BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmmongolia.org

info@bcmmongolia.org

Issue 57, February 13, 2009

NEWS HIGHLIGHTS:

Business: Special Parliament session not to discuss Oyu Tolgoi draft; Moody’s likely to downgrade

ratings of TDB, Khan and Xac Bank; Rio chairman-elect quits over Chinalco deal; Centerra Gold profits up; Workers worried about Boroo Gold mine closure; Pepsi-Cola starts recruiting; Rio Tinto survey shows profit may gain 32%, JPMorgan says; Canadian company wins contract to supply housing for Mongolia; Peabody-Polo deal to be closed in first quarter of 2009; Mongolia keeps middle rank in mining risk assessment report; Study says Mongolia can earn more in tax from mining, if it lowers rates; Western withdraws case against Tinpo; New mining website launched.

Economy: Growth may be as low as 2 percent, Bayar is blunt; Situation grim, feels Central Bank

head, but sees no need to despair; Crisis may become worse, World Bank officials warn; MNT740 billion needed immediately to implement crisis plan; MPs grill Finance Minister on specifics of action plan; IMF worried about its own resources; World Bank urges prudent fiscal management; Resource nationalism on the retreat, says IFC official; 40% drop in remittance from Korea, many return home; Czech Republic to repatriate Mongolians, with cash dole; Firm to construct oil refinery wants a guarantee; Chamber head urges immediate end to allowances; “We will continue to protect the poor,” says Ministry official; Trade union opposes raising heating, power charges; Petrol prices fall by MNT50-65 a liter; 4.6 million tons of minerals exported in 2008; Need to revamp social insurance sector stressed; Fears for China’s wheat crop, source of Mongolian import; MNT2.8 billion needed to create medicine stock; Higher income tax proposed for currency traders.

Politics: Bayar did not need surgery in Seoul; President cancels visit to 4 Asian countries; Head

of Civil Aviation Authority dismissed; Japanese woman teacher robbed and killed; MIAT cancels flights to Berlin because of low traffic; MPRP faces dearth of experienced organizers; Changes made in laws by former Speaker to be discussed; Mongolia improves score on hunger index; No school land to be given for other use; Drivers not wearing safety belts to be fined MNT10,000; Three say currency traders cheated them of MNT90,000; Mongolia adopts the Universal Address System.

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BUSINESS SPECIAL PARLIAMENT SESSION NOT TO DISCUSS OYU TOLGOI DRAFT

The special session of Parliament called for February 12 does not have the draft agreement for Oyu Tolgoi on the agenda. The Speaker‟s office said the Government did not include it in its request for

the session.

Source: Ardiin Erkh

MOODY’S LIKELY TO DOWNGRADE RATINGS OF TDB, KHAN AND XAC BANK

Moody's Investors Service has put on review for possible downgrade various ratings of three Mongolian banks: Khan Bank, the Trade and Development Bank of Mongolia (TDB) and XacBank. The ratings affected include the long-term local/foreign currency ratings of all three banks and short-term local currency deposit rating of Khan Bank, but their bank financial strength ratings (BFSR) and the outlooks or reviews for their BFSRs are unaffected.

"This review for possible downgrade follows Moody's recent decision to review for possible downgrade Mongolia's sovereign ratings," says Ms. Cherry Huang, a Moody's Senior Analyst. "This additional review is being conducted because of our concern that deterioration in Mongolia's external payments position may limit the Government's ability to provide foreign currency liquidity support to the country's banks."

All three banks have a relatively high dependence on foreign currency funding, relying on it for amounts ranging from 29% to 50% of total assets as of December 2008. The conclusion of the three banks' rating review may result in foreign currency debt or medium term note ratings that are lower than the sovereign foreign currency bond ceiling.

Moody's last rating actions on Khan Bank and XacBank were taken on December 12, 2008, when the outlook for the BFSR and local currency deposit and debt ratings of Khan Bank were changed to negative. And the same ratings of XacBank were placed on review for possible downgrade. The last rating action on TDB was taken on June 5, 2008 when the senior and subordinated debt ratings of its Euro Medium-Term Notes Program were affirmed and its lower-tier II subordinated debt rating was assigned.

As of December 31, 2008, Khan Bank reported unaudited assets of MNT841.8 billion (approximately USD656 million), TDB MNT 668.7 billion (USD521 million) and XacBank MNT208.4 billion (USD162 million).

Source: Moody‟s Investors Service

RIO CHAIRMAN-ELECT QUITS OVER CHINALCO DEAL Rio Tinto director Jim Leng has quit and will not become chairman as was planned after objecting to a potential deal with the mining group's top shareholder, state-run Chinese aluminum maker Chinalco. The departure of Leng, deputy chairman of India's Tata Steel, likely opens the way for Rio to seal a deal with Chinalco, analysts said. Leng was named as Rio's next chairman just over three weeks ago. Leng said in a statement he resigned following a dispute over how to cut Rio's heavy debt load of around USD39 billion. Last week, Rio said it had held talks with Chinalco about selling it convertible notes and stakes in some assets, but declined to comment further. Leng did not mention the Chinalco deal in his statement, but an industry source said that was the key issue. "He believes that the financial issue is not best resolved through this Chinese solution because it has some strategy implications that are going to restrict the long-term options available to the company," said the source. "The difficulty is that if they're going to be selling off some of their growth assets, then not all of that growth will accrue to Rio shareholders." Another deal potentially in the offing for Rio is a sale of an asset, possibly Rio's 75 percent stake in coal producer Coal & Allied Industries, to Japanese trading group Mitsui. The move comes as Rio scrambles to sell assets and has axed jobs and projects to meet its target of reducing debt by USD10 billion this year, but the sales have taken longer than expected against a backdrop of tumbling global commodity prices. Paul Skinner, due to step down as chairman on April 20, will remain until mid-year, by which time a successor will be selected, London-based Rio said in a statement. Rio‟s board was “unanimous in accepting Jim Leng‟s resignation,” senior independent director Andrew Gould said in a separate statement. Leng clashed with Chief Executive Officer Tom Albanese over the plans to sell a stake to Chinalco, the Financial Times reported.

Source: Reuters.com, Bloomberg.com

CENTERRA GOLD PROFITS UP

Centerra Gold has increased its fourth-quarter net profit to USD42.6 million, compared with a USD26.7 million loss in the same period a year earlier, when the company recorded a USD36.5 million non-cash expense, because it had expected to issue shares to the Kyrgyz government. Stripping out unusual items, fourth-quarter earnings, which include an USD18.8 million writedown of goodwill of its Mongolian assets, increased by USD337% year-on-year.

Profit was buoyed by much improved production levels, as well as strong bullion prices, the firm said. Fourth-quarter revenue increased 170% to USD241.3 million, after the company sold 164% more ounces. The realized gold price also inched up, by 2%. During the period, Centerra produced a best-ever 236,544 oz of gold from its Kumtor mine, in Kyrgyzstan, as well as 47,501 oz from the Boroo mine, in Mongolia.

Source: miningweekly.com

WORKERS WORRIED ABOUT BOROO GOLD MINE CLOSURE

The decision of Boroo Gold to close its mine on March 3 has caused concern among workers. Their trade union held a press conference Monday and said the 1,000 people who stand to lose their jobs want to be moved to work at the company‟s recently acquired Gatsuurt mine. The workers have warned the management of industrial action if they do not receive a sum equal to 12 months‟ average salary.

The company has extracted 43 tons of gold so far this year.

Source: Zuunii medee

PEPSI-COLA STARTS RECRUITING

Pepsi-Cola is coming to Mongolia in a big way. A new US-Mongolian joint venture, GN Beverages LLC, will produce and sell Pepsi here, and also pure water, soft drinks and juices under the brand name. Beverage industry sources say GEM International and Namuun Trade are partners in this. Gem produces vodka and beer, owns a cement factory, and is the majority share holder at G-Mobile. Namuun has been producing Vitafit drinks for the last 10 years. Currently Pepsi is imported and sold by Nomin Holding LLC, but things may change now.

The new plant will start production shortly and GN Beverages has already advertised in Ulaanbaatar newspapers for 58 people to work as Area Manager, sales agents, Production Director, Distribution Manager, General Accountant, Human Resources Manager, drivers and so on. All those hired will be Mongolians.

Source: BCM Newswire

RIO TINTO SURVEY SHOWS PROFIT MAY GAIN 32%, JPMORGAN SAYS

Rio Tinto Group, the world‟s third-largest mining company, may report a 32 percent increase in full-year profit according to its own survey of analysts, JPMorgan Chase & Co. has said.

Earnings before one-time items in 2008 may be USD9.8 billion, according to the median estimate of analysts surveyed by Rio Tinto, up from USD7.4 billion a year earlier, JPMorgan analysts said in a report last week. JPMorgan cut its underlying profit forecast for London-based Rio by 3.4 percent to USD9.3 billion because of declines in commodity price forecasts. The analyst survey was dated January 28.

The company is scheduled to report earnings February 12. It may report net income of USD11 billion, according to average estimate of 14 analysts.

JPMorgan reduced its price target on Rio stock by 15 percent, 36 percent less than its current price. “Rio‟s heavy debt burden, its underperforming largest asset aluminum, its conglomerate status, its heavy reliance on iron ore to support earnings, its lack of ability to pursue opportunities in the weakened mining sector, will continue to hamper share price performance,” JPMorgan said.

Source: Bloomberg.com

CANADIAN COMPANY WINS CONTRACT TO SUPPLY HOUSING FOR MONGOLIA

A British Columbia company has been awarded a contract to supply homes to Mongolia, which marks

the beginning of a major initiative to alleviate an urban housing crisis in the country. “We‟re building everything from the foundation up using B.C. wood, finishings and other building products,” said Ray Greene of Pacific Homes. The CAD4 million project is supplying 48 town homes in Ulaanbaatar. All major structural components – including floors, walls and ceilings – of the homes will be built in Canada and then shipped via containers to Mongolia, where they will be assembled.

The population of Ulaanbaatar has increased by 500,000 in the last 10 years, putting tremendous pressure on the city‟s housing stock. More than half of Ulaanbaatar‟s residents live in traditional felt tents known as gers, in large unplanned communities that surround the city. These homes use coal or firewood heating, have no sanitary services and limited access to water and electricity. The Mongolian Government has prioritized the redevelopment of these areas into planned communities, with a goal of financing 40,000 new homes by 2009.

It selected the Canadian building code system as a model, due to its internationally recognized standards and the comparable climates between the two countries. The provincial government has been working with the Mongolian Government for the past 18 months to adapt its building code to Canadian standards and build capacity for a wood-frame housing sector. This included building two demonstration homes in Ulaanbaatar that will now be used for training in construction and related trades.

Source: http://www.journalofcommerce.com

PEABODY-POLO DEAL TO BE CLOSED IN FIRST QUARTER OF 2009 The recent agreement that gives Peabody Energy the option to purchase up to a 50% interest in a joint venture holding Polo Resources Ltd's coal and mineral interests in Mongolia, and also grants it warrants to enable it to acquire an approximate 15% equity interest in Polo, is targeted to close during the first quarter of 2009, subject to the completion of Peabody's due diligence review and other approvals. Mr. Gregory H Boyce, Chairman & CEO of Peabody, has said that the transaction will “accelerate the development of Peabody's presence in one of the world's premier undeveloped coal regions. Because Polo has existing assets, coal resources and personnel in Mongolia, this advances our goal of expanding our presence in high growth, high margin markets." Mr. Stephen R. Dattels, CEO of Polo, has said that they are “excited about the opportunity to join forces with a company of the caliber of Peabody. This alliance will provide the mining expertise and resources required to develop our asset base and unlock the currently unrecognized value of Polo's Mongolian interests."

Source: Steelguru

MONGOLIA KEEPS MIDDLE RANK IN MINING RISK ASSESSMENT REPORT

This year‟s political risk assessment of countries of import to the mining industry by Behre Dolbear finds Mongolia with scores similar to last year‟s, and with the same conclusion that its tax policies are among the least investor-friendly. Twenty-five countries, which are host to major exploration or mineral development efforts and/or mining operations, were ranked on seven criteria. Each category under consideration was rated from 1 to 10 with the maximum score attainable for a country being 70 points. Mongolia‟s tally was 32, and it tied at 13th place with Tanzania.

The adherence to free-market ideals was the major consideration in the rankings under “the economic system”, and here Mongolia scored 6. The assessment of the political system focused on free elections, security of tenure, and a country‟s mining laws. Here Mongolia scored 4. “Social issues” are the highest risk facing the development of mineral projects in every country. “The watchwords for the industry are „sustainable development‟ and „social license‟”, terms that, “while sound in principle, have often been used to delay or completely halt mining projects,” says the report as it awarded Mongolia 5. The criterion of the timeframe involved in obtaining permits gets Mongolia 6, while in corruption the score is 3. This rises to 6 in currency stability, which makes the report a tad dated, and falls to 2 in tax regime. Australia tops the ranking with a score of 60 points, followed by Canada (56). China (34) is at 10th place, while Russia (18) is third from bottom.

The report concludes with an expression of concern about what the future holds for the mining industry.

For the full text of the report, please visit BCM website, Articles/Reports.

Source: www.dolbear.com

STUDY SAYS MONGOLIA CAN EARN MORE IN TAX FROM MINING, IF IT LOWERS RATES

Professor James Otto (retired) has worked for governments, multilateral agencies, and mining companies in over 50 nations and his books and studies on mining policies, laws, regulation and taxation have become standard references for many governments and companies. Professor Otto has lectured and presented workshops in Mongolia on the subjects of mining investment, country risk analysis, and mine taxation, and is well known here for his study “Competitive Position of Mongolia's Mineral Sector Fiscal System: the Case of a Model Copper Mine”. Published in 2003, this study had a second edition in 2007, and has recently been updated.

The study offers a neutral-party examination of the Mongolian mining tax system, and specifically looks at whether the current system imposes a higher or lower overall tax-take on new mine investment than is imposed generally on copper mines in other nations, to examine whether the system is internationally competitive, and to make recommendations for specific matters that concern fiscal reform. Overall the study concludes that the current high Effective Tax Rate in Mongolia (the combined effect of all tax types and fees) is likely to lead to lower than optimal tax revenues in the future as it is too high to attract fresh exploration and mining investment. The clear implication is that Mongolia has the potential to realize additional fiscal revenues from the mineral sector by reducing its effective tax rate. A lower effective tax rate will see more mines in operation, providing a larger tax base. For the full text of the study, please visit BCM website, Articles/Reports.

Source: www.ottomininglaw.com

WESTERN WITHDRAWS CASE AGAINST TINPO

Western Prospector Group Ltd. has announced it has discontinued legal action against Tinpo Holdings and others after it determined that even a favorable judgment would not be of significant benefit. The Ontario Superior Court has approved the discontinuance, on a without costs basis, of Western's claim seeking specific performance, or alternatively damages, in connection with a take-over bid for Western, guaranteed by Tinpo, that was withdrawn in late September 2008. Western has said it “prosecuted the claim assiduously”, but concluded, based on information gathered in the course of the litigation, that “any judgment it might obtain” would not be “effectively collectible or enforceable at this time”.

Source: www.westernprospector.com

NEW MINING WEBSITE LAUNCHED

A new website, www.2tolgoi.mn, has been launched where viewers can find information, analyses, and newsletters about the Mongolian mining industry. They can also post their comments. The site is conducting a survey of public opinion on the negotiations regarding the two Tolgoi projects and on other mining related issues. Readers can participate in the survey by visiting the site.

Source: Odriin sonin

ECONOMY GROWTH MAY BE AS LOW AS 2 PERCENT, BAYAR IS BLUNT

The extraordinary session of Parliament began Thursday at 10 a.m. with Prime Minister S.Bayar introducing the main item on the agenda -- the Government‟s action plan against the engulfing economic crisis. He traced the course of the crisis in Mongolia, from the time the first symptoms began to be felt in the second quarter of 2008. In July 2008 copper prices began falling, foreign currency reserves started getting depleted soon afterwards, and the rate of inflation reached 34 percent in August.

The Economic and Social Guidelines for 2009 enjoin the Government to work for economic growth rate of 10.1 percent. Bayar was blunt saying that this was unachievable. This could be as low as 2 percent, he said. The Government was hoping for 5% growth, but the IMF calculation was that it would be 2.7 percent.

He mentioned the salient points in the plan: stabilizing the MNT, shoring up the banking system,

creating employment, developing agriculture, supporting herders, increasing food supply, and investing in the energy sector. All this would require MNT1.5 trillion. “Mongolia does not have this money. We have to revise our budget soon. The Government is trying hard to get money from other sources such as international financial organizations,” he said.

After his speech, requests were received from around 30 MPs to be allowed to ask questions. In private conversation the governing worry of most of them was to make sure that any investment in their respective constituency was not chopped.

The session is expected to end on Friday.

Source: en.News.mn

SITUATION GRIM, FEELS CENTRAL BANK HEAD, BUT SEES NO NEED TO DESPAIR

Central Bank President L.Purevdorj has said both the economic and the financial situations continue to be grim. Also, the ground reality keeps changing all the time. For example, the 2009 budget approved by Parliament shows a deficit of 6 percent of the GDP, but developments impossible to predict or prevent can easily increase this figure to 8-9 percent. The present foreign currency reserve is enough for three weeks of import payments. However, prudent management will save the day. Budgetary expenses have to be ruthlessly trimmed and the deficit reduced to the utmost level possible. Some sort of understanding has to be reached with the IMF and other international financial organizations so that they agree to help, but their resources are limited when seen against the global entirety of the crisis. Mongolia will have to seek bilateral loans and attract foreign direct investment. Whatever the final source of the money, “we will have to be responsible and punctilious in the way we spend it”.

There was no doubt that the Central Bank was a key player at a time of crisis, but its capacity to influence the situation was limited for various reasons. Also, “the situation is more difficult than people realize” and they have to tread carefully. “Still we are doing what we can. We have started negotiations with China‟s central bank to see if they pay us our dues in Yuan, and not in Tugrug. If they accept our request, there will be an immediate improvement in the foreign exchange situation. A similar request has been made to the Russian central bank.”

Asked about the oft-heard complaint that no commercial bank has as yet received the money from the Mongolian Development Fund promised to them by Parliament three months ago, Mr. Purevdorj said no bank has asked for the funds. Banks were wary of the conditions for the loan. For example, the interest rate was high, and failure to repay on time would allow the Government to adjust the loan against allotment of shares in the bank. He also thought the Government itself needed the money as much as the commercial banks, if not more.

The mess at Anod Bank was still being sorted out. An IMF delegation has asked for more stringent regulations. “Anod has become a test case. It is being seen as a mirror of the Mongolian banking system and our success there will largely determine the trust international institutions and donor countries repose in us,” he said.

A meeting with gold mining companies was planned where they would be asked to sell more gold to the Central Bank. He would not speculate if the windfall profits tax had anything to do with the fall in sale of gold, but would only say, “We know mining companies are excavating gold, but not selling it to us. We are trying to change this situation.”

Source: Zuunii Shuudan

CRISIS MAY BECOME WORSE, WORLD BANK OFFICIALS WARN

World Bank representatives Mr. David Dollar and Mr. Arshad Sayed warned Parliament Speaker D.Demberel at a meeting on Tuesday that Mongolia should be prepared for more difficult times as copper prices are likely to stay low until 2010. They also said it might not be wise to use up the country‟s scarce funds to shore up the MNT. “Its fall will lead to less imports and this will boost domestic manufacture and production. This will have a good effect on the real economy,” said Mr. Dollar, who is the Bank‟s Director for both China and Mongolia and is based in Beijing. Mr. Sayed is the Bank‟s Country Representative here.

They warned that the budget deficit may grow to 10-11 percent of the GDP by the end of 2009 if the economic situation does not improve. “If negotiations with the IMF are successful, Mongolia can

expect USD300 million in loans from the World Bank and the Asian Development Bank,” they said. Demberel asked for World Bank help and support in these negotiations with the IMF, as well as with other international financial organizations and donor countries.

Source: Ardiin Erkh

MNT 740 BILLION NEEDED IMMEDIATELY TO IMPLEMENT CRISIS PLAN

Parliament began a special session on February 12 to consider a partly completed draft action plan to tackle the economic crisis approved by the Government last week. Noting that the global situation seems only to be worsening, the Government decided that to protect the Mongolian economy, it was imperative that economic growth should not fall below 4-5 percent; jobs should not be lost; citizens should feel financially secure; and national economic stability maintained.

The plan estimates that Mongolia needs altogether MNT1.5 trillion to take measures to tide over the crisis, of which about MNT740 billion is required urgently. Prime Minister S.Bayar has said Mongolia does not have this money. “We need to take loans from foreign sources. If Parliament gives us the right to do so, we will urgently start looking for them. We are planning to meet foreign investors in February and March. We need to act on several fronts. There is need to revamp the social care system, too,” he said.

According to the plan, the Government would make another stringent review of all proposed expenses in the state budget, curb unproductive and inefficient public spending, revitalize the banking sector, boost the employment rate, stabilize energy and heating supply, help create new jobs by implementing the mine agreements, and also the 100,000 Apartment program, and offer help to poor families.

Following instructions from the Speaker both the DP and MPRP groups in Parliament met on Monday to discuss the draft plan. Prime Minister S.Bayar introduced the plan and explained its main points to the DP group before answering several questions. The MPs‟ major concern was the uncertainty about where the Tg1.5 trillion needed to implement the measures recommended in the plan will come from. The meeting decided to support the plan, but only after Standing Committees improve it by incorporating some clarifications and new ideas before it is discussed in Parliament.

Source: www.news.mn, Montsame

MPs GRILL FINANCE MINISTER ON SPECIFICS OF ACTION PLAN

Opinion on the merits of the draft action plan was evenly divided at Tuesday‟s meeting of the Standing Committee for the Budget. Minister for Finance S.Bayartsogt was told more ministries should have been involved in making the plan, that the plan did not define how much money would be used in which sector, and there should have been some reference to agriculture.

The Minister said “not a single country has so far been able to gauge the extent of the crisis, and all are constantly revising their plan of action”. About the use of money, he said if the loan from China materializes, one-third of it would be used to set up a steel plant, and another one-third a cement factory. MNT100 billion would be spent on generating jobs and an equivalent amount would go to building roads. Production of coal, gold, and iron has to be increased. Ports where coal is transported will work 24 hours a day.

When the Minister said investments in areas where new jobs are created will be given tax concessions, Ms.

D.Arvin (MPRP) wanted to know specifically what was being envisaged. “You say you will spend MNT100 billion on industrialization. Exactly what factories will you build?” she asked. Mr. Bayartsogt referred her to the budget which allots MNT1 billion each to 21 provinces and nine districts of Ulaanbaatar, and said details would be ready soon. Minister for Social Welfare and Labor T.Gandi said there are plans to encourage businesses and lowering minimum wages. The number of foreign workers will be reduced by 50 percent and vocational training facilities will be expanded. Mr. Z.Altai asked why citizens are being kept in the dark and why their views are not being sought.

Earlier in the week, too, two MPs expressed their strong fears that the proposals in the plan were not practicable. Mr. N.Batbayar (DP) said the plan was a copy of a similar Australian plan, and the prescription will not work when the symptoms are specifically Mongolian. Ms. D.Arvin (MPRP) complained the plan needs MNT1.5 trillion for its success, but is totally clueless about where this

will come from.

Source: en.news. mn

IMF WORRIED ABOUT ITS OWN RESOURCES

Time may be running out for Mongolia in its efforts to secure a hefty loan from the International Monetary Fund (IMF) as its managing director Dominique Strauss-Kahn has expressed fears that the IMF itself may be left with no resources in the next 6-8 months. “Today, the IMF‟s resources are enough to face the current situation but because we are facing a global crisis, the needs may be much bigger than previously. We have to intervene in Asia, Africa, central Europe, Latin America and maybe elsewhere. I can‟t promise that in 6-8 months from now, we will have enough resources,” he told the 44th Governor‟s Conference of the Southeast Asian Central Banks in Malaysia.

Mr. Strauss-Kahn said monetary policy alone would not be enough to offset the disruption in financial markets and the severity of the downturn, adding that not every country could undertake fiscal stimulus. He felt some countries might need to contract their budgets rather than expand them.

Source: The Telegraph, Kolkata

WORLD BANK URGES PRUDENT FISCAL MANAGEMENT

World Bank representatives in Mongolia recently sat with state organizations to present and elucidate measures set out in a report recommending a course of action for the country to address the economic crisis. The report is optimistic that a smooth handling of the present situation, particularly wise management of the fiscal policy, will see clear improvement in the economy over the next several years. Mining is likely to remain a significant source of public revenue in the medium term. However, public expenditure has increased rapidly, limiting fiscal flexibility. Parliamentary pressure has also led to budget changes without any input from the executive branch.

There are four major recommendations in the World Bank report. These are: 1) Separate public spending decisions from the mining sector each year; 2) Adopt fiscal rules which apply to the medium-term budget framework and general budget to keep the non-mineral deficit under control; 3) Review good international practices and conduct consultations; 4) Draft legal provisions according to international standards.

The review shows how Mongolia's external economic outlook is dramatically changing, highlighting the need to manage mining revenues prudently so that what is earned during the “boom” years is still there to be used during the "bust". Mongolia saved little of what it made in recent years, opting instead to dramatically increase expenditures on wages and salaries, and on poorly-targeted social transfers. Adopting a multi-year fiscal framework which sets limits to expenditure growth and debt, and ensures transparency, can help. Since a significant amount of the past windfall revenues has been spent (with pressure from Parliament), the country enters the downturn with little savings and high inflation. Parliament‟s exercise of its constitutional rights to amend the budget should be within the limits this framework sets on expenditure growth and public debt.

For the full report, as released to the Press, please visit BCM website, Articles/Reports on Mongolia

Source: Montsame

RESOURCE NATIONALISM ON THE RETREAT, SAYS IFC OFFICIAL

The drop in metals prices has forced a retreat in resource nationalism after boom times led governments to seek more benefit from their countries' minerals, an official of the World Bank's private sector lender said. The global financial crisis has forced a rethink by governments intending to nationalize assets, while others such as Zambia have been forced to remove onerous new taxes. "The boom in the commodity prices led to a real resurgence in resource nationalism and participation in mining companies by governments across the world," said Mr. William Bulmer, who heads the mining division, oil, gas and chemicals department at the International Finance Corporation.

Bulmer said the main concern with nationalization is that countries may take control of national

resources, then fail to invest enough to keep up production levels to meet demand. "The World Bank has been strongly urging governments not to go into such businesses," he said. The Bank estimates that foreign direct investment to developing countries will shrink by 30 percent to about USD400 billion this year. There is also no real example of successful nationalization of resources, Mr. Bulmer added.

Zambia, Africa's top copper producer, was last month forced to turn back from its controversial mining taxes and scrap a 25 percent windfall tax introduced at the peak of the commodities boom last year. The Bank had not supported the windfall tax, Mr. Bulmer said. "Stepping back was the right thing to do. A sliding royalty scheme that adjusts automatically as metal prices rise or fall would be more appropriate."

Source: Reuters.com

40% DROP IN REMITTANCE FROM KOREA, MANY RETURN HOME The situation is getting more and more difficult for Mongolians who went abroad to look for work. The most popular destination for them, South Korea, has been hit hard by the global downturn and opportunities there are shrinking faster than feared. Since June 2008, over 2,500 Mongolians have come back home, unable to earn a living. Numerous small and medium sized enterprises went out of business between October and December. They employed about 8,000 foreigners, including 1,000 Mongolians, all working under labor exchange contracts. Official Korean Government data put the number of Mongolians living in Korea as of January 1, 2009 at 32,200. Of them, 1,717 are students, 2,325 have a Korean spouse, and some 27,000 are employed. Of these, 16,800 are registered with the labor exchange, but the remaining 10,000 are working illegally. Remittance from abroad is usually an important part of the Mongolian economy, but this too is showing strains. According to the Korea Exchange Bank, it transferred only USD20.7 million to Mongolia in 2008, some 40 percent less than in 2007.

Source: Montsame

CZECH REPUBLIC TO REPATRIATE MONGOLIANS, WITH CASH DOLE

Rising unemployment among foreign workers in the Czech Republic has prompted the Government to extend an unusual offer. Immigrant workers who agree to return home would receive a free plane ticket and Euro 500 in cash. Foreigners account for about six per cent of the workforce in the country, among them 7,500 Mongolians. The Government has allotted more than two million euro to repatriate the first 2,000 foreigners in the following eight months, under a plan dubbed Aid to Foreigners. "It will be cheaper than if the people stay here illegally and we have to deport them," an Interior Ministry spokeswoman said.

Interior Minister Ivan Langer said, "Many of these people could unfortunately end up with a difficult financial problem and struggle for a living. Then there is a threat that they will end up in a grey zone and become a part of criminal networks." Many of the foreign workers who lose their jobs do not have enough money to buy a ticket home. They saved money to pay excessive fees or bribes to some employment agencies promising to find them new jobs, the Minister said.

Source: The Sofia Echo, Reuters.com

FIRM TO CONSTRUCT OIL REFINERY WANTS A GUARANTEE

Toyo Engineering has completed its feasibility study on setting up an oil refinery in Mongolia, and now wants a certificate of guarantee from the Government. The company needs this to be able to apply for a loan from the Japanese Government before beginning construction in May. Prices of equipment and facilities have fallen in recent months which should benefit Mongolia.

The refinery is expected to be operational by June 2012. Mongolia has an agreement with Kazakhstan to import around 2 million tons of crude oil from there annually. The output from the refinery should then be able to meet Mongolia‟s projected needs of around 1 million tons of diesel and 700,000 thousand tons of petroleum in 2015. There will also be some commercial byproducts.

Source: www.olloo.mn

CHAMBER HEAD URGES IMMEDIATE END TO ALLOWANCES

Mr. S.Demberel, Chairman of the Mongolian National Chamber of Commerce and Industry, thinks only 40 percent of the present economic crisis can be traced to external factors, with government policy squarely to blame for the other 60 percent. He particularly singled out the reckless government spending in the last two years, and said the payment of welfare allowances like those given to children or new couples should be immediately halted. He also criticized the policy of the Central Bank from the beginning to control money supply. The decision to stop commercial banks issuing credit impaired economic activity very badly, and it would require at least MNT150 billion to help the economy recover.

The Government has to find this money, and then has to reduce most forms of bureaucratic control, like issue of licenses and permissions. All tenders also have to stop.

Source: Ardiin Erkh

“WE WILL CONTINUE TO PROTECT THE POOR,” SAYS MINISTRY OFFICIAL

Mr. D.Nyamkhuu, State Secretary in the Ministry of Social Security and Labor, has ruled out any change in the basic social welfare laws and payments, no matter what form the financial crisis takes. “The procedures could be revised so that we can make sure the money reaches the right people, but the Government will not renege on its commitment to protecting the poor. This can be done with proper regulations on labor and social care, despite the crisis in the economy,” he said. Five percent of Mongolian children, mostly from well-off families, do not take the children‟s allowance. He thought this was a good example of how to change the present regulations. “The Government allocates money for all children, without any differentiation on the basis of the family‟s income. This can be changed. We have MNT98 billion for 958,000 children. Let‟s just give it to the poor among them.”

Source: www.news.mn

TRADE UNION OPPOSES RAISING HEATING, POWER CHARGES

The Confederation of Mongolian Trade Unions has told the Government it is against the proposal to increase, under the pretext of an economic crisis facing the generating sector, heating and electricity charges, only six months after they were raised. The CMTU feels households and companies have been facing enough economic challenges of their own and any increase in these rates will threaten their survival, as apart from what they will have to pay more for power and heating, the price of everything will eventually go up.

Source: Niigmiin toil

PETROL PRICES FALL BY MNT 50-65 A LITER

Petroleum companies have lowered retail prices by MNT50-65 a liter as a lunar new year gift for citizens. This gesture comes even as Rosneft, the Russian company from which Mongolia buys almost all its petrol, has slightly increased its prices.

Source: Zuunii shuudan

4.6 MILLION TONS OF MINERALS EXPORTED IN 2008

Mongolia exported 4.6 million tons of 11 types of minerals such as coal, spar, zinc, lead, molybdenum and copper concentrate as well as crude oil to Russia, China and some other countries in 2008. These minerals were exported through 8 border ports including Bulgan, Shiveekhuren, Gashuut Sukhait, Khavirga, Sukhbaatar and Zamiin-Uud.

Source: Onoodor

NEED TO REVAMP SOCIAL INSURANCE SECTOR STRESSED

A meeting was held recently between Ms. D.Oyunkhorol, Head of the Standing Committee for Social Policy, Education, Culture and Science, and Mr. S.Ganbaatar, head of the Mongolian Confederation of Trade Unions, on how they could cooperate in making the social insurance system more efficient and productive, and eliminating corruption. Mr. Ganbaatar stressed the need to put into effect the

government decision to place the insurance fund under independent control. This would lead to improved management of the money in the fund, and transparency in all operations would restore public confidence. He criticized the National Board for Social Insurance for its overall failure to meet its goals. Ms. Oyunkhorol seemed to agree and said the standing committee has already established a working group to review the working of the entire Social Insurance Authority, and particularly of the Board.

Source: en.news.mn

FEARS FOR CHINA’S WHEAT CROP, SOURCE OF MONGOLIAN IMPORT

Nearly half of China's winter crop - some 10m hectares of wheat and rape seed - is under threat after a drought in eight northern and central regions. China's drought relief office has called it an event "rarely seen in history". A meeting of China‟s State Council meeting has ordered Government efforts to be directed at stabilizing grain production.

Any drastic fall in production will affect China‟s capacity to export wheat and raise prices. Neither is a prospect that will encourage planners in Mongolia.

Source: http://news.bbc.co.uk

MNT2.8 BILLION NEEDED TO CREATE MEDICINE STOCK

The Health Ministry is asking for MNT2.8 billion to stock medicines to meet needs for three months. Two factors have made it increasingly necessary to hold such a stock. First is the steadily rising price of medicines, up 28 percent in the last year, and second is that, faced with a cash shortage, more people are visiting state hospitals, stretching resources there.

Source: Ardiin Erkh

HIGHER INCOME TAX PROPOSED FOR CURRENCY TRADERS

The head of the Financial Regulatory Commission, Mr. D.Dugerjav, has suggested one way of stopping private traders from speculating in foreign currencies and in the process sending the value of the MNT plummeting. He wants a 48 percent tax to be imposed on the income traders make from their exchange operations, an activity that calls for “very little investment but can make a huge income”. If they are found to have earned a large amount of money suddenly, they should be taxed accordingly at a higher rate, Mr. Dugerjav feels. If the Government and Parliament agree on the tax, “it will stop currency devaluation”. Traders now pay 10 percent income tax and a fee to get a license. Their real income is not clear.

Source: en.News.mn

POLITICS

BAYAR DID NOT NEED SURGERY IN SEOUL Prime Minister S. Bayar drove straight to Government House from the airport on his return from South Korea Friday afternoon. It now appears doctors there decided the crack in his rib was too minor to call for surgical intervention. Mr. Bayar‟s first job back at work was to make a formal request to the Speaker to convene a special session of Parliament on February 12 to discuss urgent economic issues.

Asked if the session would also discuss the draft agreement on Oyu Tolgoi, Mr. Bayar said this was most likely but negotiations were still going on with the investors. “These are difficult times. Investors have their own financial and other constraints and the Government must get a deal most profitable to Mongolia. But a meeting ground has to be found, and we hope will be found before the session," he said.

Source: Montsame

PRESIDENT CANCELS VISIT TO 4 ASIAN COUNTRIES President N.Enkhbayar‟s visits to Singapore, India, Brunei and Indonesia, scheduled to begin on February 8, were canceled on February 5. No new dates were given. This was the time when the

Prime Minister was in South Korea for medical treatment but Mr. L.Orgil, advisor to the President on Foreign Policy, denied that there was any connection between the late decision to cancel the visits and the Prime Minister‟s injury.

www.business-mongolia.com

HEAD OF CIVIL AVIATION AUTHORITY DISMISSED

Mr. S. Batmonkh has been dismissed as head of the Civil Aviation Authority (CAA), for failure to maintain standards of efficiency in the Government Implementing Agency. Over the years there have been numerous complaints about the way the CAA functioned, leading to major technical and aviation failures -- 33 in 2006, 46 in 2007, 45 in 2008, and 2 so far this year. The Government also took strong note of the fact that the CAA overspent its budgetary allotment by MNT4.6 billion in 2006, MNT12.6 billion in 2007, and MNT7.6 billion in 2008. However, it has always met its projected income since 2006.

Source: www.gogo.mn

JAPANESE WOMAN TEACHER ROBBED AND KILLED

The body of a Japanese woman, later identified as Chie Suzuki, 39, was found on a street near her apartment north of the circus in the main shopping district early on Saturday morning. They called the Police who would not confirm it was a murder, but would only say there were “external causes” behind her death. She appeared to have been strangled. Suzuki is believed to have left the Russian School No. 3 where she taught around 5 p.m. on Friday to visit another Japanese teacher who lives near her apartment. She left her friend‟s place around 11 p.m. When her body was found, her belongings, including her purse, were missing. Police on Tuesday arrested a 29-year-old man in connection with the death, saying Suzuki‟s cell phone and purse were found in his room. Suzuki first came to Mongolia in 1996 to work for JICA and stayed until 1998. She returned in 2007 to work at the school.

Source: Mainichi Japan, Reuters.com, Ardiin Erkh

MIAT CANCELS FLIGHTS TO BERLIN BECAUSE OF LOW TRAFFIC

MIAT has canceled two of its Ulaanbaatar-Moscow-Berlin flights and also the ones back from Berlin this month because of low passenger traffic. Only 15 passengers were booked for the flight on February 19 from here, and another 29 for the flight back. For the flights on February 26 the figures were 12 and 26 respectively.

All intending passengers have been notified about the cancellation and, according to the airline, there have been no complaints.

Source: Ardiin Erkh

MPRP FACES DEARTH OF EXPERIENCED ORGANIZERS

The Metropolitan unit of the MPRP held a conference on Monday in the backdrop of the recent law that prevents government employees from holding membership of any political party. Most of those faced with the choice have opted to keep their jobs, leading to a vacuum in the ranks of party functionaries. Their places are being filled by new and relatively inexperienced people, many of them in business. The MPRP meeting discussed how to train them quickly in organizational work, so that the party can face the coming presidential election fully prepared, and without missing the old faithful.

For the same reason the MPRP plenum on February 20 will be without 45 of its old delegates.

Source: www.news.mn

CHANGES MADE IN LAWS BY FORMER SPEAKER TO BE DISCUSSED

Mr. Ts.Nyamdorj had to resign as Parliament Speaker after the Constitutional Court ruled that he had changed four references in the laws about VAT and 73 words in the law on income tax payable by business organizations. That was many months ago, and nothing has been heard all this time on what happens to the laws. Now the Standing Committee for the Budget has suggested that

Parliament needs to discuss the issue of whether the changes should be scrapped and the wording of the laws reverted to their original form.

Source: en.news.mn

MONGOLIA IMPROVES SCORE ON HUNGER INDEX

The latest Global Hunger Index, the annual survey by the International Food Policy Research Institute in conjunction with Welthungerhilfe and Concern Worldwide, ranks Mongolia 31st among 88 countries surveyed on under-nourishment, prevalence of child malnutrition, and rates of child mortality. Its index score has fallen from 18.9 in 1990 to 12.1 now. The lower the score on the index, the higher is the performance. China ranks 15th, with a score of 7.1. Hunger is closely tied to poverty, and countries with high levels of hunger are overwhelmingly low or low-middle income countries. The recent advent of higher food prices has uneven effects across countries, depending on a range of factors, including whether countries are net importers or exporters of food. Among the countries for which the GHI is calculated, net cereal importers, for example, greatly outnumber exporters, implying that many more countries combating hunger are likely to suffer from higher prices than benefit from them.

Source: www.ifpri.org

NO SCHOOL LAND TO BE GIVEN FOR OTHER USE

After signing an agreement with Mr. Yo.Otgonbayar, Minister of Education, Culture & Science, on implementing the master plan on education between 2006 and 2015, Ulaanbaatar Mayor G.Munkhbayar said on Monday he had ordered his officials not to allot any land belonging to schools, kindergartens and other educational organizations to anybody for any other purpose. At least 90 secondary schools and kindergartens will be built or renovated, easing the pressure on existing facilities so that classes do not have to be held in shifts.

He revealed that he and the Minister had discussed building a large teachers‟ training complex in Ulaanbaatar, as also a new national library. Arrangements will also be made to train professionals in various fields meant to represent Mongolian interests in foreign countries.

Among the other issues discussed were providing loans to 50 teachers in each district to join the 40,000 Apartments program, ease conditions of loans against salary, supplying kitchen equipment to schools, setting up at least two teacher training centers in every district, and giving financial assistance to schools to buy computers and related equipment.

Source: Ardiin Erkh, Montsame

DRIVERS NOT WEARING SAFETY BELTS TO BE FINED MNT10,000

Encouraged by the results of a survey that found that fewer drivers wearing safety belts sustained serious injury in accidents, the traffic police department has decided to enforce their use more strictly. Drivers found without safety belts will now be fined MNT10,000.

Source: www.news.mn

THREE SAY CURRENCY TRADERS CHEATED THEM OF MNT90,000

Three victims have complained to the police that two currency traders in the Naiman Sharga exchange center cheated them by MNT90,000 by placing a number of MNT5,000 banknotes among MNT10,000 bills.

Source: en.news.mn

MONGOLIA ADOPTS THE UNIVERSAL ADDRESS SYSTEM

The Government of Mongolia has decided to adopt the revolutionary technology of the Universal Address System for all location related services and products in Mongolia. Universal Addresses not only possess all the functionalities of traditional addresses, but, more importantly, are unified representations of all locations and areas in the world that can be used conveniently by both consumers and professionals.

A Universal Address is an eight- or ten-character Natural Area Code (NAC) which can represent both

areas and locations anywhere in the world. A two-character NAC can specify any area about 1,000 km in length and width like a province, a four-character NAC represents a 30 km long and wide area (like a city) approximately, a six-character NAC is roughly equivalent to any square kilometer area on the earth, an eight character NAC can identify a 30 meter long and wide area (size of a house or building) in the world, and a ten-character NAC can pinpoint any location in the world to the resolution of one meter. Therefore, Universal Addresses are highly compact and human-friendly codes that can be used as addresses, postcodes, geographic coordinates, area codes, property identifiers, etc.

Marking Universal Addresses on house number plates, street signs and all other roadside objects will physically digitize the land because Universal Addresses are the coordinates of the Universal Map Grids. Thus, comparing the Universal Address of any destination and the one marked on the local roadside object can immediately get the distance and direction to the destination and will significantly help taxi, courier, delivery, especially ambulance, fire fighters and police find locations.

Since Universal Addresses exist everywhere, mail with Universal Addresses can also be conveniently sorted and delivered to any temporary locations in the world. This is well suited to Mongolia with many yurts residing on temporary locations. Wide use of the system will dramatically improve the postal service, emergency services, property and public works management systems, transportation and tourism in Mongolia and make Mongolia a truly geo-technology advanced country.

Source: Source: PR-CANADA.net

SPONSORS

NEW MONGOLIAN LAWS The following new amendment to a current Mongolian law was published in the latest weekly Government Bulletin. Unless decided otherwise by Parliament, the law will take effect ten (10) days after publication. Bulletin Date Law 02.06.2009 Amendment on “Law of Official Document Permission and Warranty Fee”

Please visit BCM website, Legislative Committee, for a weekly listing summary of new Mongolian laws commencing February 2009. BCM members who wish a complete version of the law in Mongolian language are welcome to call or email the BCM office (11-332-345; info@mongolia.org) to arrange for a convenient pickup. _______________________________________________________________________________________________

ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the week ended February 6, 2009, trading activity on the Mongolian Stock Exchange (MSE)

totaled 582,300 shares with 27 companies traded. Total market value of transactions was MNT

113.5 million. Total market capitalization of the 358 stock companies listed on the MSE was MNT

448.2 billion, and decreased by MNT 2.1 billion, or 0.4 % from the previous week.

The Top-20 Index decreased by 80.92 points or 1.6% compared to the previous week closing at

4,863.49 points. The MSE Composite Index decreased by 0.11 points, no percentage change

compared to the previous week, closing at 2,456.49 points.

Most active stocks traded were: Olloo (408,500 shares), Genco Tur Buro (72,300 shares), Khun Gan

(32,100 shares), Moningbar (28,700 shares), and Zoos Bank (20,700 shares).

Major share price percentage gainers were: Buligaar (25.8%), APU (14.3%), Moningbar (13.3%),

Genco Tur Buro (12.8%), and Shivee Ovoo (10.0%). Major share price percentage losers were: Zoos

Goyol (27.1%), Khorinkhoyordugaar (13.3%), Baganuur (12.7%), Auto Impex (12.5%), and Talkh

Chicker (11.4%).

INFLATION

Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)] Year 2007 *15.1% [source: NSOM]

Year 2008 *22.1% [source: NSOM]

January 31, 2009 *20.7% [source: NSOM] * year over year (yoy)

CURRENCY RATES – February 12, 2009

Currency name Currency Rate

US dollars US 1434.47

Euro EUR 1854.20

Japanese yen JPY 15.95

British pound GBP 2066.50

Hong Kong dollar HKD 185.06

Chinese yuan CNY 209.90

Russian ruble RUB 40.04

South Korean won KRW 1.03

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.