BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmmongolia.org info@bcmongolia.org

Issue 101, January 15, 2010 1

SPECIAL ISSUE: ASIAN FINANCIAL FORUM 2010 – Hong Kong

NEWS HIGHLIGHTS:

Business: Khan Resources receives notice from State Property Committee;

Centerra predicts 640,000 to 700,000 ounces gold production this year;

Ivanhoe to spend USD758 million on development work at Oyu Tolgoi in 2010;

SouthGobi IPO attracts CIC, Temasek;

SouthGobi may raise up to USD447 million in share sale;

Many potential bidders for Ivanhoe, should it sell;

Khan Bank adds USD20 million to its capital base;

Golomt Bank launches RMB CUP card;

Action on Zoos Bank taken to protect depositors, not bank, says Minister;

APU beer brands, vodka win top awards;

Energy Resources CEO sees opportunity for local companies as economy grows;

Lotus Resources gets fluorspar mining license;

Ex-President of Mongol Gazar reportedly under investigation;

Google threatens to leave China after attacks on activists' e-mail;

China keeps mum on its Google dilemma;

China sends Rio case to prosecutors;

Massey agrees to work with Indian company in Mongolia;

Russian companies hope for USD20 billion in equity offers.

Economy: PM explains new social welfare policy;

Energy tariffs increase for domestic consumers deferred;

Labor leader says higher power rates could lead to crisis;

Coal to cost more;

MNT200 billion less in taxes in 2009;

U.S. donates USD10 million to help Mongolia meet budget shortfall;

PM says privatization of state property will have new priorities;

Mayor appoints advisor on property privatization;

Policy to develop capital markets on the anvil;

Former Central Bank President calls for improved governance and oversight;

Ganzorig stresses Mongolia’s attraction for investors;

Multi-pronged plan to ease and increase coal export;

NDRC official says Mongolia at the threshold of rapid development;

As China rises, so do fears on whether boom can endure;

China pulls back on stimulus effort in bid to deflect inflation;

Crisis threatens to curb Central Banks;

China takes the top spot in car sales; China takes step toward stock futures.

Politics: Adopting a Constitution is no panacea by itself, Speaker reminds MPs;

President asks Parliament to abolish death penalty;

Many MPs less than warm to President’s call;

No major differences with Russia, asserts Speaker, but there could be more progress;

Russian actions seen as a warning signal;

China wiping away Mongolia from economic map;

CNGG seeks more mines, including in Mongolia:

Government to meet in the middle of the Gobi;

India to undertake uranium mining in Mongolia;

France invites Mongolia to international atomic energy meeting;

Mongolia first country to get WHO swine flu vaccines;

Moderate earthquake shakes central Mongolia, Ulaanbaatar, after Sundog in sky;

USEPA offers grants for work in countries including Mongolia;

Heating plants low on coal reserves;

A “prairie girl” sows the seeds of farming in Mongolia. *Click on titles above to link to articles.

BUSINESS KHAN RESOURCES RECEIVES NOTICE FROM STATE PROPERTY COMMITTEE Khan Resources has announced that its 58%-owned Mongolian subsidiary, Central Asian Uranium Company (CAUC), has received a formal notice from the State Property Committee of Mongolia (SPC) requiring CAUC to propose to its shareholders a resolution to approve an increase of the Mongolian State ownership in CAUC to 51%. The notice provides that if a favorable resolution is not provided to SPC by January 31, 2010, CAUC's mining license may be in danger of revocation. "We view this notice as part of the process of implementing the new Nuclear Energy Law," said Mr. Martin Quick, President and Chief Executive Officer of Khan. "We have been working cooperatively with representatives of the Mongolian Government in an effort to reach a mutually satisfactory arrangement that will provide the framework which allows the Government of Mongolia to achieve its goals while also protecting Khan's investment in the project and enabling us as the operator to proceed with the development of the mine. Our discussions have been constructive, and are continuing. As set out in our Directors' Circular, we believe that even with 51%-Government participation, the Dornod property is highly valuable to Khan and that value is not recognized in the ARMZ hostile bid."

Source: www.earthtimes.org

CENTERRA PREDICTS 640,000 to 700,000 OUNCES GOLD PRODUCTION THIS YEAR Centerra Gold has forecast a consolidated gold production of between 640,000 to 700,000 ounces this year, compared to 675,592 ounces produced in 2009. Centerra CEO Steve Lang said mining operations had a very strong fourth quarter, which enabled the company to build its cash balances to USD320 million, which will be used to grow the company. Centerra plans to spend USD30 million for exploration this year, an increase from the USD25 million budgeted last year. Centerra also has budgeted USD276.4 million in capital expenditures this year. "As we continue to expand our operations in both Mongolia and the Kyrgyz Republic, an aggressive focus on adding additional operating platforms through our business development and exploration efforts will increase our future gold production and help us achieve our goal of producing 1.5 million ounces of gold annually," Mr. Lang said. The Boroo mine produced 48,953 oz in the fourth quarter and the mill throughput rate exceeded plan, and average mill recoveries were between 10% and 12% above expectations. Gold production at Boroo/Gatsuurt is forecast to be 120,000 to 140,000 ounces. The company will receive the final operating permit for the Boroo heap leach facility by March 1, allowing it to restart the heap leach within days of receiving the permit, Centerra announced. At Gatsuurt, Centerra intends to spend USD73.8 million this year including construction of a bio-oxidation plant, mine pre-stripping for Gatsuurt sulphide ore, tailings dam costs and the purchase of mobile equipment. Capital for the development of deeper sulphide ore at Gatsuurt will only be invested "if the company is successful in obtaining an acceptable agreement for Gatsuurt with the Government of Mongolia," Centerra said. Source: Mineweb

IVANHOE TO SPEND USD758 MILLION ON DEVELOPMENT WORK AT OYU TOLGOI IN 2010 Ivanhoe Mines‟ President and Chief Executive Officer John Macken has announced that the joint Ivanhoe Mines-Rio Tinto-Oyu Tolgoi Technical Committee has approved a conditional USD758 million budget for 2010 to begin full-scale construction of the copper-gold mining complex. “The approval of the 2010 construction budget represents the next big step toward bringing this project into production,” Mr. Macken said. “Ivanhoe is considering a schedule that could see construction of the initial open-pit mine completed in 2012 and commercial production begin in 2013.” The 2010 budget provides for an early start on a site-wide development program, pending the successful completion of the remaining conditions required to give full effect to the agreement signed in October. Work in 2010 is planned to include: • Installation of a 20-megawatt power station and 35-kilovolt distribution system. • Initial earthworks for the open-pit mine at the Southern Oyu deposits. • Construction of a 105-kilometre highway link to the Mongolia-China border, which will be fully paved by the time production begins. • Construction of a regional airport, with a concrete runway to accommodate Boeing 737-sized aircraft. Ivanhoe Mines‟ present consolidated cash position is approximately USD1 billion. Mr. Macken said additional funds are expected during 2010 either from Rio Tinto‟s exercise of Series A warrants, or through potential investments in Ivanhoe by one or more strategic shareholders, including sovereign wealth funds, that have expressed unsolicited interest in participating in Ivanhoe‟s growth opportunities.

Source: Ardiin Erkh

SOUTHGOBI IPO ATTRACTS CIC, TEMASEK SouthGobi Energy Resources has secured Asia's top sovereign wealth funds, China Investment Corp (CIC) and Temasek, as cornerstone investors in its planned USD400 million Hong Kong IPO this month. China's CIC and Singapore's Temasek will each buy USD50 million worth of shares, said a source with direct knowledge of the deal but declined to be named due to the sensitive nature of the matter. The presence of the cornerstone investors, who buy shares before a public listing and promise to hold them until a later date, gives a high profile boost to the Mongolia-focused miner. "What's relevant about it is the quality of the cornerstones," the source said. "It's a sign that CIC thinks there's more upside, and that Temasek, the cornerstone investor with the best reputation in Asia, has endorsed the strategy." SouthGobi kicked off a marketing „road show‟ on January 11, aiming to list on January 29 under the symbol "1878". Source: Reuters.com

SOUTHGOBI MAY RAISE UP TO USD447 MILLION IN SHARE SALE SouthGobi Energy Resources may raise as much as USD446.6 million in its Hong Kong share sale, three people familiar with its plan have said. The Vancouver-based energy supplier plans to sell shares at the maximum price of the Hong Kong dollar equivalent of CAD17 each, they said, declining to be identified before an official statement. SouthGobi is raising capital to finance exploration, expand, and build production plants and infrastructure as it aims to increase output and supply customers in China. The company plans to sell 27 million new shares, or a 16.8 percent stake, an e-mail sent to fund managers early this month said. CIC bought USD500 million of 30-year senior convertible bonds issued by SouthGobi in October last year. The sovereign wealth fund has spent more than USD4 billion on energy and resources investments since September to hedge against inflation and meet the needs of the world‟s fastest- growing major economy. SouthGobi is controlled by Vancouver-based Ivanhoe Mines Ltd., whose Chairman Robert Friedland has said that the underdeveloped resources of Mongolia could make it “the Saudi Arabia of coal.”

Source: Bloomberg.com

MANY POTENTIAL BIDDERS FOR IVANHOE, SHOULD IT SELL Rio Tinto, the mining giant with a minority interest in the Oyu Tolgoi deposit, is likely to be at the front of a long line of potential bidders should its partner, Ivanhoe Mines, put itself up for sale. Ivanhoe -- which owns the project -- said on Wednesday it had hired bankers to consider ways to boost the group's value, sparking speculation that the USD6.8 billion company could be up for sale.

Rio owns 19.7 percent of Ivanhoe and has long coveted the Oyu Tolgoi project. Rio Chief Executive Tom Albanese has called the Mongolian project one of the "most attractive undeveloped copper-gold projects in the world." But it is likely to run into stiff competition from other big copper miners including BHP Billiton, Xstrata, and Anglo American, investors said. Investment bankers also pointed to strong interest from resource-hungry China, as Oyu Tolgoi is located just 80 km from its border. "It's very rare that these types of projects become available," said a portfolio manager, adding, "If it becomes public that Ivanhoe are sellers, everyone's going to be obliged to have a look and see, because it's just not going to come around again." To be sure, the timing is less than ideal for Rio. The London-based company only recently cut its massive debt load in half and has further to go. In anticipation of an Ivanhoe sale, competitors will closely monitor Rio Tinto. Under its partnership agreement with Ivanhoe, Rio can increase its stake to 46.6 percent of Ivanhoe's shares over the next two years. The cap does not apply if a competing bid is made for the company, Ivanhoe directors waive the restrictions, or if founder Robert Friedland seeks to sell his shares to anyone other than institutional investors. In that event, Rio also has the first right of refusal to buy Friedland's shares. Friedland owns 22.8 percent of Ivanhoe. Read More... Bankers and fund managers suggested that a joint venture between Rio and a Chinese bidder like Chinalco is a good possibility. Rio is looking to mend ties with the Chinese state-owned company after Rio spurned Chinalco on a USD19 billion deal last year. Whilst the Chinese would like to get involved with it, because it is right on their doorstep, the impression has been in the past that the Mongolian Government may not be interested in the Chinese coming in. Bankers said that any buyer of Ivanhoe would need a balance sheet to support the billions of dollars that need to be poured into development of the Mongolian mine. They also suggested that Ivanhoe might attract more interest if it first sells or spins off some of its other assets -- its majority ownership of a Mongolian coal miner and an Australian exploration and development company, as well as a gold miner in Kazakhstan. BHP Billiton might be reluctant to commit capital to Oyu Tolgoi, having walked away from the project in 2004. But more is known about the project now, and the world's biggest miner might be willing to bid in a consortium for Ivanhoe. Source: Reuters.com

KHAN BANK ADDS USD20 MILLION TO ITS CAPITAL BASE Khan Bank has added USD20 million of subordinated debt to its capital base. This includes USD10 million from FMO, a Dutch development bank, and USD10 million from H.I.S. Co. Ltd., a Japanese general travel agency. The subordinated debt is part of the Bank‟s Tier 2 capital and increases total capital to more than MNT 125 billion. FMO has also provided USD15 million in long term senior debt to support growth of the Bank‟s lending to small and medium enterprises. In August 2009, Khan Bank‟s shareholders added USD3 million in equity. With the addition of the subordinated debt, Khan Bank has significantly strengthened its capital base and increased its capital adequacy ratio to more than 19.6%, by far the highest level among Mongolian banks. Khan Bank CEO J. Peter Morrow has commented, “As we enter 2010, the capital increase, and the additional USD35 million of funding, will continue to support Khan Bank‟s growth as Mongolia itself begins a new stage of development. We are delighted to have entered into a long term relationship with FMO, and we look forward to the active support of this prominent international organization. The investment by H.I.S. represents the confidence in us and continued support by our majority shareholder, Sawada Holdings.” Source: www.khanbank.com

GOLOMT BANK LAUNCHES RMB CUP CARD Golomt Bank has launched the first RMB CUP card in the world market, in association with China UnionPay (CUP) Company. Golomt accounts for more than 60 percent of the total card transaction volume in the Mongolian market and was chosen as the first issuer of CUP cards in recognition of its role as the pioneer of card settlement services in Mongolia with the highest number of card holders. CUP cards are accepted at all Golomt Bank ATMs and by merchants in strategic locations throughout Mongolia. The launch ceremony, held on January 8 at the State Academic Theatre of Opera and Ballet, was attended by the Chinese Ambassador, Yu Hong Yao, the Deputy Governor of The Bank of Mongolia,

Mrs. D. Enkhjargal, CUP First Executive Vice President Cai Jian Bo, and Golomt Bank Chairman of Board of Governors, D.Bayasgalan and CEO John Finigan. The launch of Golomt UnionPay cards makes it possible for Mongolian entrepreneurs, students and visitors to make transfers in Chinese Yuan for purchases and cash withdrawals at more than 1.5 million merchant stores and 200,000 ATMs in China. Source: www.golomtbank.com

ACTION ON ZOOS BANK TAKEN TO PROTECT DEPOSITORS, NOT BANK, SAYS MINISTER Minister for Roads, Transportation, Construction and Urban Development Kh.Battulga has defended the Government‟s actions on the former Zoos Bank by saying these were prompted by the necessity to protect ordinary people‟s savings, and not by any desire to offer a lifeline to a drowning private bank. He has also said that the decision to distribute MNT120,000 to every citizen is “wrong” as, no matter how it is presented, it is “in fact, distribution of revenue from the mining sector”. Source: www.business-mongolia.com

APU BEER BRANDS, VODKA WIN TOP AWARDS Fusion and Borgio, two beers produced by APU, the largest Mongolian beverage company, won gold and silver medals, respectively, at the recent World Beer Competition. Soyombo, from the same company, won gold in the vodka category at the World Spirits Competition. The competition is an accredited premiere tasting event in the beverage industry. Award winners are granted the right to use the Award Icon and description as provided on their product and advertising for two years starting January 1, 2010. Source: 2point6billion.com

ENERGY RESOURCES CEO SEES OPPORTUNITY FOR LOCAL COMPANIES AS ECONOMY GROWS Mr. G.Battsengel, CEO of Energy Resources, has said his company plans to contribute to the country‟s development by engaging domestic companies as much as possible as subcontractors in all its work. “Our example shows that successful implementation of the 26 listed projects will have a tangible impact on the economy of Mongolia, helping it grow fast,” he said. More than 300 domestic contractors and suppliers are working on projects run by Energy Resources and it will be the same with the Ukhaa Khudag-Gashuun Sukhait railroad project. “This is how the economy is kept on the move, with every project generating some income for a large number of people. All this will support other sectors and raise consumer demand, and consequently the economy will grow.” He recalled that the private sector in Mongolia has become the largest contributor to its GDP, its share standing at more than 80%. “However, most of this comes from the service sector, and the capacity of our small market of 3 million people will be exhausted soon. We have to look towards the mining sector to stimulate our economic growth, and to give the opportunity to various domestic companies to raise their level of competence to international standards,” Mr. Battsengel said. Energy Resources has provided more than 800 jobs to the local people since the project was launched and “almost everyone in the Tsogttsetsii soum is now gainfully employed”. Along with better living conditions has come “a brighter faith in the future“, he added, noting with satisfaction that “many of our employees have also been able to upgrade their skills, and have moved up from being service and support personnel to more qualified jobs with higher salaries”. Source: The Mongolian Mining Journal LOTUS RESOURCES GETS FLUORSPAR MINING LICENSE London-based Lotus Resources, which concentrates on exploration and mining projects in Mongolia and China, has acquired a fluorspar mining license for the Tsagaan Chuluut project in Dornogobi Province. The company says the deposit "is genetically and morphologically very similar to Mongolia's largest fluorspar mine, Bor-Ondor, which is located about 70 kilometers west-northwest of Tsaagan Chuluut”. The company hopes to get its first fluorspar joint venture mine operating in Mongolia this spring. The license covers a 33-hectare area and the project has an approved resource of 170,000 tons of fluorspar. Historical exploration drilling has been conducted by joint Mongolian-Russian geologist‟s teams and by the Mongolian-Russian joint venture Mongolrostsvetmet (MONROS), which was one of Mongolia's largest gold producers. Production of fluorspar has historically been mainly to Russia as raw material for the chemical, iron and steel, and non-ferrous metals industry, according to the U.S. Geological Survey. Source: Mineweb.com

EX-PRESIDENT OF MONGOL GAZAR REPORTEDLY UNDER INVESTIGATION Mr. Ts.Myanganbayar, former President of Mongol Gazar and popularly called “the gold magnate”, is under investigation. The allegations against him include fraud in submitting loan application to both Anod and Zoos Banks. His total debt to banks is over MNT20 billion, excluding USD debts, and State officials feel this largely contributed to the untenable situation in the former Zoos Bank. Mr. Myanganbayar has not yet been interrogated, but officials of the Department of Economic Crime of the State Investigation Authority say he might be detained if necessary. Source: www.business-mongolia.com

GOOGLE THREATENS TO LEAVE CHINA AFTER ATTACKS ON ACTIVISTS’ E-MAIL Google said Tuesday that it may pull out of China because of a sophisticated computer network attack originating there and targeting its e-mail service and corporate infrastructure, a threat that could rattle U.S.-China relations, as well as China's business community. The company said it has evidence to suggest that "a primary goal of the attackers was accessing the Gmail accounts of Chinese human rights activists", but it said that at least 20 other large companies, including finance, media and chemical firms, have been the targets of similar attacks. Google said it discovered the attack in December. "It's clear that this attack was so pervasive and so essential to the core of Google's intellectual property that only in such a situation would they contemplate pulling the plug on their entire business model in China," said a China cyber expert. U.S. Congressional sources said the other companies include Adobe and possibly Northrop Grumman and Dow Chemical. Industry sources said the attacks were even broader, affecting 34 firms. The hackers appeared to be after information on weapons systems from defense firms and were seeking companies' "source code", the most valuable form of intellectual property because it underlies the firms' computer applications. U.S. authorities, including the National Security Agency, are involved in investigating the attacks. Mr. David Drummond, Google's senior vice president and chief legal officer, said the attacks had led the company to conclude that it should "review the feasibility" of its Chinese operations. "We recognize that this may well mean having to shut down Google.cn, and potentially our offices in China," he said. The company has decided to stop censoring its search results on Chinese Google sites. Over the next few weeks, the company will discuss with the Beijing government how it may operate "an unfiltered search engine within the law, if at all". Read more... Google's threat to pull out of China follows years of tension over the company's service, which is designed to provide quick, unfettered access to information, and over the Chinese government‟s wish to restrict its citizens' access to politically sensitive topics and to monitor their activity. The confrontation also comes just before a January 21 policy speech on Internet freedom by Secretary of State Hillary Clinton, who dined last week with a handful of top technology executives, including Google's chief executive. In China, reaction on the Web was critical of both the Chinese government and Google. The implications for U.S. businesses in general loom large. Google is an extreme example, but this action is consistent with the sentiment among many foreign companies that doing business in China is increasingly difficult as the country becomes more wealthy and powerful. China is among a handful of countries considered to have impressive cyber-offensive capabilities, but U.S. officials have refrained from publicly accusing the country because of the difficulty of determining with certainty who is behind an attack. Attacks on China rights activists have been growing, however, and suspicion has fallen on the Beijing government.

Source: www.washingtonpost.com

CHINA KEEPS MUM ON ITS GOOGLE DILEMMA Google's threat to shut down its Chinese Web site and offices puts the Chinese Government in the awkward position of having to choose between relaxing restrictions and raising the ire of the roughly 80 million Chinese people who use the search engine. Few political and Internet analysts appear to doubt that China will stick to its tough stance and reject Google's proposal to stop censoring search results on its Chinese sites. But Google's audience of Chinese "netizens", a few of whom placed flowers outside the company's Beijing offices Wednesday, is large enough to make such a reaction risky. Businesspeople in Beijing are pessimistic about the prospect of a crack in what is known as the Great Firewall of China. "China can't lose face over this, and it's not going to let anybody run an open search engine," said an industry source close to Google. For now, the Government has said

only that it will seek more information from Google. Virtually the only official comment came in the form of a signed opinion article on the People's Daily Web site, lacking the weight of an officially vetted unsigned editorial. The article likened Google to a "spoiled child" and said that even if it stormed out of China, it would be back because of the importance of the Chinese market. "This is a lose-lose solution for both Google and China," said Mr. Hu Yong of Beijing University's School of Journalism and Communication. "For Google, China is a huge market with very big business potential. For Chinese netizens, it's a bad result as well. A search engine is very important for the free transportation of information online. And we need competition or the number of information sources will decrease." Source: The Washington Post

CHINA SENDS RIO CASE TO PROSECUTORS A Chinese investigation into a detained Australian Rio Tinto Ltd. executive and three colleagues has been sent to prosecutors, Australia's foreign office and the mining company said on Monday. The four Rio staff, including Australian citizen Stern Hu, have been in Chinese custody since July over accusations of illegally obtaining commercial secrets. A brief statement by Shanghai's public security bureau, carried by state news agency Xinhua late on Monday, did not specify on what charges the four might be tried. It noted they were investigated for infringing trade secrets and bribery. China is Australia's biggest trade partner, with trade worth USD53 billion last year. "The case is now in the hands of the Shanghai People's Procuratorate (prosecutor) who will decide whether it should be brought to trial," said Australia's Department of Foreign Affairs & Trade (DFAT), after being notified by Chinese authorities. "We are not in a position to say how long this phase of the case will take, and are not prepared to speculate about the outcome. Details of the actual charges are not likely to be known until the prosecutors have made their decision on whether the case should proceed to trial," DFAT said in a statement. The case, which has caused tensions between Australia and China, has placed a cloud over already contentious iron ore price negotiations between China and miners Rio, its fellow Australian miner BHP Billiton and Brazil's Vale. "This transfer is the next stage in a continuing legal process under Chinese law," said Sam Walsh, Rio's chief executive in charge of iron ore. Chinese prosecutors have about five months to decide whether to go to trial, but could refer the case back to police if they feel the case is not strong enough for a prosecution. Source: Reuters.com

MASSEY AGREES TO WORK WITH INDIAN COMPANY IN MONGOLIA Massey Energy says it has signed a deal to work with Indian company Jindal Steel & Power on potential underground coal projects in India, Mongolia, Australia and the United States. Massey Chief Executive Don Blankenship says the agreement promises to extend his company's operations overseas. For Delhi-based Jindal, the pact promises lower cost and stable energy sources. Jindal operates steel, power, mining and oil & gas businesses among other things.

Source: www.sfexaminer.com

RUSSIAN COMPANIES HOPE FOR USD20 BILLION IN EQUITY OFFERS Debt-ridden Russian companies may raise as much as USD20 billion in 2010 after a drought of nearly two years in the country's international equity sales, investment banks say, but add that any success in initial public offerings will depend on stable or rising commodity prices as well as robust global risk appetite. Russian companies that binged on debt before commodity prices dropped in mid-2008 are selling shares to reduce debt ratios. "Companies have learned the hard way about the risk of too much leverage through the financial crisis," Mr. Hasnen Varawalla, head of corporate finance at Renaissance Capital in Moscow, said in an interview. "They want to have their balance sheets a lot more conservatively balanced going forward." Russian investors were richly rewarded when the RTS Index more than doubled last year, but 2010's IPO tally may depend more on what happens to shares of early offerings. "The performance of the first few Russian IPOs will be very important in setting the tone," Mr. Varawalla said. "Often in previous IPOs, the issuers have sought to squeeze the last penny out of the investors; now, I think investors will look for a more balanced approach when it comes to pricing." Another source of Russia-based equity may be the Government's return to privatization. Facing a three-year budget deficit of USD224 billion, officials said last year that they would embark on a

new privatization program planned to eventually cut state ownership of the Russian economy to 40% from 50%.

Source: The Wall Street Journal Asia

ECONOMY PM EXPLAINS NEW SOCIAL WELFARE POLICY Prime Minister S.Batbold has clarified the thrust of the proposed reforms in the social welfare program. The amount of money spent on such programs has been increasing every year, but poverty has not decreased. He also felt the benefits of the present programs had failed to reach the really needy groups and has also led to dependence, blunting the initiative in many cases to find and hold on to a job. The Government now thinks it is best to aim welfare programs at the disabled, single elders, orphans, and families otherwise vulnerable. The four current laws regulating social welfare will be made into two, and the 62 types of welfare allowances at present will be brought down to 17. Welfare allowance recipients will be divided into two groups: members of poor families, and citizens in the greatest need for assistance. Mr. Batbold reiterated the Government‟s commitment to poverty reduction through creating jobs and said the target was to reduce the number of poor families by 12,500 per year. Source: Ardiin Erkh

ENERGY TARIFFS INCREASE FOR DOMESTIC CONSUMERS DEFERRED The Energy Regulation Department has agreed to postpone raising domestic electricity tariffs until June 1, following a demand by the Mongolian Labor Union for a review of the data. However, commercial customers will have to pay at the new rates from January 15. That will also be when heating costs go up. The Energy Regulation Department is planning to ask the Ministry for Minerals and Energy to waive the VAT on energy consumption payment. If this is approved, the tariffs could change. Night time electricity payment for such as street illumination will be made 50 percent cheaper.

Source: Undesnii Shuudan

LABOR LEADER SAYS HIGHER POWER RATES COULD LEAD TO CRISIS Mongolian Labor Union head S. Ganbaatar feels the electricity rates rise issue may well lead to a crisis situation like what was seen in 1990. Asserting that any decision like this must consider the capacity of the common citizen, he said the 12 companies producing electricity and heat jointly form a monopoly and even if they face difficulties if prices are not increased, they cannot do this arbitrarily. He had the impression that the Government supported the companies, even though the Ministry of Labor and Welfare has been surprisingly silent in public. He gave no credence to the opinions expressed by the Energy Coordination Committee on the wider impact of the present price increase and worried that it could be followed by higher petrol prices, raised water rates, and increased railway fares. Source: Zuunii Medee

COAL TO COST MORE The Ministry for Minerals and Energy has agreed to a proposal to raise the price of coal by MNT4,000 per ton. Coal mines demanded an increase in prices last autumn, but this was then rejected by the Government. Source: www.news.mn

MNT200 BILLION LESS IN TAXES IN 2009 Tax revenues in 2009 were MNT200 billion less than in the previous year. Over 80 percent of the state budget revenue comes from taxes paid by the private sector. The fall is attributed to the general economic crisis, particularly to the failure of business to draw credit from commercial banks. Source: www.mongolia-business.com

U.S. DONATES USD10 MILLION TO HELP MONGOLIA MEET BUDGET SHORTFALL U.S. Ambassador Jonathan S. Addleton and Minister of Finance S. Bayartsogt have signed a bilateral grant agreement worth USD10 million. The grant is meant to assist Mongolia in recovering from the

negative effects of the global financial crisis and comes in response to a request from the Government of Mongolia sent when the financial crisis hit last year. The United States Agency for International Development (USAID) secured approval from the US Congress for the cash transfer to Mongolia‟s state budget. This support will help the Government meet its budget deficit reduction targets while maintaining essential social safety net transfers to those hardest hit by the crisis. Besides this cash transfer, the U.S. Government is also providing USD2 million this year for technical assistance that addresses the effects of the crisis on Mongolia‟s banking sector, and another USD1 million that will be used to guarantee up to USD25 million in private sector bank loans to small and medium sized enterprises. This allocation of grant funds brings to USD20.5 million the total amount of grant funding that USAID has been providing to Mongolia over the past year. This is a threefold increase over the annual USAID allocations in recent years. Source: Mongolia.usembassy.gov

PM SAYS PRIVATIZATION OF STATE PROPERTY WILL HAVE NEW PRIORITIES Prime Minister S.Batbold has presented to Parliament Speaker D.Demberel a draft protocol setting out the general directives behind state property privatization between 2010 and 2012. Privatization will have different priorities now, and the Prime Minister feels the process henceforth must have more civil participation and improved governance. This will help strengthen the stock exchange and help bond sales. The main changes proposed in privatization procedures will be open to the public. The draft protocol is planned to be discussed by Parliament next autumn. The draft covers strategic mines as well as state-owned companies. In an explanatory statement, Mr. Batbold said, “We are planning to introduce new methods in privatization, something we see as leading to the development of the larger financial market. There is little citizen participation in the financial market at present. This must change. We also wish to improve the management of the stock exchange as well as allow shares of state-owned companies, mining activities, energy and railway companies to be sold.” Asked how exactly citizens are expected to participate, Mr. Batbold said they will be given a choice between saving with commercial banks on a predetermined rate of interest or buy shares in companies which promise higher returns. “This will entail improving the operation of state-owned companies, their management as well as curbing corruption. Today, almost 100 percent of citizens‟ investments in Mongolia are in commercial banks, but in developed countries, more than 50 percent of the money is invested in the financial market,” he said. Source: en.News.mn

MAYOR APPOINTS ADVISOR ON PROPERTY PRIVATIZATION The Mayor of Ulaanbaatar has appointed Mr. P.Tsogtbaatar, a former governor of the city's Bayangol district, as his advisor on property privatization and investments. It was earlier announced that the Mayor wants the present year to be devoted to achieving better results from investments and to streamlining property registration procedures. Source: Montsame

POLICY TO DEVELOP CAPITAL MARKETS ON THE ANVIL The Ministry of Finance, the State Property Committee, and the National Development and Innovation Committee have been jointly entrusted with the task of formulating a long-term policy for development of the capital markets. Most of the companies listed on the Mongolian Stock Exchange do not take part in trading and activity in the MSE is usually listless. The new policy would be expected to follow international standards, and encourage more public investment in the financial market, involving commercial banks as well as foreign credit. The present total market value of Mongolian stocks is less than USD500 million and so is less than what is traded routinely in the smallest stock exchange in the world. It is likely that an international group will be asked to manage the MSE and the selection will be made after a tender is announced. Some 20 companies operating in Mongolian extractive industries and listed in stock exchanges in London, New York, Toronto, and Hong Kong raise billions of dollars through trading their stocks. The total amount of capital raised by, for instance, Mongolia Energy Corporation in the Hong Kong stock exchange, or by Ivanhoe Mines in the Toronto Stock Exchange is three times the total Mongolian GDP. Source: Onoodor

FORMER CENTRAL BANK GOVERNOR CALLS FOR IMPROVED GOVERNANCE AND OVERSIGHT Mr. J.Unenbat, a former President of the Central Bank who now heads the Banking and Finance Faculty of the Institute of Finance and Economics, has said that the present economic crisis has had one positive aspect in that it has revealed areas where there is imperative need for rectification and reform. The problem areas have been identified and this offers us a golden opportunity to begin mending them without delay. These include the lax norms of corporate governance in the overall banking sector, which included a failure to adopt the principle of accountability. Indeed people who have caused huge losses to individuals and also to the state are not held responsible, but they also appear to be allowed to enjoy gains from their various acts of omission and commission. He also called for more transparency, saying that there must be open access to and dissemination of information to put an end to the present practice where only good news is given, while unpleasant or bad news is concealed. Interests of investors and clients are best served when the banking sector releases accurate and objective information, and does this timely, without regard to its positive or negative impact on the bank‟s fortunes. The principle of confidentiality is grossly misused. It does not relate to the financial status of the bank as a whole and is relevant only to the status of individual accounts and to details of a client‟s agreement with banks. Regretting that “the principle of equality before the law is not followed in our country,” Mr. Unenbat said, “Laws are enforced erratically and selectively, and we all know when and why this happens, and who benefits from such deliberate discrimination.” Everything can be improved, and “our mind should never be closed to reforms”. The existing laws and regulations for the banking sector are “actually good enough to foresee and forestall crises, as well as to take emergency measures when one does occur. No reform or amendments will have any better results if enforcement continues to be selective, and is guided by extraneous considerations,” he said. Source: The Mongolian Mining Journal

GANZORIG STRESSES MONGOLIA’S ATTRACTION FOR INVESTORS Mr. Olziibayar Ganzorig, head of the Mongolian Financial Markets Association and CEO of Prime Insurance Company, told Bloomberg TV in Hong Kong at a recent interview that Mongolia‟s democratic commitments were one reason why its economic development lagged behind that of countries such as Kazakhstan. It is natural that “parliamentary discussions representing public interests tend to slow down the decision-making process, sometimes creating small problems”, but this cannot be helped “and I believe that Mongolia will be a most attractive market for foreign investors in the long term”, said Mr. Ganzorig. Defending the present Mongolian priority of setting up substantial processing industries, adding value to natural resources, producing consumer end products and exporting them, Mr. Ganzorig said even a Russian politician had admitted that “Russia exported much of its natural resources without making value addition, whereas Mongolians are talking about adding value to their natural resources, which is good”. Source: Onoodor

MULTI-PRONGED PLAN TO EASE AND INCREASE COAL EXPORT Coal is now produced at 36 sites in the country. The increasing number of private entities in the coal sector has meant a boost in production. Coal began to be exported to China in 2003. Exports will increase radically and the Government recently asked officials to: develop a general plan in the first season of 2010 to improve the work at Gashuun Sukhait and Shivee Khuren ports to reach international norms; and to install additional equipment, including surveillance cameras and illumination, and establish a laboratory and a sterilization department at both places; change the system of coal loading and unloading in the Tsagaan Khad area in Khanbogd, Umnugobi and introduce environmentally non-hazardous technology; and also to establish a special center for coal loading according to international standards; arrange by February for Gashuun Sukhait, Shivee Khuren and Khangi ports to work for 24 hours a day, and to finalize necessary arrangements with the Chinese side; take related steps to make these ports operational 24 hours a day, like raising the number of customs and border protection organizations and personnel, and inform the Government within the first season of 2010 about the financial liabilities; and prepare a plan to build roads from Tavan Tolgoi to Gashuun Sukhait and Khangi ports, with the costs being met by the companies exporting minerals. Source: Zuunii Medee

NDRC OFFICIAL SAYS MONGOLIA AT THE THRESHOLD OF RAPID DEVELOPMENT Mr. B.Ganbaatar of the Development and Investment Policy Department at the National Development and Reform Committee has said that Mongolia has arrived at the threshold of rapid development and their Committee was established to ensure that opportunities are utilized and to formulate recommendations towards that end. Mongolia has embarked on a course that calls for deploying its natural resources, developing the mining sector and laying the foundation of heavy industry. Apart from copper and coal, there are five deposits of non-ferrous ore in the Darkhan region and the Darkhan non-ferrous factory makes some use of them, smelting them and producing certain construction materials. Now Mongolia can and should begin non-ferrous metal production in a big way. The project should proceed stage by stage but with the final goal and capacity clearly defined. Expressing concern at the high water requirement for the projects being proposed, Mr. Ganbaatar said much is expected of a project on water supply to the Gobi region from the Orkhon River. He did not think that the supply will be directly taken from the river. It is more likely that up to 10% of the river basin will be used to create water resources without affecting the flow of the river. The Kherlen Gobi project will utilize water reserves in other ways but there, too, the main flow will not be tampered with, nor the main water reserves used. It is better to store rain and flood water during the right seasons. Pointing out that a highway, as opposed to a road, is built specially for container transport and must be able to bear heavy loads at 80 km/h, Mr. Ganbaatar said the road from Altanbulag to Zamiin-Uud will be mainly used for faster freight transport. Mongolia is a geographical corridor between Europe and North East Asia but this has to be extended to other regions such as China, India and the Asia Pacific, countries which are defining global development in the 21st century. Read more… Besides the fifth power station planned in Ulaanbaatar, there is another project on energy generation from rubbish and bio-mass, in a bid to produce clean energy and reduce carbon emission. Some fear rubbish in Mongolia has more ash and garbage from apartments can be used only in a limited manner. The bio mass will come from food waste, harvest residues, coal remnants. These can all be processed into combustible gas. Source: The Mongolian Mining Journal

AS CHINA RISES, SO DO FEARS ON WHETHER BOOM CAN ENDURE As much of the world struggles to clamber out of a serious recession, a gradual flow of economic power from West to East has turned into a flood. The shift of economic gravity to China has occurred partly because growth here remained robust even as the world‟s developed economies suffered the steepest drop in trade and economic output in decades. But that did not happen by chance: China‟s decisive government intervention in the economy, combined with the defiant optimism of its companies and consumers, has propelled an economy that until recently had seemed tethered to the health of its major export markets. Beijing‟s state-run news media, indulging in a moment of self-congratulation, have hailed China‟s new economic prominence as proof of national superiority. The country‟s economic miracle, the People‟s Daily boasted last week, exists because its leaders — unlike those in other, unnamed nations — can make quick decisions and ensure underlings carry them out. The Great Recession, the newspaper said, has laid bare cracks in plodding Western-style capitalism. Yet China confronts a number of challenges about its recent surge, including whether its formula for growth is sustainable, and how it will manage its increasingly strained economic relations with the outside world. Those are likely to prove challenging issues for a leadership unaccustomed to making policy under an international spotlight. Read more… Sustaining a global-size economy is nowhere near as simple as building one, some Chinese and Western economists say. As the Chinese navigate toward a bigger role in the world financial system, they are already running into diplomatic and political headwinds. At home, ordinary citizens and economists alike worry that the Government‟s decision to flood the economy with cash has created speculative bubbles — in housing, in lending — that could burst with disastrous effect. But curbing speculation requires moves, such as raising interest rates, that could crimp the sprees of investment and industrial expansion that are the main contributors to growth. Abroad, the pressure on China to revalue its currency, the renminbi, is strengthening, and it seems sure to intensify after trade statistics released Sunday showed that China‟s yearlong downturn in export growth reversed in December. Keeping the renminbi fixed at a low rate against the dollar boosts China‟s exports and its economy, but increasingly it has been angering its trade partners.

China once could wave off complaints about its currency policies, arguing that a developing nation was entitled to a bit of slack from its Western customers. But with the world‟s fastest-growing economy — and more than USD2 trillion in foreign reserves — that argument looks increasingly untenable. In theory, China‟s growing economic clout should benefit everyone: in an interconnected world, growing trade creates jobs and money everywhere. But China‟s rise also poses new risks both for Beijing and for its trading partners. Its largely bruise-free journey through last year‟s economic crisis aside, not everyone is convinced that Beijing has eliminated threats to its financial and economic health. Some fear that too much of the stimulus money was put into unprofitable projects and bad loans that will be exposed in a few years. In that view, China‟s 2009 boom, in which automakers sold nearly 14 million cars and trucks, and housing prices doubled, is really a sign of an overheated economy at risk of serious recession down the road. A Chinese economic crisis, which could have been shrugged off a few years ago, would be a considerably more serious event in a world in which Beijing runs the second-largest economy. The Government appears concerned. Last week, the central bank edged up the rate on an often-watched interbank loan, the first such hike in five months. That seemed to signal concern that the economy was expanding too quickly. Many experts see few signs of immediate danger. After all, they note, China has gone on splurges before — building too many steel mills, and too many office buildings — only to see the nation‟s breakneck growth sop up the excess capacity. With nearly a billion people still clawing to advance beyond peasant status, they say, China‟s growth story has many chapters ahead. Source: The New York Times

CHINA PULLS BACK ON STIMULUS EFFORT IN BID TO DEFLECT INFLATION China backed off its giant stimulus effort Tuesday by reducing the amount of cash banks have available to lend, in the clearest signal yet that the Government is worried that the nation's credit binge now risks igniting inflation. The stimulus program, led by a Government order to banks in late 2008 to flood the economy with cash, helped carry China through global financial turmoil. The Chinese economy has rebounded strongly, with property prices sizzling in major cities, a recovery in exports and, recently, a rush of inward investment. But deflecting inflation has become a growing priority for Beijing. Tuesday's move by the country's central bank appeared to economists as a significant, sooner-than-expected step away from the policies that have encouraged easy bank credit. Most commercial banks will now be required to put 16% of their deposits on reserve and not lend the money, an increase of a half percentage point. In recent years, the reserve requirement rate has emerged as a primary tool for the central bank to fine-tune monetary policy. The central bank also raised the yield it pays on its one-year bills, a move also designed to siphon cash out of the financial system by making the debt securities more attractive for banks to buy. The change potentially sets China on a path for other bigger adjustments, including official interest-rate increases later in the year. Read more… The move rattled global markets, sending investors to safer-seeming assets as they worried that China's economy might not be as robust as expected this year. The USD rose against riskier-but-higher-yielding currencies, and U.S. Government Treasurys also rallied. Stock prices in Europe fell in the wake of China's announcement, which came after Chinese markets closed. At this point, inflation is under control in China, although the consumer-price index turned positive for the first time in November and the December number is expected to show a jump -- an expectation fed by the latest sign of official concern about inflation. Economists say headline inflation rates in China are likely to rise rapidly in the next few months, even if only because current prices are being compared with the extremely depressed levels of early 2009.

Source: The Wall Street Journal Asia

CRISIS THREATENS TO CURB CENTRAL BANKS Some time ago, Central Bank President L. Purevdorj was upset that politicians were trying to influence monetary policy, but it seems that is a worldwide trend, signaling that the global financial crisis may end up reining in the independence of many central banks. In the past week, a policy standoff prompted Argentina's president to fire the country's central-bank chief -- who was reinstated the next day by a court order. In South Korea, the government sent a political official to

a central-bank policy meeting for the first time in a decade. Officials at central banks including the U.S. Federal Reserve say they worry that similar political challenges are heading their way. Independence is vital for effective central-bank operations, economists and central bankers say. Many decisions, such as raising interest rates to fight inflation, are politically unpopular but considered necessary to effectively manage the economy. Many banks have only recently won independence, notably the Bank of England, in 1997, and the Bank of Japan the following year. That independence is now under threat and is figuring in talks among central bankers gathered in Basel, Switzerland, this week for annual meetings at the Bank for International Settlements. Central banks are vulnerable to political meddling because they became deeply involved in government-led efforts to rescue the global economy. One country has little concern about the issue of central bank independence: China. The Chinese central bank is a government department in charge of the nation's monetary policy. The issue of political "interference" never arises in Beijing because there is no independence to compromise. Source: The Wall Street Journal Asia

CHINA TAKES THE TOP SPOT IN CAR SALES China's automobile sales in 2009 raced past the U.S. for the first time to take the top spot, as government incentives helped sales surge 46% from a year earlier to 13.6 million vehicles amid a world-wide slowdown. Auto sales in December nearly doubled, rising 92% from a year earlier to 1.41 million vehicles, the China Association of Automobile Manufacturers said Monday. Record sales in China last year coincided with record lows in the U.S., as the credit crisis and the resulting slowdown in the economy prompted U.S. consumers to scale down purchases. About 10.4 million light vehicles were sold in the U.S. last year, down 21% from 2008 and the lowest total sales since 1982. The figure doesn't include sales of heavy commercial vehicles, which totaled about 500,000 units. By contrast, China's 2009 sales, released by CAAM, include sales of heavy commercial vehicles. Analysts expect the country's auto market to retain the top spot this year and exceed sales in the U.S. by at least two million units. Nonetheless, analysts say China's auto market probably won't be able to repeat 2009's strong sales. A factor that could precipitate a slowdown is a scaling-down of government stimulus. China's central government last January halved the sales tax on vehicles with smaller engines, whose sales as a result surged in 2009. But for 2010, Beijing has eased its small-car tax cut. Source: The Wall Street Journal Asia

CHINA TAKES STEP TOWARD STOCK FUTURES China's State Council has approved in principle the launch of stock index futures and a trial program for short selling and margin trading of stocks, all part of efforts to develop the country's capital markets, without, however, setting any dates. In a statement confirming the approval, the China Securities Regulatory Commission said it is expected to take about three months for launch preparations to be completed. Beijing has for years balked at introducing potentially risky financial derivative and investment tools. The worry: They allow investors to bet against the stock market. For regulators, endorsement of stock index futures by China's highest administrative body provides important political cover. China banned financial futures in the mid-1990s after a massive scandal involving a similar product — futures on bonds — nearly collapsed the nation's nascent financial system. Financial problems involving derivatives in overseas markets, from Singapore to Japan, plus losses in derivatives markets by Chinese companies, left policy makers with no appetite to greenlight financial futures for the stock market. The securities regulator also did not disclose when the trial for short selling and margin trading will begin, but said the program will be gradually extended. It added it will select "good quality" brokerages to participate in the program. Source: The Wall Street Journal Asia

POLITICS ADOPTING A CONSTITUTION IS NO PANACEA BY ITSELF, SPEAKER REMINDS MPs In a speech in Parliament on Wednesday on the occasion of the 18th anniversary of adoption of the State Constitution, Speaker D.Demberel said setting up “a humane and democratic society” according to the Constitution was by itself no guarantee that all the country‟s problems would be solved. The special Parliament meeting was attended by the President and the Prime Minister.

Mr. Demberel‟s speech was full of introspection. "Justice has not fully prevailed. Social and economic differences are increasing because of wrong policies on distribution of national wealth and state property privatization.” Asserting that the people “despise the political bureaucracy, corruption in public life, and bickerings based on self-interest”, Mr. Demberel said he found it “natural that people are trying to stand against injustice and illegal actions”. Source: en.News.mn

PRESIDENT ASKS PARLIAMENT TO ABOLISH DEATH PENALTY President Ts. Elbegdorj called for an end to capital punishment in an address to Parliament on Thursday. Citing an Amnesty International report that says one of three death penalties awarded by Mongolian courts at different levels are eventually invalidated, Mr. Elbegdorj said, “This is the reality. The Mongolian State should not make such mistakes on the issue of life and death for its citizens.” “A state-sanctioned execution is a punishment not worth praising” as it “degrades human dignity”, he said, and added that “67% of the Mongolians sentenced to death are young men in their 20s to 40s, and most of them happen to have committed a crime for the first time”. Saying that “there are mistakes we just can‟t afford to make”, he recalled a Mongolian proverb, “A living dog is better than a dead lion.” His faith was that “the road democratic Mongolia has to take ought to be clean and bloodless,” and so, he said, he wants to be a President who can tell his fellow citizens, “I will not deprive you of your life under any circumstances, knowingly, on behalf of the State.” Mr. Elbegdorj made pointed mention of the fact that information on executions in Mongolia is hard to come by. “If there are records, they are in the form of arbitrary observations. There were discrepancies in the data on capital punishment supplied to me by relevant organizations and officials before I prepared this speech. This worries me gravely.” Reminding MPs that he had first demanded abolition of capital punishment 19 years ago, when he had been elected to Parliament in the first ever democratic election in Mongolia, he noted that there had been widespread support for his demand then, too. He was now appealing again to allow “Mongolia to put behind us this death penalty which degrades our dignity”. Source: president.mn/eng/

MANY MPs LESS THAN WARM TO PRESIDENT’S CALL Rights groups have welcomed the Mongolian President‟s announcement of a moratorium on the death penalty as a step toward changing Mongolian law to ban executions permanently. Many in Parliament, however, withheld their applause after his speech, a sign that making a lasting change could be difficult. Mongolia's legal system follows the former Soviet legal system, and many lawyers and legislators favor harsh punishment for criminals. "From tomorrow, I'll pardon those on death row," Mr. Elbegdorj said. "I suggest commuting the death penalty to a 30-year severe jail sentence." Changing the law is "clearly a harder step", Ms. Roseann Rife, the deputy program director for Amnesty International's Asia-Pacific office, said. Mongolia's Minister of Justice and Internal Affairs, opposition lawmaker Ts. Nyamdorj, called the speech a risky political move. "The president's moratorium on the death penalty is a very complicated matter," he said. Ms. Rife said Mr. Elbegdorj has commuted at least three death sentences since taking office in May, but added that if he is not re-elected after his four-year term, Mongolia's stance on executions could change "just like that". Information on the death penalty is a state secret in Mongolia, and it is not clear how many people the country has executed or when the most recent execution took place. Execution in Mongolia is by gunshot to the back of the head. The death penalty does not apply to women or to men under the age of 18 or over 60.

Source: AP

NO DIFFERENCES WITH RUSSIA, ASSERTS SPEAKER, BUT THERE COULD BE MORE PROGRESS Parliament Speaker D. Demberel recently shared with the Mongolian media some details of his official visit to Russia last month. Expressing happiness at the outcome of his talks with a large number of individuals and organizations, the Speaker said, “There are no major conflicting issues between Russia and Mongolia, and the small differences we have can be easily and amicably resolved. Our diplomats and politicians over generations have established a solid foundation of friendly relationship, which offers a grand potential for ever continuing cooperation.” Having said this, he admitted that more progress could have been made on certain issues, and specially mentioned the proposed USD300 million “that Russia had agreed to invest in agriculture

here but which has remained stalled”. He said he had also reminded his hosts about the importance to Mongolia of the Russian promise to invest USD1.5 billion in its railways and hoped the money would come even if the Russian proposal to build a railway passing through the big deposits of Oyu Tolgoi, Tavan Tolgoi and Sainshand city was not immediately accepted. “We agreed to increase bilateral trade to USD one billion in 2010, as part of our bid to reduce China‟s present 70% share of our total trade turnover,” said the Speaker. Source: Onoodor

RUSSIAN ACTIONS SEEN AS A WARNING SIGNAL The Russians have been dramatically active right from December, 2008, when they put forward a number of proposals on the railway sector. At a time when the joint Russian-Mongolian Ulaanbaatar Railway sat idle without transit transport and suffered huge losses, the Russians made a proposal to set up a new joint venture. Accordingly, Infrastructure Development was formed in a short time. One remarkable feature of this joint venture has been that it always manages to find solutions to any problem in a very short time. Mr. V.Morozov was appointed its Director and the Mongolian media did not get the time even to ask why a Mongolian could not be given the job. A blueprint of a railway from Tavan Tolgoi to Sainshand has been already made and Mr. V.Yakunin, head of the Russian railway company, has been busy in search of funds to implement the project. He has been shown on Russian TV saying that Mongolia would make a mistake if it wanted to sell its natural resources after processing. When gratuitous advice from Mr. Yakunin started becoming excessive, the question automatically cropped up whether Mongolia was ready to define independently its infrastructure policy, which would include an industrial complex in Sainshand, or whether it was going to build the complex only to justify Mr. Yakunin‟s poposed railway. Mongolia needs as many railway routes as possible. All transportation means through both Russia and China would be economically beneficial. Then why is Mr. Yakunin so much against all routes, except his own? Is there a signal in all this that if Mongolia does not give priority to the Russian Railway project, Ulaanbaatar Railway debts will not be allowed to decrease? Source: The Mongolian Mining Journal

CHINA WIPING AWAY MONGOLIA FROM ECONOMIC MAP Analysts wonder if 20 years from now anything in Mongolia will be outside the total control of China. Traders from there, helped with easy Government loans and subsidies, spend several billion yuan every year buying up cashmere and wool from herders. Their rates are often unfair but their control over the entire business is so absolute that there can be no protest. Its hunger for cashmere has also meant that goats now form 50% of Mongolia‟s 43 million heads of livestock, leading to near total destruction of traditional pastureland. Mineral deposit sites cover 24% of Mongolian territory and most of these deposits have Chinese investment. The Chinese are following a clever way of utilizing Mongolian coal. It burns Mongolian coal in Mongolian territory and uses it in the heating and power plants they already own or plan to own, the energy to be sold to the western provinces and eventually to Russia. The pollution remains in Mongolia, the profit goes to China. Mr. Parag Khanna has very clearly shown how China keeps investing in and buying up greater shares of foreign economies. The Chinese are indeed purchasing Mongolia with active help from government officials and business people with Chinese money in their hands. The Chinese decided on the policy long ago and have been following it with clear coordination in order to possess the Mongolian mining sector. Why does China covet the Tavan Tolgoi and Mogoin Gol resources while it has five times more black gold than Mongolia? Why does it buy trees from Siberia while it has three times more green forest area? The world is looking towards Mongolia and Russia to erect a White Wall to halt Chinese economic incursion.

Source: Onoodor

CNGG SEEKS MORE MINES, INCLUDING IN MONGOLIA China National Gold Group Corp (CNGG), the country's second largest gold producer, was in talks to buy several gold mines overseas, but Mr. Song Xin, its vice-president, has declined to give details. "Our target investment destinations include neighbors such as Russia and Mongolia, as well as North America, Australia and Africa," said Mr. Song. CNGG prefers low risk and mature projects in terms of foreign investment. "We are only interested in operating mines, and will not get involved in grassroots risk exploration projects," according to a senior manager at the group. Source: China Daily

GOVERNMENT TO MEET IN THE MIDDLE OF THE GOBI President Ts.Elbegdorj has told Mr. Dorjee Sun, an Australian citizen of Tibetan origin who was named by TIME magazine as one of its Heroes of the Environment, that the Government plans to organize a meeting in the middle of the Gobi desert to draw the world‟s attention to the dangers of climate change, especially in relation to desertification. Mr. Sun called on the President to express his desire to help Mongolia solve its pressing environmental problems. Source: Montsame

INDIA TO UNDERTAKE URANIUM MINING IN MONGOLIA India and Mongolia on Wednesday decided to operationalize their pact on civil nuclear cooperation by assisting in capacity creation for the Mongolian nuclear sector and considering the manner in which India would begin uranium mining in Mongolia. At the second meeting of the India-Mongolia Joint Committee on Cooperation jointly chaired by Minister of State for External Affairs Preneet Kaur and Mongolian Minister of Education & Science Yondongiin Otgonbayar, Mongolia invited Indian participation in its uranium mining sector including through joint ventures and investment. Mongolia also welcomed Indian participation in the mining of coal, coking coal and other minerals in Mongolia. India offered a short course on radiography for Mongolian personnel at the Bhabha Atomic Research Centre in Mumbai and assistance to set up a regulatory and radiation protection framework in Mongolia. Both countries had signed the memorandum of understanding on cooperation in the field of peaceful use of radioactive minerals and nuclear energy during Mongolian President‟s visit in September last year. Both sides also decided to update bilateral ties to the level of a “Comprehensive Partnership.” Besides the nuclear sector, Mongolia sought Indian assistance in a number of sectors including establishing a National Centre for Research in Animal Diseases (Pandemics), water harvesting and construction of dams, biotechnology and development of the Mongolian dairy sector. Mongolia presented a formal proposal for an India-Mongolia Joint Information Technology Education and Outsourcing Centre utilizing the USD25 million line of credit extended by India on special concessional terms.

Source: The Hindu (beta.thehindu.com)

FRANCE INVITES MONGOLIA TO INTERNATIONAL ATOMIC ENERGY MEETING French President Nicolas Sarkozy has invited his Mongolian counterpart Ts. Elbegdorj to an international conference initiated by Paris on atomic energy. Mr. Sarkozy said in his letter of invitation that nuclear energy had become the key factor to resolving urgent issues of the global environment and economy and Mongolia could play an important role in the atomic energy sphere. The conference will be jointly organized by the International Atomic Energy Agency, the Economic Cooperation and Development Organization, and other international bodies.

Source: Xinhua

MONGOLIA FIRST COUNTRY TO GET WHO SWINE FLU VACCINES Mongolia has become the first developing nation to receive swine flu vaccines from the World Health Organization (WHO). This came after the country had demonstrated that it has measures in place that will ensure the efficient distribution of the vaccines. Mongolia thus becomes the first of 95 developing nations that will be sent the H1N1 vaccines over the coming months, Ms. Nyka Alexander, a spokeswoman for the WHO, said. "If any countries with excess capacity wish to donate further vaccines to WHO, of course we would welcome that, because there are countries that are still seeking vaccines," she added. In December, the organization's flu chief Keiji Fukuda said that it expects the swine flu virus to continue circulating for the next couple of years. He had added that it would be "premature" to speculate as to whether or not it is in decline. Source: Montsame

MODERATE EARTHQUAKE SHAKES CENTRAL MONGOLIA, ULAANBAATAR An earthquake measuring 3.5 on the Richter scale jolted central Mongolia and the capital of Ulaaanbaatar on January 9. The epicenter of the quake, recorded at 15:15 local time, was located some10 km north of Delgertsogt soum, Dundgobi province, and measured at a magnitude of 5.1, according to data from the City Emergency Department (CED). Residents in Ulaanbaatar felt the tremor, but there has been no report of any property damage or casualties.

Incidentally, a rare atmospheric phenomenon called the Sundog or the Mock Sun was visible in Darkhan and Khutul on Friday morning. Colored patches of light appeared beside the sun. Popular belief says Sundogs are often followed by earthquakes, as happened in Sichuan in China in 2008. Many are convinced that Saturday‟s quake vindicated the belief. Source: xinhuanet, en.News.mn

USEPA OFFERS GRANTS FOR WORK IN COUNTRIES INCLUDING MONGOLIA The U.S. Environmental Protection Agency says it is offering grants of up to USD5 million to groups working on projects in several countries, including Mongolia, intended to combat global warming. U.S. and international organizations alike can get money through the Methane to Markets Partnership program if they are working on projects aimed at limiting environmental pollution such as greenhouse gas emissions. The public-private partnership is already supplying other projects with grants and other means. Such assistance helps those projects reduce emissions by more than 27.3 million metric tons of carbon dioxide a year. The U.S. agency said proposals for the new grants are due by April 15 and all associated projects are required to take place in Argentina, Brazil, Chile, China, Colombia, Dominican Republic, Ecuador, Georgia, India, Kazakhstan, Mexico, Mongolia, Nigeria, Pakistan, Philippines, Poland, Russia, South Korea, Thailand, Ukraine or Vietnam. The grant offer comes ahead of the second Methane to Markets Partnership Expo March 2-5 in Delhi, India. Source: UPI

HEATING PLANTS LOW ON COAL RESERVES Heating plants are left with low coal reserves, in some cases as low as only a few days‟ but everywhere less than the mandatory 30 days‟ stock, following the disruption at the Baganuur mine and insufficient number of train wagons. The problem gains more urgency as mine operations have to be stopped if the temperature falls Source: www.news.mn

A “PRAIRIE GIRL” SOWS THE SEEDS OF FARMING IN MONGOLIA Settled crop production in Mongolia was started only in the last 50 years. When the country transitioned to a market economy in 1991, the state farm system fell apart and crop production collapsed. A recent Canadian Broadcasting Corporation (CBC) program on the TRD/Agriteam Community Development Project in Mongolia featured Ms. Deb Rasmussen, a “prairie girl” from Canada, who is trying to increase the number of small family farms in rural Mongolia and reduce poverty in these communities. Ms. Rasmussen has designed a rural farm training program along with the University of Saskatchewan's College of Agriculture. It teaches the basics of farming like planting, weeding, and harvesting and also the business of farming, like how to calculate a crop yield, and how to take out a bank loan. The ultimate goal of the program is sustainability, allowing these families to grow food for themselves and walk away with the skills they need to run a farm that earns them a profit. Initially the land is "on loan" to the families from their local government, but they get ownership if they complete the program. The training is paid for by the Canadian International Development Agency (CIDA) and the rest of the expenses comes from foreign mining companies. In fact, the first farm training program Ms. Rasmussen launched was funded by Centerra Gold. Since then, she has brought Mongolian and, even Chinese miners on board. So far, Ms. Rasmussen has taken her farm training program to five communities in Northern Mongolia. Her intensive training program is spread over three years. In the first year, families grow enough food to feed themselves. Profit off the vegetables they grow usually does not happen until the second and third years of the program, when the growers have enough experience to yield a surplus which they can sell to their neighbors, the army, mining companies or even food processors. It usually works out to several hundred dollars per family, but some of the more successful growers may be earning USD1,000 to USD1,500. The average monthly salary in Ulaanbaatar is USD200. At a seniors‟ home in rural Mongolia, the residents have been helped by Ms. Rasmussen and her Mongolian colleagues to grow a garden where 30 elders, enrolled in a "modified" version of the program, grow vegetables, but not for profit. They do it for necessity.

Source: CBC Radio Calgary

NEW MONGOLIAN LAWS AND REGULATIONS The following rule and amendments were published in a recent weekly Government bulletin. Unless otherwise decided by Parliament, the rule and amendments take effect (10) days after publication. Date Regulation 1/5/2010 Approval of International Renewable Energy Agency's rule Amendments to Social Insurance Fund on 2009 Budget Please visit BCM‟s website, Legislative Working Group, for a summary of new Mongolian laws. BCM members who wish complete versions of the laws and regulations in Mongolian language are welcome to call or email the BCM office (332345; info@bcmongolia.org)

ANNOUNCEMENT

“MM TODAY” ON MNB-TV 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.

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ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the week ended January 8, 2010, trading activity on the Mongolian Stock Exchange (MSE) totaled 45,600 shares with 20 companies traded. Total market value of transactions was MNT 20.1 million. Total market capitalization of the 358 stock companies listed on the MSE was MNT 613.6 billion, and decreased by MNT 7.1 billion or 1.2% from Dec 31, 2009.

The Top-20 Index decreased by 45.63 points or 0.7% compared to the previous week, closing at 6,144.28 points. MSE Composite Index decreased by 17.24 points or 0.6% compared to the previous week, closing at 3,026.62 points.

Most active stocks traded were: Khuh gan (17,800 shares), Apu (10,700 shares), and Jenko Tour Bureau (6,800 shares).

Major share price percentage gainers were: Gazar Shuljmel (15.0%), Baaz (14.8%), and Govi (3.7%). Major share price percentage losers were: Erdenet Khivs (14.9%), Bayan aldar (14.3%), and Baganuur (8.6%).

INFLATION

Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)] Year 2007 *15.1% [source: NSOM] Year 2008 *22.1% [source: NSOM] Year 2009 *4.2% [source: NSOM] *Year-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]

CURRENCY RATES – January 14, 2010

Currency name Currency Rate

US dollars US 1461.99

Euro EUR 2117.98

Japanese yen JPY 16.02

British pound GBP 2370.69

Hong Kong dollar HKD 188.52

Chinese yuan CNY 214.15

Russian ruble RUB 49.30

South Korean won KRW 1.30

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.