically gridlocked as drivers fight inch-by-inch to get to the other side, seemingly oblivious to the traffic signals above them. Your second reaction is likely to be fear — either because of the cars flying towards you on the wrong side of the road or because of the number of drivers who apparently conflate red with green.
- 20. As you watchmore closely, you may sense that some drivers — typically those in luxury cars with special license plates — are ‗more equal than others‘. These vehicles, usually occupied by politicians, government officials, or other Ulaanbaatar elite, cut others off with impunity and are free to disregard traffic rules even in the presence of police officers (whose directions they are also apparently free to ignore). Read more… While the above description might fit any number of developing countries, it is also an apt metaphor for ‗rule-of-law‘ in Mongolia. First, a ‗rule-of-law culture‘ has not taken hold. Laws are routinely flaunted unless enforced by some immediate positive authority. Second, the higher one‘s position or status, the less one is bound by the law. These messages are conveyed in many other ways as well, including the illegal and disorderly construction of luxury apartment buildings south of the city in Zaisan, part of the Bogd Khan National Park, in open and blatant disregard of a law barring construction of such structures there. Indeed, development in Zaisan stands as a highly visible symbol of corruption and the impotency of the law — a point underscored not only by the fact that many high-ranking government officials now call Zaisan home, but also by the irony of the Constitutional Court itself having moved to a new building there. But what has happened in Zaisan, or what happens daily on Ulaanbaatar‘s roads, is not exceptional. The same open disregard for the law is a defining characteristic of post-transition Mongolia — and corruption seems to permeate every level of Mongolian society. This is not to say that no one follows the law. To the contrary, most Mongolians do stop at traffic lights and don‘t go barreling down the wrong side of the road. Moreover, most Mongolians would prefer a society with less corruption, where the law was applied democratically. But Mongolians must survive in the society in which they live — and this frequently means disregarding the law. Those in Mongolia who most resist the rule-of-law are those who benefit most from its absence. In this light, the chaos of Ulaanbaatar‘s roads seems less a product of a developing society, than a product of design. A chaotic and lawless society facilitates the goals of the corrupt elite by normalizing their behavior. Moreover, because traffic affects the lives of every Mongolian city- dweller on a daily basis, it‘s where they learn their primary lessons about the role of the law in society. These lessons don‘t bode well if the goal is to develop (or regain) respect for the law. For this reason, however, beginning by addressing the lawlessness on Ulaanbaatar roads would offer an opportunity to teach different lessons about the rule of law and to develop a rule of law culture. For example, it might offer lessons about the utility of law (reduced traffic accidents, congestion, and commute times) that go beyond positivist rationales for obeying the law. Moreover, it might begin the process of inculcating ‗habits of obedience‘ to the law in a society were disregard for the law has become a norm. Finally, were traffic rules enforced evenhandedly, it might also teach the important lesson that no one stands above the law. Indeed, if the Mongolian elite were forced to follow even traffic laws, then perhaps it would not seem so unreasonable to expect that they follow other laws as well – and that public officials carry out their duties without corruption. Unfortunately, because lawlessness and chaos benefit the corrupt elite, there is little chance that they will address it (on the roads or elsewhere) — especially not now in the new age of Minegolia. Lest the West point its finger, it bears remembering that the current political, legal, and economic system in Mongolia was put in place with the assistance — and insistence — of the international donor community. Whether one agrees that endemic corruption in post-transition Mongolia is a direct product of these reforms, it is at least powerful evidence of their failure to effectively advance the rule of law. (This article by Mr. Brent White, an Associate Professor of Law and Affiliate Professor of East Asian Studies at the University of Arizona, was published in the most recent edition of the East Asia Forum Quarterly on Asia‘s Regulatory Awakening.) Source: www.eastasiaforum.org REMOVING PARKING AREAS WILL MAKE MATTERS WORSE Little Ring Road is being totally overhauled and repaved. Drivers will soon be gliding along pot-hole free streets. But the city is strangely removing parking areas along this road. For example, in front of the Flower Center (where Peace Ave and Baga Toiruu meet) they have blocked off the parking area. The same has been done in front of the Golomt Bank up the road and other spots. Whether there is a logical explanation for this, or its just bad planning, is unknown. One explanation is that the planners may be trying to increase green spaces where parking areas once were. But even if there are more green spaces, the traffic pile-ups caused by a lack of parking could make matters worse. Drivers will inevitably have to stop to do business here and they will end
- 21. up blocking courtyardentrances or perhaps they will just stop on the road and block a lane. Source: ubchildrenspark.blogspot.com ADB TO HELP CHOOSE TEAMS TO BUILD POWER PLANT The Asian Development Bank has agreed to help The Ministry of Mineral Resources and Energy and the State Property Committee in preparing the tender for international companies to help build the 5th power plant as public- private-partnership, in negotiating terms and conditions with the applicants and in making the selection. Minister for Mineral Resources and Energy D.Zorigt and an ADB representative signed a memorandum of understanding to this effect last week. The tender would be for three teams to work in legal, financial and technical spheres. The selection is likely to be made by the end of this year. Source: Ardiin Erkh CHINA INAUGURATES BIGGER BORDER POST AT ERILEN A grand ceremony was held on June 16 to inaugurate an expanded and renovated freight and passenger transit point at Erilen in China. The new border post has 6 big entry gates for loaded trucks. The whole work has cost the equivalent of MNT24 billion, much of which came from the border crossing fee paid people and freight carriers. Several Chinese officials at the ceremony were heard to say they have done what was needed to facilitate the increase traffic and it is now Mongolia‘s turn to work on its side. They also expressed their readiness to help develop road and other infrastructure, if this was asked for. Except for some construction work last year that needed MNT 2.25 billion, nothing has been done to expand or improve facilities at the border on the Mongolian since 1990. The revenue from Zamiin- Uud was MNT100 billion last year, but nothing of this was plowed back. Reports say a company has been finally selected to turn the border point into a larger and more efficient customs post, able to handle the anticipated exponential rise in export traffic once the two Tolgois start production. Human traffic will also increase much. Source: Udriin Sonin PM SEES STATE SERVICE REFORM AS ESSENTIAL Prime Minister S. Batbold told delegates at a forum last week on reforming state services that such reforms were essential as Mongolia needed a great number of competent public servants ―to seize the development opportunity of the next 20 years‖. There are 150,000 public servants in Mongolia, and complaints of inefficiency, incompetence and corruption are common. A professional public service has strong correlation with economic and social development, visiting Canadian Public Service Commission President Maria Barrados told the forum. She also stressed that a nonpartisan public service was fundamentally important to peaceful and orderly succession after a general elections. Mr. Batbold said Mongolia could learn from Canada's experience in reform. The forum was jointly organized by the Mongolian Government and the Canadian Public Service Commission. Ministers and members of Parliament were among the 600 participants at the forum. Source: Xinhua WOMEN OUTNUMBER MEN IN MONGOLIA Detailed results of the last census reveal that the population of Mongolia stood at 2,754,685 on November 10, 2010 and 107,140 Mongolian citizens had been abroad for six months or more at a stretch before that. Foreign citizens and stateless people in Mongolia numbered 16,428. Men were 49.5% of the population and women 50.5%. Children under 14 were 27.3% of the total population, those between 15 and 64, 69.0% and those over 65, 3.7%. The population grew by 381,200 or 16.1% since the 2000 enumeration. Source: Undesnii Shuudan MORE MONEY FOR PRISON WORKERS FROM NEXT YEAR The Government has decided to grant extra wages to prison staff because of the tough conditions under which they have to work. The decision takes effect on January 1, 2012. Workers in special regime prisons, Prohibition Center 461 and Women‘s Prison 407 will be paid an extra amount of 20 percent of their salary. Those who work in detention centers, common regime prisons, Teenagers‘ Prison 411, the center for drug addicts, forced labor centers and prohibition centers in aimags will receive 10 percent more. Source: Zuunii Medee
- 22. LAWYERS DISCUSS INCREASEIN THEFT CASES Cases of theft have been rising so much that practicing lawyers, employees of legal organizations, and legal scholars met at a conference last week to discover the possible reasons what deterrent and other measures were called for. According to the Chief of Ulaanbaatar Civil Representatives‘ Assembly, T.Bilegt, 29% of the 8,547 cases of crime registered in Ulaanbaatar since the beginning of the year until the end of May were related to theft. The Senior Inspector at the Center for Information and Research at the Police General Department took a longer look back and revealed that 200,000 theft cases have been registered in the last ten years. The total loss to citizens was MNT350 billion, of which 20% could be restored to them. Source: Unuudur PROPOSAL TO GRANT SOME DISTRICTS CITY STATUS The Government has approved a draft resolution on giving some districts the status of a city. If Parliament passes it, Khovd, Uliastai, Kharkhorin, Erdenet, Darkhan, Zuunmod, Choibalsan, Ondorkhaan, Sukhbaatar (Selenge province), and Zamiin-Uud (Dornogobi province) will be known as cities. Most of them have important industries, service organizations, and universities while Sukhbaatar and Zamiin-Uud are international transport junctions. The new status will allow these areas to develop more and in diverse ways and this is expected to halt migration to Ulaanbaatar. Source: Montsame MONGOLIA‟S NOMADIC SOCIETY IS PUTTING DOWN SOME RICH ROOTS There he stands alone on his horse, a fierce giant shimmering out of nowhere rising 131 feet against the vast Mongolian sky. Eight hundred years after he declared the Great Mongolian State in 1206, Genghis Khan rides again, all 250 stainless-steel tons of him. As I bump along on one of the few paved roads 20 miles outside the capital, this kitschy monument to the new mineral-rich and independent Mongolia seems more like a huge middle finger raised to its powerful neighbors, China and Russia. July marks the 21st anniversary of Mongolia's robust democracy after more than 200 years of despised Chinese rule followed by 70 years as a satellite of the Soviets, during which time the proud history of Genghis Khan, who spawned the largest contiguous empire in world history, was banned from public view and utterance. Today, owing to deposits of 80 different minerals, including immense reserves of coal, copper, gold and uranium, as well as ongoing exploration of oil, this sparsely populated country, twice the size of Texas, is undergoing a dizzying transition. No other nation today so squarely faces the choice that Mongolia does. Will it become Nigeria or Chile? Venezuela or Australia? "Mongolia really is the land of opportunity," says Mr. Howard Lambert, head of corporate banking for ING in Mongolia. "Everything can be done here. The financial infrastructure doesn't exist, so you can be a part of building it. Instead of sitting in an office in London turning a wheel, you can build the machine. Every day I see new buildings, developments going up—people buying sports cars in a country that doesn't have roads. The social divide is getting wider." Read more… Nothing illustrates the topsy-turvy nature of Mongolia today more than the capital city's main Sukhbaatar Square, where a bronze statue of Lenin once presided. Now a gleaming Louis Vuitton store, opened in October 2009, offers clients champagne in a circular VIP room outfitted with a lavish ceremonial Mongolian saddle and antique caviar case. Outside the store, however, several hundred yards away, a group of dissident poor have pitched their round felt and wood yurts (gers in Mongolian) to protest the government's cozying up to foreigners and not doing enough for them. "We want jobs. The poor need to have a better quality of life," 52-year-old I. Baganuur tells me. "The government is implementing policies for themselves, not for its citizens." Source: The Wall Street Journal Sharing the same luxury mall with Vuitton are Burberry, Zegna, Emporio Armani and Hugo Boss. Burberry is planning a second store in a Shangri-La hotel currently under construction. Ferragamo and Dunhill are also looking for space. At the same time, the capital, which boasts the most vibrant democracy in Central Asia, does not have street addresses and has just begun to introduce zip codes. "The irony for Mongolia," says American ambassador to Mongolia Jonathan S. Addleton, "is the more successful they are, the more challenging it becomes." How could it be that luxury retailers have come to Mongolia? The country has only 2.8 million people, almost half of them living in a capital built for 500,000, including 700,000 destitute former nomads whose gers crowd the surrounding hills and who burn coal and even plastic bottles in the harsh winters, choking the city with extreme pollution. I wanted to understand how a luxury brand
- 23. could turn aprofit in this antiquated land where the livestock outnumber the people 16 to 1. My first interview with a Mongolian official is the tieless, 38-year-old vice minister of finance, C. Ganhuyag, whose office sports a putting machine with a strip of artificial turf. "I decided to install casual Fridays," Ganhuyag proffers. (In Mongolia, last names go first, often indicated only by an initial, and people are routinely referred to by first names.) After recounting his latest stay at Davos and directing me to his website, which promotes the new Mongolian "Wolf Economy", because wolves can survive in Mongolia's minus-40-degree winters (Ulan Bator has the lowest average temperature of any world capital), Ganhuyag explains how Mongolia is trying to cope with its two largest mining treasures. First, in October 2009, a $4 billion deal with Ivanhoe Mines of Canada and Australia's Rio Tinto for Oyu Tolgoi, the world's largest undeveloped copper-and-gold deposit, was finally signed by the government. Currently under construction, the mine is estimated to contain a staggering 40 million tons of copper and 46 million ounces of gold and should start operating in 2012. Next, six competing companies are waiting to hear which of them will win an even bigger deal to develop what will perhaps become the world's largest coal mine, Tavan Tolgoi. Both of these behemoths are situated in the southern part of the Gobi Desert not far from the northern border of the voracious, commodity-hungry China. The area today contains mostly nothing except a few nomads, rare animals and priceless scenery. To manage the coal mine, a city of 60,000 is being planned. "Mongolia has always been here," Ganhuyag says. "With all our riches, with all our hearts, we were trying to reach out to the West. The West noticed us too late, fortunately for us. If we were Czechoslovakia, they would have grabbed us in the first five years and everything would have been snatched. We suffered through 200 years of Chinese rule, 70 years of Soviet rule and 20 years of being ignored by the West. In retrospect, we had time to educate ourselves. We learned all the tricks of privatization." It took six years to hammer out the gold and copper deal of which the Mongolian government owns 34 percent and will get a healthy 59 percent of pretax profit without having to advance any money. Along the way there have been some bumps, however. At one point Mongolia instituted a 68 percent windfall profits tax on mining, since revoked, which scared all the banks away. During the last election, in 2008, politicians promised the populace cash handouts that amount to about $17 a month to everyone, rich or poor, taken from the down payments made to the government for the gold and copper deal. Today that cash is moving into the deficit zone and the handouts have been widely criticized for taking funds away from desperately needed infrastructure projects, as well as creating a welfare dependency. Even so, Ganhuyag says Mongolia's current GDP of $7 billion a year is set to grow at least 20 percent a year for the next decade. "We are going to double our economy every three to five years—even the IMF agrees on that. That's why luxury retailers get a good smell from us. It all depends on the global markets. If China is trying to equip every man with a car, then the demand for copper, coal, iron, gold, gas, uranium, which we also have, will be endless." Louis Vuitton, which first created its trunks for African explorers, is indeed pleased with its entry into the Mongolian market and the demand does not even have to be endless. Rather, LV CEO Yves Carcelle thought it was a special sign when he learned that "How are you?" in Mongolian is asked, "How did you travel?" I tell Carcelle that Burberry says their Mongolian customer base is little more than a thousand people and they are happy. He agrees. "One to two thousand people is all you need. You can't judge by average income—average doesn't mean anything. The question is, do you have a few thousand people who can afford luxury? What you need is a stable political environment and the necessary environment to put your store where you are the place." What I observe in Louis Vuitton is a clientele of women ages 30 to 40 already sporting LV bags and men shopping for gifts. LV's interest, of course, was sparked after going into Russia and China. "In 20 years China has become our biggest client," Carcelle says. "Apart from that, our expansion is quite well spread around the world. Because of media today, luxury and fashion have become the universal language." Mongolia follows global trends too. "People look at fashion and TV online here. We get Russian Vogue, and Cosmo Mongolia just came out," B. Delgermaa, a fashionable Mongolian woman, tells me. "You have to subscribe to American Vogue and it's very expensive." It is traditional for Mongolians to display their wealth on themselves. "Nomads move around the country four times a year," Ts. Ariunaa, executive director of the Mongolian Arts Council, says. "All your wealth goes to jewelry and costume, your horse and saddle." Adds Delgermaa, "Culturally, Mongolians like to show off. Mongolians are very proud of themselves—there is only one me. They think they deserve exclusivity." A rich nomad today is known for having a satellite dish and a solar panel for his ger and a motorbike for himself. But his primary relationship has always been with nature. According to Ariunaa, "First
- 24. you sing aboutthe land, your horse, your mother, and then you sing about your loves and relationships. Mongolians are better at communing with nature than with each other. You live on the steppes in a ger. You don't need to know what your neighbor is thinking." Nomads are also used to "singing outside, so you need to listen in a big space". Thanks to its years under Soviet rule, Mongolia has a literacy rate of 98 percent, as well as 151 universities where 70 percent of the students are female. A less fortunate hangover from Soviet rule is the rate of alcoholism, especially among Mongolian men, up to 25 percent of whom are classified as alcohol-dependent. I traveled to an orphanage in Mongolia's second-largest city, Darkhan, about a three-hour drive from Ulan Bator, where some of the 40 or so orphans had ended up because of the alcohol problems of their parents. "You can buy a bottle of vodka for 75 cents, less than a cup of coffee," says Meloney C. Lindberg, country representative for Mongolia of the U.S. NGO the Asia Foundation. I was told that if you collapsed on the street in the capital from a heart attack, no one would help you because they would probably think you were drunk. "We never before used hard drink like vodka," B. Baabar, one of Mongolia's leading intellectuals, tells me. "Our alcohol came from milk like sake [from rice]." Baabar is one of the best-loved figures in Mongolia. He gave up his job as a biochemist to become a historian, writer, publisher and activist. He led the project to translate the Encyclopedia Britannica into Mongolian and was jailed by the Russians, whom he clearly does not like. He believes that the Mongolian government today is still too reflexively Socialist and the central-planning Russian model of state paternalism too often prevails. "The people here who are running the system still think like Communists or Socialists," he says. "Every five years the Soviet Union gave Mongolia $5 billion. This supplied Mongolian industry, agriculture and military. On the other side, it made Mongolia fully dependent." He is angry that the Mongolian government started giving cash handouts that he calls "economic infantilism", a product of those educated under the Soviets. "Members of Parliament must go through elections and make many promises to the people. If the people are fed like children from this guy who acts like the father and promises cash money, free education and everything free because the state is getting richer and richer—that is the bad side of this sudden wealth." The inner sanctum of the cash cow that everyone hopes the Oyu Tolgoi copper-and-gold project becomes is the Ulan Bator office of Cameron McRae, the redheaded, 52-year-old Australian CEO and president in charge of the site construction. The "first step" investment of Ivanhoe and Rio Tinto is $7 billion, he says, and they are currently spending $7 million a day to dig the mine. His computer contains numerous animated models of the construction site, where a tiny Eiffel Tower is used for scale, towered over by the vast project. "We are building at a scale never tackled in this country," McRae says. "We are facing a shortage of artisans and technologists and people with large-scale construction experience." At its peak, the construction site will require 17,000 people and when completed, the mine is expected to produce 50 to 55 million tons of ore annually. The government has already received about a half billion dollars in fees and taxes and has not had to put up a penny. Yet because of a lack of technically trained Mongolians, two of the mine's major contractors are Chinese—the mine is located only 28 miles from the Chinese border and up to 80 trucks a day from China carry in necessary building supplies. "We made a commitment to the Mongolian government to train up to 5,000 Mongolians," McRae says. Once the mine is built, "a minimum" of 90 percent of the workers will be Mongolian. The mine's remote South Gobi location requires considerable amounts of power and water, not to mention an airport. "We'll help bring power to Gobi and upgrade roads. We'll build a powerline to China and tap into the Chinese grid," McRae says. But the amount of water required, especially in a desert, is unprecedented. "We're exploring for water. We found a very large ancient aquifer in a gravelly area not related to anything else." I ask McRae where he thinks they will be in five years. "We'll be the second-largest copper mine in the world with a very inexperienced workforce with a big training program." Before World War II, Mongolia served as a buffer state between Japan and the Soviet Union, and after, between the USSR and China. Beijing is just 340 miles from the southern Mongolian border and the Great Wall was constructed mainly to keep out the Mongols; 70,000 Russian troops were once stationed in Mongolia. Those old enmities are hard to overcome. For example, the Trans- Mongolian Railway conforms to the gauge of the Russian railroad, not the Chinese one, so each train to China from Mongolia must go through a tedious re-fitting process. Under the guise of "national security concerns" there is now a major debate going on in Mongolian business and political circles over how to export the coal from Tavan Tolgoi—by rail to Russia or by truck to China? It would require hundreds of miles of new rail to be constructed to ship out through Russia, or the coal could simply be trucked 150 miles to the Chinese border.
- 25. ―National security concernsis code for concern about the possible use of the railway for military intervention," says Graeme Hancock, who until recently was the senior mining specialist for the World Bank in Mongolia. "These Cold War concerns are still being played out all over Mongolia. They consider the Russians their Big Brothers, their friends, and for 70 years they've been told there's a big yellow evil to the south." He adds, "From our perspective, Mongolia places too much [emphasis] on national security interests and not enough on economic interests. Instead of basing decisions on what's good for the economy of Mongolia, decisions are based on geopolitical considerations." I actually came across the lingering reverence for Russia in, of all places, Mongolia's only five-star hotel resort, the lavishly appointed Terelj. I was startled to find the deposed statue of Lenin ousted from the main square of Ulan Bator in 1993 stuck behind the building in one of its gardens. Changes in Mongolia are happening so fast that L. Sumati, the country's leading pollster, says it is impossible to group people into social classes—mobility is too rapid. At the same time the situation is made more complicated by the fact that almost all of the poor have accumulated in the ger areas of the capital city, many forced there after the horrendous winter of 2009–2010 caused nearly six million of their livestock to die. "An army of the poor is besieging UB. Any political party standing for election has a tough time negotiating with these people," Sumati says. "They are very volatile and just asking for survival. In some ways they are angry. They see a widening gap between the rich and the poor and they see no way out." I ask him why he can't classify who is wealthy. "We have a group of very rich people supported by their access to power," he says, referring to the crossover between business ownership and government. "The rich are not a class yet because there is still very high mobility both up and down." Although Mongolia has strict laws requiring top officials to publish their assets and a lively media that includes 22 daily papers in Ulan Bator plus 21 TV news channels, there is no freedom of information act and cross-ownership of media and business interests abound. I'm told editorial control is nearly always held by owners and there are ways to pay to get a story on the news. Corruption here is endemic. The Asia Foundation pays Sumati to poll a thousand households quarterly to benchmark attitudes toward corruption and how many bribes they have paid in the previous three months—usually to doctors, teachers, administrators and police. The last poll showed that Mongolians consider corruption to be the government's third most serious problem after unemployment and poverty, and that while the number of bribes decreased from 16 percent of households in March 2010, to 13 percent in September 2010, the amounts of the bribes more than doubled. Of course, these surveys do not address the big guys and government officials who somehow may be secretly attached to these lucrative concessions, a lot of which are done on an all-cash basis, the preferred method of the Chinese. "The Chinese come in with a suitcase full of cash," says banker Lambert. "A Chinese guy buys a bottle of vodka and he will buy your mine for $7 million with no due diligence. Even though the The transition from Communism is still being felt. The alphabet is Cyrillic and there are many parts of the capital that look a lot like old Moscow. The era after the Soviet Union collapsed is still recalled painfully. Those who made out like bandits were similar to the apparatchik of Russia— people who had had contact with the West. One such person is national rich guy Kh. Battulga, one of the most controversial figures in political and business life today. He is a former national judo champion, a man who drives a Bentley and paid $10 million out of his own pocket to build the gargantuan statue of Genghis Khan on Mongolia's steppes. Battulga is a developer—he is turning the land around the statue into a resort—and also happens to be the minister of road, transportation, construction and urban development and a powerful leader of Parliament. He traveled the exterior as an athlete, started trading by selling electronic appliances from China, graduated to computers and now owns a large meat-processing plant that supplies the country. In 2004, "my own needs were met," he says, so he decided to run for Parliament. Today, his grand vision is to build a $10 billion industrial complex the Mongolians call a "production city" named Sainshand, also in the middle of nowhere in the Gobi, 300 miles from the Russian border, 125 miles from China and about 200 miles northeast from the proposed Tavan Tolgoi coal mine. It would be connected by highway and rail to the capital and by rail only to Russia. Instead of selling unrefined ore and coal to the Chinese, who collect it in trucks, Sainshand would process the minerals and refine the oil. Mongolia could then sell its commodities at an increased profit of at least 30 percent, according to estimates, and create hundreds of thousands of new jobs. But first the city has to be created from scratch. Then the coal will have to travel 3,000 miles from the mine, including a connection to the Russian railroad, before reaching the port of Vladivostok. Battulga told me he got the Sainshand idea because a Buddhist thinker in the 19th century predicted that one day a great metropolis would grow there. All over Ulan Bator I hear naysayers on Sainshand. The local gossip is that Battulga is in cahoots
- 26. with the Russians."The Russians quite naively believe if they monopolize the railroad around the minerals they'll have control of the mineral wealth," says J. Od, who with his brother is one of Mongolia's biggest businessmen and taxpayers, doing a lot of business with the Chinese. He dismisses it all as politics, declaring that's the way "the clowns" in government mix politics with business. "Sainshand," he continues, "is some so-called geopolitical policy of Russia. It cannot be implemented in Mongolia today—it's too late." Battulga counters: "For Mongolia it's not profitable to sell raw materials to China. It's not geopolitical, it's business. We want minerals sold to the world market." The fragile coalition government that is up for reelection next year is literally besieged on all sides. To hedge against inflation and to share the wealth, Parliament has passed a law creating a Sustainability Fund with money set aside from mining industry revenue including the Tavan Tolgoi coal profits; sometime in the future, all citizens will also be issued 10 percent of the shares of an IPO the government will offer on the Hong Kong and London stock exchanges. (The government has also established a more general Development Bank.) They know they cannot count on the fluctuating prices of commodities to sustain their long-term growth. When I spoke to G.Zandanshatar, minister for foreign affairs and trade, he chose to spin the country's many immediate needs as "vast opportunities and room for investment in infrastructure, including roads and railways, energy, urban construction, light industry and food production." The reality on the ground is more challenging. For example, Mongolia has the best cashmere in the world, but domestic producers who refine the wool say they are in danger of being put out of business because the government does not collect the 30 percent export tax from the Chinese, enabling them to buy vast amounts of raw wool from the herders at higher prices while domestic producers are fully taxed. According to D. Erdene-Ochir, head of sales for Goyo Cashmere, the government is sacrificing them to the herders. "It's terrible politics to treat herders badly. So there are no taxes and the Chinese manipulate the market. They are supposed to pay the government, but the government doesn't collect. Mongolian companies have to pay income and VAT taxes. . . . If I want to be elected, I cheat the producers not the nomads." He also accuses the Chinese of mixing the cashmere with wool, silk and cotton. "They mix it and call it anything they want. We will be extinct very soon." There is no doubt that Mongolia is white-hot in multinational-investment circles. One night I attended GE's welcome reception celebrating Mongolia as the 130th country where it does business. GE will begin by selling MRI machines to the country's underequipped and overburdened hospitals. Caterpillar already has a $100 million business going there. "Mongolia is like baking a cake," says business consultant Jackson Cox. "All the ingredients are on the table. You've got everything you need in Mongolia to build a modern, prosperous economy. The only thing that's missing is the political leadership to make the tough decisions. You have to envision the Mongolia you want 25 years from now and then take on the decisions to plan the education, infrastructure and health care to get there." Nevertheless, most of the Mongolian hands I dealt with seemed to believe things would somehow work out in the end, even though environmentalists rightly fear precious grasslands and watersheds could be destroyed in a country that so far has only been 25 percent geologically explored. As Graeme Hancock says, "There is a very, very active civil society. Companies don't get away with making a mess very long." The looming question is what Mongolia will do once its finite treasures have run out. "Twenty years from now, if all this mineral wealth—which is not renewable—is not turned into renewable wealth, which is knowledge, then we will have missed the point," says newspaper columnist D. Jargalsaikhan. "This underground wealth needs to stay aboveground to suit our will and aspirations." "Money without policy does more harm than good," says J. Od, who believes "we are only at the tip of the iceberg" in knowing how rich Mongolia really is. Source: The Wall Street Journal ANNOUNCEMENTS GLOBAL MINING INVESTORS “N” EXPLORERS SHOW, SYDNEY JULY 4-6 The Global Mining Investors 'n' Explorers Show Sydney 2011 (Global MInES Sydney 2011 for short), will bring together investors and mining companies from around the world, making this a truly unique networking and business development opportunity on the international mining investment calendar. Investors will:
- 27. • Hear aboutthe hottest global investment opportunities in the mining sector all under one roof • Forecast commodity prices to ensure one makes the best investment choice • Maximize investment returns and minimize investment risk through key learning and insight not found anywhere else • Learn about regulatory developments impacting investment decisions, including mining taxes • Be offered a special discount rate to attend. Mining companies will get a chance to: • Raise the profile of their project within the investor community • Gain perspectives from investors on the criteria they use to assess projects • Network with financiers and investors, including investors from US, Europe and Asia, including countries of increasing outbound investment, such as China, India, Japan and Korea • Assess project financing options, including which stock exchange to list on • Learn how to raise finance for their project and access hidden sources of capital. All others will be able to: • Network and position their business at the heart of the mining investment community • Raise their profile among mining companies and investors alike • Demonstrate their capabilities to a broad cross section of existing and potential clients through high value event exhibition and sponsorship opportunities. BCM is an Endorser of the event and Executive Director Jim Dwyer will moderate a panel discussion "Why Mongolia is an increasingly attractive destination for mining investment". More information is available at www.acevents.com.au/mines2011. ________________________________________________ MINER & SUPPLIER FORUM AND EXHIBITION, ULAANBAATAR, JULY 6 Mongolian Mining Exchange, a non-Governmental organization, is organizing its first Miner & Supplier Forum and Exhibition on July 6 at Chinggis Khaan Hotel. It aims at improving the quality of mining sector supplies by reaching correct information to engineering and mining companies, and by facilitating increased interaction between suppliers and mining businesses. BCM is the official supporting organization of the event and its Vice Director Ser-od IchinkhorlooI will speak about mining cluster/supply chain development. More information can be had from Tel/Fax: 976-70116009, Mobile: 976-99081050, 91927088, 88097675, Mail: info@ infomine.mn, buyanaa@infomine.mn, and Web: www.mas.infomine.mn, www.infomine.mn. ___________________________________________ 2011 CHINA CLEAN COAL TECHNOLOGY CONFERENCE, BEIJING, JULY 12-13 Organized by CBI Energy and supported by the coal sector of Mongolia, the Mongolian National Mining Association and the Indonesian Coal Mining Association, the 2011 China Clean Coal Technology Conference will be held in Beijing on July 12-13. China‘s clean coal technology innovations will continue during the 12th Five-year Plan period (2011-2015). In 2010, China‘s demand for ethylene equivalent was 24.84 million tons, larger than its domestic production; the demand for propylene equivalent was 19.05 million tons, 5.90 million tons more than the national output. This indicates a significant demand-supply gap in China‘s ethylene and propylene markets. While the edge of petroleum to low-carbon olefin was blunted by the rising oil prices, the MTO technology using coal as the raw material will give the Chinese producers more advantages. The conference will discuss all aspects of the issue. ___________________________________________ METALS MONGOLIA, ULAANBAATAR, AUGUST 26 The main objective of the international investment conference, to be held in Government House, is to provide a discussion platform and assist in medium- and long-term planning and implementation associated with the Government‘s intentions to achieve value-added production at industrial parks through downstream processing of ferrous and non-ferrous metal products. It is aimed to provide potential investors with an insight into the Government‘s policies pertaining to metallurgical industry, related exploration, extraction, processing, and infrastructure projects; to facilitate such investments; provide opportunity for open discussion and possible solutions through involvement of representatives of both public and private sector and professional organizations on the opportunities and challenges in project financing, tax and legal environment. The conference will have main and branch sessions involving over 800 representatives of parties engaged in ferrous and non-ferrous metal projects, manufacturers, suppliers, foreign and domestic
- 28. investors, academics, professionalassociations, state administrative bodies, embassies. The main conference will cover the present situation and future trends in Mongolia‘s metallurgical industry. A special feature will be the Government Hour, which will feature an open discussion on strengthening PPP in the metal-based industrialization process. The branch conferences will be on 1. Opportunity to develop rare-earth based industries 2. Developing base metal industries 3. Developing iron and steel industries 4. Issues facing provision of required infrastructure to ferrous and non-ferrous metals based industries-experiment and opportunity. Each branch conference will include thorough discussions of resources and reserves of the type of metal discussed, applicable market conditions, investment projects, technology and equipment. BCM is a supporter of the event. For more information, Visit: http://www.metalsmongolia.mn/, or call +976-70115590, Fax: + 976- 70125590, or Email: info@metalsmongolia.mn. ___________________________________________ COMPETITIVENESS AND CORPORATE SOCIAL RESPONSIBILITY CONFERENCE, ULAANBAATAR, SEPT 6-7 This conference, organized by GIZ Integrated Mineral Resource Initiative, will be focused on debating whether corporate social responsibility increases the competitiveness of an economy and its players in the long run or whether it is rather a disadvantage that, particularly in structurally weak economies such as Mongolia, prevents the establishment of globally competitive value chains. The main areas for discussion will be: - CSR and Sustainable Economic Development - Economic Globalization and CSR - CSR and Enterprises. For any questions please contact imri@giz.de. ___________________________________________ “MM TODAY” on MNB-TV, Fridays at 21:15 BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on ―MM Today‖. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‘s BCM NewsWire. ___________________________________________ “BSPOT” on B-TV, Monday to Friday at 21:30 B-TV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire. ___________________________________________ NEW POSTINGS ON BCM WEBSITE'S 'PRESENTATIONS' AND 'MONGOLIA REPORTS' Several draft laws, still to be discussed in Parliament, are posted on our website, in the Legislative Working Group section. ‗Presentations‘ from BCM‘s 5 monthly meetings in 2011, summaries of the key addresses at Eurasia Capital‘s Mongolian Investment Conference on May 25, Jim Dwyer of BCM‘s interview on Mongolia National Broadcasting‘s ―Face to Face‖ on May 16, and the very successful Mines and Money Hong Kong‘s ‗Mongolia Investment Summit‘ morning on March 25 are posted in BCM website‘s "Resource, Presentations" for your review. ‗Mongolia Reports‘ including Z. Batbayar, Deputy Director of the Water Authority, at BCM‘s Environmental Working Group‘s recent meeting, the Polit Barometer-May 2011 from Sant Maral Foundation and the U.S. Embassy Mongolia‘s Commercial Section‘s ―2011 Mongolia Investment Climate Statement‖ are among the reports posted on BCM's website (www.bcmongolia.org) in the ―Resource, Mongolia Reports‖ section. We are now posting some news stories and analyses relevant to Mongolia on the BCM website's ‗Mongolian Business News‘ as they come, instead of waiting until Friday to put them all together in the weekly NewsWire. The NewsWire will, however, continue to be issued on Friday, and will incorporate items that are already on the home page, so that it presents a consolidated account of the week‘s events.
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- 30. INFLATION Year 2006 6.0%[source: National Statistical Office of Mongolia (NSOM)] Year 2007 *15.1% [source: NSOM] Year 2008 *22.1% [source: NSOM] Year 2009 *4.2% [source: NSOM] Year 2010 *13.0% [Source: NSOM] May 31, 2011 *4.2% [source: NSOM] *Year-over-year (y-o-y) CENTRAL BANK POLICY LOAN RATE December 31, 2008 9.75% [source: IMF] March 11, 2009 14.00% [source: IMF] May 12, 2009 12.75% [source: IMF] June 12, 2009 11.50% [source: IMF] September 30, 2009 10.00% [source: IMF] May 12, 2010 11.00% [source: IMF] April 28, 2011 11.50% [source: IMF] CURRENCY RATES – June 30, 2011 Currency Name Currency Rate US dollar USD 1,258.64 Euro EUR 1,821.06 Japanese yen JPY 15.66 British pound GBP 2,011.87 Hong Kong dollar HKD 161.73 Chinese Yuan CNY 194.72 Russian Ruble RUB 45.16 South Korean won KRW 1.18 Disclaimer: Except for reporting on BCM‘s activities, all information in the BCM NewsWire is selected from various news sources. Opinions are those of the respective news sources.