BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmmongolia.org

Email: Jim@bcmmongolia.org Issue 29, June 27, 2008

NEWS HIGHLIGHTS:

Business: Trade and Development Bank puts off bond sale; India’s Jindal Steel buys Mongolian uranium

sites; Tiger Beer roars on first anniversary; Petro Matad’s 2007 financial results; Workers protest and get bread price raised again (Click here for Business section)

Economy: Fitch revises Khan Bank outlook; Seize every opportunity, exhorts Chinese leader; Forum to

attract Chinese investment; Swiss firm to develop bank payment system in Mongolia (click here for Economy section)

Politics: Leaders explain their stand on “wealth sharing”; 66 women among 401 final candidates;

Canada to open embassy in Mongolia; Russian ambitions in Mongolia and possible U.S. antidotes; Mongolian judicial officials training in Texas (click here for Politics section) _______________________________________________________________________________________________

NOTICE TO BCM MEMBERS

The next BCM monthly meeting for BCM Members will be Monday, June 30, at 5 PM at the Open Society Forum. Featured will be an Election Recap Panel including:

L. Sumati, Director, Sant Maral Foundation

Yo. Otgonbayar, Secretary General, Mongolian People‟s Revolutionary Party

Willam Infante, Resident Representative, the Asia Foundation

Members who plan to attend the meeting with questions for the Election Panel should Email them in advance to info@bcmmongolia.org. In addition, Embassy updates will be presented by J. Park, Ambassador of Korea to Mongolia, and Mark Minton, Ambassador of USA to Mongolia. ______________________________________________________________________________________________

BUSINESS

TRADE AND DEVELOPMENT BANK PUTS OFF BOND SALE

Trade and Development Bank of Mongolia has indefinitely postponed its planned sale of $100 million in three-year bonds due to adverse market conditions, a source with direct knowledge of the decision said on June 25. That marks the second time this year a high-yield issuer in Asia has failed to complete a bond sale, following Indonesia's Truba Alama Manunggal Engineering decision to pull its deal last month.

"We were trying to price with expectations to do so at a certain level about the Treasury, but now that Treasuries have widened so much, we've decided to hold off. It's more of an unfortunate timing," said the source, who declined to be identified talking about the transaction.

TDBM, the only issuer from Mongolia to ever issue offshore debt, had met global bond investors in Asia and Europe, and last week had set guidance for its bond sale at a yield of 11.5-11.75 percent.

The Mongolia lender's debt is rated Ba2 by Moody's, or two notches below investment grade.

Source: Reuters

INDIA’S JINDAL STEEL BUYS MONGOLIAN URANIUM SITES

New Delhi-based conglomerate Jindal Steel & Power has purchased the Mongolian joint venture uranium assets of Vancouver-based junior companies Bluerock Resources and Uranerz Energy for US $2.6 million. For reasons

yet to be publicly disclosed, India‟s Jindal Steel and Power is interested in Mongolian uranium properties. The purchase includes all Mongolian uranium exploration projects and existing material assets the two junior companies maintain in Mongolia. Jindal has until August 26th to conduct its due diligence review and close the agreement.

The Mongolian JV project had eight separate land packages, altogether covering more than 280,000 hectares, primarily located in four settings in the central and eastern parts of Mongolia. The Khavtsal project is the most advanced exploration project in the package. Southwest of the Khavtsal in South Central Mongolia, preliminary work has identified several uranium anomalies. The East Gobi/Tamtsag project comprises two exploration licenses in Eastern Mongolia.

Source: Mineweb/Info Mine

TIGER BEER ROARS ON FIRST ANNIVERSARY

Last year Mongolia became the 11th country in the Asia-Pacific region to produce the "Tiger" beer. A ceremony on June 20 in Ulaanbaatar to mark the first anniversary of the event was attended by the Executive Director of MCS Asia-Pacific Brewery, Mr. Lester Tan, the Director responsible for the “company‟s “Tiger” division, Mr. U. Zimmer, and by other local and foreign dignitaries. About five million bottles of beer were produced in the first year. For every bottle sold, the company spends one togrog on activities related to water conservation. Mr. Tan said sales of the beer had gone up by 400 percent last year and attributed this to the adoption and implementation of sound and innovative sales and marketing strategies. The beer is sold in Ulaanbaatar through 2,000 outlets. “We hope to do even better with the induction of a more professional management," Mr. Tan said.

Source: MONTSAME

PETRO MATAD 2007 FINANCIAL RESULTS

Petro Matad Ltd. widened its pretax loss to $4.431 million for the year ending December 31, 2007, from a pretax loss of $1.063 million reported a year ago.

The Mongolian oil explorer, which listed on the London Stock Exchange‟s AIM on May 1, 2008, said it was also pursuing other opportunities in Mongolia's petroleum sector.

Source: Thomson Financial News

WORKERS PROTEST AND GET BREAD PRICES RAISED AGAIN

Talkh Chikher bakery raised the price of its Atar bread on Tuesday evening, a day after signing an agreement to bring it down. This followed when its 500 workers refused to work during the day, in protest against their bosses‟ failure to protect their interests. Their main grievance was that a reduction in bread price would mean less income for them. The company had signed an agreement with the Food and Agricultural Ministry on Monday to reduce the price of a loaf of Atar bread, the variety that sells most, from Tg 640 to Tg 580. Workers at the bakery have no fixed salaries, their income depending on the profit the company makes. Their fear was that a fall in bread price would mean less profit for the company, and thus less money for them to take home. They returned to their job only when it was announced that Atar bread would continue to be sold for Tg 640. Earlier, Ts.Gankhuyag, the Food and Agricultural Minister who had worked hard for the agreement to lower bread price, visited Talkh Chikher to talk to the workers. He could not persuade them to resume work until their demand was conceded. If this was one instance of the import of cheap flour and wheat from Russia failing to serve its purpose, there are widespread grievances about how it is being distributed. The Government allotted 4,500 tons of wheat to be shared by more than 100 factories, while Nil House, which has just finished its building and is yet to go into serious production, got 20,000 tons all for itself. Several small factory owners wondered if this cheap wheat would end up being used in producing alcoholic drinks.

Source: en.News.mn (English page of www.news.mn)

ECONOMY

FITCH REVISES KHAN BANK’S OUTLOOK

Fitch Ratings has revised the outlook on Mongolia's Khan Bank to stable from positive. Other ratings, however, remain unchanged. The bank's long-term foreign and local currency issuer default ratings (IDR) continue to be at 'B+', individual rating at 'D' and support rating at '4'. Fitch has reaffirmed that Khan Bank's profitability remains very sound, capital is considerable, with good asset quality.

The ratings agency said Khan Bank's ratings are constrained by those on Mongolia's sovereign, whose revised outlook was partly premised on sharply higher inflation, which is likely to bring about higher interest rates that could impinge upon loans quality system-wide.

Source: Thomson Financial News

SEIZE EVERY OPPORTUNITY, EXHORTS CHINESE LEADER

Chinese Vice-President Xi Jinping paid a three-day official visit to Mongolia last week. Speaking at a trade forum attended by about 300 businesspeople from the two countries he said that China and Mongolia have a great opportunity to take bilateral trade and economic cooperation to a higher level. Emphasizing that trade and economic cooperation are the principal driving forces for the sustainable and healthy development of bilateral relations, he called upon the two governments and business leaders in both countries to seize every opportunity. Xi put forward five proposals for upgrading trade and economic cooperation. He said the two countries should seek common interests based on their own development strategies and also strengthen cooperation in key areas such as the exploitation of mineral resources and the development of infrastructure. Also, governments should provide platforms and services for companies to carry out exchanges, and both sides should work to create a favorable environment for bilateral cooperation, especially within the framework of multilateral organizations. Xi stopped at Mongolia on his way back from visiting the two Koreas. This was his first foreign visit since assuming his present position in March 2008.

Source: Xinhua/China Daily

FORUM TO ATTRACT CHINESE INVESTMENT

A Mongolian-Chinese business forum was organized on June 20 in Ulaanbaatar to coincide with the visit of the Chinese Vice President to Mongolia. The Chinese delegation consisting of 150 business people was ed by Wan Jifei, Chairman of the Council for the Promotion of International Trade. Aimed to attract Chinese investment to Mongolia, the forum discussed key issues relating to bilateral trade, economic cooperation, and collaboration in transportation. A number of agreements were signed. The main speakers on the Mongolian side were the Chairman of the National Chamber of Commerce and Industry, S. Demberel, the head of the Foreign Investments and Foreign Trade Agency, Ch. Ganzorig, the deputy chief of the Minerals and Oil Authority, D. Amarsaikhan, and the director general of Gan Khiits company, M. Davaasuren. Those for the Chinese side included the vice president of ZTE Corporation, Zen Li, the general manager of the China National Oil Corporation, Wan Yupu, and the vice president of the Shenhua Energy Company, Hao Gui.

Source: MONTSAME

FIRST RESALE OF GOVERNMENT BONDS

The one-year lock-in period of the Tg 60 billion Mongolian Government bonds sold last year to finance the national program called ''40,000 apartments'' ended recently and June 19 was fixed as the first resale date. The Mongolian Stock Exchange had anticipated total sales on that day to amount to Tg 5 billion but trading was stopped after bonds for Tg 1.3 billion had been sold. Instructions from the Ministry of Finance put a sudden halt to trading. The next date for trading has been fixed for July 3, and from then on they can be traded every other Thursday.

Source: MONTSAME

SWISS FIRM TO DEVELOP BANK PAYMENT SYSTEM IN MONGOLIA

The Mongol Bank signed a Memorandum of Cooperation with the CMA Small System Company of Switzerland on June 20, 2008 to put in place a national payment system. The company had earlier responded to an international tender to execute the Real Time Gross Settlement System in Mongolia. The RTGS is an up-to-date payment system for banks and has been functioning worldwide since 1990. Introducing this system in Mongolia is expected to lead to several advantages, such as: upgrading Mongolia‟s payment system to international standards, reducing risks related to credit payments which might arise between sides participating in inter-bank payments, accelerating the speed of payment operations, and improving security. The system will also increase the banking sector‟s capacity to conduct very large payment volumes within the economic sector, accelerate money turnover in this sector, and improve the efficiency of the physical utilization of bank payment procedures, as well as to increase investment. CMA Small System has developed this system for banks of 22 countries. The Mongol Bank hopes the RTGS system can be put into operation in Mongolia in the 1st quarter of 2009. Source: MONTSAME

POLITICS

LEADERS EXPLAIN THEIR STAND ON “WEALTH SHARING”

Mongolia elects a new Parliament on June 29. Popular expectations are running high with both principal parties promising all Mongolians a share in the country‟s natural resources. This might well be the deciding factor in the election and the chairmen of both parties spoke to media to explain why theirs is a viable plan, and just what it offered to the individual citizen. Excerpts follow from two interviews. First, Prime Minister S. Bayar, also head of the Mongolian People‟s Revolutionary Party (MPRP), talks to TV5 channel, and then Ts. Elbegdorj, opposition leader and Chairman of the Democratic Party, tells the daily newspaper, Ardiin Erkh, what it is all about. DP promises Tg one million as “Treasure share”, MPRP counters with Tg 1.5 million as “Wealth share” - people wonder if either party, when it forms the new Government, will really give them the share. How do you convince them? Did you actually think of “Wealth share” earlier? Is your figure a result of research and calculation? Actually there is nothing sudden about the proposal. Both MPRP and DP have had such plans for long. In 1998 I traveled to Kuwait with President N. Bagabandi. That country has a Kuwait Foundation, run on lines similar to what we propose in “Wealth share”. The Government there distributes among the people the huge income the country makes from selling oil. In the last 3-4 years we have realized how rich Mongolia is in its mining wealth. We started thinking big, exploring deposits in areas like Oyu Tolgoi and Tavan Tolgoi. When I was appointed Prime Minister I settled on 5 absolute principles of State policy. One of them related to sharing the mining income. We could not pinpoint the exact figure that would be every Mongolian‟s share. Estimates varied from Tg 500,000 to Tg 3 million. Then last March Mr. Elbegdorj and I made a joint announcement that our parties would together approve a new law on mining that would see 51 percent Mongolian ownership of all natural resources, no matter who the partner was. We discussed the matter and agreed not to announce any specific figure to represent the possible share of every Mongolian citizen. The DP platform surprised us by suddenly talking about Tg one million for every citizen. We did not think it was fair to make an arbitrary promise not supported by calculation. So we sat down with all the figures, and found that each Mongolian citizen would be entitled to Tg 1.5 million worth shares in the country‟s mineral resources. There is widespread suspicion that the promise and the counter-promise are nothing but election propaganda. As Prime Minister, do you think the next government will actually be able to give such shares? Why not? But nothing will or can be done by issuing an order. First, we have to adopt the new law on mining. After that, on the basis of the provisions of the new law, we shall begin talks with foreign investors and these negotiations will decide the Mongolian share of the profits or income. Say, for example, the law is adopted and a fresh agreement is signed on Oyu Tolgoi. Mongolia then could earn Tg 4 billion per day. This means Mongolia will have Tg 1.4 trillion for investment per year. Our present state budget is for Tg 2.4 trillion. How do you evaluate the election campaign so far? People from both the city and the countryside have watched with dismay how dirty the present campaign is turning out to be. They are concerned that money power will badly influence the poll results. The real danger however is in the source of the money that is being used. Are foreigners using money to help people of their choice get elected, so that they can then dictate policy making? This is a serious threat to our independence. We have to be careful. I really hope this is our last dirty election and things change next time. Mr. Elbegdorj‟s interview, which follows, had appeared a day earlier. Please tell us about how DP formulated the program. The very fact that we included the concept in our formal platform proves that DP does not think of “Treasure share” as an election gimmick, or is offering Mongolians an empty dream. So far, Government and state authorities have taken all decisions about the mining sector and decided what to do with the profit from natural resources. We want all citizens of our mineral-rich country to have a tangible share, to own an individual stake, in mining operations. They would then be motivated to see that the resources are exploited equitably. The term of the present Parliament was over before it could approve a new Mining Law. Do you think the new Parliament will face similar problems in approving the Law?

The first task of the new Parliament should certainly be passing the New Mining Law. Our platform calls for immediate start of work in at least 50% of the main strategic resource areas, including Tavan Tolgoi, Oyu Tolgoi and Tomortei. We have oil resources too. We should establish oil exploration, extraction, and refinery facilities and provide the country with petroleum in the next five years. We shall then not be at the mercy of suppliers who have a monopoly of meeting our needs. What if people choose to spend their “treasure share” on just food and drinks? Everyone will not be a miner, but every citizen should get a profit from mining operations in the country. We shall set up legal imperatives to make sure people cannot spend their “treasure share” only on enjoyment, or even on a necessity like food. An equitable legal framework will be put in place to govern how the resources are to be shared, how the profits are to be disbursed, and how these can be used. So, it means the treasure share would not come in the form of cash? No, nothing will be distributed in cash. Every Mongolian would be entitled to own Tg one million worth of share in the country‟s mineral resources. This will be on paper, and not in cash. What is the estimated monetary value of our mineral resources? What we have is enough to make every Mongolian rich. That is why we want the Mongolian people to be legal owners of these resources. The price of gold, copper and other metals has been increasing in the world market and should keep going higher. We must make the most of this situation. Mongolia is a democratic country and it is significant that the mining sector is usually well developed in democratic countries, such as Canada, Australia and Norway. There are different ways in which these countries share their profit from mining among their citizens. There are countries with very good policies. True, there are black areas, too. There are instances where an elite section has a stranglehold over the mining in the country. But in a proper democracy citizens dictate policy and supervise its implementation by the state. So let us be owners of our own resources. If the state in the abstract controls the mining sector, a few people get rich as most others become poor and finally the social conflict could very well end up in a civil war. So, we want to raise everybody‟s income. What exactly would “Treasure share” mean for the ordinary citizen? Most people in a poor country do not have a proper idea of what resources their country has, and how much profit these yield. You can see that high ranking politicians are selling the resources to people abroad and buying real estate there. “Treasure share” will stop this. DP is saying that the second part of the democratic revolution is industrialization. What are your plans with this program? We have already drawn an industrialization map, based on mining and agricultural resources. There is a blueprint for each province. We intend to set up 327 production or manufacturing units in the country in the next few years. Which sectors will these cover? The initial emphasis will be on achieving optimal production of raw materials – livestock, minerals and metal, construction materials, electricity, coal and chemicals. Then, we stop exporting unrefined raw materials, and begin utilizing them ourselves. For example, we shall process the gold ores mined in Mongolia and not send it to foreign countries. A combination of agriculture and heavy industries cannot but make ours a powerful country. Some people suspect that “Treasure sharing” would be forgotten after the election. How will DP enforce its implementation? We shall pass a Treasure Law. There will be a structural framework on how the shares are to be distributed among all Mongolians. The elderly, the young, and even children would get a share. People will do everything together with the state. Now, the state provides all supervisory inputs and everything is arranged through the budget. This will go. Each citizen‟s share would be increased every year. The minimum individual share would be US $1,000 in the next four years. It is likely to go up 20 or 30 times if we successfully use our mining resource, produce more and create a strong industrial base, creating many jobs. Will citizens have a right to demand their treasure share? Or, will candidates present another face after the elections? Surely not. Citizens will own shares in resources, instead of state officials deciding everything about them through the Government. They will be able to put pressure on the person they have elected. They can say, “You should now help me get my treasure share. You should approve the Law that will confirm my share.” There will be regular and meaningful interaction between voters and their representatives. Every family will

be a stakeholder in this society. Some DP candidates are talking about establishing a “Bayan Mongol” Corporation. What has this to with the treasure share? There are corporations in many countries that make a big contribution to national development. Bayan (Rich) Mongol would be such a corporation. The treasure shares will be in the form of shares in Bayan Mongol. Wise and intelligent use of mining resources would steadily increase the value of the shares. It would also give a chance to support other sectors, such as health and education.

Source: en.News.mn (English page of www.news.mn)

66 WOMEN AMONG 401 FINAL CANDIDATES

The General Election Commission (GEC) revealed on June 23 some final figures for the election next Sunday. The 76 seats in Parliament will be filled from 26 constituencies, six of them in Ulaanbaatar and 20 in the provinces. Altogether 1,561,248 people will choose from among 401 candidates, including 45 independents. They include 66 women. Another break-up of the contestants shows there are 95 engineers and 59 economists. Gobi-Altai and Dundgovi provinces have the fewest contestants, six each. Bayanzurkh District, on the other hand, has the most, with 34. Constituencies will send between 2 and 4 members to Parliament. The ballot boxes have been made in Korea and all polling stations will have a control camera. The polling will be watched by 40 accredited observers from international organizations. GEC will start announcing tentative results on Monday but the final tally will be known only on Wednesday.

Source: en.news.mn (English page of www.news.mn)

CANADA TO OPEN EMBASSY IN MONGOLIA

Mr. Robert Wright, Ambassador of Canada to Mongolia, called on Prime Minister S. Bayar on June 22 and told him that his Government had decided to open its embassy in Ulaanbaatar in August, to mark 35 years of diplomatic relations between the two countries. At present all consular and other functions of the mission are handled in Beijing. Mr. Bayar recalled that Canada had been the first North American country to establish such relations with Mongolia. He expressed satisfaction that “our cooperation has been getting stronger in the economic, educational and cultural sectors and bilateral trade turnover has been increasing every year”. Mr. Wright also referred to the steadily expanding bilateral ties and mentioned that Canadian investment in Mongolia was now worth US$ 250 million.

Source: MONTSAME

RUSSIAN AMBITIONS IN MONGOLIA AND POSSIBLE U.S. ANTIDOTES

In an article published in the Wall Street Journal Asia on June 24, 2008 Michael Auslin, a resident scholar in Asian Studies at the American Enterprise Institute, shows how Russia is “steadily expanding its influence in Eurasia… one of the world's most resource-rich regions”. Lately, Russia's main target has been Mongolia, which elects a new parliament on June 29. Auslin predicts that no matter who wins the election -- the ruling ex-Communist Mongolian People's Revolutionary Party or the opposition Democratic Party -- Mongolia's relationship with Moscow will take centerstage. Russia is credited with harboring predatory ambitions. It wants, Auslin says, to “solidify its overwhelming presence” in several sectors of Mongolia's economy, if not all. “Officially, Mongolian officials express confidence in the benefits of deeper economic relations with Russia. Privately, they admit to feeling pressured into opening up their markets to Moscow, and wish more Western companies would invest,” so that Russia does not utilize its clout as Mongolia's largest trading partner after China to turn the country into “an economic satellite”.

Source: WALL STREET JOURNAL ASIA; full article available on BCM‟s website, „Articles/Reports on Mongolia‟

MONGOLIAN JUDICIAL OFFICIALS TRAINING IN TEXAS

Law professors from Texas Wesleyan University are teaching Mongolian judges and lawyers how Texas‟ legal system works. The law school‟s program is aimed at giving the participants a clear understanding of how a democratic legal system operates, so they can take the knowledge back to Mongolia and use it in the country‟s move toward democracy, said Joe Spurlock, a sitting judge and director of the school‟s Asian Judicial Institute. The training program is the institute‟s focus, and this year‟s program, from June 23 to July 6, is taking place in both Austin and Fort Worth. Spurlock recounted how the then chief justice of Mongolia had come to Texas in 1999 and, after watching the courts system, judicial support system and judicial activities, had asked if the law school would be willing to help retrain Mongolian judges. “So we did, and we‟ve been doing that essentially every year. This will be our eighth time.” Mongolia‟s current legal system has been changing drastically since 1992, when the country‟s government

abandoned communism, created a constitution and adopted a representative democracy. Source: Fort Worth Business Press

SPONSORS

ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the week ended June 20, 2008, trading activity on the Mongolian Stock Exchange (MSE) totaled 1.7 million shares with 46 companies traded. The total market value of all transactions was Tg 732.6 million. The Top-20 Index went up 45.51 points or 0.44 % compared to the previous week, closing at 10247.45 points. The MSE Composite Index fell by 9.95 points or 0.22 % compared to the previous week, closing at 4589.26 points. The most actively traded stocks were: Remicon (690,900 shares), Hermes Center (449,100 shares), Anod Bank (340,900 shares), Jenco Tour Bureau (117,800 shares), and Hi Bi Oil (93,900 shares). The major share price gains were (in percentage): HB Oil (17.2 %), Bayan itgelt (15.3 %), Anod Bank (15.2 %), Tavilga (15.0 %), and Bayalag nalaikh (15.0 %). The major share price losses were (in percentage): Agroteck impex (-14.8 %), Zoos goyol (-12.5 %), Hermes (-10.9 %), Bayanaldar (-9.9 %), and Sor (-9.0 %). The total market capitalization of the 358 stock companies listed on the MSE was Tg 798.6 billion, an increase of 5.0 billion, or 0.6%, from the previous week.

INFLATION

Year 2006 6.0% [source: IMF] Year 2007 Avg. 9.0% [source: ADB] Year 2007 *15.1% [source: World Bank] May 23, 2008 *26.4% [source: MongolBank] * year over year (yoy)

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CURRENCY RATES - June 26, 2008

Currency Currency name Rate

US dollars USD 1,158.13

Euro EURO 1,801.76

Japanese yen JPY 10.73

British pound GBP 2,278.56

Hong Kong dollar HKD 148.37

Chinese yuan CNY 168.67

Russian ruble RUB 49.06

South Korean won KRW 1.12