11.03.2011, newswire, issue 158

BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmongolia.org

[email protected]

Issue 158, March 11 2011

NEWS HIGHLIGHTS:

Business:

Erdene Resource reports silver discovery at Zuun Mod;

Singapore company to be largest shareholder in Hunnu Coal;

Meritus finds new gold mineralization at Gutain Davaa;

Xanadu Mines begins extensive drilling program at Galshar;

East Asia Minerals plans to spin out assets to shareholders;

GTSO JV secures new rare earth mining lease in Tuv;

Haranga’s Shavdal drilling targets intense magnetic anomaly;

Quam to launch Mongolia Fund;

Deal signed to bring CNN, truTV to Mongolia.

Economy:

6 groups on short list to develop Tavan Tolgoi, final choice in 4 months;

Those that are on the list, and those that aren’t;

“This is only the start, Mongolia is still under explored,” says Enebish;

Mongolia wants mining to “move other things forward”, says Batbold;

New stage of economic growth has begun, foreign partners told;

Central Bank worries “hot money” could destabilize economy;

LSE wants Mongolian companies to list in London;

Bond-ing in Mongolia;

Mongolia’s macro-economic risks as snarls of the wolf;

China woos Mongolia as Australia of North Asia;

Court hears case against Government for failure to impose mining ban next week;

Steady growth of non-banking financial institutions;

Government mulling loan guarantees to make credit easier;

Excise tax on diesel re-imposed;

In principle, one person should not be on many boards, says SPC official;

The main thing is for Boards to have actual power, feels analyst;

Government approves draft agreement on importing Chinese workers;

Erdenes TT board member not happy with selection of banks;

Japanese group to help set up steel plant;

Steel expert says China obvious choice as partner in building plant;

Official promises all-round improvement in herders’ condition;

Meeting recommends steps to help wool producers;

Proper management is needed in Mongolia, says local entrepreneur;

Mining companies should not feel uneasy over transparency test;

Developing Tavan Tolgoi to cost USD1.5 billion, says Russian Railways head;

Geopolitical concerns stymie projects in Mongolia;

Trade share of both China and Russia fall;

In Mongolia, investment opportunities are all entrepreneurial adventures;

China targets inflation to safeguard stability;

China opts for slower, cleaner growth;

Business influence on politics grows in China.

Politics:

Both the U.S. and China eye Mongolia as strategic partner;

Ten things about Mongolian democracy (and China);

False declaration of assets could lead to summary dismissal;

Complaints about district governors issuing SME funds to relatives;

Architect lists priorities of proper urban development;

50 hectares of ger areas to be vacated this year;

Minister reports on moves to merge 2 international banks from Soviet days;

First substance abuse death in Mongolia reported;

Three fined for forging President’s signature and seal;

Lawyer urges larger role for civil organizations;

Brand names turn Ulaanbaatar cosmopolitan.

*Click on titles above to link to articles.

BUSINESS

ERDENE RESOURCE REPORTS SILVER DISCOVERY AT ZUUN MOD Erdene Resource Development Corp. has announced final analytical results for its new porphyry copper discovery on the wholly owned Zuun Mod project in south-western Mongolia. "Our encouragement from the initial copper discovery reported February 1, 2011 strengthened considerably with confirmation that the previously reported 34-meter intersection of 1.3% copper also contains 9.24 g/t of silver," said Mr. Peter Akerley, President and CEO. "We believe the Zuun Mod complex has tremendous additional mineral potential and we eagerly await the results of an expanded drill program that will commence in early April." Source: Erdene Resource Development Corp.

SINGAPORE COMPANY TO BE LARGEST SHAREHOLDER IN HUNNU COAL

Mongolia-focused coal explorer Hunnu Coal Ltd. has forged a partnership with Banpu Minerals (Singapore) Pte Ltd, a wholly-owned subsidiary of Thailand's Banpu Public Company Ltd. Under the terms of the partnership Banpu will acquire 30 million shares in Hunnu through a private placement at AUD1.50 per share for AUD45 million. The transaction will give Banpu a 12.4 per cent stake in Hunnu, making it the largest shareholder in the company. Banpu says the acquisition will enable it to take advantage of the Mongolian coal sector and developing infrastructure, in addition to its close proximity to export markets such as China. Hunnu has a strong position in thermal and coking coal deposits in South Gobi in Mongolia and is currently exploring 10 coal development projects.

Source: Finance News Network

MERITUS FINDS NEW GOLD MINERALIZATION AT GUTAIN DAVAA

The assay results from the first six holes in the recently completed 2,500-meter winter drilling program at Gutain Davaa owned by Meritus Minerals Ltd. shows the intersection of two new gold mineralized horizons. These results demonstrate that gold mineralization, including high grade zones, extends over a vertical range of at least 215 meters, and also show the persistence of high grade zones within mineralized horizons. Compilation of data obtained from the first drilling program continues and with the addition of data from the winter program will enable the selection of sites for the initial holes of a new drilling program to commence in the spring. Source: Meritus Minerals Ltd.

XANADU MINES BEGINS EXTENSIVE DRILLING PROGRAM AT GALSHAR

Xanadu Mines last week began exploration drilling at its 100% owned Galshar thermal coal Project, 250 km south east of Ulaanbaatar. Galshar has a coal exploration target on the area and the aim of the current drilling program is to enhance and extend that target into a JORC code compliant resource. Two diamond drill rigs are operating on a double shift basis. A ground magnetic survey of the coal basin will commence shortly. It is anticipated that the first phase of the programme will take at least two months to complete, which may then be expanded to allow for more detailed JORC Reserve drilling in priority areas. Chairman Brian Thornton says, ―In addition to its Galshar project, the company has embarked on an aggressive program over the winter recess to evaluate a number of coal and potential porphyry copper opportunities across the south and the north of the country. Xanadu aims to spend about AUD6 million on exploration in 2011 on existing and new projects. This will be in addition to exploration spending on coking coal and iron ore as part of the proposed Noble Xanadu strategic alliance. Our coal strategy is to focus on projects strategically located close to existing or planned infrastructure, or near the Chinese border, and with the potential to produce in excess of 2mtpa of coal for 10 -20 years. With respect to the proposed Noble Xanadu strategic alliance, it is Xanadu‘s expectation that long form documentation of the transaction announced on 2 February to the ASX will be completed by 23 March 2011.‖ Source: Xanadu Mines

EAST ASIA MINERALS PLANS TO SPIN OUT ASSETS TO SHAREHOLDERS

The Board of Directors of East Asia Minerals Corporation has approved the implementation of a series of value enhancing transactions that, subject to applicable regulatory and other approvals, will result in eligible East Asia shareholders owning shares in four separate companies. East Asia Minerals has recently set up three new wholly owned subsidiaries to which it will transfer most of its non-Miwah assets. These subsidiaries are Sangihe Gold Corporation, to focus on precious metals exploration in Indonesia; Barisan Gold Corporation, to become a gold-copper porphyry exploration company focused on Indonesia; and East Asia Energy Corporation, to become a Mongolian mining and energy company. This last will initially hold all of East Asia Minerals' Mongolian assets, which consist of early stage uranium and phosphate projects. Upon completion of the proposed internal reorganization and subject to applicable regulatory approvals, East Asia Minerals intends to distribute, by way of dividend-in-kind to current eligible East Asia shareholders, all of the shares in Sangihe Gold, Barisan Gold and East Asia Energy held by East Asia Minerals.

Source: East Asia Minerals

GTSO JV SECURES NEW RARE EARTH MINING LEASE IN TUV

Green Technology Solutions, Inc. (GTSO) has said that the Mongolian agent company for its JV with Rare Earth Exporters of Mongolia (REE) has executed a new land lease agreement in the mineral-rich province of Tuv. The JV was formed last month for the purpose of expanding rare earth production and exports from Mongolia. The acquisition of Mongolian mining claims and operations is key to the joint venture‘s plans to develop stable sources of rare earths outside of China. GTSO President and CEO John Shearer says the company looks forward with great anticipation to seeing the mineral yield estimate reports on the new property, which are being scheduled now. GTSO management expects the new property to be especially rich in yttrium, tantalum, niobium, thorium and zirconium. These rare earths are vital to worldwide manufacturing of everything from consumer electronics to superconductors. ―We‘re in a celebratory mood at GTSO headquarters,‖ Mr. Shearer said. ―This lease is a big step forward in our plan to help solve the global rare earth supply crisis while instituting cleaner mining technology to minimize environmental contamination.‖ The new site is located in the Erdenesant district that surrounds Ulaanbaatar, which is Mongolia‘s road and rail transportation hub. The joint venture plans to utilize that transportation infrastructure to convey Mongolian rare-earth mining products to the international seaport of Vladivostok, Russia, where it can be shipped to the U.S., Japan and South Korea without traveling through China. Currently, Mongolian trade is over-reliant on China, and their government would like to encourage more trade diversity,‖ Mr. Shearer said. Source: Green Technology Solutions, Inc.

HARANGA’S SHAVDAL DRILLING TARGETS INTENSE MAGNETIC ANOMALY

Drilling has started at Haranga Resources‘ Shavdal iron ore project in Sukhbaatar province. The first pass program will comprise 2,500 meters of reverse circulation drilling and is targeting an intense magnetic anomaly that is coincident with extensive high grade mineralization identified at surface. Shavdal is near the provincial capital of Baruun Urt in eastern Mongolia and close to the operating iron ore mines of Ervei Khushuu and Tumurtei Ovoo. Baruun Urt lies along the path of the recently approved east-west rail line development that will connect the Tavan Tolgoi coal mine in the southwest to the rail terminal at Choibalsan in the northeast. The Ervei Khushuu mine currently exports a magnetite concentrate product using the rail terminal at Choibalsan. Meanwhile, a ground magnetic survey of the entire Selenge iron ore project area has been completed and the first processed imagery has become available. The survey has identified large new targets within the area of the licenses and has enhanced the ability of the company to target previously identified iron occurrences. Haranga plans to drill test the primary targets at Selenge during the 2011 field season and also plans to start a first pass RC drilling program at the Sumber iron ore project in southern Mongolia in March or April.

Source: Haranga Resources

QUAM TO LAUNCH MONGOLIA FUND

Quam Financial Services Group, whose holding company Quam Limited was listed on the Hong Kong Stock Exchange, will this month launch a new fund investing in the Mongolia market. Chairman Bernard Pouliot announced that this will be done through Quam‘s asset management subsidiary. According to Mr. Pouliot, "We seek to invest in a diversified portfolio of stocks exposed almost entirely to Mongolia to provide investors with what we believe is the first liquid Mongolian Fund." There are about USD2 billion worth of stocks listed on the Mongolia stock market and about USD28 billion listed on foreign stock markets such as Australia, Hong Kong, London, and Toronto. Eurasia Capital, known for its Mongolian financial market expertise, and Quam, which has extensive access to the Chinese market, have both geared themselves for heightened cross-border investment deals through Global Alliance Partners, an international network of financial services firms in the capital market.

Source: Quam Limited

DEAL SIGNED TO BRING CNN, truTV TO MONGOLIA

Turner Broadcasting System's Asia-Pacific unit has announced that it will launch a suite of its top channels in Mongolia, after signing a deal with the country's first IPTV operator, Univision. The multi-year deal will offer a mixed bag of Turner channels -- CNN International, Cartoon Network, Boomerang and truTV -- as part of Univision's triple-play service. The network covers Ulaanbaatar and other major cities using high-speed fiber optic technology.

Source: Variety

SPONSORS

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ECONOMY 6 GROUPS ON SHORT LIST TO DEVELOP TAVAN TOLGOI, FINAL CHOICE IN 4 MONTHS

Six groups have been shortlisted from the 15 applications to develop the central-west part of the Tavan Tolgoi coal field, said Mr. B. Enebish, executive director of the state-run Erdenes MGL LLC. They are ArcelorMittal, Vale SA, Peabody Energy Corp., Xstrata Plc, a venture between Mitsui & Co. and China‘s Shenhua Group, and the Russia-Japan-Korea consortium led by OAO Russian Railways. Mr. Enebish said Erdenes MGL, which owns the asset, will begin talks with the companies soon and plans to pick one to three winners within four months. The western side of the central area of Tavan Tolgoi holds more than 1 billion metric tons of coal, 68 percent of which can be used for steelmaking and the rest as fuel in power plants, Mr. Enebish said. The central-east side will be developed by a unit of Erdenes MGL, which plans to make an initial public offering to international investors by next year, he said. ―It depends on the negotiations, but we see no reason for delays,‖ Mr. Enebish said. ―We‘d like to clarify all issues with the west part before the IPO,‖ he said. Mongolia wants the winner to help build infrastructure around Tavan Tolgoi, including transportation, to boost further development in the area. Mongolia is pushing ahead to develop its biggest coal resource after seven years of talks as commodity prices surge and demand from steelmakers in Asia is exacerbated due to supply disruptions from Australia. The entire Tavan Tolgoi area holds more than 6 billion tons of coal, one of the world‘s biggest untapped sources of the mineral, Mr. Enebish said. Erdenes Tavan Tolgoi, the unit that will offer stock to foreign investors, will receive royalties from companies that develop the west side. The central-east side of Tavan Tolgoi also has more than 1 billion tons of coal, 75 percent of which is coking coal. Mongolia plans to export coal from Tavan Tolgoi to China, Japan and South Korea. Source: Bloomberg

THOSE THAT ARE ON THE LIST, AND THOSE THAT AREN’T

Of the original list of 15 bidders to develop Tavan Tolgoi, the world's largest untapped coking coal deposit, Australia's Fortescue Metals, China's Erdos Chenglong, Oleg Deripaska's En + Group, and three Mongolian firms did not make the shortlist. The other three who did not find favor were Signum International, and two Indian bidders, MESCO Steel, and International Coal Ventures Ltd., a consortium of large state-owned companies in India. Of those that did, ArcelorMittal is the world's leading steel company, with operations in more than 60 countries. In 2010, ArcelorMittal had revenues of USD78.0 billion and crude steel production of 90.6 million tons, representing approximately 8 per cent of world steel output. Its head office is in Luxembourg City. Vale is a diversified mining multinational corporation based in Brazil. In addition to being the second-largest mining company in the world, Vale is also the largest producer of iron ore. hydroelectric plants. Xstrata plc is a global mining company headquartered in Zug, Switzerland and with its registered office in London. It is a major producer of coal and is the world's largest exporter of thermal coal. Its officials gave a presentation to Prime Minister S.Batbold when he was in Australia. The biggest U.S. coal miner, St. Louis-based Peabody, said in July it has formed a venture with Winsway Coking Coal Holdings Ltd. to develop Mongolian resources. Winsway, which is listed in Hong Kong, was the biggest buyer of Mongolian coking coal in 2009, Peabody said. The Shenhua Group of China, which produced 320 million tons of coking and thermal coal in 2009, plans to have a capacity of 560 million tons by 2014. It had a tie-up with Peabody to bid for Tavan Tolgoi, but later chose Japan's Mitsui & Co as its partner in the quest. OAO Russian Railways is leading the Russo-Japanese-South Korean group in the bidding, the state-run company said in January. The group‘s members include Siberian Coal & Energy Co., Russia‘s biggest coal producer, Sumitomo Corp., Marubeni Corp., and Itochu Corp. Korea Resources leads the South Korean companies including Posco, the world‘s No.3 steelmaker, and state-run Korea Electric Power Corp. Read more… One of the South Korea bidders said the project would need an initial investment of around USD7.3 billion, with the winning bid announced on June 30, but Mongolian official Ch. Batbaatar, who is handling the bids, said there was no specific timeframe for selecting the final bidder. The USD7.3 billion figure could also not be confirmed, he said.

―Tavan Tolgoi is massively significant in terms of large, undeveloped metallurgical coal resources. So it's a big prize for whichever parties get to ultimately develop it," said Mr. Tim Schroeders, a portfolio manager at Pengana Capital in Melbourne. "The cost is going to be big because it's going to be difficult for whoever does get the gig to ensure the infrastructure solution is in keeping with the size of the resource." The deposit consists of six coal fields and Tsankhi is the main one, containing most of its coking coal resources. The bid is for this. It lies 540 km south of Ulaanbaatar and 270 km north of the Chinese border. The nearest port is China's Tianjin 1,570 km away, with the closest Russian port of Vanino more than three times the distance. "Russia has traditionally had a very strong relationship with Mongolia; the Mitsui-Shenhua grouping is interesting because Mitsui is a very active and early player in difficult jurisdictions, they are quite forward in their outlook, they'll go into places earlier than others," said Andrew Harrington, an analyst with Patersons Securities in Sydney.

Source: Reuters

“THIS IS ONLY THE START, MONGOLIA IS STILL UNDER EXPLORED,” SAYS ENEBISH

Identifying the six groups shortlisted to develop part of the Tavan Tolgoi deposit, Mr. B. Enebish, head of the state- run Erdenes MGL LLC which owns the asset, said on March 5, ―This is only the start. Mongolia would like to be one of the main commodity suppliers in Asia.‖ Coal output doubled to 25 million metric tons to become Mongolia‘s top export last year, encouraging the government to speed up Tavan Tolgoi‘s development after years of debate. The mining industry can help fund broader economic growth, which may hit 10 percent this year, Prime Minister S. Batbold has said. That would exceed China‘s targeted 8 percent for 2011. Mongolia attracted 15 initial bids to develop the field. The tender winner will pay Erdenes Tavan Tolgoi royalties for mining and assist in getting the coal to ports in China and Russia for export to Japan and South Korea, among other countries, Mr. Enebish said. Output, marketing, and transport plans will be discussed with the shortlisted bidders. ―Mongolia is still an under explored country,‖ Mr. Enebish said. ―We‘d like to see Erdenes Tavan Tolgoi in five or 10 years as one of the biggest coking coal mining companies.‖

Source: Bloomberg

MONGOLIA WANTS MINING TO “MOVE OTHER THINGS FORWARD”, SAYS BATBOLD

Mongolia needs to look beyond the coal and copper mines that are driving its economic boom to find a more balanced model of growth, says Prime Minister S. Batbold. Investment in mining projects and speculation on the wealth they will create in the world‘s most sparsely populated nation have made the MNT the best-performing currency since the beginning of last year. That‘s putting exports such as cashmere at a disadvantage, and adding costs to newer industries such as tourism, food production and metal processing. ―It is important to have a good mining industry,‖ Mr. Batbold said in an interview. ―But it is a tool of moving many other things forward. What we want to focus on is creating jobs in many other industries.‖ Mongolia needs to avoid developing the ―Dutch disease‖, where the financial benefits of a resource boom lead to a hollowing out of other sectors, according to the World Bank. Sandwiched by Russia‘s far east to the north and a 1.3 billion-strong, resource-hungry China to the south, the government is looking for ways to lessen its vulnerability to competition from its giant neighbors and reduce its reliance as a customer. ―Mongolia can‘t compete with China on wages, but it can certainly find areas in the Chinese economy where it could have an edge,‖ such as in cashmere, meat, and services, said Mr. Rogier van den Brink, lead economist for Mongolia at the World Bank. ―Diversifying from resources would be a solution similar to what the Dutch found to combat the resource disease.‖ Read more… Plans this year to begin mining part of Tavan Tolgoi and preparatory work for the 2012 start-up of Oyu Tolgoi may cause the economy to expand 33 percent in dollar terms, according to Eurasia Capital. That compares with a 10 percent growth in local currency terms, Eurasia said in a January 11 report. China, Mongolia‘s biggest rival in cashmere and top trading partner, is ―stealing jobs‖ with a more stringent currency policy, Mr. N. Zoljargal, a deputy governor at the Central Bank, told a forum in Ulaanbaatar. While the dollar value of greasy cashmere exports rose to about USD105 million from USD92 million in the first 11 months of 2010, it dropped to 3.6 percent of all exported goods in December in dollar

terms, from 4.8 percent a year earlier, according to the World Bank. Mongolia, which the government estimates has the capacity to produce 30 percent of the world‘s cashmere, this year set up a marketing agency to help farmers and herders market their products abroad. This should help producers compete on quality and brand, not price, agency chief Stephen Kreppel told the forum on March 4. Thirty-four percent of Mongolia‘s 1.1 million labor force work in agriculture, primarily tending livestock that includes the goats that yield cashmere fibers. Services employ 61 percent, with industry accounting for 5 percent, according to the CIA World Handbook. In contrast, industry provides 30 percent of gross domestic product and agriculture 21 percent. As well as raw materials and unprocessed animal products, Mongolia also sells apparel and leather goods and the government aims to support textiles, infrastructure, tourism and food production, Mr. Batbold said. ―We‘d like to focus now on value-added products,‖ he said. Tackling poverty is one reason development in Mongolia has become more urgent, with the mining industry a way to ―give better impetus to the economy‖. More than a third of Mongolians live below the poverty line, and per head income in the nation of 2.7 million is USD2,111, the International Monetary Fund said in 2010. China accounts for 80 percent of Mongolia‘s imports and buys about 85 percent of its exports, according to Mongolia‘s Central Bank data. While Mongolian trade turnover surged 54 percent to USD6.2 billion last year, imports exceeded exports by USD379 million, Eurasia Capital said, citing official data. To help mitigate the effects of the rising MNT, Mongolia‘s Central Bank is in talks with China on a currency swap that would amount to ―a few billion‖ yuan, Mr. Zoljargal said in a March 4 interview. The accord allowing trade to bypass the dollar should be ready before July, and a similar deal with Russia is likely to follow, he said. ―This will help us smooth all those pressures to the local economy,‖ Mr. Zoljargal said. The Central Bank last year introduced USD-MNT forward contracts to help hedge against jumps in the exchange rate and is supporting plans to set up a market for MNT-denominated government bonds as soon as this year, Mr. Zoljargal said. The measures will help make any appreciation in the MNT ―smooth‖ and predictable, Mr. Zoljargal said. ―We don‘t want to fight the trend,‖ he said. ―Our target is more on the inflation, which we‘re trying to keep at single digit.‖ The IMF in a February 17 report forecast the figure to reach 20 percent by the year‘s end due to increased state spending. Source: Bloomberg

NEW STAGE OF ECONOMIC GROWTH HAS BEGUN, FOREIGN PARTNERS TOLD The Government of Mongolia invited all its foreign partners in the last 20 years for a meeting on March 4, which was attended by Ministers, Ambassadors to Mongolia, Permanent Representatives of international organizations, and functionaries of foreign organizations working for Mongolia‘s development. The meeting was intended to mark the end of the transition period and the beginning of a new stage of development. Mongolia has asked for and received grants and soft loans from donor countries and organization since 1992 but now it would need less of both, with its economy set to grow stronger. However, foreign partners were told that their advice and suggestions on proper use of natural resources would be welcome. The meeting had three main themes: new financial opportunities, defining mid-term priorities of development that can be financed with revenue from resources, and ensuring good governance.

Source: Ardiin Erkh

CENTRAL BANK WORRIES “HOT MONEY” COULD DESTABILIZE ECONOMY

Mongolia is concerned about the destabilizing effect of ―hot money‖ inflows on the economy as it begins to develop large coal and copper mines, said Mr. B. Javkhlan, the First Deputy Governor of the Central Bank. The country spent MNT180 billion, or USD140 million last year to stabilize the exchange rate and will continue with the policy as expected commodity price gains and the start of operations at new mines pressure the currency, Mr. Javkhlan told the Mongolia Economic Forum last week. About 40 percent of money inflows into Mongolia are short-term, he said. ―One issue I‘d like you all to be concerned about is hot money,‖ Mr. Javkhlan said. ―The real exchange rate has quite a gap with the nominal. The more this grows, the more speculative money will come in.‖ The MNT has gained 15.4 percent against the dollar since January 1 last year and 19.2 percent versus the euro as the country‘s second-largest export, copper, hit a record USD10,190 a metric ton on February 15, and coal prices advanced on supply disruptions from Australia.

Mongolian banks hold about MNT1.5 trillion of ―extra‖ liquidity, Deputy Minister of Finance Ch. Gankhuyag had earlier told the forum. ―Come 2014, and we won‘t any longer need to be scared of this money flows, because it will be real money going into the economy when most of the mining projects are up and running,‖ Mr. Javkhlan said. ―The main goal now is stability of the fiscal system.‖

Source: Bloomberg

LSE WANTS MONGOLIAN COMPANIES TO LIST IN LONDON

The London Stock Exchange is looking to attract more Mongolian companies to list in London, through an agreement signed with the Mongolian Stock Exchange last month. "We will be supporting their management team, we will be providing their technology for trading, market surveillance, post trade," said Ms. Tracey Pierce, director of its equity primary markets. "We will be introducing them to the London advisory and investment community and clearly we would like to facilitate dual listings, Mongolia and London." The Mongolian government's up to USD5 billion IPO of the Tavan Tolgoi coal field, the world's largest untapped coking coal deposit, is one of those London is looking to attract. "Mongolia is extremely rich in natural resources and minerals and that is one of London's great strengths, expertise in the energy sector," Ms. Pierce said.

Source: Reuters

BOND-ING IN MONGOLIA

One Hong Kong banker recently said, ―Mongolia is the only game in town.‖ And soon, gung-ho investors may get a new way to play it. The resource-rich country, forecast by one bank to be the world‘s fastest-growing emerging market in coming years, wants to raise USD500 million in its first dollar bond sale. This is not the first time it‘s floated the idea. But it‘s the first time it has the attention of so many bankers and investors. A minister has said they see the ―issuance of inaugural sovereign bonds as a way to set up a benchmark and open up a window for private companies to go and raise money‖. The sale would ―probably‖ take place this year, but the idea still sounds tentative and should be treated as such. Last year Mongolia dropped a more ambitious plan for a USD1.2-billion bond sale. The foundation of Mongolia‘s appeal is its vast untapped resources of coal, copper and gold. They help explain why Mongolian equities were the world‘s best performing last year, gaining 140 per cent in dollar terms. Mongolia‘s surging commodity exports have also raised the value of its currency on the foreign exchanges (1,247 to the dollar as we write) – another appetizing trend for potential foreign bond investors. Still, any Mongolian bond is likely to sit at the racier end of the fixed-income spectrum. The country is rated B1 by the ratings agency Moody‘s, four levels below investment grade and on a par with Fiji and Papua New Guinea.

Source: The Financial Times blogs

MONGOLIA’S MACRO-ECONOMIC RISKS AS SNARLS OF THE WOLF

Attending the Mongolian Economic Forum last week was not just a welcome occasional foray into an interesting, yet relatively small and obscure Asian country, it was an insight into two main issues. Firstly, for me, it provided a snapshot back in time of a country just emerging from years of depression – much as I found China in fact when I first began working in the country 25 years ago. But secondly, and more importantly, it provided the recognition that what is happening in Mongolia is going to change the way the world sources its most in-demand raw commodities. Mongolia possesses the world‘s largest copper reserves, the second-largest coal reserves, significant onshore oil and gas fields, the world‘s second-largest deposits of rare earths, massive gold and iron ore reserves, and many other hugely significant deposits of minerals ranging from uranium to tungsten and zinc. Put simply, Mongolia‘s minerals will provide the world with supplies of many of its most valuable raw minerals for the rest of this century. That‘s why the country is suddenly gaining attention, and that is why the Mongolia issue is important. Opportunities, therefore, are huge for businesses in Mongolia, for mining companies and their supporting industries, as well as for those who will need to create a supply chain that gets both raw and processed products from some relatively inaccessible areas to the global markets. Yet the question always keeps cropping up – what about the risk? A whole host of risk assessment expertise was assembled at the forum, and I can relate their opinions in this article. Chaired by Dun & Bradstreet‘s country manager, the session quoted Mongolia‘s president: ―Our country is in great danger. Precisely because we have a wealth of natural resources.‖ It is that

perspective – that comes from the nation‘s highest office – that makes Mongolia somewhat unique. Where some nations have reaped massive bonanzas, others have become troubled. Mongolia appears to recognize that the wealth within can lead down two paths – that towards a Norway, Qatar or South Africa, or socially divisive paths down which nations such as Nigeria and Venezuela have trodden. Risk element number one then – treating mineral wealth as a license to print money – appears to have abated as the Mongolians themselves understand the risk. Read more… Additionally, when an economy becomes so dependent upon natural resources as a source of wealth, a specific set of risk criteria then come into play as definable issues. The main ones are: - Fluctuations in global commodity prices - Changes in foreign trade and political patterns - Appreciation of the domestic currency. Concerning the currency matter, Mongolia already has one of the fastest growing currencies in the world, and this is an area of concern. Other countries have struggled to adapt when their currency appreciates as it makes exports more expensive. Some serious damage to a number of international economies has occurred when changing from a manufacturing to a commodities-based economy, most recently Holland. In what is still referred to as ―the Dutch disease‖ the nation lost its entire manufacturing industry after its huge gas reserves impacted on its economy. It took nearly three decades to sort out the mess, by which time the nation lost its shipbuilding and auto industries. Already, Mongolia‘s cashmere industry is suffering similar problems as a result of currency appreciation. China, it goes without saying, faces similar problems. In terms of the fluctuation of global commodity prices, this is a little out of Mongolian hands. However, it is an issue that can be understood. Mongolia, it was stressed, needs to establish and implement a stabilization fund in order to avoid cases like Nigeria, where wealth management is a serious problem. The expansion of the Mongolian financial sector and services industry also needs to take a role in this, and to this end the government has appointed both Goldman Sachs and the Deutsche Bank to advise. For example, the participation in hedging can play a role in protecting fiscal budgets against commodity price shifts. Mexico, as an example of another nation largely dependent upon mineral wealth, took out contracts to hedge against the value of commodities it was producing in order to protect its fiscal annual budget, to be funded by those same revenues. Sure enough, the commodities dropped in value – but the effective ―insurance fund‖ from the paying out of returns from the hedging contracts allowed the country to maintain the integrity of its fiscal expenditure. Such are the structures that Mongolia intends to put into place. Mongolia‘s Deputy Finance Minister Ganhhuyag Hutagt went so far as to say that the government will implement a national level policy and strategy unit to determine and assess risk, and that he will examine the creation of a ―risk management officer‖ under the office of the prime minister. Clearly, the perils of macro-economic risk are not being ignored by the nation‘s leaders. It was also mentioned that a policy think-tank and research unit will need to be established in order to study issues such as the impact of inflation in China upon Mongolia‘s economy, and how price fluctuations in commodities would impact. Regarding hot money, the head of the Central Bank stated that this was an issue, with an estimated of 40 percent of the country‘s total foreign reserves ―capable of being withdrawn at any time‖. Mongolia‘s foreign currency reserves have increased by 250 percent over the past 12 months, and while certain elements within government wish to spend this, the bank‘s position will be more cautious until the longer term sustainability of these reserves can be better understood and managed. In building up reserves, rather than spending them, the bank‘s policy will see Mongolia‘s credit rating increase and enable it to borrow at preferential rates. Barclays Capital observed that the Mongolian GDP growth in 2010 reached 10 percent, the same as China, and is projected to reach 30 percent by 2013, making the economy one of the fastest growing in the world. Stating that investors want ―economic, political and social stability, coupled with transparency‖, it was also suggested that there is a need to better understand stability issues; especially those pertaining to the mining industry and the management and laws related to this. The establishing of secondary industries will depend upon the transparency of how Mongolia treats the main economic driver of mining. Noting that the sovereign wealth fund idea was close to being implemented, it was additionally stressed that how this fund was managed will be keenly observed for clues about the transparency and stability of the Mongolian economy. Meanwhile, the London Stock Exchange has won a tender issued by the Mongolian Stock Exchange to

commence with restructuring of the MSE. The new head of the MSE will be the current Chairman of the LSE, with a team of some 60 London-based managers, analysts and researchers relocating to Ulaanbaatar to assist. The Mongolian government intends to disperse of many of its state-owned enterprises, in addition to creating new markets in Mongolia for the trading of Mongolian commodities and the companies involved with these. (The writer, Mr. Chris Devonshire-Ellis, is the principal of Dezan Shira & Associates.)

Source: 2point6billion.com

CHINA WOOS MONGOLIA AS AUSTRALIA OF NORTH ASIA

China has agreed to provide a soft loan of USD300 million to Mongolia to develop a border free trade zone, along with other major trade and investment projects slated to take place in bilateral trade between the two countries. China‘s Foreign Minister Yang Jiechi visited Ulaanbaatar late in Fe4bruary to discuss bilateral trade and to seek access and participation in Mongolia‘s huge mineral reserves. A new Chinese Ambassador to Mongolia has also just been appointed as the two nations look to develop economic ties. Bilateral trade between the two is currently at USD3.3 billion, but this is expected to increase significantly over the next few years as the economic bonanza promised by Mongolia‘s massive mineral wealth starts to materialize. Investors are certainly straining at the leash to get in. With China already the world‘s largest consumer of coal, Mongolia‘s massive reserves are finding a ready market. On top of that, Mongolia has significant deposits of gold, copper, molybdenum, tungsten, nickel, zinc, wolfram, fluorspar, tin, silver, various minerals and rare earths. Furthermore, Mongolia is reputed to have significant reserves of oil and natural gas. This was apparently recognized by Stalin, but due to Soviet incompetence never actually realized. ―Stalin‘s Lost Oil‖ may yet give another boost to an already rich nation finding itself suddenly awash in mineral wealth. The world‘s largest coal deposit is in Mongolia, the country has the world‘s largest reserves of copper, and is the second largest producer of rare earths. Given China‘s recent decision to place restrictions upon the exports of its own rare earths, Japanese and U.S. businesses are bypassing China and going directly to this alternative source. Read more… As newfound wealth starts to trickle down, Mongolian consumer patterns are already changing. In Ulaanbaatar, the capital city now home to 50 percent of the nation‘s population, opportunities to spend have significantly moved up market. Where there was once just a Soviet-era State Department Store selling boots and essentials, there is a swanky, modern store full of the latest iPads and gadgets, while brands such as Louis Vuitton, Chanel, Salvatore Ferragamo and Cartier have already opened stores in the flagship Central Tower on Sukhbataar Square, Mongolia‘s equivalent of Beijing‘s Tiananmen. Mongolia has arrived, and is now one of the 50 countries globally dependent upon natural resources to stimulate growth and development. As much is based on mining and exploration, there is little wonder that the entire country is being compared to Australia, another economy largely dependent on natural resources.

Source: China Briefing

COURT HEARS CASE AGAINST GOVERNMENT FOR FAILURE TO IMPOSE MINING BAN NEXT WEEK The Sukhbaatar District Court will begin hearing a case against the Government on March 15 for its alleged failure to implement, even after two years of its passing by Parliament, the law prohibiting mineral resources exploration and exploitation in river and forest basins. The charge has been brought by The Union of Movements for Mongolian Rivers‘ Protection. Deputy Minister for Nature, Environment and Tourism Jargalsaikhan and Deputy Minister for Mineral Resources and Energy B.Ariunsan will represent the Government at the trial. The Union has requested the Court to allow the public and media to watch the proceedings of the trial. Source: Ardiin Erkh

STEADY GROWTH OF NON-BANKING FINANCIAL INSTITUTIONS

There have been several amendments since March 2006 to the law on non-banking financial institutions (NBFI), all aimed at better regulation of their activities. They now fall under the Financial Regulatory Authority and the Central Bank no longer has charge of them. Well over 200 NBFIs are now licensed, and most have their accounts audited. Incidentally, currency exchange units now have to follow NBFI regulations. NBFIs provide various services including loans of various types and for several purposes; factoring

services; acquittance; online transactions; investment and business consultancy, and long-term investment management. The registered NBFIs had 582 shareholders at the end of 2010, 880 employees, 63 branches, and 158,510 clients. Their transactions totaled MNT 128.6 billion, which is 2.1% of the total in the banking sector. Their credit balance stood at MNT 78.1 billion, 2.4% of those in banks. After they were allowed to increase their capital base, NBFIs now boast a capital of MNT 80 billion.

Source: Udriin Sonin

GOVERNMENT MULLING LOAN GUARANTEES TO MAKE CREDIT EASIER

Minister of Finance S. Bayartsogt has said the law on fiscal stability approved last year has radically changed the way state revenue and expense are computed and decided. The Government favors a further amendment seeing to give MNT 800 million to each aimag, leaving it to the citizens‘ representative assemblies there to decide how this will be spent. This is over and above what in included in the budget. The small business development fund in each district will receive a further MNT 50 million. The Government is aware that family income can be raised and jobs created only if intending entrepreneurs are provided easier access to credit. The main problem is the mandatory requirement for collateral against loans. The Government is considering if collateral for SME loans cannot be provided from the budget money. Money earmarked as loan guarantee will deliver better results than giving it as direct loans. With the Government guaranteeing MNT 30 billion of their loans, commercial banks can feel much freer to grant loans in higher amounts and at lower interests to more people. The Minister said the last two decades saw Mongolia receive about USD 2 billion in soft loans, and another USD 2 billion in aid. With the economy set to expand, a similar amount will now be required every year. ―It is a time for national cooperation and wise decisions,‖ Mr. Bayartsogt said.

Source: Zuunii Medee

EXCISE TAX ON DIESEL RE-IMPOSED

The Government decided on Wednesday to raise the excise tax on two types of fuel imported through Sukhbaatar, Zamiin-Uud, Ereentsav and Altanbulag border points. The tax on diesel, recently totally withdrawn, has returned and will now be MNT130,000 per ton and that on AI-92, MNT250,000 in place of the present MNT230,000. The increases take effect on March 11. The tax on A-80 remains MNT160,000 and there is no change in tariff for fuel imported through other border points.


IN PRINCIPLE, ONE PERSON SHOULD NOT BE ON MANY BOARDS, SAYS SPC OFFICIAL

Mr. O.Erdenebulgan, vice chairman of the State Property Committee (SPC), is of the view that state officials appointed to the board of state-owned enterprises should not receive any payment for their service to the company. ―Independent members are also unlikely to receive any regular payment, but will probably receive some stationery expense allowance,‖ he says, adding that any final decision is yet to be taken. He has also denied allegations that some independent people nominated to company boards are not qualified enough and their choice was mainly guided by political considerations. ―The boards of all companies consist of responsible, experienced and qualified professionals. There is no ground to say they have low qualification,‖ he has asserted. Asked if it is fair to appoint the same person to many boards, Mr. Erdenebulgan has said the issue could be reviewed. The Ministries of Mineral Resources and Energy, of Environment and Tourism, and of Finance appoint one person each to a board. The choice of the individual is theirs and the SPC has to accept whoever is nominated by the ministries. ―In principle, it is not appropriate for one person to serve on more than one board, given the heavy work load and other factors,‖ he feels. In a bid to ensure more transparency, the SPC has asked directors of state-owned enterprises to disclose the inventory purchase reports. These will be published in daily newspapers. The public will know details of purchase of products and services, and sources and terms of supply. ―Our goal is to address issues of business pressures and attempts to influence the decision of company managements. This will certainly help improve corporate governance. We have also replaced 21 directors of state owned enterprises in the last two years following their violation of norms in purchase operations,‖ Mr. Erdenebulgan said.

Source: The Mongolian Mining Journal

THE MAIN THING IS FOR BOARDS TO HAVE ACTUAL POWER, FEELS ANALYST

Mr. J.Unenbat, director of the Corporate Governance Development Center, wants certain basic principles to be followed when members of a board are chosen. ―Selection should be on the basis of skills, experience and the likely contribution of the person to furthering the interests of the company,‖ He has said, adding that the really important thing, however, is that ―such boards have some actual power and are left free to perform their main tasks, which are to appoint the executive management, and to monitor and guide its work. The state should not appoint people without the approval of the board.‖ He admits there is a dichotomy when members are appointed to the board of a state-owned company. ―It is true that members chosen by the State Property Committee (SPC) may find it difficult to be independent, thus affecting good corporate governance, but the state can control its property only through a board, and as the largest shareholder it has the right to appoint a board of its choice‖, he says. The best solution is to give total independence to a board once it takes charge, he says, adding, ―As shareholder, the state should not have any other goal than making profit.‖ Mr. Unenbat sees no merit in occasional suggestions that the SPC should be allowed to manage things directly. This, he asserts, ―contradicts the principles of good corporate governance‖. The board represents shareholders, and should bear the final responsibility for the company‘s policies, strategy and performance. He says there would be no need for a board ―if the shareholder is directly and actively involved in the board‘s work‖. The crux of the matter, he says, is that the main aim of the state representatives on the board is to increase the final worth of the company and the main issue for them is ―whether to serve the interests of the company, or those of the ministry or the organization which appointed them‖. Source: The Mongolian Mining Journal

GOVERNMENT APPROVES DRAFT AGREEMENT ON IMPORTING CHINESE WORKERS

The Government has approved the draft of an agreement to be signed with China to import labor from there to work in specified areas. Minister for Social Welfare and Labor T.Gandi has been asked to submit the draft to the National Security Council. China had tentatively agreed at the last meeting of the inter-government commission to send workers, provided their security and interests were protected by a proper agreement. There have been reports of Mongolian employers and labor contractors employing foreign workers illegally so that their rights, such as housing, are ignored. The draft allows only skilled workers with professional training to take up employment in Mongolia, with permission from a concerned state organization which will verify an employer‘s needs. The Ministries of Mineral Resources and Energy, of Social Welfare and Labor, and of Road, Transportation and Urban Development will publish data on economic entities‘ requirements of both domestic and foreign workers.

Source: Onoodor

ERDENES TT BOARD MEMBER NOT HAPPY WITH SELECTION OF BANKS

Mr. J.Batzandan, a member of Erdenes Tavan Tolgoi Representative Board, has expressed his dissatisfaction with the way four banks were picked for arranging the company‘s initial public offering of shares in the international capital market. ―The committee of five MP nominated by the Government decided everything on their own without involving us Board members at any stage. We did not even get a chance to meet the candidate banks. If this goes on, I shall leave the Board,‖ he told a citizens‘ meeting held to explain details of the share distribution in the company.


JAPANESE GROUP TO HELP SET UP STEEL PLANT The Ministry of Mineral Resources and Energy has signed a memorandum of understanding with Kobe Steel Group of Japan to build a steel plant using iron ore to be processed in the Darkhan Ferrous Metals Factory with a new technology. The Ministry wants the proposed plant to export value added products and to reduce the export of iron ore. The Japanese group will transfer technology that is at present exclusively used by it.

Source: English.News.mn

STEEL EXPERT SAYS CHINA OBVIOUS CHOICE AS PARTNER IN BUILDING PLANT Officials in the Government who are involved when proposals come from abroad to set up industries in Mongolia have expressed surprise at reports in Indian media that the State-owned Steel Authority of India Limited is in talks with the Government here on setting up a steel plant. The Director of the National Association of the Steel and Automobile Industry, Mr. B. Shagdar, has said China is an

obvious choice as the foreign partner if one is felt to be needed. He says the plan to build a steel plant was mooted as long ago as 1973, when a feasibility study recommended a 1-million-ton capacity plant based on Tumur Tolgoi Bayangol reserves. The plan was abandoned as infrastructure development was a difficult issue then. He feels much of the study is still relevant and only a few changes and updates are needed before deciding on building a plant to produce steel using all the iron in Tomortei, Bayangol, and Tumur Tolgoi, and in Khongor, Chandmani, Dorvoljin, Ereen deposits in Dundgobi. He also feels there are enough engineers and other professionals in metallurgy in the country to make this possible. In the event foreign assistance is called for, the Chinese should be approached in ―as they already import over 300 trains of iron ore every day from Mongolia‖ and is a ready market for the steel. The export of steel in place of iron ore will have, according to Mr. Shagdar, one little realized benefit. The earth that is transported along with the ore, he says, is ―fertile, healthy soil that helps Chinese agriculture and that would now be used to grow better crops in Mongolia‖.


OFFICIAL PROMISES ALL-ROUND IMPROVEMENT IN HERDERS’ CONDITION

Mr. P.Gankhuyag of the Ministry of Animal Husbandry and Light Industry has said several measures, already or soon-to-be implemented, will result in an all-round improvement in the performance of his Ministry this year. Small meat processing units will be set up in many districts in several provinces; all areas except those identified as risk-free will be provided with adequate foot and mouth vaccines; more fodder will be produced; livestock indexation done; and the capacity of veterinary and breeding services, particularly of those recently set up, will be strengthened and streamlined. These are all part of the Mongolian Livestock program and are certain to increase herders‘ income. He said last year‘s zud and the widespread outbreak of the foot and mouth disease ―have taught us important lessons and we are more prepared for an emergency now‖. The Government expects to cover 90% of herders under social insurance and 100% of them under health insurance. They should be considered professionals and treated on par with salaried workers. Revenue from exporting animal husbandry products is expected to reach USD 1.5 billion or even more. Implementation of the Mongolian Livestock program is likely to cost the state budget MNT51 billion in all.

Source: Undesnii Shuudan

MEETING RECOMMENDS STEPS TO HELP WOOL PRODUCERS

A recent meeting jointly organized by the Ministry of Food, Agriculture and Light Industry, and the National Wool and Cashmere Association brought together wool producers and suppliers, mostly herders, traders, and business owners to discuss how more wool can be processed locally. Its deliberations will be submitted to the Government and Parliament for follow-up action. Participants wanted it to be mandatory for all military personnel to be supplied with local wool products. They also wanted the trade to be organized in a way that herders can demand their own price, without pressure from manipulative traders. Around 7,000 tons of Mongolian wool finds its way to China every year, and the meeting wanted an export tax of MNT10,000 per kg of raw wool.


PROPER MANAGEMENT IS NEEDED IN MONGOLIA, SAYS LOCAL ENTREPRENEUR

Mr. T.Gantumur, General Director of Ochir-Undraa Group, has said economic growth will have many positive social results. ―A creator of wealth will be of high value and, who knows, all this may persuade many of those who left Mongolia to seek success elsewhere to come back,‖ he has said. He has, however, warned that there is another side to this growth. ―Inflation may go up. Resources may be manipulated. People may prefer to be consumers of readymade resources rather than to produce things and to build and improve their own capacity. I also don‘t want our country to be squeezed dry, and left waste. It is true that if the coal is not used now when it is in demand, another technology could come up to replace it. Still, we need the state as much to facilitate minerals exploitation as to control it.‖ He says the state must not ―interfere in everything‖, but state intervention is ―often necessary‖. It will be effective only when ―it is prudent and seen to be impartial and should not be so great that the business sector finds itself obstructed in its legitimate work‖. Proper management will be needed to make life better for all, and Mongolians ―will enjoy economic freedom only when they acquire knowledge and skills and experience,‖ Mr. Gantumur says. ―A person working hard is a national asset. I do worry that the cash distribution would encourage

people to become lazy. I wish them to do their best for their own sake, and the country‘s, and maybe for their employing companies‘ also. The private sector, too, needs develop its entrepreneurship skills, and use capital to compete with foreign investors.‖ Read more… Mr. Gantumur finds it ―strange and most disappointing‖ that some foreigners, and even some in the government, view Mongolians as incompetent, contradicting experience on the ground. ―Since Mongolians have proved that they can do things so well, I see no point in allowing 100% foreign companies to produce, transport and conduct blasting with their own explosive materials. I think this facility should be monitored and restricted.‖ He feels foreign investment is necessary at the moment ―because capital is insufficient in Mongolia, but this will change over the years, and maybe in a few years, Mongolians will go to invest offshore‖. State policy and regulations must be sensible and fair. ―Investors cannot be denied their profits, but the economic returns for the country should be high. Mongolia is capable of good work and proper management will see our products sell at the world market for a good price,‖ he feels. Source: The Mongolian Mining Journal

MINING COMPANIES SHOULD NOT FEEL UNEASY OVER TRANSPARENCY TEST

The Dodd-Frank Act, which the U.S. Congress passed last year, was designed to reform financial regulation. But it may also prove an important tool in the fight against international corruption. The legislation requires US-listed companies involved in oil, gas or minerals extraction anywhere in the world to report all payments they make to governments to the Securities and Exchange Commission, project by project and country by country. Those that fail to do so face exclusion from US capital markets. Moves are afoot to introduce a similar law in the European Union this year. This is good news. Mineral deposits should be a blessing for the country where they are found. More often, however, they are a curse. When citizens do not know how much their governments are paid, they cannot ensure that resource revenues are well spent, or that their country is getting a fair deal. Transparency alone will not make resource-rich countries more open and stable, but without it, nothing will change. Companies will benefit too. By leveling the playing field on which they compete, transparency legislation reduces the scope for unfair competition through bribes. Requiring transparency for financial market listing is a simple and effective way to stamp this out. It is high time that the EU, and all countries where extractive companies are listed, followed the US lead. Read more… Some companies dispute this, pointing to opaque Chinese state-owned corporations that they fear will hoover up contracts through underhand means, while law-abiding westerners miss out. But this is to misunderstand the risk. Chinese companies need not rely on bribery to secure deals. They are also able to succeed because they are willing to pay high prices for access because of the subsidies they receive from Beijing. Even this is not a conclusive advantage. The technological knowhow of western giants ensures that their services remain in demand. Others fret that binding disclosure requirements would undermine the Extractive Industries Transparency Initiative, a voluntary code that has led to greater disclosure of financial flows between companies and host governments. The case is not compelling. A compulsory code, so long as it was widely applied, would surely be better for those who already voluntarily disclose. After all, it would prevent their less scrupulous rivals from competing unfairly.

Source: The Financial Times

DEVELOPING TAVAN TOLGOI TO COST USD1.5 BILLION, SAYS RUSSIAN RAILWAYS HEAD

Interfax has quoted Mr. Vladimir Yakunin, head of Russian Railways, as saying that investment to develop the Tavan Tolgoi coal field will total about USD1.5 billion. He said, "The preliminary evaluation assumes that investment will total about USD1.5 billion, given resource support. We have already submitted our proposal for a joint venture with Mongolia to carry out this project." Source: Steelguru

GEOPOLITICAL CONCERNS STYMIE PROJECTS IN MONGOLIA Following are some of the key Mongolia risks to watch: Political instability

The capricious nature of Mongolia's democratic government can complicate foreign investment

projects. Analysts also complain about the weakness of Mongolia's political parties and its poor regulatory capacity. Corruption may also prove to be a long-term problem. Transparency International rated Mongolia 116th in its 2010 corruption perception index, up from 120th in 2009 but down from 102nd in 2008. Political troubles have also arisen from the arrest in London of Mongolia's counter-espionage chief, Mr. Bat Khurts. Several hundred protesters gathered outside the British Embassy in Ulaanbaatar at the end of February, calling on the government to expel firms like Rio Tinto from the country in retaliation. Regulatory risk The halt to the issuance and transfer of mineral exploitation licenses until the government enacts stricter environmental laws has rekindled some of the uncertainty that for years surrounded mining investment in the country. It is unclear how long it would take to pass a new law. In November, the Ministry for Energy and Mineral Resources said it would suspend 254 gold mining licenses and review another 1,700 believed to contravene the country's Water and Forest Law. Dependence on China, Russia

China already dominates Mongolia's economy, buying 84 percent of the country's exports last year. Some Mongolians fear China's bulging population will increasingly lead to immigration into Mongolia for work, especially if Chinese firms take over the bulk of its mining sector. Russia has also been exerting pressure on its former satellite, especially over uranium. Canadian miner Khan Resources has accused Moscow of working behind the scenes to force it out of a deposit in the northeast. Talks continue on a Russia-Mongolia joint venture to explore and produce uranium. What to watch:

-- The growing dominance of China in Mongolia's economy has prompted many of Mongolia's elite to lean further towards Russia, but China is unlikely to step aside, and will also have much to say on where and how Mongolia builds its roads and railways. -- China rejected the bid for Khan Resources by state nuclear firm CNNC after Ulaanbaatar revoked the company's licenses. Is Russia now in the driving seat in the battle to secure more Mongolian uranium? What will be China's next move? Balancing "third neighbors"

Mongolia has sought to carefully balance the interests of China and Russia, and to press ahead with its "third neighbor" policy aimed at courting allies like the United States, but analysts say no nation has the clout to underwrite Mongolia's independence or undermine Russia or China's influence. While the country hopes to develop its resources as quickly as possible, many of its bigger projects have been stymied by geopolitical concerns. What to watch:

-- Will Mongolia's efforts to bring in overseas investment be derailed by the pressures exerted by Russia and China? -- Mongolia now plans to list 30 percent of the eastern block of the Tavan Tolgoi project on an overseas stock exchange, distribute 20 percent to local enterprises and residents, and keep 50 percent in the hands of the state. Meanwhile, stakes in the western block of the project have been put up for tender and received 15 bids from mining firms in January. Will this be the ownership model in other key "strategic resource" projects, or will Mongolia be forced to sell properties outright in order to kickstart economic growth?

Source: Reuters

TRADE SHARE OF BOTH CHINA AND RUSSIA FALL The share of Mongolia‘s trade with both China and Russia has decreased year on year. At the end of February, 2010, 55.7% of the total trade was with China, 20.2% with Russia, and 24.1% with other countries but one year later, the figures are 50.2%, 16.8% and 33.0% respectively. Source: The National Statistics Office

IN MONGOLIA, INVESTMENT OPPORTUNITIES ARE ALL ENTREPRENEURIAL ADVENTURES

The main focus of what is going to be a decade of massive change for the Mongolian economy is going to be mining. In fact, the massive reserves that the nation possesses are such that there is

talk of a ―mining mania‖ and serious concern about how this young nation can cope with the implications this natural bonanza will bring. At the two-day Mongolia Economic Forum, the focus was on governance and how to manage this transition. That the transition is going to come as a jolt is understating it. Even now, Mongolia‘s largest export sector is agriculture – mainly cashmere wool and animal by-products. Mainly sourced – still rather archaically -- from the nomadic herders, this industry supports hundreds of thousands of Mongolians scattered across all corners of a country the size of Western Europe. Yet a strengthening currency and Chinese competitiveness is squeezing even this most basic of industries. This comes as bad news for the Mongolian nomads who still make up 50 percent of this ancient, yet fiercely proud country. That aside, it is also home to a variety of quirky expatriate adventurers who have made it home and have found their own niche. From adventure travel operators, to publishers, here is a list of a handful of the brave whose initial forays paid off as adventure investors: 1.The Australian Cossack who maintains a ranch of 1,000 cattle 50 km outside the capital city, free range, and exports his entire meat production to Australia as a premium product; 2.The Brit who, wandering through one day, set up a pub and now has the busiest expat hangout in the city; 3.The Dutchman who makes sausages in Mongolia and exports them to China and Russia; 4.The Italian who set up a modern equipped cheese factory in the middle of nowhere to access the nomads, and exports full cheeses to Italy and the United States as a premium brand; 5.The German who runs year-round adventure travel vacations and is currently escorting a group of 10 through the icy wilderness of the far north in temperatures of minus 30; 6. The Belgian who makes ger kits (Mongolian tents) and sells them throughout Europe; 7.The Englishman who established Ulaanbaatar‘s first English-language college for adults and now operates two schools; 8.The Canadian, who set up Mongolia‘s first property brokerage and is now a multi-millionaire. I‘ll leave you with one last comment. Of all the expatriates I have met in 10 years of traveling to and from Mongolia, I have never met any who didn‘t fall in love with it. Praise indeed for an emerging Asian, wolf economy. The opportunities both for the romantics and the heavy industry players are all there, and the country is about to go places. Investors and adventurers should take note. Read more… Yet despite the mining industry being an apparent savior, the global mining multinationals and Mongolia have not always seen eye-to-eye. Mongolians revere their land, and polluting it runs against strong local Buddhist and shamanistic beliefs that can die hard here. The Government, for example, turned down a lucrative proposal to develop a premium Japanese-funded golf course just outside the city when they found out that chemical fertilizers were needed to cultivate the grass. It‘s hard to imagine that stoicism in China, where even pristine land can be treated as a convenient dumping ground for toxic waste. Plans for a casino, too, to attract Chinese gamblers, were eventually aborted after it was deemed to be contrary to Mongolian Buddhist principles. Certain mining operators, meanwhile, have also taken advantage of the country in the past. In a notorious case that shut down foreign investment in mining here for close to a decade, one well-known operator negotiated a 100 percent profit tax breaks for five years in order to allow them to recoup the investment on the equipment needed for extraction. What was supposed to be a project with a 20-year life span and 15 years of tax revenues for the government was then cleaned out in 4 years and 10 months. The Mongolians, quite understandably, felt they had been raped. However, Mongolia itself does not possess the technology, skills or manpower to mine its own resources. While a careful rapprochement of sorts has been made with some operators, Mongolia has been treading slowly, eager to learn from past mistakes and to take time of their understanding of the implications of exploiting their natural resources. That hasn‘t stopped some impressive reserves being put into operation, and Mongolia has learned a lot from these initial ventures. But, in what may come as a shock to the international mining community, the Mongolian President, Mr.Ts. Elbegdorj, told the Mongolian Economic Forum that mining in the country would be under Mongolian standards, and that the entire mining industry would need to change much of its current operational practices in order to be in the country. Specifically, he stated that amendments to the Minerals Law in Mongolia will be changed, possibly as early as April 30 this year to better regulate the industry and to define the principles of responsible mining. For an industry often used to getting its own way, it is somewhat ironic that it has taken the nomads of Mongolia to stand up, and with their massive reserves, dictate terms. The outcome will be interesting to observe, and you can bet there will be some squealing from the

mining community as concerns the inevitable higher extraction and remedial costs that will almost certainly result. All that said, the industry is in a position where it cannot afford to ignore Mongolia. Already, Mongolian coal reserves are competing with Australia and once oil, gas, and iron ore explorations come on-stream the country will become a global source of both raw and processed minerals for decades. This is now impacting on foreign investment into the country in a big way. In discussions with the Canadian Ambassador, he revealed that about 90 Canadian companies had already invested in Mongolia, with most of them in mining or mining supplies. With a combined investment total of about USD3 billion, that‘s an average of USD33 million per business and is hardly small beer. To demonstrate how the mining potential is impacting on a player such as Ivanhoe, just take a look at their corporate web site. It‘s all about Mongolia, and what goes on now in the country can impact heavily on Nasdaq‘s performance. Such is the extent of the new, global influence that Mongolia can wield. The Mongolians, though, are serious about reforming the global mining industry, and they can afford to be. In terms of looking at the ―Natural Resources Curse,‖ an interesting statistic crops up. According to the World Bank representative in Ulaanbaatar, countries that have discovered significant natural mineral wealth tend, on average, to perform worse in terms of growth than those without. The ―Natural Resource Curse‖ can be partly a result of corruption, but most significantly can create an industry so domestically powerful that increased wealth, an appreciating currency, and subsequent inflation can single handedly destroy other key industries. It‘s happened. Holland lost its shipping industry and had to rethink its entire economy after gas revenues raised prices so high it made the entire country‘s manufacturing sector bankrupt in the 1980s. Mongolia is aware of this, but is laying on top of that another level of insulation. Recognizing that mining can literally create scars, political strife, conflicts and divisions in society as an unwanted legacy, their new laws are likely to focus on leaving a positive footprint providing tangible, long-term benefits and a national source of development and prosperity. That‘s all very well said, but it sounds like the environmental implications are going to be huge. That‘s another industry sector that needs to be taking a look at Mongolia, as the country insists upon responsible mining as its new mantra. The Mongolians have also begun doing some serious homework. In working out a development plan for their own country, they‘ve been scouring the thoughts of similar sized countries around the world. Ignoring differing political systems, the Mongolians have tried to understand their own position by examining others. Interestingly, the national development plans for both Qatar and Vietnam both came in for particular praise. Such attention to detail augurs well for the country, while MBA students involved with national economic development studies would do well to note the contents. All that good news said, Mongolia does lack in other key areas. Energy is a problem and Ulaanbaatar is stretched. The Soviet-built coal powered stations are old and polluting, and plans for more efficient, cleaner stations have been delayed due to costs and political wrangling. Democracy and getting long-term plans into place have proven occasionally difficult to manage. The winter smell of burnt coke still hangs over UB like a fine, choking dust. As an alternative, plans to develop Mongolia‘s first wind farm are also on the drawing board, although cost remains a prohibitive factor. Moving out of UB, much of the countryside is entirely without power, and mining operators have to spend huge amounts of money to get energy into their fields. Most Mongolian nomads use solar panels to provide electricity – these can run a TV, a radio, and lighting, and are free. Mongolia‘s status as the sunniest country in the world with over 300 days of sunshine each year provides some dividends. It also goes without saying that Mongolia is very different from anywhere else in this part of Asia. It is passionately democratic, with a free media, no blocking of internet access, with everyone having a vote. While that can make Mongolian politics noisy, it does mean that the government has to watch what they‘re doing and have to perform. Inevitably, some cronyism has hung around from the old Soviet days, and questions can be asked as where certain officials obtained their wealth. Yet Mongolia‘s Parliament successfully passed a law last year to force officials to reveal their true assets, and the government has signed up to the global Transparency International initiative. Additionally, with the help of the global community, Mongolia‘s civil service and its institutions are being invested in and developed, and these should help keep checks and balances in place. Governments have fallen in the past 20 years of Mongolian democracy due to either incompetence or corruption, and the mechanisms for resisting a subversive attempt to unilaterally gain control of the nation‘s assets are being carefully put in place. While the fantastic sums of money that stand to

be earned from Mongolia‘s mineral wealth are still vulnerable, it seems apparent that an autocratic dictatorship approach is unlikely to succeed – unless, like Peron‘s Argentina, he happens to be nationally popular, possibly the only real democratic subversion risk that Mongolia has to watch out for. As indicated, much of the opportunity for foreign investors lies within the immediate need to exploit the nation‘s minerals. Yet along with that, the government is keen to develop secondary industries and technologies and move added-value both up and downstream. If your business can do this, Mongolia should be a destination to consider. With a corporate income tax rate at a high band rate maximum of 25 percent (15 percent for smaller businesses), and tax holidays on offer, the investment and financial environment is positive. At present though, it still remains an investment destination where you really need to know your industry to succeed, and to be able to train and educate local workers. While mining remains the dominant attraction for now, agriculture remains a key and politically important industry as it reaches right into the hearts, minds and pockets of half of the national population. Mongolia therefore is ripe for mining related businesses, including suppliers, added value and secondary industries, and agriculture and animal husbandry.

Source: 2point6billion.com

CHINA TARGETS INFLATION TO SAFEGUARD STABILITY Chinese premier Wen Jiabao has identified tackling inflation as Beijing‘s top economic priority this year as his government tries to make the country‘s growth more sustainable and equitable. ―Recently prices have risen fairly quickly and inflation expectations have increased,‖ Mr. Wen said in his annual state of the union address in Beijing on March 5. ―This problem concerns the people‘s wellbeing, bears on overall interests and affects social stability.‖ In a speech filled with exhortations to safeguard social harmony and stability, Mr. Wen outlined the ―brilliant achievements‖ made by the Communist Party over the last five years and presented a blueprint for the next five-year plan. First on the list of short-term objectives was tackling persistent price rises that have lifted the benchmark consumer price index by nearly 5 per cent in each of the last three months. The government must ―make it our top priority in macroeconomic control to keep overall price levels stable,‖ Mr. Wen said. He went on to add that this task could involve ―administrative means [an apparent reference to price controls] when necessary‖. But Mr. Wen also explained somewhat contradictory plans to continue the rapid minimum wage increases across the country that some analysts believe have already contributed to rising inflation expectations. Read more… With one eye on the wave of unrest sweeping across the Middle East, China‘s leaders believe they must urgently address the country‘s wide and growing income gap in order to safeguard social stability and maintain their tight grip on power. ―Through unremitting efforts, we will reverse the trend of a widening income gap as soon as possible and ensure that the people share more in the fruits of reform and development,‖ Mr. Wen promised. Many pundits in the US and elsewhere have fretted over China‘s perceived superiority in everything from high-school test scores to management of the economy but in his speech Premier Wen highlighted the challenges facing his government. ―We are keenly aware that we still have a serious problem in that our development is not yet well balanced, coordinated or sustainable,‖ he said. Environmental degradation, dwindling resources, rudimentary education and health services, over-reliance on investment rather than consumption, a lack of scientific or technical innovation, poor food safety and rampant official corruption were all serious problems identified by Mr. Wen.


CHINA OPTS FOR SLOWER, GREENER GROWTH

China will cut its reliance on fossil fuels over the next five years, a senior energy expert has said, as Beijing puts added emphasis on green energy in its economic planning. The world‘s largest energy consumer intends to generate 11.4 per cent of its energy from non-fossil fuel sources by 2015, up from 8 per cent today, under the terms of the next five-year plan. That shift is equivalent to moving the whole of Italy off fossil fuels. According to Mr. Zhang Guobao, former head of the National Energy Administration, China will also try to cap total energy consumption over the same period and to expand energy use at just 4.24 per cent per year – far slower than gross domestic product. The targets, which Mr. Zhang outlined in an interview with Xinhua news agency last week, highlight government efforts to shift towards slower, cleaner growth.

Energy controls are part of the broader economic shift, as leaders try to limit runaway growth and rampant environmental degradation. The state‘s energy goals were taken so seriously that last year they caused the shutdown of steel mills and power cuts in some areas, as desperate officials rushed to meet the targets set in the previous five-year plan. The move towards green energy has transformed areas such as wind power, for which China is now the largest market, as well as solar and nuclear programs. By 2020, China will draw a fifth of its power from non-fossil sources, says Mr. Zhang. Energy use and energy security have become a priority, as China has struggled to generate the power necessary for its breakneck growth. During the past 20 years it has moved from being a net exporter of energy to being a net importer. It is now the world‘s second largest importer of both crude oil and coal.


BUSINESS INFLUENCE ON POLITICS GROWS IN CHINA When the China chief executive of the U.S. investment bank JPMorgan was first nominated as a delegate to China‘s top political advisory body, he had a hard time explaining to his employer exactly what the role involved. ―After a lot of back and forth and explanations from me, the internal legal team eventually concluded that it would be similar to being appointed to the [British] House of Lords, although the Chinese People‘s Political Consultative Conference is indeed something unique to China,‖ laughs Mr. Fang Fang, 45, who is also vice-chairman of Asia-Pacific investment banking at JPMorgan. That is not quite how China‘s leaders like to present the CPPCC, held alongside the National People‘s Congress, the country‘s parliament, which opened in earnest in Beijing on March 5. They prefer to describe it as ―an organization of the patriotic United Front of the Chinese people‖ and ―an important forum for promoting socialist democratic politics with Chinese characteristics‖. In today‘s China, Mr. Fang‘s very different roles – as a western banker and as a political adviser to the Chinese government – are, in fact, not contradictory. Rather, they reflect the increasing influence of business interests on the country‘s political process. The CPPCC is supposed to work like an upper house, offering suggestions for legislation and advising the NPC on new rules, but in practice all big policy decisions are decided separately by the ruling Communist party and approved by the parliament. The two bodies were once supposed to represent the masses, with delegates organized into the categories of ―peasant, worker or soldier‖, but today they are populated by film stars, bureaucrats and billionaires. Read more… Yet CPPCC membership still has political benefits, Mr. Fang says. ―It opens doors to the country‘s top leaders because ... delegates can send their proposals to any ministry or provincial government and request meetings with relevant officials, and that government entity is evaluated on how responsive they are to such proposals and requests. There is an enormous machine working behind the scenes to ensure CPPCC requests and suggestions are all taken seriously and answered by the relevant authorities,‖ he says. The richest 70 of the 2,987 delegates to the NPC have a combined wealth of USD75 billion and include China‘s richest man, Mr. Zong Qinghou, chairman of Hangzhou Wahaha Group, according to the Hurun Report, which publishes an annual China rich list. A decade ago, the Communist party decided its survival depended on being more representative of modern society and made the historic move to allow capitalists into the party and the legislative bodies. Today, the list of CPPCC delegates includes people and companies instantly recognized by many outside China. The national advisory body is mirrored throughout the country by provincial and local level consultative bodies, which include numerous executives from foreign companies operating in China.


POLITICS BOTH THE U.S. AND CHINA EYE MONGOLIA AS STRATEGIC PARTNER ‗Economic powerhouse‘ isn‘t a term usually associated with Mongolia—lack of development, political uncertainty, and limited resources continue to restrict its growth. Nor is ‗strategic pivot‘—Mongolia is, after all, a landlocked country with no ports, a small army and an underdeveloped infrastructure. And yet numerous countries in the Asia-Pacific region and beyond are starting to recognize that this geographic titan (it‘s larger than France, Spain, and Japan combined) has real potential to become a key strategic partner.

China, Japan, South Korea, India, and Vietnam all already maintain missions in Ulaanbaatar. But interest extends beyond regional neighbors—the United States, Canada, Australia, and several European Union states have also indicated they are keen to boost bilateral ties. Why the interest? In the cases of China and Russia, shared history and geography make Mongolia an essential strategic partner for a country wanting to hedge against one or the other (or both). In addition, Mongolia‘s eastern border with China is less than 1000 km from North Korea, making it an intriguing potential partner on security issues. Mongolia may not have the aspiration—or capacity—to develop a strategic weapons defense system, but a collapse of Kim Jong-il‘s regime could mean all bets are off. Either way, Mongolia has been developing increasingly close security ties with the United States. Through the International Security Assistance Force (ISAF) in Afghanistan, Mongolia contributed about 150 soldiers from the elite Mongolian Expeditionary Task Force (METF)—a sizeable number considering the country‘s population—to help train the Afghan National Army in mobile field artillery techniques. Read more… While nearly two-thirds of the METF in Afghanistan have now returned home, such moves have bolstered the broader relationship with both NATO and the United States. This deployment has also built on the US goodwill Mongolia secured through its troop contributions to the Iraq War, which prompted visits by then US Defense Secretary Donald Rumsfeld and then President George W. Bush—the first sitting US president to visit the nation. And the Obama administration has indicated that it intends to build on this progress. Last August, the Mongolian Armed Forces (MAF) and the US Pacific Command conducted its annual joint-training exercise, ‗Khaan Quest,‘ which was first undertaken in 2004 and is aimed at further enhancing the MAF‘s expertise in peacekeeping and counterterrorism. Khaan Quest continues to attract observer and participating nations from across the globe, with South Korea, Thailand, Canada, India, Japan, and Fiji all in attendance recently. But US courting has been about more than Mongolian boots on the ground. Although the mood ebbs and flows, the United States still maintains a presence in Kyrgyzstan through the air transit center in Manas near Bishkek, which allows the US to transport NATO troops to Afghanistan. But there are already questions about the viability of the center once major ISAF and Enduring Freedom operations have finished—the air transit center in Manas may serve Washington‘s short-term interests, but the United States will need to look for more secure relationships in the long run. And while Mongolia‘s geographic distance precludes it from serving as an effective air transit hub to Afghanistan, it could still consider leasing a military base to the Americans post-Afghan conflict. The reality is that the United States needs a credible and reliable partner in the region, one it can form a full security partnership with, not merely a marriage of convenience. Mongolia appears to fit the bill, offering Washington the potential for a stable ally in an unpredictable part of the world. But it‘s not just the United States that has been paying attention to Mongolia. Shortly after the first Khaan Quest in 2004, senior party officials in China began pushing for increased engagement with the country‘s northern neighbor on security and defense issues. Last August, the two countries concluded the 5th China-Mongolia Defense Consultation aimed at promoting regional defense and bilateral defense cooperation. Following the meetings, Mr. Ma Xiaotian, deputy chief of the General Staff of the Chinese People‘s Liberation Army, noted that the discussions had made ‗positive contributions to advancing mutual trust between the two.‘ Economics and trade have also been on the bilateral agenda. China is Mongolia‘s biggest trade partner, a point noted during the visit late last month by Chinese Foreign Minister Yang Jiechi to Ulaanbaatar. The official Xinhua News Agency quoted Yang as stating at the time that ‗China is willing to make joint efforts with Mongolia to keep high-level exchanges, deepen economic and trade cooperation especially on big programs, push bilateral ties onto a new platform, and further benefit the two countries and peoples.‘ It seems reasonable to assume that Beijing has noted Washington‘s increased interest in the region and has therefore moved to counter it. If the United States views the partnership with Mongolia as a long-term asset for projecting influence in the region, it will also have to respond with some ideas of its own for deeper engagement with this potential strategic ally.

Source: The Diplomat

TEN THINGS ABOUT MONGOLIAN DEMOCRACY (AND CHINA)

Attending the Mongolian Economic Forum this week was in part an interesting case study in two contrasting and competing systems of government. While Ulaanbaatar lies closer to Beijing than Shanghai does, it employs a democratic system as opposed to the one-party state. That system

itself has only been in operation for 20 years, about the same time as China has risen to become a world trading giant. In such close proximity to each other, the differing political contrasts are quite apparent. So what have we learned this week about Mongolian democracy as compared to China‘s one-party state? Revolutionary leaders rise to the top Mongolia threw out the Soviets in 1990, fanned by unrest largely driven by Mongolia‘s university students. The Russian regime, holding onto power for over 70 years, had been largely reviled. Those same students are now wealthy men, and in positions of high power. The president, prime minister and much of Mongolia‘s Parliament are made up of ex-students lionized for throwing out the Russians. They are also young – at about 20 years of age when the Russians pulled out, none is currently older than 50. Democracy is a pain While China has been able to steam ahead in a long series of well-executed five-year plans driven ahead by one party in power, Mongolian politicians have to focus on the next election and deliver within four years or face being replaced. This bane of democracy strongly inhibits the development of much-needed long term visions. China‘s one-party state system is superior in its ability to implement and execute long term planning. Government officials are there to be harangued

A democratic system means the politicians are there because of the votes of the people. And they are expected to listen to them. While some voters may be ill-informed or even plain nuts, a government official is expected to listen politely. It means perhaps the burden of having to sit through 90 percent of rubbish and anger. That remaining 10 percent, however, is where the true value and innovation lies. Try haranguing a Chinese government official and you‘re likely to be imprisoned. Chinese officials would do well to be a little more humble and actively seek out that 10 percent value from the populace‘s wisdom. Democracy as a safety valve

That same haranguing of officials, coupled with a multi-party system, actually provides a useful conduit that allows the population to vent their frustrations. What could otherwise develop into social unrest can be alleviated through allowing the people to let off steam. Or, if more serious, to elect a replacement. China‘s danger is that it does not possess this safety valve, and it has to continually pander to public discontent through ever-expanding wealth, improved services, and public security. How sustainable this proves to be is an issue that still has to be addressed and is China‘s main political weakness. People like their freedoms

The population, once they have a voice and a vote, become a personal stakeholder in the future of their nation. They will endure almost anything – unemployment, high taxes and a lack of services – but these are their problems to solve. Once given, that civic responsibility is almost impossible to remove. People like democracy, as is quite evident in a nation surrounded by China and Russia. A strong source of the Mongolian national pride is their freedom. Democracy, by its nature, is subversive

Planned and free elections every four-five years deliberately introduce a system that encourages the fall of the incumbent government. Differing political systems have ceased being barriers to trade

The days of barter systems between communist states and the ―them and us‖ mentality of the Cold War has long gone. Political systems appear no barrier to trade. Mongolia‘s largest trading partner by far is China. So much for the perception of American support of democracies by funding trade. Democratic politicians are more fun

Perhaps it is because social skills to win the vote have to be honed, but democratic politicians are more fun and accommodating than their stern one-party counterparts. No one ever accused the Communist party of being a barrel of laughs. Mongolia‘s president, by contrast, is hugely charismatic and, in a slightly bizarre welcoming speech at a reception, appeared on the stage to a fanfare of Vegas style Latin big band cacophony and then proceeded to both kick his English

translator off stage and then educate the assembled guests in how to say ―Cheers‖ in Mongolian. It was weird, but strangely brilliant. You tend to get more transparency in democracies

A major part of the conference was the debate over the development in Mongolia, and the introduction of institutional agencies into the political structure to ensure checks and balances on the incumbent officials and government are maintained. While such structures in democracies can be dismantled (see Silvio Berlusconi), it does tend to lead to an insistence of greater accountability. A much-debated and hotly-contested law was passed by Mongolia‘s Parliament last year that makes it mandatory for all officials, unelected and elected, to disclose their income. China‘s State Council recently rejected such a move. Media freedom doesn’t mean a responsible media

One way of subverting a democracy is to influence the minds of what people think. That is now done via control of the media. While this isn‘t an issue in Mongolia, it has given rise to biased and unfair media in democracies in India, Italy and partly, the United Kingdom. The media barons operating in democracies have more in common with the Chinese State than is commonly perceived.

Source: China Briefing

FALSE DECLARATION OF ASSETS COULD LEAD TO SUMMARY DISMISSAL

A joint meeting of The Council of State Services, the Anti-Corruption Authority, and The Government Secretariat has recommended that civil servants who fail to declare their assets or provide false information on them, to conceal assets disproportionate to their income should be dismissed from work. Those found deliberately submitting false declarations should be dismissed summarily. At present, the Anti-corruption Authority reviews all declarations and if it suspects any discrepancy, it passes the case to a relevant organization which then decides on the issue and may or may not recommend action against the civil servant concerned.


COMPLAINTS ABOUT DISTRICT GOVERNORS ISSUING SME FUNDS TO RELATIVES Altogether MNT100 billion is to be spent this year on helping small and medium entrepreneurs set up business, so that jobs are created and family incomes increase. Every district will receive MNT50 million of this and every province MNT800 million, to be used to guarantee loans, or as a sort of collateral. The Government is also planning to guarantee SME loans issued without collateral. Is the Government sure this will be a wise move? MNT50 million is on average half the annual budget of a district and local officials could very well be tempted to use this security of a collateral to grant loans to projects economically not viable. Complaints have already started coming in that some district governors in Khovd, Bayan-Ulgii and Arkhangai provinces have issued loans from the Small Business Development Fund to their immediate family and other relatives. Unless care is taken, this will nullify the purpose of the program.


ARCHITECT LISTS PRIORITIES OF PROPER URBAN DEVELOPMENT The Director of the Architects‘ Institute of Ulaanbaatar, Mr. Tsakhiur, told a meeting of the Mayor‘s Council on Thursday about how the city can be developed as an international business center, favoring green tourism and ensuring better living conditions for its residents. Changing needs of changing times call for a radically new approach, he said, to solve the socio- economic problems of a city which shelters 40.6% of the total population of Mongolia but has to make do with dated and inadequate infrastructure, and faces ecological disaster. Between 1999 and 2009, some 352,200 people from the provinces moved to Ulaanbaatar, most of them settling in ger districts where amenities are scarce and regulations few. He said any plan for the city will have to address three priorities: development of the whole region around Ulaanbaatar, of the ever expanding suburban areas, and of the core city. A significant part of the population will have to be settled in Tuv province, and provision made for employment, security of the environment, easy transportation, education and recreation, and supply of food and other necessities. Already there are plans to set up campuses of institutes and universities in Nalaikh district, freight terminals, auto and railway routes and a new international airport at Khushigt in Tuv province.

Source: News.mn

50 HECTARES OF GER AREAS TO BE VACATED THIS YEAR

The Mayor‘s Office and the Civil Representatives‘ Assembly have plans to build a total of 10,950 apartments spread over 201 hectares in ger district areas in Sukhbaatar district when they are vacated by residents as part of the Ulaanbaatar development project. Households and economic entities on 50 hectares are expected to move out this year. MNT20 billion would be spent on building a 1.2-km clean water supply system, a 2.5-km sewage system and 12 km of electricity transmission lines in the seventh khoroo of the district. Initial plans have also been made to build apartment blocks in the Gandan monastery area to accommodate residents of the ger district there who leave their present land. This is yet another stage of the implementation of a general plan for micro districts the city adopted in 2003. A survey last month found 7,817 people in 1,861 households lived in 56 hectares of area in Gandan. The plan is to settle them in houses 3 and 5 floors tall to be built behind the monastery complex. Work on infrastructure and power and heating connections has begun. However, the residents can leave their present houses only after it is decided how much compensation they will get and how much they will pay as rent at their new places. The Mayor‘s Office also wants to encourage citizens to come together to build apartment blocks for themselves. For example, 10 households in a street can jointly build an apartment of five floors with garage. Once their plan is passed, heating connection will be arranged.

Source: News.mn

MINISTER REPORTS ON MOVES TO MERGE 2 INTERNATIONAL BANKS FROM SOVIET DAYS

Minister for Finance S.Bayartsogt briefed the Government on Wednesday on the merger plans of the International Bank for Economic Cooperation (IBEC) and the International Investment Bank (IIB). Mongolia is a shareholder in both. The IBEC was set up in 1963 by an agreement signed by 8 countries in the Soviet bloc to facilitate economic cooperation among member countries and promote their development. Two more countries joined later. After the fall of the Soviet Union it became a Russian bank with a new charter. The IIB has been operating since 1971, with headquarters in Moscow. An agreement to establish it was signed by 7 countries. Together, the two banks have a capital base of 1.7 billion euro, of which Mongolia‘s contribution is 11 million euro, or 0.67% of the total. It was decided to set up a working group under Central Bank President L.Purevdorj to coordinate with the other shareholders on formulating an acceptable merger agreement. At present all shareholders nominate one person to the boards of the banks, irrespective of what percentage of the shares they hold. This is now likely to change.

Source: News.mn

FIRST SUBSTANCE ABUSE DEATH IN MONGOLIA REPORTED

A student at the University of Education died after he and some others had used some intoxicating plant product. Two students had to be taken to hospital and police found 20 grams of the narcotic substance at the home of a student. This is the first reported case of death from substance abuse in Mongolia.

Source: Ardiin Erkh

THREE FINED FOR FORGING PRESIDENT’S SIGNATURE AND SEAL

A former aide of the MPP MP, Mr. M.Tleykhaan, and two others have been found guilty by the Chingeltei District Court of forging the signature and seal of President Ts.Elbegdorj and also of D.Demberel, Speaker of Parliament. Details have not been revealed of the uses the forgeries were put to. The aide, who was found to be the mastermind, was fined an amount equal to 52 times the lowest rate of wages, and the other two will pay 6 times the rate.


LAWYER URGES LARGER ROLE FOR CIVIL ORGANIZATIONS

Distinguished Lawyer J.Amarsanaa has said civil organizations must act as a watchdog and protest whenever the Government acts illegally or unethically. The state exists for the people and should protect freedoms that are an essential part of a truly democratic society. The structure and organization of the civil society must be nurtured until it is strong enough and independent enough to oppose any ―immoral‖ Government step that ―violates human rights, abuses constitutional power, or has mala fide intentions‖. According to him, a sustainable and secure society is possible only the responsibility for making policy and also implementing it is shared by the Government and

non-governmental organizations. Source: Zuunii Medee

BRAND NAMES TURN ULAANBAATAR COSMOPOLITAN

Signs of a global cosmopolitan city include brand names such as Apple or Louis Vuitton and transportation methods such as a large-scale underground metro system. Is this all wishful thinking for Ulaanbaatar? Steve Jobs has come to Mongolia, although not literally. Last week marked the official opening of Ulaanbaatar‘s first Apple store, recognition by one of the world‘s largest and most recognized brands that Mongolia may be onto something and a commitment to participate in it. And Louis Vuitton, along with Cartier, Dior, Shangri-La, Hilton, Boss, Mont Blanc, BMW and Benetton has all already staked ground. As for that metro system, reports say it will be ready by 2017. Potentially wishful thinking, but a South Korean consortium has already been selected to build the underground railway in UB. Construction is planned to begin in 2013. The railway will have two main lines: 28 km east-west and 21 km north-south, dipping above and below ground throughout. An Asian precedent, Almaty, will complete its 45-km underground metro system this year. Over the last eight years, property prices in Almaty increased 10x (residential), 20x (retail) and up to 50x (land) and Kazakhstan has grown exponentially through resource extraction. Mongolia‘s future feels bright. Source: ResCap

ANNOUNCEMENTS

MINES & MONEY HONG KONG 2011, MARCH 22-25

Asia‘s premier and largest mining investment event already has 600 people confirmed to attend and looks set to attract well over 1,500 attendees making it THE event where miners and investors come together to do business. Over 150 mining companies are exhibiting. The Business Council of Mongolia is a supporting association of this event and as such this entitles all its members to a 15% discount on the conference price. The event has a strong focus on Mongolia again this year with Robert Friedland, Executive Chairman of Ivanhoe Mines, giving a keynote address and both South Gobi Resources and Hunnu Coal are Gold Sponsors. On top of this there is a morning on the 25 March dedicated to Mongolian Mining Investment. This special session highlights key developments in Mongolia‘s mining industry and the investment opportunities that reside there. This event promises to deliver a large number of investors all looking for their next big opportunity. For registration, simply visit the website www.minesandmoney.com/hongkong and click on the registration button. If you are interested in sponsorship opportunities then please contact Toby Duckworth on +44 20 7216 6074 or [email protected]. Among the speakers are: - Robert Friedland, Chairman, Ivanhoe Mines - Andrew Forrest, CEO, Fortescue Metals Group - Zheng Zhi, Chairman , China Mining United Fund - Jing Ulrich, MD & Chairman , China Equities & Commodities, J.P. Morgan - Bernard J. Guarnera, President & CEO, Behre Dolbear & Company - B. Enebish, Executive Director, Erdenes MGL - Peter C. Akerley, CEO, Erdene Resource Development. ___________________________________________

2012-2013 FULBRIGHT STUDENT FELLOWSHIP

The Public Affairs Section of the U.S. Embassy to Mongolia is now accepting applications for the 2012 -2013 Fulbright Student Fellowship Program. Fulbright Student Fellowships are part of a U.S. Government-funded academic exchange program, and fund graduate-level (M.A., M.S) studies at U.S. universities. Fulbright Student Fellows are selected by the Public Affairs Section of the U.S. Embassy. Deadline: April 11, 2011. Visit: http://mongolia.usembassy.gov/fulbright_2012-2013.html ________________________________________________

2012-2013 HUBERT HUMPHREY FELLOWSHIP This is a one-year, non-degree professional exchange program. It provides approximately a year of

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study and related professional experience in the U.S. to mid-career professionals working in the following public service fields, in either the public or private sector: agricultural Development/Agricultural Economics, communications/Journalism, Substance Abuse Education, Treatment and Prevention, Economic Development, Finance and Banking, Educational Administration, Planning and Policy, Higher Education Administration, HIV/AIDS Policy and Prevention, Natural Resource and Environmental Policy and Climate Change, Human Resources Management, Public Health Policy and Management, Public Policy Analysis and Public Administration, Teaching of English as a Foreign Language, Technology Policy and Management, Trafficking of Persons, Policy and Prevention, Urban and Regional Planning, Law and Human Rights. Application deadline: April 15, 2011. Visit: http://mongolia.usembassy.gov/sholarship_announcements/humphrey2012.html ________________________________________________

“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

BTV (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' Presentations from BCM‘s monthly meetings on February 28 and January 24, the BCM Environmental Working Group meeting on February 2 and the Haranga Resources investor‘s meeting sponsored by MICC on February 23 as well as Mongolia Reports including the U.S. Embassy Mongolia‘s Commercial Section‘s ―2011 Mongolia Investment Climate Statement‖ are posted on BCM's website (www.bcmongolia.org) in the "Resource, Presentations" and ―Resource, Mongolia Reports‖ sections for your review. 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.

ECONOMIC INDICATORS

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INFLATION

Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)]

Year 2007 *15.1% [source: NSOM]



January 31, 2011 *13.8% [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]

CURRENCY RATES – March 10, 2011

Currency Name Currency Rate

US dollar USD 1,247.02

Euro EUR 1,731.42

Japanese yen JPY 15.07

British pound GBP 2,016.68

Hong Kong dollar HKD 160.08

Chinese Yuan CNY 189.76

Russian Ruble RUB 44.06

South Korean won KRW 1.12

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.

11.03.2011, newswire, issue 158

News & Politics