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12.12.2008, NEWSWIRE, Issue 50

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December 12 2008

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12.12.2008, NEWSWIRE, Issue 50

  1. 1. BUSINESS COUNCIL of MONGOLIA NewsWire www.bcmmongolia.org info@bcmmongolia.org Issue 50, December 12, 2008 NEWS HIGHLIGHTS: Business: Rio Tinto to cut 14,000 jobs, slash spending; Draft of investment agreements to be ready by January 20; “Contradiction” in ownership share terms explained; Ivanhoe welcomes Parliament decision; Central Bank takes charge of Anod Bank, all deposits safe; Khan Resources and Marubeni to work together in Dornod; Western files environmental impact assessment; Uranium lures many to Mongolia; Best Western set to build hotel in Ulaanbaatar; SouthGobi meets target ahead of schedule and below budget; Coal price plummets in China; Commodity index reaches 6-year low; Rio likely to review development of Oyu Tolgoi; Mongolian State miners eye Hong Kong listing; Hong Kong bourse in talks with Mongolian resources companies; Ivanhoe shares jump on Mongolia drilling results; UN official brought back to head Erdenes MGL; Two companies barred from trading stocks. Economy:Mongolia expects investment from big Chinese companies; President meets international bankers; Fitch downgrades Mongolia’s rating; Turkey, Mongolia vow to maintain trade momentum; Bayar wants more agricultural production; Government help for SMEs; Apartment Investment Corporation gets bank loan; Committee rejects proposal to raise cigarette tax; “Enough US dollars in store,” says Finance Minister; Customs capacity to be enhanced. Politics: Speaker wants more media coverage of politics and Parliament; Canadian Foreign Minister stresses strong ties; New Russian-Mongolian company to upgrade railway system; Mongolia may buy French helicopters; Human trafficking “less common than thought”; Mongolian official visits Taiwan charity; NGO to run project on accessing information; Civil society debates election process; UN office receives suspect parcel; Preparing for the winter. RECAP OF BCM MONTHLY MEETING The year’s last BCM monthly meeting was held on December 8, with Mr. Peter Morrow in the chair, before, as he said, retiring for the second time in eight months. Reporting on activities since the last meeting in October he said the success of the DIGITAL MONGOLIA Technology Symposium was so encouraging with a turnout of 160 from approximately 70 entities that it might be made an annual event. On December 3 the BCM hosted a reception to mark its first anniversary that was attended by important Government leaders and functionaries and other dignitaries. The Ministry of Education has asked for suggestions on reforming the vocational training system, and BCM members will be invited to a workshop in early 2009 to be jointly organized by BCM, the Ministry and GTZ to give their ideas. The President of Mongolia has asked BCM members to accompany him to the next World Economic Conference at Davos on January 28-February 1 and participate in arranging a Mongolia lunch or dinner. Executive Director Jim Dwyer said attendance at monthly meetings was now three times more than earlier, but asked members to suggest ways in which they could be made more interesting and productive in the new year. He also reminded all members to renew their membership for 2009 without delay. Ms. Iva Stejskal from Ivanhoe Mines, a member of BCM’s Legislative Committee, explained the provisions of the social insurance laws introduced last June, and the changes that the BCM wants, both in the law and the general policy. The draft of this recommendation will be reviewed by BCM’s Executive Committee and the final letter sent to Government officials and certain members of Parliament.
  2. 2. Mr. Bolorbat, head of Tavan Bogd’s Nestle unit, spoke on the problems of enforcing food safety standards, and said the purpose was often defeated by excessive bureaucratic procedures. Ms. E. Sodontogos of the MNMA gave the Mining Report summarizing Parliament’s decision to require draft Investment Agreements from the Government by January. Sodo also reported on the recent visit of a delegation to the China Mining Conference and also introduced the new Mining Journal whose second issue has just been published. Mr. Kh.Amarsaikhan gave a presentation on the Consultative Council on Investment Climate and Private Sector Development. It was set up in February and has met twice since then. He urged BCM members individually or the BCM as an entity to be involved in the work of the high-powered council. Mr. Asun Arar, Ambassador of Turkey to Mongolia, spoke about the Eurasian Forum held in Turkey last month. Mr. Mark Minton, Ambassador of the USA to Mongolia, assured members that there should be no change in US policy towards Mongolia under the new administration. A business forum was being planned for April. Mr. Arshad Sayed, Country Representative, World Bank, gave a presentation on the global economic crisis in Eastern Asia and its possible effects on Mongolia. Any prediction can only be very general as neither the depth nor the duration of the global recession could be foreseen and both will continue to keep financial markets volatile. Despite some factors that help Mongolian resilience, there is no way the country will be immune to problems. For a fuller report on the meeting, please visit the BCM website, News & Press. BUSINESS RIO TINTO TO CUT 14,000 JOBS, SLASH SPENDING Global miner Rio Tinto, saddled with nearly USD40 billion in net debt, has said it will cut 13 percent of its workforce, slash capital spending and boost asset sales as it battles a collapse in commodity markets. Rio has been under pressure to detail plans to cut borrowings since its share price slumped after larger rival BHP Billiton scrapped a USD66 billion takeover bid for the company last month. "Drastic times call for drastic measures. They've addressed all parts of the equation. They've definitely gone into survival mode, which is appropriate given the market circumstances," said Mr. Tim Schroeders, a portfolio manager in Melbourne. Rio's London shares jumped more than 10 percent as trading started. Its Australian shares closed up 12 percent. The group's shares had slumped 54 percent in the past month, more than five times the drop in the broader market. Rio said it would reduce its global headcount by 14,000, including nearly 6 percent of its own employees and more than half its contractors, and increase the range of assets it was looking to sell, but said it was too early to be specific. "Given the difficult and uncertain economic conditions, and the unprecedented rate of deterioration of our markets, our imperative is to maximize cash generation and pay down debt," Rio Tinto Chief Executive Tom Albanese said. The measures announced meant Rio Tinto would not need to sell new shares to help pay down debt. It would also hold its dividend steady. Analysts agree that the measures Rio Tinto plans should be enough for it to meet the USD10 billion in debt reduction it has targeted. Rio will also defer exploration expenditure. Mr. Albanese said, “We will minimise our operating and capital costs to appropriately low levels until we see credible and meaningful sings of a recovery in our markets, but will retain our strategic growth options, and expand further the scope of assets we are targeting for divestment. By taking these tough decisions now, we will be well positioned when the recovery comes.” Source: Reuters.com, MiningNewsNet DRAFT OF INVESTMENT AGREEMENTS TO BE READY BY JANUARY 20 At an extraordinary meeting of the Government on Friday, following Parliament approval of the draft resolution on investment agreements on the Oyu Tolgoi and Tavan Tolgoi deposits, Prime Minister S. Bayar instructed Finance Minister S. Bayartsogt, Minerals Minister D. Zorigt and Nature and Environment Minister L. Gansukh to prepare a draft of the agreements proper before January 20, 2009.
  3. 3. The meeting also decided to establish a working group to devise methods and means of distributing the promised Country Share of the mineral wealth. The group will have representatives from the Finance Ministry, the Justice and Interior Ministry, the Social Welfare and Labor Ministry, the Committee on Financial Regulation, and from Erdenes-MGL. Social Welfare and Labor Minister T. Gandi told the meeting that MNT3.9 trillion would be required to give every citizen MNT1.5 million of the “wealth”. Present Government thinking sees most of the money being distributed in the form of shares, apartment bonds, education or health cards, social insurance allowance, and enforced savings, while some part would be paid in cash. Source: en.News.mn “CONTRADICTION“ IN OWNERSHIP SHARE TERMS EXPLAINED Prior to the approval of the draft guidelines on the investment agreements formulated by an MPs’ working group, a parliamentary standing committee asked the group several questions about their recommendations. One of these related to the apparent contradiction between the present law saying that the State “is entitled to own up to 50% of Tavan Tolgoi” and the group’s suggestion that “the Government of Mongolia shall seek to own up to 51%…”. Kh. Badamsuren, who led the working group, explained this by saying that while the law talked about “State ownership”, the draft wanted the share to be owned by “the Mongolian people”. He also said the Government would announce a tender bid when all formalities were over and one could not speculate on the number of investors who would show interest. N. Narankhuu reminded members that this tender could not be an open one under the current law. Asked why the agreements could not be made after amending the Minerals Law, especially when commodity prices are falling, D. Odkhuu said, “We have lost much time and must hurry now, without waiting for the law to be amended.” Minister Zorigt answered a question on pre-payment of tax by saying there had been “some informal talk with some investors” about this, but none of them has “officially stated their position” on the issue. E. Bat-Uul added that “it is hard for investors to pay such sums in advance”. Source: Business-Mongolia IVANHOE WELCOMES PARLIAMENT DECISION Mr. John Macken, President and CEO of Ivanhoe Mines, has welcomed the decision by the Mongolian Parliament to set a deadline for completion of its draft investment agreement for Ivanhoe's Oyu Tolgoi copper-gold project. Last week, 42 of the 50 members of Parliament present, representing both political parties in Mongolia's joint government, voted to adopt a resolution that authorizes the Government to negotiate the draft agreement and present it to Parliament before February 1, 2009. The parliamentary resolution authorizes the Government to seek assistance from internationally recognized experts in concluding the agreement. Provisions of Mongolia's existing 2006 and 1997 minerals laws also will help shape negotiations between the Government and the project's investors, Ivanhoe Mines and its strategic partner, Rio Tinto. Sources: MARKET WIRE, www.ivanhoemines.com CENTRAL BANK TAKES CHARGE OF ANOD BANK, ALL DEPOSITS SAFE A Mongolbank representative took charge of all operational activities of the Anod Bank on Wednesday to stabilize the situation there. The Central Bank has said it took the decision to ensure the safety of deposits in the bank, and has clarified that there was no fear of the bank being about to go bankrupt. The Governor of the Central Bank, Dr. A. Batsukh, its First Deputy Governor, Mr. B. Enkhhuyag, and the head of the Supervision Department, J. Ganbaatar, made this announcement at a news conference, ending a day of speculation and wild rumors. The bank is now closed to customers and will reopen on Monday. Mr. Batsukh said five audits of the bank’s operations had been carried out in the past two years and the last of these convinced the Central Bank that it had to step in to restore financial stability there. Mr. Enkhkhuyag said as a precautionary measure they were isolating the Anod Bank from the national banking network. He said everything was well with all other banks. However, “their accounts, too, are being checked in the same way that we used here”. The Central Bank officials discounted any possible link between the situation and the world financial crisis. They blamed the failure of the management to instill proper financial discipline for
  4. 4. the mess. Checks so far have revealed that the bank has MNT145 billion in deposits while its outstanding loans total MNT180 billion, MNT80 billion of it given since January 2008. Some major shareholders of the bank are among the borrowers. “Our first job is to trace all these loans. Some of them are good, but some are suspect. The present cash shortage has resulted mainly because many customers opted for premature encashment of their term deposits,” said Mr. Batsukh. The immediate task of the representative would be to ensure that all depositors had full access to their savings held in about 200,000 accounts. He will have full authority to take any administrative measure and to override the present management. Source: Ardiin Erkh, Onoodor KHAN RESOURCES AND MARUBENI TO WORK TOGETHER IN DORNOD Khan Resources Inc. has announced that it has signed a Letter of Intent with Marubeni Corporation of Japan relating to uranium exploration and mining in Mongolia. The Energy Division of Marubeni is a multi-national trading company that has been most successful in investing in the oil, gas and uranium sectors, and is interested in working with Khan on the Mongolian Dornod uranium project. "We are excited by Marubeni's interest and are optimistic about the positive influence Japanese investors have on the Mongolian mining investment environment. Marubeni is a world-class player in the commodities trading arena and we look forward to working together for the mutual benefit of all stakeholders," stated Mr. Martin Quick, Khan's President and CEO. Marubeni will work to improve the mining investment climate in Mongolia and Khan will provide Marubeni access to due diligence information on a confidential basis. Sources: MARKET WIRE, www.khanresources.com WESTERN FILES ENVIRONMENTAL IMPACT ASSESSMENT Western Prospector Group has filed its Environmental Impact Assessment (EIA) for its Gurvanbulag project with the Mongolian Ministry of Nature and the Environment. “The filing of the EIA is an important regulatory requirement for Western in Mongolia," said Mr. Eric Bohren, President and CEO of Western. "The EIA concludes that the proposed Gurvanbulag project can proceed if Western implements all required measures, including those contained in the environmental protection plan, the environmental monitoring plan, and the mine closure and rehabilitation plan." Western's Feasibility Study for Gurvanbulag is to be completed later this month. Western has advanced its project to a production decision with over $77 million invested to date in project exploration, environmental assessments, the feasibility study and an extensive and scalable production infrastructure. Source: Marketwire, www.westernprospector.com URANIUM LURES MANY TO MONGOLIA The number of governments and private companies showing interest in the uranium deposits in Mongolia, constituting about one-fifth of the world’s known total, keeps on increasing. Among recent visitors who came for exploratory talks have been a former Prime Minister of Russia, Mr. M. Fradkov, the head of the RosAtom Agency, Mr. S. Kirienko, and the Director of the Federal Council of the Russian Federation, Mr. B. Mironov. Among companies making their pitch have been Bazovy Element, Renova, and Severstali from Russia, Mitsui from Japan, a joint French and Japanese company STIC, the Australian Paladina and BHP Billiton, the French Areva, and the Brazilian CVRD. Companies that would like to expand their present uranium exploring activities are UGL, Central Asian Uranium, and Western Prospector. The price of uranium in the world market increased around 1,100 percent in four years, from USD12 per pound in 2003 to USD130 in 2007. There has been a fall since then, but analysts feel this is a temporary development and the gap between supply and demand will soon lead to another price rise. They believe the price will return to USD120-130 before the end of 2008 and will climb to USD150 soon thereafter. Source: Undesnii Shuudan BEST WESTERN SET TO BUILD HOTEL IN ULAANBAATAR Ulaanbaatar will have a fully operational Best Western hotel in 2011. One of the world’s largest hotel chains will begin work on Best Western Premier-Ulaanbaatar next year, and start receiving guests in two years’ time. The Tuushin group will be the local license-holder for the five-star hotel.
  5. 5. Source: Onoodor SOUHTGOBI MEETS TARGET AHEAD OF SCHEDULE AND BELOW BUDGET SouthGobi Energy Resources Ltd. announced on Monday that the Ovoot Tolgoi mine in southern Mongolia has produced its first 1,000,000 tons of coal ahead of schedule and below budget. "We are very pleased to announce this coal production milestone at Ovoot Tolgoi," a company statement said. "(This) is a positive reflection on the management, staff and employees at the mine and this further solidifies our position as a significant new coal producer in Mongolia." SouthGobi is 80 percent owned by Ivanhoe. Ovoot Tolgoi surpassed its budgeted production for 2008 of 1,000,000 tons of coal on November 29 and is on track to produce 1,100,000 tons in 2008. The actual site cash cost of production at the Ovoot Tolgoi mine through October 31, 2008 was approximately USD8.20 per ton of coal produced, 32% under budget. The Ulaanbaatar office overhead costs through the same period were approximately USD3.20 per ton of coal mined, 27% under budget. The forecast for 2009 production is approximately 2,900,000 tons. Discussions have started with customers on 2009 sales. All the coal is expected to be sold into western Inner Mongolia and Gansu Province in China. Cross border traffic inefficiencies and transportation have been key areas targeted by SouthGobi for improvement. Construction continues on three major infrastructure projects to support the Ovoot Tolgoi mine - a workshop/warehouse complex, an administration facility/accommodation camp and concreting the Ovoot Tolgoi airport runway. The company has more than 200 employees in Mongolia, of which more than 95% are Mongolian Nationals. The company has 179 employees at the mine site, with more than 30% from the local area. The Ovoot Tolgoi workforce residing in Ulaanbaatar is transported to and from the mine via regular charter flights directly to Ovoot Tolgoi, approximately 950 km southwest of the capital. Ovoot Tolgoi is a fly-in/fly-out operation with crew rotations every 14 days. The remaining employees that reside in the local community are provided with bus transportation to/from the mine. Sources: Marketwire, www.southgobi.com COAL PRICE PLUMMETS IN CHINA With the steep slowing of the power, steel, and non-ferrous metal industries in China, coal prices dropped sharply in November. Now the price for high-rank power coal has dropped by about 50% from its peak, and the trading volume is falling. The 4-trillion-yuan rescue package will not immediately change the shrinking demand, and prices will continue to drop. Domestic coal prices rose like a rocket and dropped like a stone this year. They rose almost day by day from the beginning of the year and reached a peak in September, after which they began to slip steadily and slumped in recent weeks. Power consumption has dropped sharply since October, and with that decline coal consumption must also slide. Some time ago power plants had been negotiating with coal suppliers for their winter stock, but now coal suppliers are begging them to buy more coal. Other major coal consumers such as the steel, cement, and chemical fertilizer industries are also burning less coal due to slowing in their own markets. Coal prices have been comparatively stable the past few days, but nobody expects that the price has bottomed out. Source: ChinaStakes.com COMMODITY INDEX REACHES 6-YEAR LOW Plunging commodity prices sent the Reuters/Jefferies CRB Index on December 7 to a six-year low. Copper tumbled more than 6 percent, extending a slide to the lowest since mid-2005, and gold fell to a two-week low. However, some analysts refuse to despair. The fundamentals of commodities are “unimpaired” and prices will rebound when a lack of new supply leads to shortages, said Mr. Jim Rogers, chairman of Rogers Holdings. Glencore International AG, the world’s largest commodities trader, said cash and undrawn amounts under its committed bank facilities rose to USD3.5 billion after it reduced the amount of funds it needs for continuing operations. The world’s copper-mining companies may cut production because a plunge in the price of the metal is eroding profit, Chile’s National Mining Society has said. Bolivia has said it is “worried” about a slump in zinc prices as companies have begun to reduce output and close mines. Gold fell
  6. 6. to the lowest in two weeks as the dollar climbed, eroding the appeal of the precious metal as an alternative investment. Gold fell USD13.30, or 1.7 percent, to USD752.20 an ounce in New York. Source: Bloomberg.com RIO LIKELY TO REVIEW DEVELOPMENT OF OYU TOLGOI The sale of assets it previously considered too valuable to part with, and the postponement or cancellation of development options that were integral to defense against the BHP Billiton takeover bid, are now all on the table as part of Rio Tinto's accelerated effort to reduce its debt. Development of projects such as the Oyu Tolgoi copper-gold joint venture in Mongolia are likely to be reviewed and either reduced in scale or delayed in timing. The scope of asset to be included for sale will now be expanded. Rio Tinto may also raise much-needed cash by selling out of a Chinese aluminum joint venture, whose co-owner is consolidating assets to prepare for a takeover by another state-owned company. Rio's joint venture partner, Qingtongxia Aluminium, is set to be taken over by state-owned China Power Investment Corp. Qingtongxia was in talks with Rio Tinto to buy back all the shares it currently did not own in the joint venture smelter, in order to consolidate its assets before the takeover. Rio Tinto acquired half of a joint venture with Qingtongxia when it bought Canadian aluminum firm Alcan for USD38 billion last year, a deal that has left it struggling to shake off USD40 billion in debt. Sources: Reuters.com, Australian Financial Review MONGOLIAN STATE MINERS EYE HONG KONG LISTING The South China Morning Post has quoted the Mongolian Minister for Foreign Affairs & Trade as saying that up to five of Mongolia's Government-owned mining firms may be looking to list their shares in Hong Kong, “There are four to five of them, and all are engaged in mining coal, iron ore, uranium, copper and gold,” Mr. Sukhbaatar Batbold is said to have told a business forum in Hong Kong. Mr. Batbold said the deals were in “premature stages” and the mining firms were seeking advice from investment banks and had not filed a listing application to the Hong Kong bourse yet. He declined to identify the listing hopefuls or to detail their fund-raising targets. “But one thing for sure is that we want our companies to be listed as soon as possible,” he added. Source: Reuters.com HONG KONG BOURSE IN TALKS WITH MONGOLIAN RESOURCES COMPANIES Hong Kong Exchanges & Clearing Ltd., betting on a recovery in commodity prices, is seeking to attract more natural resources companies to sell shares traded on Asia’s third-largest bourse. The exchange plans to boost commodity shares from 14 percent of current market value, Ms. Christine Lie, vice president of the issuer marketing division of Hong Kong Exchanges, has said. The bourse is in discussions with Mongolian companies for possible listings, Ms. Lie said, declining to elaborate. “We’d like to establish ourselves as the international capital-raising platform for Mongolian companies,” she said at a forum organized by the Foreign Investment and Foreign Trade Agency of Mongolia and Bloomberg LP. The market value of natural resources companies listed in Hong Kong has jumped more than 15-fold since 1999, to USD168 billion as of October, she said. This year, though, commodity prices have tumbled as a deepening economic slump caused equity markets to plunge. Copper sank to the lowest closing price since May 2005. Still, some analysts are predicting that commodity prices are set to rebound. Source: Bloomberg.com IVANHOE SHARES JUMP ON MONGOLIA DRILLING RESULTS Ivanhoe Mines said on Monday it has discovered a new high-grade gold and copper zone at its Oyu Tolgoi project, helping drive its shares up 20 percent. The Canadian company has been struggling for three years to reach an agreement to build the mine, which should be one of the richest in the world when it becomes operative. At midafternoon, the company's stock was up 20 percent, at CAD2.90 on the Toronto Stock Exchange, outpacing a 10 percent rise for the base metals group.
  7. 7. Giving details of the exploration drilling, the company said the new zone of high-grade gold and copper mineralization has characteristics of the earlier high-grade discoveries at the Hugo Dummett and Southwest Oyu deposits. The Oyu Tolgoi mineralized structural corridor, as currently defined, now has a total strike length in excess of 20 kilometres, encompassing Oyu Tolgoi in the center and more recent extensions to the south and north onto the joint Ivanhoe-Entree agreement area. The latest discovery is especially significant because it indicates that there is a strong probability of an additional gold-rich copper deposit between the previously discovered Heruga Deposit and the Southwest Oyu Deposit. The discovery, which is open to expansion in all directions, is within Ivanhoe Mines' 100%-owned Oyu Tolgoi Mining License. Oyu Tolgoi is expected to produce an average of 440,000 tons of copper and 320,000 ounces of gold a year over a 35-year mine life. Ivanhoe's partner on the project is Rio Tinto. The potential for new discoveries, as evidenced by the latest results, suggests the mine's life could be extended well beyond current estimates. Sources: Reuters.com, www.ivanhoemines.com UN OFFICIAL BROUGHT BACK TO HEAD ERDENES MGL Mr. B. Enebish has been named by the State Property Committee to succeed Mr. D. Zorigt as director of the state-owned mining company Erdenes MGL. Mr. Zorigt, now Minister of Minerals and Energy, has approved of the appointment. Mr. Enebish held senior positions in several mining companies before joining the United Nations in 2000. As the holder of all mining licenses in sites discovered by state funding, Erdenes MGL will sign any investment agreement on the Tavan Tolgoi and Oyu Tolgoi deposits on behalf of the Mongolian Government. Source: Odriin sonin TWO COMPANIES BARRED FROM TRADING STOCKS The Financial Regulatory Committee has suspended the trading of Erdenet Carpet and Tavan Tolgoi stocks at the Mongolian Stock Exchange. Notices to this effect were issued by the state inspector last week. Source: Business-Mongolia ECONOMY MONGOLIA EXPECTS INVESTMENT FROM BIG CHINESE COMPANIES “Mongolia will continue to enhance cooperation with China in politics, trade and economy, culture, education and health,” said Parliament Speaker Damdin Demberel in an interview ahead of his five- day visit to China that began on December 10. Expressing his satisfaction with the bilateral good- neighborly partnership of mutual trust between Mongolia and China, Mr. Demberel said, “The Chinese thinkers' doctrine 'loving people and treating neighbors kindly are most valuable to a country' is a reflection of the current relations between the two countries.” Mr. Demberel said China's quick economic growth has created positive conditions for Mongolia to develop rapidly. “The prime fields in economic cooperation between the two countries are mining, infrastructure such as petroleum exploration and development, and trade in petroleum products,” he said, adding that Mongolia expects investment from big Chinese companies with high-tech and environmental protection expertise. On the current global financial crisis, the Speaker said the price of copper, Mongolia's primary export, as well as its trade with China, had been affected though the crisis has left little direct impact on the country. "Mongolia needs to cooperate closely with China to minimize the negative impacts of the crisis, for instance by maintaining the trade volume of exports such as copper, zinc and coal," he added. He said more than 700 Mongolian students are studying in China with Chinese scholarships, and added, "I believe that development of China's science will offer momentum to Mongolia's economy." Quoting a Mongolian proverb “If one strives, one will gain,” Mr. Demberel said, “I believe my visit will promote the development of relations and cooperation.” Source: www.xinhuanet.com
  8. 8. PRESIDENT MEETS INTERNATIONAL BANKERS Apart from attending the Clinton Global Initiative meeting, President N. Enkhbayar used his visit to Hong Kong last week to meet with representatives of some big banks and financial organizations such as Mr. Stefan Roach, president of the Morgan Stanley group, Mr. Andrei Low, executive director of Macquarie Capital Bank, and Mr. Max Wan, executive director of The Bank of China. They discussed how Mongolia could cooperate with these banks and organizations in stock exchanges, and how they can help the country attract foreign investments. The President was aided at the talks by Mr. S. Batbold, Minister of External Relations, Mr. Ch. Khurelbaatar, head of Parliament's Standing Committee on the Budget, Mr. Ts. Elbegdorj, a former Prime Minister and now an MP, Dr. A. Batsukh, president of the Central Bank, and Mr. L. Orgil, a foreign policy advisor to the President. Source: Montsame FITCH DOWNGRADES MONGOLIA’S RATING Fitch on Wednesday downgraded Mongolia’s credit rating to a negative outlook from “stable”, amid concerns that the country would struggle because of high inflation and a weakening fiscal position. The cut comes after President N. Enkhbayar warned in an interview with the Financial Times that growth could halve if new mining investments failed to advance. “Growth this year is going to be about 9 per cent, but if we keep delaying all these investments, then the rate is going to go down to between 4 and 6 per cent, which would be very slow,” Mr. Enkhbayar said. “Mongolia now has to speed up reforms and improve the legal environment so that we don’t lose our momentum.” In its report on Mongolia, Fitch underlined the threat from inflation, at 28 per cent in October, as well as the likelihood that recent fiscal surpluses, starting this year, would be transformed into deficits, of up to 6.2 per cent of GDP. “The change in the commodity price cycle underscores an urgent need to improve economic policy co-ordination and implementation, which have been beset by uncertainty and inconsistencies, particularly regarding important mining projects,” wrote Mr. Vincent Ho, associate director in the sovereign group of the credit rating agency. Mr. Enkhbayar told the interview, “This financial crisis has helped us in the sense that everybody is now more realistic. Now the legislators understand that just hoping that commodity prices will always be very high is not enough to develop the country.” Source: www.ft.com TURKEY, MONGOLIA VOW TO MAINTAIN TRADE MOMENTUM The recent meeting of the Turkey-Mongolia Joint Economic Commission in Ankara concluded with the signing of a protocol committing both countries to further improving trade and economic relations between them. Turkish Deputy Prime Minister Hayati Yazici said a consultative mechanism would be set up to dismantle technical hurdles in commercial issues. The “momentum generated at this meeting will be kept up,” he promised. “A trade delegation will visit Mongolia next year to host the next Business Council meeting. In 2010, a Turkish export products fair will be held in Ulaanbaatar. Meanwhile, Turkish contractors will participate in the program to build 40,000 apartments in Mongolia." Mongolian Environment & Tourism Minister Luimed Gansukh called for support from the Turkish International Cooperation and Development Agency in developing the country’s mining resources and in constructing a water pipeline from Orhun River to the southern region. The water project should be completed in the next four years and is estimated to require an investment of USD500 million. He said Turkish private companies would find it easy to work on the project, as it closely followed the Southeastern Anatolia Project in that country. Source: www.worldbulletin.net BAYAR WANTS MORE AGRICULTURAL PRODUCTION Prime Minister S. Bayar told The National Council for the Third Campaign for Reclaiming Virgin Lands last week that while agricultural production this year has considerably increased there is no room for complacency. Mr. Bayar set new goals for the council which he heads. He said the production of vegetables has to increase further, more greenhouses will have to come up, new storage places have to be built, and more modern agricultural techniques must be adopted. He hinted that both the import duty and value added taxes on imported vegetables are likely to be raised.
  9. 9. To help farmers, agricultural machines and equipment can be imported without tax. Each agrarian province has been allotted MNT1-2 billion as corpus for a farmers’ support fund. The State budget will provide MNT10.2 billion for 103 agricultural projects. Source: Montsame GOVERNMENT HELP FOR SMEs In keeping with the Government’s emphasis on industrialization to ensure economic growth, First Vice Premier N.Altankhuyag recently met with representatives of organizations such as the Business Incubator Center, the Business Development Center, and the Center for Support of Small and Medium-sized Businesses to find out the problems they face and what kind of support they need from the Government. These organizations conduct trainings and provide information, consultation and working places to small entities for expansion of their activities and help them stand on their own feet. Mr. Altankhuyag told them industrialization does not mean only Tavan Tolgoi and Oyu Tolgoi. “We should begin by supporting small and medium enterprises and the entrepreneurs behind them,” he said. “Only this can ensure the success of our industrialization policy, with special attention given to helping such entities find a market for their products.” Source: Montsame APARTMENT INVESTMENT CORPORATION GETS BANK LOAN The Apartment Investment Corporation has been granted credit of a total MNT5.5 billion from Capital Bank, Golomt Bank, the Mongol Post Bank, Anod Bank, and Ulaanbaatar City Bank. After spending MNT18.1 billion, the Corporation has recently had to halt its work as government bonds, its main source of funding, were not being traded in the market, and banks were unwilling to grant credit, particularly for construction. The corporation needs MNT50 billion for its total projects. Source: www.News.mn COMMITTEE REJECTS PROPOSAL TO RAISE CIGARETTE TAX Cigarette smoking in Mongolia has been increasing rapidly in the last few years. A 2000 survey found 64.4 percent of men and 18.9 percent of women were smokers, but the figures increased to 68.5 and 30.4 percent in a survey made in early 2008. More than 14 percent of teenagers now smoke. A government proposal to double the tax on cigarettes has now been rejected by the Standing Committee on the Budget. The proposal was based on the calculation that a 10 percent rise in cigarette price decreases consumption by four percent. It would have meant a fall in the number of smokers and also an additional MNT10.5 billion in taxes, but the committee decided it would not be wise to change the tax structure in these days of global financial uncertainty. Members of the committee were also concerned that inferior and more harmful cigarettes were likely to enter the market if prices rose. Source: Ardiin Erkh “ENOUGH US DOLLARS IN STORE,“ SAYS FINANCE MINISTER Minister for Finance S.Bayartsogt has dismissed all fears about low foreign currency reserves. As the US dollar has been strengthening against the Tugrug recently, there is speculation that this can be because commercial banks do not have enough dollars. The Minister told our reporter the country has US$600 million in cash reserve and that this is adequate. He explained the rise in the price of the dollar as an expected result of the present monetary policy which discourages import. It will also help exports. The threshold of gold price for the windfall profits tax was raised from US$500 to US$850 per ounce with the same goal, he said. Source: www.news.mn CUSTOMS CAPACITY TO BE ENHANCED An agreement signed in Brussels last week will allow the World Customs Organization, the Mongolian General Customs Authority and the Finance Ministry of Netherlands to cooperate on a three-year program to enhance the capacity of the Mongolian customs organization. In this period, nine training sessions will be organized on subjects like risk management improvement, use of X-ray
  10. 10. facilities to check containers, proper handling of modern communications and other devices, and general capacity building. Source: Montsame POLITICS SPEAKER WANTS MORE MEDIA COVERAGE OF POLITICS AND PARLIAMENT Parliament Speaker D. Demberel told journalists recently that recent surveys had found an increase in citizens’ apathy to politics and their lack of interest in what happens in Parliament. This dissociation weakens the fabric of the political process and undermines the importance of elections. The Speaker wanted the mass media to disseminate more information to the people in a regular and responsible manner on parliamentary work and activities. Mr. Demberel wanted media to emphasize that despite all the post-election delays in beginning work Parliament has already approved 26 laws and 41 resolutions, including such important ones as the budget for 2009, the Government's platform for the coming four years, and investment agreements on strategic deposits in Oyu Tolgoi and Tavan Tolgoi. He also wanted it to be noticed that next year’s budget, despite severe financial constraints, continued the “emphasis on human- related investments”. For instance, the state will cover all expenses concerning the midday meal for children in kindergartens at a cost of MNT12 billion, spend MNT20 billion on providing lunch to pupils in grades 1-5, MNT18 billion on maintaining dormitories, and MNT21 billion on centers of vocational training. Source: Montsame CANADIAN FOREIGN MINISTER STRESSES STRONG TIES In a statement last week to mark the 35th anniversary of Canada-Mongolia diplomatic relations, Foreign Minister Lawrence Cannon said the bilateral relationship, “built over time on a strong foundation of common values and interests, continues to grow”. He said, “Beyond our similar climates, landscapes and resource endowments, we share a fundamental commitment to the values of a free, open and tolerant society governed by democratic institutions and the rule of law. We have often made common cause.” Referring to Canada’s support for Mongolia’s “sustainable economic development as it seeks to tap its enormous mineral and energy reserves”, the Minister said with nearly USD500 million in direct investment, the Canadian private sector is the second-largest investor in Mongolia. “Canadian firms are critical partners in ensuring that the development of Mongolia’s extractive sector follows international best practices on environmental management, community engagement and poverty alleviation,” he asserted. Source: www.international.gc.ca/index.aspx NEW RUSSIAN-MONGOLIAN COMPANY TO UPGRADE RAILWAY SYSTEM A cooperation agreement was signed over the weekend between V.I.Yakutin, the visiting President of the Russian Railway, and Kh.Battulga, Minister for Road, Construction and City Development, to set up a new entity that will supervise modernization of technology used in Ulaanbaatar Railway and construction of new lines. The long-term goal is to provide railway connection to all major mining centers. The new company will be based in Ulaanbaatar and both sides will have 50% ownership. The agreement did not specify its investment budget but said it would be registered by April 1, 2009. Asked if this company was necessary in view of the Millennium Challenge Corporation’s promised investment in the Mongolian railway system, Mr. Yakunin commented, “Mongolia and Russia use the same technology and their railway standards are the same. Introducing new standards and technology will clearly be more expensive and cannot be that beneficial.” He also said the project was “not so much for money as for mutual benefit”. Source: Ardiin Erkh, Onoodor
  11. 11. MONGOLIA MAY BUY FRENCH HELICOPTERS In a departure from buying all its helicopters from Russia, the Government is likely to go for a French manufacturer. At a meeting with Construction and Tourism Minister Kh.Battulga, an official of EADS explained that it could incorporate in its design features to meet the special needs of the Mongolian climate and terrain. The Ambassador of France to Mongolia was present at the meeting. The Minister said Mongolia was looking for safe helicopters equipped with the most modern technology, and “buying helicopters from France is a huge step forward in terms of up-to-date technology”. Source: en.News.mn, Business.Mongolia HUMAN TRAFFICKING “LESS COMMON THAN THOUGHT“ In its report presented on Tuesday to the Standing Committee for Legislation in Parliament, the National Human Rights Commission has regretted that Mongolian data on human trafficking are not quite dependable. Its director, J.Solongo, also feels that the popular perception of a flourishing trade in human trafficking is far from the real situation. Solongo has cautioned that homeless children need to be taken better care of. In 2007, a total of 149 people were reported lost, but all but eight of them could be traced. Source: www.news.mn MONGOLIAN OFFICIAL VISITS TAIWAN CHARITY Ms.T. Mijiddorj, head of the National Authority for Children in Mongolia, visited the Taiwan Fund for Children and Families (TFCF) on Monday to express her gratitude to the charity for its assistance to poor Mongolian children over the past four years. Donations from Taiwanese have enabled TFCF help a total of 4,059 poor Mongolian children. There is a TFCF village in Ulaanbaatar where yurts, water supply stations and child-care centers have been set up for homeless people and children. Ms. Mijiddorj was in Taiwan to attend a two-day international aid forum. The main purpose of the forum is to help Mongolia to draw on Taiwan's experience in implementing child protection policies, so that it can address its serious problem of homeless children. Source: Central News Agency, Taiwan News NGO TO RUN PROJECT ON ACCESSING INFORMATION Globe International, an NGO that works in the media sector, will soon be launching a new project titled "Curbing Corruption Through Better Access to Information" that will be funded by the British Embassy in Ulaanbaatar. Access to information is essential to the health of a democracy and is one of the main criteria underpinning government transparency. The project is aimed at curbing corruption through better access to information held by public institutions and promoting transparent and accountable governance. It will advocate legislation on guaranteeing freedom of information and call for a new State secrecy law, and engage civil society in the campaigning. Source: www.monitoring.mn CIVIL SOCIETY DEBATES ELECTION PROCESS Civil society organizations and other stakeholders organized a conference in Ulaanbaatar on Thursday on “Legal Issues of the Election Process” to discuss all facets of the country’s election process and to discover ways of addressing the problems inherent in it. Every election held since Mongolia began its transition to democracy has had its share of criticisms and complaints, but none of them was as disputed and led to such tragedy as the 2008 parliament elections. The July 1 mass riots clearly demonstrated the need to restore citizens' trust in democratic elections, as well as to guarantee that a government established as a result of these elections has their trust and the credibility that it represents national interests. The conference debated how a harmonious and holistic elections system could be devised and put in place, and decided that the critically important thing was to design a stable legal framework with the power and responsibility to enforce transparency and ensure accountability. Source: Montsame
  12. 12. UN OFFICE RECEIVES SUSPECT PARCEL The UN office in Ulaanbaatar has handed over to police a parcel it received by mail from Toronto. The 13 cm x 19 cm parcel was marked “Biological Tests”. The office was not expecting anything like this, so decided to inform police. A joint group from Police, the Intelligence Office and the Criminal Police is investigating. The parcel is being tested at the National Court laboratory. Source: Ardiin Erkh PREPARING FOR THE WINTER Prime Minister S. Bayar has submitted a report to Parliament on how the Government has been preparing for winter. A working group headed by the Chairman of the Cabinet Secretariat of the Government has been monitoring the progress of work according to guidelines given to all concerned Ministries, governors of aimags and the Ulaanbaatar City Mayor in July 2008. Power plants will have 20-day reserves of coal. The Ulaanbaatar region has been spending MNT82.4 billion on repairs. Rural areas will stock adequate natural hay and fodder for livestock, with help from state reserve funds. Source: Montsame SPONSORS ECONOMIC INDICATORS MSE WEEKLY REVIEW For the week ended December 5, 2008, trading activity on the Mongolian Stock Exchange (MSE) totaled 575,400 shares with 34 companies traded. Total market value of transactions was MNT 85.8 million. Total market capitalization of the 358 stock companies listed on the MSE was MNT 550.1 billion, and decreased by MNT 12.2 billion or 2.1% from the previous week. The Top-20 Index decreased by 162.62 points or 2.6% compared to the previous week closing at 6,129.86 points. The MSE Composite Index decreased by 72.36 points or 2.4% compared to the previous week, closing at 2,998.45 points.
  13. 13. Most active stocks traded were: Hermes Center (329,600 shares), Remicon (90,500 shares), Anod Bank (56,900 shares), Khuh gan (46,300 shares), and Genco Tur Buro (30,100 shares). Major share price percentage gainers were: Gazar Suljmel (15.0%), Arivjikh (14.6%), Mongol Shir (12.8%), Makhimpex (9.2%), and Undurkhaan (6.4%). Major share price percentage losers were: Ulaanbaatar Khivs (15.0%), Mongeo (14.9%), Tulga (13.5%), Altain zam (13.0%), and Olloo (12.3%). INFLATION Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)] Year 2007 Avg. 9.0% [source: NSOM] Year 2007 *15.1% [source: NSOM] November 30, 2008 *24.2% [source: NSOM] *year over year (yoy) CURRENCY RATES – December 11, 2008 Currency name Currency Rate US dollars US 1227.15 Euro EUR 1592.23 Japanese yen JPY 13.26 British pound GBP 1817.72 Hong Kong dollar HKD 158.33 Chinese yuan CNY 178.88 Russian ruble RUB 44.03 South Korean won KRW 0.88 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.

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