CPSI NewsWire brings you market updates on Mongolia, compiled by CPS International, a Mongolian marketing arm of CPS Securities, a Perth, WA based stockbroking and corporate advisory firm, specialising in capital raising for mining and junior stocks.
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Chalco Targeted as Mongolia Seeks to Limit State Deals
May 17 (Bloomberg) Mongolia, the commodity-rich nation that posted the world's fastest economic growth in 2011, is on course to pass a law by June that will bar foreign state-owned companies from controlling its key assets.
The draft law, submitted to parliament two years ago, was accelerated after a public outcry following state-run Aluminum Corp. of China Ltd.'s move last month to take control of SouthGobi Resources Ltd. (SGQ), Vice Finance Minister Ganhuyag Chuluun Hutagt said in an interview. The law isn't likely to apply to any existing operations, he said. Rio Tinto Group is developing the $6 billion Oyu Tolgoi copper mine in the nation.
Tightening the legislation would mean Mongolia joins Indonesia and Argentina in seeking to control ownership of resource assets to secure their economic future. The draft law, due to be passed before parliamentary elections next month, will be applied to the bid by Chalco, as Aluminum Corp. is known, and is aimed at ensuring no one country or product dominates the economy, according to Ganhuyag.
"Investors don't like it when the rules of the game are changed after the game has started, and changed often at that," Dale Choi, chief investment strategist at Frontier Securities in Ulan Bator, said by phone. "It would be in the interests of Mongolian people to make a decision based on commercial factors, rather than geopolitical factors."
Controlling Assets
Mongolia, a nation of 2.8 million people that broke off from Communist rule and dependence on the then-Soviet Union in 1990, wants foreign investment in key assets to be made by entities that represent several nations, Ganhuyag said. The country currently exports most of its coal and copper to China.
"We don't want to be faced with one sovereign," he said by phone from Ulan Bator. "Our struggle to get political freedom was a long one and we cherish that. We will not let foreign government-owned entities control strategic assets in Mongolia."
The land-locked country is squeezed between China and Russia, two of the world's ten largest economies and the No. 1 and No. 3 countries by land mass. China accounts for over 80 percent of its neighbor's import and export trade, according to the World Bank.
Resource nationalism, or state demands for higher taxes, royalties or stakes, was cited as a growing concern by Rio Tinto (RIO) and Freeport McMoRan (FCX) Copper and Gold Inc. at their most recent earnings. The issue was the number-one concern among mining executives in 2011, replacing capital allocation, Ernst & Young said in its annual risk survey published in August.
Government Review
Chalco said April 2 that it agreed to buy Toronto-listed Ivanhoe Mines Ltd. (IVN)'s 58 percent stake in SouthGobi in a deal worth as much as C$925 million ($914 million). Mongolia's Mineral Resources Authority said it would ask SouthGobi to suspend exploration activity and mining on certain licenses while it reviews the deal. Some customers have cut orders because of the request, SouthGobi said May 14.
Chalco won't proceed with the deal unless it gets approval from Mongolia, it said on April 25. Yuan Li, a spokesman for Aluminum Corp. of China, Chalco's parent, declined to comment, saying he can't provide more information.
"There's a big issue of discrimination and foreign investors should be just foreign investors," Frontier's Choi said. "You can't create separate rules for Chinese state-owned companies or Canadian companies. Chalco's accord is market- based, it represents the way the market wants to go."
Coal Deposit
Plans to develop Mongolia's Tavan Tolgoi coal deposit, one of the world's largest, have also stalled ahead of the June elections. Progress on talks with companies including Peabody Energy Corp. (BTU), OAO Russian Railways, and China's Shenhua Group to develop the West Tsankhi part of Tavan Tolgoi have "stopped," Prime Minister Sukhbaatar Batbold said in March.
Mongolia first announced and then said it would review an accord in July that planned to give Shenhua Group a 40 percent stake in West Tsankhi, with Peabody taking 24 percent and a Russia-Mongolian group the rest. The government didn't clarify who the Russia-Mongolia group included.
Uncertainty about the fate of the foreign tender has meant that the $3 billion initial public offering of state-run Erdenes Tavan Tolgoi, which is developing the East Tsankhi part of the 6-billion-metric-ton field, was delayed in March as some politicians call for Mongolia to develop West Tsankhi itself.
Chalco's Move
Chalco's move on SouthGobi was announced in the same month that it revealed plans to become the top shareholder in Winsway Coking Coal Holdings Ltd. (1733), a Hong Kong-based trader that ranks among the top exporters of the commodity from Mongolia. London- based Rio Tinto, the world's third-largest mining company, counts Chalco's parent as its largest shareholder.
Rio spokesman Illtud Harri declined to comment.
The new law will make sure that any purchase of stakes in so-called strategic assets by a state-owned entity are registered and receive government approval, Ganhuyag said. The list of strategic assets and industries will be made later and will likely include uranium and rare earths among other minerals, he said.
State-owned entities won't necessarily be barred from owning any assets in Mongolia, Ganhuyag said. "We'll review all applications on a case by case basis."
Private companies investing in the country's key assets will also be scrutinized on their source of income, local hiring intentions and investment timespan to avoid so-called hot money inflows, Ganhuyag said. Mongolia will also seek to make sure investors do not use jurisdictions that allow tax minimization, he said.
Export Partners
The country needs new investment laws to support more of its products being exported to countries other than China, Ganhuyag said. A project that would include several foreign entities, such as West Tsankhi where companies from five countries may form a consortium, is the model Mongolia wants, he said.
"We want China to be our good neighbor and economic partner," Ganhuyag said. Mongolia's "Third Neighbor" policy, a move to broaden ties with nations outside China and Russia, aims to have no country or product account for more than a third of total sales, he said.
Coal sales amounted to $2.2 billion in 2011 and made up almost half of Mongolia's exports, the World Bank said in a February report. Mineral resources accounted for 89 percent of Mongolia's total exports in April, according to the latest data from the country's Customs General Administration. Exports to northeast Asian countries were $389 million of a total $409 million, the data show.
Strategic Industries
To protect its strategic industries, which in the current version of the draft law include mining, media, communications, weaponry and air traffic, Mongolia may retain a majority stake in key assets or a so-called golden share that would allow the government to veto decisions, Ganhuyag said.
Chalco's intention to purchase SouthGobi will be reviewed once the new strategic investment law is passed, Ganhuyag said. The fact that the company is state-owned and that Mongolia is China's biggest coking coal supplier will be a factor in the decision, he said.
"We don't think it's a good idea to give up control over the whole supply chain," Ganhuyag said. "We trust the Chinese government will understand our needs and our concerns."
Chalco was allowed last year to buy all of the coal from the East Tsankhi area of Tavan Tolgoi, Mongolia's biggest coal field, after it agreed to resell 30 percent of the total volume to Mitsui & Co. (8031), Itochu Corp. (8001) and Korea Resources Corp.
The difference between SouthGobi and East Tsankhi is that Mongolia controls the mine, how much it produces and how it exports, Ganhuyag said.
"We would like to retain that freedom," he said.
SouthGobi Says Customers Cut Orders on Mongolian Mine Concerns
HONG KONG, May 14 (Bloomberg) — SouthGobi Resources Ltd., the coal producer which Aluminum Corp. of China Ltd. has agreed to buy, said some customers have cut orders after the Mongolian government requested the suspension of projects.
The Vancouver-based company said that it hasn't received an official order to suspend operations, including at the Ovoot Tolgoi Mine, according to a Hong Kong stock exchange statement Monday. The company can't provide guidance for the second quarter because of "uncertainty," it said.
"The announcement regarding potential license suspension has created significant uncertainty among the company's customers," SouthGobi said in the statement. "Concern over whether SouthGobi will be able to deliver contracted volumes in the second quarter has in some cases led customers to reduce their coal purchases."
Mongolia's Mineral Resources Authority last month requested the suspension of projects, including SouthGobi's Ovoot Tolgoi mine, while it reviews Chalco's proposed purchase. Chalco said it won't proceed with the deal unless it gets the required approvals from Mongolia, which is scheduled to hold federal elections next month.
SouthGobi fell 1.9 percent to close at HK$46.60 in Hong Kong today, before the announcement, as the Hang Seng Index lost 1.2 percent. The stock has gained 2.3 percent this year against the benchmark's 7.1 percent increase.
The company's first-quarter sales rose to $40.2 million from $20.2 million a year earlier, according to the filing. Net income was $3.13 million, or 2 cents a share, compared with a net loss of $46.6 million, or 25 cents. Coal sales were 840,000 metric tons, an 84 percent gain on year, it said.
Related:
SouthGobi posts profit, says Mongolia mines open – Reuters, May 15
OPEN ACCESS: Mongolia's new foreign investment law explained
May 15 (IFLR) Mongolia's parliament is reviewing a new foreign investment law ahead of the country's June 28 elections. But the complex raft of proposed changes has alarmed investors.
Mongolian parliament members, anxious to retain their seats ahead of the highly-anticipated 2013 opening of the Oyu Togloi mine, are introducing extensive legislative reforms, including the proposed foreign investment law.
The law was proposed in a bid to curb China's increasing investment and influence in the country. It followed speculation that Chinese aluminum company Chinalco planned to acquire a majority stake in Canadian coal miner SouthGobi Resources, which runs the Ovoot Togloi coal mine in Mongolia.
Mongolia has long promised an open foreign investment regulatory scheme. Landlocked between Russia and China, it fears that the two may dominate its rapidly growing economy. To create a better balance, it has promoted a 'Third Neighbour Policy' to encourage foreign investment from Western sources.
But Michael Aldrich, managing partner at Hogan Lovells' Ulaanbaatar office, told IFLR the draft law was very complex. "It makes the foreign investment approval process in China and Russia appear relatively straightforward," he said.
Early drafts included provisions that a foreign entity could not own more than 49 percent of any company worth MNT 100 billion ($ 76 million), as these would be classified as strategically important.
There has since been some relaxation of the most stringent proposals. The most recent draft focuses on the country's mining and banking sectors. It stipulates that there will be a reporting requirement, if a foreign investment totals more than a 5 percent, but less than 33 percent interest, in a strategically important company. If a foreign entity owns more than a 33 percent stake, there will be a four-month review process.
The planned changes will leave broad and discretionary authority in government hands. Violation of the law may result in the rescinding of the business registration of the strategically important company.
Stephen Tricks, the head of Clyde & Co's Mongolia practice, said investors were growing increasingly concerned about the wide range of industries potentially subject to the draft law and the level of state ownership of ventures operating under the law. "There is a danger that an over-zealous approach in the draft law could frighten foreign investors and choke off the rapid expansion in the economy," he said.
There are also provisions within the law that indicate it can be retroactively applied. This would raise a number of constitutional questions.
Aldrich says that patience is critical. "The bedrock of Mongolia's political system is a participatory democracy," he said." There is an element of popular sentiment in the political process: resource nationalism and populism can play a significant role. And there is a tendency for people to dwell on its faults, but Mongolia's political system is very much to be admired."
Ivanhoe Mining's loss shrinks as Mongolia mine nears production
VANCOUVER, May 16 (The Canadian Press) — Ivanhoe Mines Ltd. has reported a narrowing of its first-quarter loss as the Vancouver-based miner said its promising Oyu Tolgoi copper-gold project in Mongolia remains on track for commerical production next year.
Ivanhoe, 51 per cent owned by international mining giant Rio Tinto, said after markets closed Tuesday that its net loss in the three months ended March 31 was U.S.$80.6 million or 11 cents per share.
That compared with a net loss of U.S.$492.5 million or 70 cents per share in the same 2011 period when the company took a U.S.$432.5-million loss on a change in fair value of derivatives.
Ivanhoe, which also has a 58 per cent interest in Mongolian coal miner SouthGobi Resources and a 59 per cent interest in copper-gold miner Ivanhoe Australia, said revenue for the quarter was U.S.$40.2 million, up from U.S.$20.2 million in the same 2011 period.
The company said overall construction of the first phase of the Oyu Tolgoi was 77.8 per cent complete at the end of the first quarter and had advanced to 82.2 per cent complete at the end of April.
"Construction remains on track to meet the mine's targeted start of initial production in the second half of 2012. Commercial production is projected to begin in the first half of 2013."
Last month, Rio Tinto tightened its grip on Ivanhoe as part of a U.S.$3.3-billion financing deal that has seen chief executive Robert Friedland step away from the company he founded.
"With Rio Tinto's expanded support, we are counting down to the startup later this year of what I am sure will quickly grow to become one of the world's most significant and successful, mining complexes," Friedland said as the time.
Under the financing agreement, Rio Tinto will provide U.S.$1.5 billion in bridge financing to Ivanhoe and a standby commitment for a U.S.$1.8-billion rights offering by Ivanhoe.
The funding is in addition to U.S.$1.8 billion in interim funding that was agreed in December 2010
Under the rights offering, Ivanhoe shareholders will be able to buy additional shares at a subscription price of U.S.$8.34 per share on an equal proportional basis.
If shareholders fully exercise their rights, Rio Tinto will maintain its 51 per cent stake in Ivanhoe. If shareholders do not exercise any of their rights, Rio Tinto's stake in the company will increase to about 62 per cent.
All in a Name for Rio Tinto
May 16 (WSJ Blog) Ivanhoe Mines' quarterly results Wednesday included a little reminder that Rio Tinto has indeed extended its control, and a suggestion perhaps of its true ambition.
Ivanhoe shareholders, the statement said, will vote in late June on a proposed change to the mining company's name to Turquoise Hill Resources Ltd. If you don't recognize the name in English, it might be more familiar in Mongolian: Oyu Tolgoi, as in Ivanhoe's massive project in the Gobi Desert.
Rio Tinto has long coveted Oyu Tolgoi, and has steadily built up its stake to take on the role of operator of the project and more recently to take a controlling 51% in Ivanhoe itself. In recent weeks, Rio Tinto has exerted its authority by installing a new board and senior management, including Rio stalwarts Kay Priestly as chief executive and Chris Bateman as chief financial offer.
The planned name change confirms Ivanhoe is clearly all about Oyu Tolgoi. Ivanhoe is after all already seeking to sell its 58% stake in SouthGobi Resources. Other assets, including a 59% stake Ivanhoe Australia, now have a decided "non-core" air about them.
Haranga Resources Chairman Increases Stake on Market
May 14 (Mogi) Haranga Resources Limited (ASX:HAR) Chairman Mr. Matthew Wood increased his stake slightly in the company with 136,959 shares bought on market worth A$47,935.65, translating to the average purchase price per share being 35c.
Mongolia Growth Group Ltd. Agrees to Sell Shares of Mandal General Insurance to UMC Capital
Ulaanbaatar, MONGOLIA, May 16, 2012 /FSC/ - Mongolia Growth Group Ltd. (YAK - CNSX), MGG is pleased to announce that it has agreed to and signed a binding term sheet agreeing to sell shares of Mandal General Insurance (MGI) to UMC Capital, the operators of MGI, at a purchase price equivalent to MGG's original funding cost in June of 2011. Following the closing of this transaction, UMC Capital and MGG will respectively own approximately 16% and 84% of Mandal's currently outstanding shares. In addition, UMC Capital will retain the right to purchase an additional 25% of Mandal at the higher of stated book value or funding cost. The transaction is subject to regulatory approvals in Mongolia.
"Insurance is a business predicated on shifting risks from insureds to insurance companies that are more capable of assuming those risks. Our partner's decision to invest their capital into Mandal displays their commitment to shoulder some of these risks with us," said Jordan Calonego, COO of MGG. "It's one thing to have a carried interest in the future profits of a company; it's a very different experience to actually put your own capital at risk. We welcome UMC Capital's decision to co-invest with us. "
"We are very proud of our achievements to date at Mandal. In less than a year of operations, we have achieved tremendous successes and look forward to a bright future in the insurance business," said Ganzorig Ulziibayar, Chairman of UMC Capital. "We are thankful that MGG has allowed us to increase our ownership interest in Mandal and feel that this will allow us to further motivate our key employees in the future."
"Following this transaction, insurance will represent approximately 7% of MGG's stated book value," noted Harris Kupperman, CEO of MGG. "While we are very confident in the future of Mandal and the insurance industry in Mongolia, given the rapid growth of our property business, we are increasingly recognizing that insurance has become less critical to the overall future of MGG itself. We are exploring various transactions that would allow Mandal management to have increased discretion in managing the business, the ability to direct future strategy and access to additional growth capital; while simultaneously allowing MGG to maintain a sizable ownership interest in the future success of Mandal."
The purchase of Mandal shares by UMC Capital will be completed in stages. 5% of the shares of Mandal will be purchased within 15 days of signing a definitive purchase agreement and the remainder will be purchased over the following 6 months, for total cash consideration of less than one million Canadian dollars. In addition, 200,000 of UMC Capital's 10 year MGG share purchase options will vest immediately. In exchange for accelerating the vesting of these options, the new strike price will be CDN $1.90 compared to the original strike price of CDN$ 1.64 (a 16% increase). MGG applied for an exemption to the stock option policies of the CNSX in order to adjust the vestation and exercise price of the options. The exemption was approved by the CNSX.
Centerra Gold declares first dividend despite posting US$14.7M Q1 loss
TORONTO, May 15 (The Canadian Press) - Centerra Gold Inc. (TSX:CG) swung to a US$14.7-million loss in the first quarter as production problems sharply reduced output and sent costs soaring.
Still, the miner with operations in Kyrgyz Republic and Mongolia and interests in mines in Nevada, Turkey and Russia, declared its first quarterly dividend Tuesday — four cents per share payable June 15 to shareholders of record on May 31.
The first-quarter loss, which amounted to six cents per share, included US$19.2 million of abnormal mining costs and $4.6 million of mine standby costs related to the production halt at the company's signature Kumtor mine in the Kyrgyz republic. It also included a $1-million provision for the closure of the company's Reno exploration office
The quarter's loss compared with net earnings of US$136.6 million or 58 cents per share in the same 2011 period, Centerra said in a news release after markets closed.
The average analyst estimate had been for a profit of three cents per share, according to those surveyed by Thomson Reuters.
Revenue fell to US$133.8 million from US$250.2 million as consolidated gold production dropped to 72,555 ounces at a total cash cost of US$985 per ounce compared with 180,716 ounces at a total cash cost of $370 per ounce in the prior-year period.
Shares in Centerra tumbled in March after the gold miner cut its production guidance for the Kumtor mine due to ice movement in the pit that will delay access to a section of high grade ore.
The Toronto-headquartered company (TSX:CG) said in March that a preliminary engineering analysis had indicated production of 390,000 to 410,000 ounces of gold in 2012 at Kumtor.
That was down from an earlier estimate of between 575,000 and 625,000 ounces.
Centerra produced 585,000 ounces of gold last year at Kumtor, which accounts for the bulk of the company's global output.
Meanwhile, workers at the mine went on strike for more than a week earlier this year over a dispute over payments to a state social fund that is expected to cost the company US$4 million this year.
Related:
Centerra Gold Announces a Dividend of Cdn$0.04 Per Share – Marketwire, May 15
Centerra Gold First Quarter Results – Marketwire, May 15
Fostock: Guildford Coal Limited (GUF.ASX, $0.505/sh, Mkt Cap $240m) – South Gobi's North Pit Indicative Quality higher than anticipated. BUY PT $2.10/sh
May 17, Foster Stockborking --
· GUF yesterday released indicative coal quality data across the North Pit of the South Gobi project, reporting FSI numbers of up to 9 across seams 1,2 & 4. These preliminary results provide a good indication for a Hard coking coal quality product. In addition, seams 3 & 5 point to an FSI range of between 1.5-4.7 and volatiles of 16.1-24.5 range, which in all likelihood lead to a semi soft product. (see below for today's company presentation).
· GUF remains on track to become the next ASX listed coal producer in 2012 from its South Gobi project with the company outlining the final stages of mining contractor selection to be made in this month and mobilisation of mining fleet to follow. Management remain focussed on achieving maiden coal production mid-2012.
· Our modelling assumes a thermal/Semisoft product for GUF and we have not factored in any material change that seams 1,2 and 4 have the potential to be a coking coal product. Our model assumes $25-30 margins with a valuation of $450m or $0.95/sh on South Gobi (assuming 53% net interest), is based off a mine gate sale price of ~$45-50/t with cash costs of $20/t (assuming 52.5% interest in South Gobi). We are forecasting an initial 2Mtpa operation ramping up to 4Mtpa by 2016, however there is a possibility that a 4Mt run rate could be achieved inside of our timeline.
· We maintain our BUY recommendation and PT of $2.10/sh and attribute a valuation for GUF's South Gobi assets at $450m or $0.95/sh.
Guildford Coal Investor Presentation
May 16, Guildford Coal Limited (ASX:GUF) --
Manas: Operational and Financial Highlights 1st Quarter 2012
BAAR, SWITZERLAND--(Marketwire - May 15, 2012) - Manas Petroleum Corp. ("Manas") (TSX VENTURE: MNP) (OTCBB: MNAP) has filed its quarterly report on Form 10-Q for the quarter ended March 31, 2012 on EDGAR and on SEDAR. (www.sedar.com or www.sec.gov). The following provides you with a review of some of the highlights:
Highlights Q1 2012
· Tajikistan: Production Sharing Agreement ratified on May 7, 2012
· Seismic continuing and drilling under preparation
· Mongolia: Passive seismic started, contract for 2D seismic signed and contract for drilling under negotiation -- 2 back-to-back wells planned for 2012, spud In July due to rig availability
· Albania: Drilling preparation, spud first well in second quarter (rig arrived in the country beginning of May)
Operations Review
Mongolia
During the first quarter of 2012, our Mongolian subsidiary, Gobi Energy Partners LLC, continued with the integration and interpretation of seismic data acquired in 2011. Gobi is currently focusing on six areas with 15 prospects. A passive seismic campaign using low-frequency spectroscopy was started in April to assist in ranking the prospects. A 2D seismic campaign (vibroseis) to acquire 321 km is planned for June 2012; this seismic is partly detailed seismic over some prospects and the outstanding part in the eastern part of Block XIII, which could not be acquired anymore last year in November due to adverse seasonal weather conditions. The seismic will be acquired by the same contractor as 2011 and the contract has been signed. Mobilisation of the crew is planned for May. The drilling tender was closed and Gobi proposes to sign a contract in May. Spudding scheduled for July, subject to rig availability. Gobi intends to drill two wells back-to-back. The contract has an option for drilling additional wells 2013.
…
MIG: Profit Warning
May 14 -- This announcement is made by Mongolia Investment Group Limited (HK:402) (the "Company") pursuant to Rule 13.09(1) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules").
As a result of the unsatisfactory progress in production of the coal mine operated by Tugrugnuuriin Energy LLC, an indirect wholly-owned subsidiary of the Company, in Tugrug Valley, Mongolia (the "TNE Mine"), an impairment loss on the valuation of the mining rights of the TNE Mine is expected to be recognised. Accordingly, the board of directors (the "Board") of the Company wishes to inform the shareholders of the Company and potential investors that it is expected that the consolidated results of the Company and its subsidiaries (collectively the "Group") for the year ended 31 March 2012 may experience a significant loss. The impairment loss is subject to the results of valuation of the rights on the TNE Mine.
As the Company is still in the process of finalising the audited results of the Group for the year ended 31 March
2012, the information contained in this announcement is only a preliminary assessment of the management accounts of the Group as at 31 March 2012 by the Board and is not based on any figures or information audited or reviewed by the auditors of the Company.
Further details of the annual results of the Group will be disclosed as and when the annual results of the Group for the year ended 31 March 2012 are announced.
Shareholders of the Company and potential investors are advised to exercise caution when dealing in shares of the Company.
STOCK EXCHANGE WEEKLY REVIEW
Ulaanbaatar, Mongolia /MONTSAME/ Five stock trades were held at Mongolia's Stock Exchange on May 7-11. In overall, 9.1 million shares were sold of 61 joint-stock companies totaling MNT 1.8 billion.
Index TOP-20 was 20328.64 points decreasing 165.32 units or 0.8% against the week earlier. The total market capitalization was set at MNT one trillion 926.7 billion increasing MNT 7.9 billion or 0.4%.
Shares of "Erchim bayan-olgii" /50.8%/, "Shad trade" /43.5%/, and "Boonii khudaldaa" /15.0%/ increased, but shares of "Sor" /27.5%/, "Takhi-co" /20.8%/, and "Gazar suljmel" /15.1%/ decreased.
23 stocks closed higher, 25 shares declined and 13 shares remained unchanged.
Shares of "Nako tulsh" /7.6 million units/, "E trans logistics" /1.0 million units/ and "Remikon" /277.9 thousand units/ were the most actively traded in terms of trading volume and in terms of trading value--"Nako tulsh" (MNT 1.3 billion), "E trans logistics" (MNT 144.2 million), and "APU" (87.6 million).
MSE STARTS SECONDARY TRADING IN MONGOLIAN GOVERNMENT BONDS
May 16 (BDSec) The secondary trading in government bonds was officially launched on the Mongolian Stock Exchange on May 15 as 525,000 MNT worth of bonds traded for the day. It was the first time that Mongolian government bonds with International Securities Identification Number were traded in the secondary market in accordance with the internationally accepted principles.
The yield on one-year Mongolian bond was 7.5 percent and its price rose MNT 5,000. Unlike its primary market, the yields are not auctioned so the price is only thing that matters like stocks.
FRC REVOKES "ASIA PACIFIC SECURITIES" LLC'S LICENSE FOR BROKER AND DEALER
May 09, 2012 (MSE) "Asia pacific securities" LLC's license for activities concerning to broker and dealer in securities market has been revoked and license for underwriting activities in securities market has been suspended.
"STANDART INVESTMENT" LLC RECIEVES LICENSES FOR UNDERWRITING ACTIVITIES
May 9 (MSE) In accordance with the resolution No.137 passed by FRC on May 09, 2012, "Standard Investment" LLC has received a license for underwriting activities in securities market.
FMO ARRANGES GROUNDBREAKING SYNDICATED LOAN FOR KHAN BANK IN MONGOLIA
May 16 (FMO) A 5-year USD 94 million combination of a subordinated Tier 2 (USD 32m) and senior (USD 62m) syndicated facility agreements arranged for Khan Bank by FMO (the Netherlands Development Finance Company) was signed by a group of participating development banks today. It is the first syndicated loan to a commercial bank in the country's history.
The transaction helps boost development of Mongolia's capital market and its SME sector. As the first-ever syndicated loan to a commercial bank in Mongolia, with medium-term tenor and a syndication of development finance institutions only, this is truly a landmark transaction.
The facility strengthens Khan Bank's capital position, further increasing its ability to meet loan demand from Mongolian SMEs and corporate clients. The largest private sector bank in Mongolia, Khan Bank has a strong focus on SMEs and retail customers and has a wide reach thanks to its extensive network of rural branches. In small provincial towns and rural areas, Khan Bank is often the only commercial bank active.
FMO's Chief Investment Officer Jurgen Rigterink said: "FMO is proud to have arranged this groundbreaking loan facility for Khan Bank. This long-term commitment is a boost for the Mongolian economy and a clear vote of confidence for the Mongolian financial sector in general."
"Khan Bank is committed to the effective execution of this capital. This is a genuine landmark transaction in Mongolia, and especially for Khan Bank," said Khan Bank acting CEO Mr. Norihiko Kato.
"DEG is pleased to be part of the first syndication of this magnitude in Mongolia, thus promoting the access to financing to local SME and exporting companies even in remote areas. With this transaction DEG contributes to closing this gap", said Dr. Michael Bornmann, member of DEG's management board.
"To participate in this landmark transaction is of great value to BIO. We look forward to the collaboration in this syndication, which aims at improving the access to finance for Mongolian small and medium enterprises", said Carole Maman, Manager of BIO's Financial Sector Department.
About the transaction
As mandated lead arranger and agent, FMO syndicated the transaction to three European development banks: FMO (USD 25 million), DEG (USD 24 million) and BIO (USD 20 million). In addition EBRD provided a USD 25m parallel senior loan aligned with the FMO syndicated senior financing.
About Khan Bank
Khan Bank's roots go back 80 years to the State Bank of Mongolia. When this monopoly bank was broken up in 1991, Khan Bank was formed to take over most of the State Bank of Mongolia's regional and local offices throughout the country. With 500 branches across all of Mongolia with more than 4000 employees now, Khan Bank is the largest bank in Mongolia. Khan Bank finances corporate, small and medium businesses, consumers, and individuals. Since 2009, 100% of its branches are connected on-line and operating on a real time basis providing customers with direct access to all banking services from everywhere in Mongolia. Khan Bank's headquarters is located in the capital city of Ulaanbaatar (UB).
About FMO
The Netherlands Development Finance Company (FMO) is the bilateral private sector development bank of the Netherlands. FMO invests in the private sector, which can serve as an engine of sustainable growth in developing markets. To this end, we provide capital, knowledge and partnerships to ambitious entrepreneurs. With an investment portfolio of € 5.9 billion, FMO is one of the largest bilateral private sector development banks worldwide. Our focus is on three sectors which create a high development impact: financial institutions, energy and agribusiness, food & water. This focus enables us to offer tailor-made finance solutions, based on real expertise. In other sectors, FMO teams up with renowned partners to combine local networks, knowledge and experience. We believe that our approach will lead to lasting economic and social development, which will empower people to employ their skills and improve their quality of life.
About DEG
DEG – Deutsche Investitions- und Entwicklungsgesellschaft, a subsidiary of KfW, has been financing the investments of private companies in developing and emerging market countries for 50 years. As one of the largest European development finance institutions, it promotes private business structures to contribute to sustainable economic growth and improved living conditions. DEG invests in profitable projects that contribute to sustainable development in all sectors of the economy.
About BIO
The Belgian Investment Company for Developing Countries (BIO) is a Development Finance Institution (DFI) established in 2001 in the framework of the Belgian Development Cooperation to support private sector growth in developing and emerging countries.
BIO supports financial institutions, investment funds, enterprises and private infrastructure projects. Endowed with capital of EUR 581.5 million, BIO provides tailored long-term financial products (equity, quasi-equity, debt and guarantees) either directly or through intermediary structures. BIO is also able to fund technical assistance programmes for client companies as well as feasibility studies. BIO requires its business partners to implement environmental, social and governance standards.
BIO operates as an additional partner to the traditional financial institutions and supports projects with a balance between return on investment and development impact.
Power Capital Global Ltd invests into leading Mongolian conglomerate APIP
May 16 (PCG) The Company (PCGB:LN) is pleased to announce that it has subscribed, effective 10th May 2012, through its wholly owned subsidiary PCG Mongolia Limited, for a 1.2% equity stake in Asia Pacific Investment Partners Limited ("APIP").Total consideration for the Investment is US$2 million (approximately £1.26m). This investment was made as part of a US$15 million private placing by APIP.
Incorporated in Hong Kong in 2001, APIP (www.apipcorp.com) has 11 operating subsidiaries in Mongolia, with a focus on real estate, cement, financial services and mining. APIP is strategically positioned to capitalize on Mongolia's projected growth in GDP. In the year ended 31 December 2010, APIP had audited consolidated revenues of US$15.3m and profits after tax of US$7.1m. At that date, consolidated net assets amounted to US$13.2m. APIP is looking to list within the next fifteen months in either Hong Kong or London.
The Company believes that this direct investment in Mongolia's leading foreign invested conglomerate will provide the Company with fast track opportunities in the burgeoning natural resources sector in Mongolia. APIP owns the third largest cement producer in Mongolia, with total production of 34,000 tons in 2011 and a total plant capacity of 80,000 tons. The Company has already signed a framework agreement for the supply of cement clinker to APIP, sourced from the Inner Mongolia region of China. A number of other trading and development opportunities with APIP are under investigation.
Simon Dewhurst, the Company's CEO, has been appointed to the board of APIP with immediate effect.
Funding for the Investment has been provided by way of a twelve-month LIBOR +3% revolving loan facility from Power Capital Forex Management Limited, a company controlled by Kung Min Lin. The facility is deemed to be a related party transaction for the purposes of Rule 13 of the AIM Rules for Companies. The directors, other than Kung Min Lin (who has taken no part in the Board's consideration of the loan facility), consider, having consulted with Northland Capital Partners Limited, the Company's Nominated Adviser, that the terms of the loan facility with Power Capital Forex Limited are fair and reasonable so far as the shareholders of the Company are concerned.
The Company announced on 12 March 2012 that it had signed a term sheet to subscribe for a 30% equity stake in TSI Holdings Limited ("TSI") (the "TSI Investment"). Total consideration for the TSI Investment is US$2 million (approximately £1.26m) and the subscription is subject to, inter alia, due diligence. Completion of due diligence matters has been extended from the original timetable of 4 to 6 weeks. A further announcement will be made in due course.
FMG Mongolia Fund lost 3.2% in April
May (FMG) The Fund started to invest its cash during the month. The model portfolio now consists of 10 stocks and the mining sector makes up about 43%, followed by consumer stocks 39%, construction 10%, finance and real estate at 4% each.
The fund has only bought MSE (domestic) listed stocks in Mongolia. The benefit of our small fund by assets is that we can establish positions among the most attractive domestic growth stories in Mongolia before larger pools of foreign money can enter the market. Mongolia grabs more and more headlines as we saw the huge mining company, Rio Tinto, take over Ivanhoe that possess huge cobber and coal mining rights in Mongolia. The Chinese have also been trying to buy Mongolian mines outright this month, but the Mongolian Government wants to retain control, at least for now.
Nobody can compete with the cost-advantage Mongolia has of being located right next door to China, the number one consumer of commodities.
Some recent examples from Mongolia:
· China opens a new power plant every week where coal is the source for producing the energy.
· Mongolia has 17% of the World's supply of rare earth metals.
· In Ulanbaatar one restaurant group has seen turnover increase by 800% in a year!
· The Mongolian government is planning to set up a new $600m sovereign wealth
· A Fund, to be launched in July, after the June elections have taken place, Bloomberg reported. The new fund will be used to finance pensions, Also plans to increase the size of its existing stabilization fund from $300m to $500m.
· The Mongolia Stock Exchange will be modernized with the help of the London Stock Exchange team currently on the ground in Ulanbaatar.
FMG Mongolia Fund has just been launched
The monthly fund commentary will start being updated here from mid-April onwards.
Eurasia: Mongolia's GDP Accelerates 16.7% in 1Q2012
May 14 (Eurasia Capital) --
Accelerating economy. In 1Q2012, the Mongolian economy had its best first quarter in a decade. The economy registered an outstanding GDP growth rate of 16.7% y-o-y in 1Q2012, the National Statistics Office of Mongolia data revealed on 10 May. In nominal terms GDP growth rate stood at 30.2% y-o-y. The growth is driven by the mining sector, commodity exports and government spending. Industry and construction expanded 8.4% y-o-y in real terms, services 18.6%, agriculture 13.6%. Economic growth in first quarter is traditionally somewhat slow as the activities are subdued in mining, construction, agriculture and some other sectors. In 2011, the economy expanded 9.8% in 1Q and accelerated to 17.3% y-o-y by the year end.
Continued strength of mining sector. Industry and construction contributed 15.7% to GDP growth. Mining sector output, the largest component (68%) in industrial output advanced 10.1% y-o-y. Coal output surged 10.3% to almost 10 mn tonnes (Mt), crude oil +59.8% to 1.1mn barrels, iron ore +44% to 1.5Mt, zinc concentrate 24.6% to 43,100 tn.
Resource exports hitting new peaks. Mongolia's export growth continued to be in line with our call that Mongolia is to benefit from strong demand for resources in major Asian economies, primarily China, and competitive commodity prices. Mongolia's mineral exports that reached 94% share of total exports surged 20% y-o-y (vs total exports +19.1%) and contributed a 98% y-o-y increase in total exports in 1Q2012. Coal exports jumped +81% in monetary terms, iron ore +43% and crude oil +63% while copper was down 18%. Coal exports in physical volume increased 466,300 tn to 3.4Mt and average export price surged 56% y-o-y to US$108/tn. China remained the largest export market for Mongolia. Exports to China surged +24% y-o-y representing 92% of Mongolia's total exports (vs 89% a year earlier).
Rising government spending. The government budget revenue increased 20.9% y-o-y to MNT1,474.7bn. Tax revenue increased 21.5% to MNT1,300.3bn. The government accumulated MNT8.9bn in Stabilisation fund. With expenditure growing at a faster 31.7% rate to MNT1,513.8bn, the general government budget registered MNT39.1bn or 1.7% of GDP deficit. Capital expenditure doubled to MNT255.4bn, including domestic investments of MNT248.3bn, government consumption increased 27.2% y-o-y to MNT215.3bn. Wages and salary payments were up 28% to MNT322.4bn, one of the key reasons for the high inflation.
Inflation remains a concern. Inflation reached outrageous 16% y-o-y in April. Inflation accelerated 8.2% y-t-d in 4M2012 vs 2.5% a year earlier. In supply side, meat price increase caused by decline in production has been significantly contributing to the inflation. Also, inflation has been imported through increased prices of oil products, construction materials and other products. In demand side, state cash handouts are permanently fueling consumer demand, and increasing state sector salary also has the same effect. The demand is expected further to increase as the State is giving every person a choice to receive MNT1mn in cash instead of 1,072 shares of Erdenes Tavan Tolgoi. It is expected that the central bank may further tighten the monetary policy.
New law on foreign investment may impact economic growth. We are increasingly concerned that the new draft law on regulation of foreign investment in business entities of strategic importance may negatively impact the foreign investment inflows to the country. Although the latest draft has been significantly softened from the first version, we expect that that there is a common consensus among MPs to impose additional regulation on foreign investments coming to the sectors and entities of "strategic importance" (mining, financial, media and communications). Although a number of key restrictive proposals (extensive list of "strategic industries", over MNT100bn worth company subject to the regulations) were removed, the business and investment community views the law as impediment (in particular the provisions that limit foreign ownership to 49% in business entities in the strategic industries) to bringing foreign investments to Mongolia and sustaining strong economic growth of the country.
In our view, if the new law on regulating foreign investments in strategic industries is adopted in its current form (which is restrictive, in our view), this may impact inflows of foreign investments and economic growth as a whole. The new regulation may affect the current speed of output by key resource producing companies, the government revenues and private consumption, therefore, our estimate of 20% growth rate in 2012, articulated in Eurasia Capital Mongolia Outlook 2012 at the beginning of this year, may not be reached. We are also concerned that the recent arrest of the ex-president leads to increase in political risks in the country and negatively impacts investor sentiments toward Mongolia. We expect more clarity as to the business environment of the country after the lawmakers adopts the legislation and the Parliamentary elections are held in June this year.
Mongolia seeks growth in mining industry
ULAN BATOR, May 16 (Xinhua) -- Mongolia's economy is poised for "explosive growth" from the use of its vast mineral resources, the Ulan Bator mayor said here on Wednesday.
Gombosuren Munkhbayar made the remarks in his written welcome address for the start of the international trade fair "Future Mongolia 2012."
Munkhbayar highlighted the participation of the world's leading manufacturers and technology and solution providers in the fair.
The fair, jointly organized by Mongolia and Germany, has attracted over 100 mining and construction machinery companies from about 12 countries including Germany, China and Russia.
Many of the exhibitors, including Russian Railways and Siemens, brought their latest machines and technology in an effort to gain a presence in Mongolia's market.
Mongolia boasts abundant mineral resources. Mining and construction mechanical equipment companies from Germany attach great importance to Mongolia's market and make efforts to expand market share in the country.
Mongolia vows to promote energy development
ULAN BATOR, May 15 (Xinhua) -- Mongolia will further improve its investment environment of the energy sector and encourage private enterprises to invest in this field, Energy Minister D. Zorigt said Tuesday.
Speaking at an international conference titled "Mongolian Power 2012," the minister said the Mongolian government will make greater efforts to push forward development of the country's wind power and coal resources.
Lawmaker Ts. Tsengel outlined several measures to promote healthy development of the energy sector by solving the constraints existing in the energy sector.
In order to resolve the accumulated arrears between coal mines and energy companies, he said, measures have to be taken to improve financial-economic capability of fuel and energy companies, such as giving subsidy to these companies out of the state budget.
The two-day conference, organized by the Ministry of Mineral Resources and Energy, drew representatives from over 90 international financial institutions and companies, including the Asian Development Bank, the United Nations Development Programme.
The meeting focuses on such subjects as the development of the Mongolian sustainable energy and the investment and technology development prospects of the sector.
Mongolia boasts rich wind and solar power resources and the country plans to make the renewable energy output account for 20 to 25 percent of its total energy production by 2020.
IAAC: Public officials will report on conflicts of property, income and interest
May 16 (UB Post) The following is an interview with J.Batsaikhan, the head of the Inspection and Analysis Department of the Independent Authority Against Corruption (IAAC).
-By putting into effect the law on preventing conflicts of interest, the property and income report submission has to be carried out again. When and how will the report be submitted?
The law on interest came into effect on May 1st. In compliance with the law public servants will re-fill in the new form on interest conflicts and property and income reports. The draft form was approved by the parliament and we intend to finish the form completion before the Naadam Festival (July 11th to 13th). It is estimated that the forms will be cumulated and completed by August 15th.
-Does this mean that the official who originally reported the income will report it again?
-Yes, they will re-report. 58 thousand public servants will refill in the interest conflict report form. To be clear, they will fill both the property and income report form and interest conflict form as well.
-Will the candidates for the parliamentary election from the city and provinces fill in both forms?
-The candidates for all levels of the election will fill in only the income and property report form.
-Who are the public servant and what establishments do they serve? Previously people have criticised that servants such as drivers and janitors who are not necessary to report were included in the income and property report action and many State entities and organizations were requesting to eliminate the names from the list. How is this issue being managed?
-The Legal Standing Committee approved the name list of the public servants. People have criticized that some officials are involved in filling in the report forms when there is no need for them to report on conflicts of interest. For instance, the officer of the Defence Ministry is obviously a public servant. But it is not really necessary to report the income and property of the ministry's musicians, singers and sportsmen. So we have discussed this and eliminated the unnecessary officials of organizations from the name list.
-Previously 58 thousand high ranking state officials and servants used to report their income and property. How many public servants will fill in new forms according to the new law on conflicts of interest?
-8000 people out of 58 thousand were eliminated and around 50 thousand public officials are expected to complete the property and income report form and the form for interest conflict.
-Will IAAC conduct inspections and an analysis of the property and income reports of state high ranking officials and public servants, after reports have been finished? Will it be open to the public?
- It will be open to the public. The citizens will be provided with the relevant information. Our department used to inspect and do the analysis of property and income reports for state high ranking officials and the civil servants. We will carry on doing this in the future. The law clearly states about the responsibilities of public servants. So officials who misreported on the property, income and conflict of interest reports will be reprimanded.
-What kind of measures will be taken for officials who misreported intentionally or accidentally? Previously an official letter used to be sent to the head of the entity so they could take the correct measures and treat the offender correctly. But the head barely took any measures. Will it be changed according to the new law?
-If a civil servant breaks the anticorruption law or the law on conflict of interest, the servant will be demoted or their salary will be decreased by 30 percent during three months. If the servant repeats the act against the law, they will be fired. Furthermore, in case of serious and large violations of the law a criminal case will be initiated. The amount will start from 16 to 17 million MNT. If the servant can't explain where and how they got this amount of money, a criminal case will be initiated and the servant will be sentenced to jail if found guilty of corruption.
-Do foreign people who serve in the state organisation in Mongolia have to fill in the forms?
-The issues of foreign staff are also reflected in the new law. For example, the authorities appointed from Russia to Mongolia's Erdenet factory will be supervised. The government of the USA gave Mongolia certain amounts of money to reduce the air pollution. The Mongolian side should examine how that money is being used. So it means the heads of the Millennium Challenge have to report their income and property. Moreover there are people who aren't public servants but who makes decision relating to the public interest. For example, in the Development Bank there are a few foreign people on the Board of Directors of this bank. They are not public servants. But we have to supervise their operations because they are serving the public interest. The new law approved this opportunity. But this issue should be managed properly. There is an issue over whether to pursue Mongolia's laws and regulations or the international agreements. Also, some foreign people are working in certain establishments on private contracts.
-Some people criticize that the new law over invades people's private property and rights. But we have to implement the law. What are your thoughts on this?
-Public servants criticize that the new law reveals all their properties and assets to the public. It is not like that. It is the same as the previous property income report. If the servant reports truthfully, we won't dig and investigate. They don't have to worry. This law is fearful for corrupted servants and protects the loyal state officials. On the other hand the law once ratified will be implemented. In the past the IAAC worked aiming to accustom state officials to fill in the form and report their incomes and properties. And the IAAC could accustom it.
-What is the conflict of interest?
-Sukhbaatar province Council awarded one high ranking state official with the prize, Golden Fiddle, which is followed by 5 million MNT. The state official received the tribute and donated the monetary prize to the province's development. According to the law, if a high ranking state official receives a monetary gift that is higher than his or her monthly salary, the gift should be turned-over to the state or he or she should pay the price difference in tax. So this act will in fact be against the law.
-Customs officials observed the anniversary and gathered donations of 200,000 MNT from each company and organization that they cooperates with. All companies except one donated 200,000 MNT to the customs officials. The company who refused to donate money for the customs anniversary was mistreated by the customs for a whole year. So the next year that company decided to donate money on the custom's anniversary. This act demonstrates corruption and shows the act of using a state position for private interests.
-The event "Speed of Khotgoid-2010" dedicated to the 100th anniversary of Chingunjav, the leader of the Mongolian rebellion, was organized in Erdenet city. 1 billion MNT was issued for the event from the state budget and 367 million MNT of it was spent on erecting the monument. But the state officials carved their name and their party's name on a monument. This is the conflict of interest that gave people the impression that the monument that was funded by state money was a private investment.
The law about preventing conflict of interests and managing private and public interest in the public services that was ratified by the parliament includes 12 types of limits and prohibitions; receiving donations, gifts, revealing service information, operating an enterprise, simultaneous employment and representing other entities.
UN secretary general voices concern over former Mongolian president's health
ULAN BATOR, May 14 (Xinhua) -- UN Secretary General Ban Ki-moon on Monday made a telephone call to Mongolian President Tsakhia Elbegdorj and voiced his concern over the health of former Mongolian President Nambar Enkhbayar.
According to their conversation published by the president's website, Ban said "there is a growing concern over the health of former president Mr. Enkhbayar. I hope you are paying your attention to his health situation."
The UN secretary general also said he has no interest in being involved in the Mongolia's internal matter and he believes Elbegdorj can help in properly solving the issue of concern.
Elbegdorj expressed his gratitude for the call. He said, "We are paying close attention to the health of former President Enkhbayar. He is currently being treated in the hospital for our state officials. A medical team consisting of the best doctors in our country has been appointed to monitor his health."
The president also said he will be very pleased if the UN sends representatives to collaborate with Mongolia's efforts to combat corruption and protect human rights.
He added that Enkhbayar's case was opened quite some time ago. The former president was summoned for testimony ten times over the past several months, but he declined to appear, Elbegdorj said, adding that due to this reason he had to be taken into detention.
Elbegdorj promised he will pay close attention to the health of Enkhbayar and support the law enforcement organizations for their just implementation of the laws.
The same day, Enkhbayar was released on bail.
Former Mongolian President Granted Bail After Hunger Strike
May 15 (Bloomberg) Former Mongolian President Nambaryn Enkhbayar, who was granted bail yesterday, will remain hospitalized to get medical treatment after refusing water for 10 days to protest his detention on corruption charges.
Enkhbayar ended the hunger strike now that bail has been granted and will be moved to an intensive care unit, his son Batshugar said in an e-mail. The Sukhbaatar District Court's decision was confirmed by Mongolia prisons service spokesman T. Amarsaikhan.
Enkhbayar's arrest last month, ahead of parliamentary elections scheduled for June in which he planned to participate, raised investor concerns over an economy that is China's biggest coking coal supplier. He and his family said the detention -- on charges dating as far back as 2000 -- was an attempt by the government to sideline him from power.
"Doctors are very worried about his health recover and all hope the process will go smoothly," Batshugar Enkhbayar wrote in an e-mail yesterday. "My father is still facing politically motivated false allegations that he needs to fight."
Lawyers for Enkhbayar, who served as president of one of the world's fastest-growing economies until 2009, had lodged another bail application with the office of the State Prosecutor General yesterday, Batshugar Enkhbayar said.
Television Equipment
Peter Goldsmith, a partner at New York-based Debevoise & Plimpton LLP who was employed by the family to help with Enkhbayar's case, said the charges against Enkhbayar included stealing a donation of television equipment valued at $113,000 that was meant to go to a Buddhist monastery in 2000 and not paying duties to ship eight volumes of a book he authored from South Korea to Mongolia.
The detention "appears to be arbitrary" and breaches human rights standards, London-based human rights group Amnesty International said, according to a statement released May 12.
Sed-Ayushjav Batzaya, a spokeswoman for President Tsakhia Elbegdorj's office, referred all questions to the prisons service.
Enkhbayar had been summoned for questioning 10 times over two years and never showed up, Vice Finance Minister Ganhuyag Chuluun Hutagt said in e-mailed comments May 12.
"There's no way to prove or disprove if he has committed corruption if he doesn't show up," Hutagt said in the e-mail.
Hutagt acknowledged that the arrest "probably" was not handled well. "But we're learning from this," he said. "We don't have experience of arresting ex-presidents."
Organ Failure
Enkhbayar was hospitalized May 9 after beginning to suffer organ failure and refused treatment by Mongolian doctors because he said they were under the sway of the government, his son Batshugar said. With the help of his lawyers, he blocked a police move to force-feed him on May 11, according to his son.
Prime minister from 2000 to 2004 and president from 2005 to 2009, Enkhbayar had sought to boost trade with western nations and distance the country from neighbors Russia and China. The country, which emerged from Communist rule in 1990, saw economic growth of 17.3 percent in 2011, with similar gains forecast for 2012, as foreign investors tapped its reserves of coal, copper and gold.
Enkhbayar was named head of the Mongolian People's Revolutionary Party after it split from the ruling Mongolian People's Party last year. He had strong support in the countryside and would probably have attracted enough votes to form a coalition government with either the MPP or the Democratic Party, according to Oliver Belfitt-Nash, head of research at Ulan Bator-based brokerage Monet Capital LLC.
"All arrows point toward heightened Mongolia risk in a time of economic and political uncertainty," Belfitt-Nash wrote in a note to investors last week. "For the Mongolia bulls, the buy opportunities are flashing red."
Enkhbayar's son said his father, whose party is planning to contest every seat in Mongolia's parliament in the June elections, denied all the charges against him.
Related:
Mongolia Was Under Pressure Over Presidential Detention – WSJ Blog, May 15
Press Release - The Independent Authority Against Corruption of Mongolia, May 11
DOCUMENT - MONGOLIAN AUTHORITIES MUST RESPECT THE HUMAN RIGHTS OF FORMER MONGOLIAN PRESIDENT FOLLOWING HIS ARREST - Amnesty International, May 12
Ex-Leader's Detention Tests Mongolia's Budding Democracy – New York Times, May 13 (Mogi: has several factual mistakes)
Former Mongolian president freed on bail – Financial Times, May 14
Sen. Feinstein warns of political crackdown in Mongolia ahead of June elections – The Hill, May 14
Former Mongolian President Nambar Enkhbayar is bailed – BBC News, May 14
PROTECTING DUE PROCESS, HUMAN RIGHTS AND THE RULE OF LAW IN MONGOLIA – President Elbegdorj, May 10
N.Enkhbayar could still be a candidate
May 15 (news.mn) While releasing N.Enkhbayar, a third president of Mongolia from 2005 to 2009 his corruption case shifted from City Prosecutor's office to the Sukhbaatar District court.
By the law the Sukhbaatar district court will announce court hearing day within the 14 days.
According to the Ch.Sodnomtseren, a secretary of the General Election Committee "By the law N.Enkhbayar could nominate his name for June 28 parliamentary election. If the court took a decision that a person is guilty could not run for election".
If after N.Enkhbayar's nomination court will took a decision the General Election committee have a right to abstain from election nomination.
FOREIGN INVESTMENT LAW BECOMES AN INCREASING THREAT FOLLOWING JOB LOSSES
May 16 (UB Post) Mongolian citizens have become the first victims of the proposed foreign investment law as investors begin to scale back their operations in the country. Foreign investors and resource companies are currently reviewing their budgets for Mongolia in response to an anti-business draft law that was proposed to Parliament in early May.
Although the initial draft has been diluted, the latest draft still seeks to impose weighty restrictions on foreign investors who have been critical to Mongolia's growth. Investor confidence in the country's current stability is diminishing as result.
The resources boom in the country and the previously business-friendly political environment had fuelled a flurry of foreign direct investment and a rise in GDP per capita of over 60% since 2009. But with companies now holding back on new investment, the impacts have been immediate with drill rigs idled and increasing local job losses.
Mongolia could see a significant departure from its current line of growth. A natural resources investment firm in Ulaanbaatar told The UB Post yesterday that in the face of new legislation they plan to scale back their operations by 75% as they follow other companies to more business friendly emerging markets.
Approval of the current draft law will be felt throughout the country as decreasing investment drives down disposable income and job security.
One analyst suggested that Mongolia "could miss the opportunity to sell its commodities as global commodity investors are already pricing in the end of the super cycle. Parliament does not have long to get things right in today's environment of attractive commodity prices".
An industry mining executive told us that "amid a global slowdown in commodity prices, this law will mean that many Mongolian projects may never be financed"
It is seemingly a distinct possibility that Mongolia will be ignored by the foreign investment community. Politicians behind this law will be to blame for a large missed opportunity for further growth and wealth to all Mongolians.
Ch.Bat: "If public transportation becomes reliable, people will stop driving cars"
May 16 (UB Post) Parliament is currently discussing a project to build a special bus lane to prevent traffic. The General Manager of Ulaanbaatar, Ch.Bat, has answered some questions regarding this matter.
-There are talks of building a special bus lane. When will this project start?
-The population of Ulaanbaatar has exceeded 1.2 million, which means half the entire population of Mongolia resides and works in the capital. The traffic in the city has reached its peak and its load is at an unmanageable. Fast and efficient public transportation is in high demand. A general plan to develop Ulaanbaatar until 2030 is being formulated and the issue of public transportation has been given a separate working group to come up with new routes and methods. Many solutions such as building metros, special bus lanes and light trains have been proposed. We are looking for the most effective solution in a short amount of time. This is why the special bus lane was chosen. Many nations have implemented this effectively to reduce traffic. The construction of the lane will start within this year. It is estimated to go from 2012-2017.
-How much reduction of traffic can we expect from this?
-The central two lanes will be freed and only buses will be allowed to use it. Of course emergency vehicles such as ambulance, fire fighter trucks and police cars will be permitted use it. Since there aren't any other vehicles on the lanes, buses will move freely without traffic. Studies show that by building bus lanes, speed of public transportations will increase 40%. The likelihood of buses reaching their stops on time will increase. If public transportation becomes more reliable, people would not always want to drive cars. Buses with diesel engines will not be used because of air pollution. The buses that use the special lane will be powered by electricity like a trolleybuses, but with batteries that allow them to drive without cables. We are talking about having a bus that has a capacity of twice or three times the current buses.
-Have routes been determined? Which bus lanes will use which roads?
-Several routes have been considered, such as from the north of the city or Doloon buudal to Nisekh or from the west side of the city to east and vice versa. These routes total up to 65km of track. Bridges will be built over intercepting roads such as the West and East Durvun zam, Sapporo and Bayanburd cross-road. This will decrease traffic on traffic lights and cross-roads.
-What countries have used special bus lanes to reduce their traffic?
-Many countries such as Colombia, Thailand and South Korea have used this method to reduce traffic. They have much denser populations than ours but have used this method effectively to reduce road traffic. Many think that if the two central lanes are reserved the rest of the cars will be cramped up in the other lanes and this would increase the traffic. In other words, it's putting aside individuals using the road to make way for the many who use public transportation. When public transportation becomes reliable and fast, individuals will not want to waste time in traffic jams and waste money on fuel. Gradually the change to public transportation will take place. When people switch to public transportation, car lane traffic also decreases. By working for the interest of the public in general we can come to the right decisions.
-Does this mean the roads we have now will be used?
-The 65km of special bus lanes will be used from the wider roads we have now. Since it uses electricity, electric wires will be built, and tunnels that lead to the middle of the road where the bus stops will be built. The city with the best metro system is Moscow but even they switched to special bus lanes recently to reduce their traffic.
-Where will the buses be bought from? Do you think the new trolleybus industry Tsahilgaan Teever will be used to solve this issue?
-We will not import buses just yet. Where we buy the buses will be determined at the appropriate time. The Tsahilgaan Teever assembly industry has been expanded and opened today (yesterday). The Tsahilgaan Teever industry has produced trolleybuses and duo-busses in Ulaanbaatar since 2007. The industry has experience and potential. We don't have to import buses at high prices but buy the parts and assemble them here in Mongolia which will cost much less, they are talking about this with the Asian Developmental Bank.
-The residents are criticising that trolleybuses cause traffic and it's an old way of transportation. How suitable is this method in a developing city?
-Trolleybuses are used in many large cities of the world. The time has not yet come to say that trolleybuses are no longer required. We will not expand the current trolleybus routes but we will use them for a while. After all it's the cheapest way of travelling. Today the cost for one person to travel in a diesel engine bus is 500-600 MNT but they pay 400 MNT and the rest is paid by the state. Electric transportation costs half as much as diesel engine transportations, therefore trolleybuses are extremely beneficial for the public. Moreover, they don't pollute the city by emitting CO2 so its environmentally friendly. Trolleybuses will stay for a while.
"DORNOD OIL" COMPANY TO BE ESTABLISHED
Ulaanbaatar, Mongolia, May 16 /MONTSAME/ The cabinet meeting on Wednesday decided that an oil producing "Dornod oil" company wlil be established in Choibalsan of Dornod aimag.
The state property is to be at least 34 per cent in it.
The cabinet obliged the State property committee to select entities, who will own the rest, according to the law on Concession, and to adopt the company's rules.
The state share in finances to build a factory is to be paid by the Government share, according to product share agreement, and additional finances from the Development Bank.
AUTHORIZED CAPITAL OF UB RAILWAY TO BE AUGMENTED
Ulaanbaatar, Mongolia, May 16 /MONTSAME/ At its meeting on Wednesday, the cabinet made a decision to augment the authorized capital of the "Ulaanbaatar Railway" Mongolia-Russian joint venture to 125 million US dollars.
It means that 150 billion togrogs, placed in the budget for this year, will be exchanged into US dollars and be transferred into the UB Railway's authorized capital by July 2, 2012. An additional sum of 20 billion togrogs will be reflected in the draft amendment to the law on budget, and borrowed from commercial banks until extra sources are found and approved.
As known, by intergovernmental agreement Mongolia and Russia decided to augment the authorized capital by USD 125 million from each side. This will help run technical renovation, increase freight transportation, purchase railway vehicles.
Mongolia to Increase its Stake in EBRD
Ulaanbaatar, Mongolia, May 16 /MONTSAME/
- The cabinet meeting on Wednesday did not back in principle a draft amendment to the law on excise tax, initiated by D.Batbayar MP.
He wanted to free from the excise tax all nationally-produced vodka with volume less than 250 ml and alcohol less than 20 per cent. The cabinet considered that this might increase a consumption of such drinks.
- The cabinet considered as necessity to discuss a draft amendment to the law on police organization, drawn up by N.Batbayar MP, together with a draft new wording on the same matter, initiated by the government. The cabinet also backed in principle a draft parliamentary resolution on putting some areas in special protection.
- In accordance with the cabinet decision, shares of the European Bank for Reconstruction and Development (EBRD) owned by Mongolia will be added with 89 shares. Each share cost EUR 10 thousand at the nominal value.
- The cabinet decided to introduce to parliament an implementation course of the "New Great Construction" middle-term targeted program.
- The cabinet discussed a draft intergovernmental protocol on the contract effect regulating the Mongolia-Romania relations, and considered as necessity to sign it. A related order of the PM will be released soon.
- The cabinet considered a realization of the Mongolia-DPRK intergovernmental agreement on exchanging labor force, and then decided to submit it to the National Security Council (NSC). In addition, the cabinet discussed an issue of establishing a joint marine transportation company between the State Property Committee and S.Korean Sammok Shipping company. A related resolution of government will be released.
- In the first quarter of this year, state administrative organization received 7,237 requests and complaints, 87 per cent of these have been tackled.
ELDERS AND DISABLED TO RECEIVE CASH FOR ETT SHARES NEXT WEEK
Ulaanbaatar, Mongolia, May 16 /MONTSAME/ The elders and the disabled who want to receive the cash money instead of owning the shares of the "Erdenes Tavantolgoi" company will start receiving one million togrogs each from the next week.
It was reported by D.Khayankhyarvaa, the Minister of Finance, at a regular cabinet meeting on Wednesday.
According to him, the money will be given to them in Ulaanbaatar in the first turn, divided into three parts. The money for April and May will be granted together.
The Ministry of Social Welfare and Labor conducted a survey into an attitude of people, including the elders and the disabled, whether to choose the cash or the stocks. There are 272,582 elders and the disabled wishing to have the cash money, and there are 738,917 people who want to sell their stocks to the government--717 thous.748 intend to have the cash money, 21 thous.--to pay money for the mortgage loans, and 394--to pay for the educational or medical services.
The cabinet also discussed the nominal value of the "Erdenes Tavantolgoi" company's stock. It is expected that a final decision on it will be made by cabinet soon. After fixing the nominal value, the stocks will be sold to national enterprisers from June 1 of 2012.
The Finance Minister said a financial matter has been tackled for the construction of auto roads and railways.
Cashmere Price hits the Ground
May 16 (Mongolian Economy) The cashmere trade is thought to be the most known and visible industry in Mongolia. Although beneficial to both sellers and buyers, cashmere production faces the hard reality of price. Price is often hard to estimate and is just as sensitive to market swings as gold, copper or oil.
Herders are uncertain whether the price is likely to sky rocket or fall to the ground. Anticipations, however, are high. Last year cashmere reached its peak price of MNT 50,000, said G. Yondonsambuu, the vice leader of the Mongolian National Cashmere and Wool Association.
"Whether or not we accept it, the cashmere price could fall to MNT 40,000 [a kilogram] or even MNT 36 thousand", he said.
On 24 April the price had fallen to MNT 45,000 for a kilogram of cashmere. Yet, rumours that one kilogram of cashmere would grow to MNT 100,000 linger still. However, such expectations have been put on hold. Thus there have not been many who can sell their cashmere at initial prices.
A sudden drop in price has panicked herders who had hoped to sell their cashmere for MNT 100,000 a kilogram. Yet disappointment for herders is advantageous to producers. For that reason the Cashmere and Wool Association estimated the opening price for this year would be between MNT 56,000 and MNT 58,000. However, the initial price climbed past MNT 70,000, which has caught many by surprise.
The Chinese, who have dominated the Mongolian cashmere market over the past ten years, are to blame, for they have strayed from the association's estimates. Mongolia`s basis for comparison in the global cashmere market is China. That's why Chinese cashmere traders know where in Mongolia they can find the best cashmere.
The Chinese have offered to pay more so they can buy all of the available cashmere on the market. However, Yondonsambuu said that the Chinese have failed to dominate the Mongolian cashmere sector.
Apparently there will not be much strong competition within the Mongolian cashmere trade because the market's major consumer, Europe, has been dealing with its own economic difficulties. Also, cashmere prices tend to experience four-to five-year cycles of up and down swings. It appears that this year has kicked off a period of descent.
In the middle of last year, combed goat cashmere, the market term for processed cashmere material, cost around MNT 130,000 a kilogram compared with prices hovering around MNT 100,000 a kilogram now. Keeping the rates of raw cashmere in mind, the price of cashmere on the global market this year could fall as low as MNT 50,000.
In addition, the Chinese government has stopped supporting loan growth.
Thus, Mongolian companies to collect as much cashmere as they do from the domestic market. Even though Chinese traders come to Mongolia with tonnes of cash, domestic producers have experienced change for the better. Mongolian producers have improved their financial abilities with the bond offering that aimed to support cashmere and wool production as well as small-medium enterprises released by the Ministry of Finance last year.
The media has reported that although Mongolian traders are not likely to declare war with Chinese sellers, their Mongolian competitors have the ability to purchase cashmere from herder campsites at fair prices. According to traders at the Emeelt raw material market, exposure to Mongolia's cold and windy weather during transport is affecting the quality of cashmere. Cashmere is delivered from east to west, meaning that after paying high prices in the eastern provinces and passing through Khuvsgul to the western provinces, traders are likely to get less than they paid for with their damaged goods.
With implementation of the Agricultural Market Law beginning 1 June, the law will bring change to the domestic cashmere and wool trade. The deputy director of Eermel, A. Tumur-Ochir, said that it would require a lot of time to create a market and to establish coperation.
"It's difficult to complete the preparational work needed quickly enough. So direct enforcement would not be easy. It is impossible to implement it this year", said Yondonsambuu. "But next year we start selling on the bourse".
Cashmere and wool dealers have banded together to establish the National Cashmere and Wool Committee in conjunction with the proposed agricultural trade law. Advised by Japan to attempt to conquer the European market, industry associates have cooperated to enter the global market under the shared-name Mongolian Tansag Us (Mongolian for fine Mongolian cashmere).
It seems cashmere producers have finally rid themselves of their complaints of domestic market prices. Cooperation has created new possibilities.
Agreements on Double Taxation Run Afoul
May 16 (Mongolian Economy) Mining is the engine to Mongolia's economy. However, the legal environment is acting as a dead weight creating a jam for the development train .
The double taxation agreement, which is the second-most important contract after an Investment agreement, might have less beneficial results for Mongolia than its partners. A double taxation agreement—a tax claim by two or more jurisdictions on the same income—is is the basic protection to a country's national foreign trade and economic security.
Mongolia has agreed to such contracts within 35 countries. At present, 30 of them are officially valid. Twenty-six double taxation agreements were ratified between 1991 and 1998, with about eight more passed from 1997 to 2007, meaning about three-quarters of all double taxation agreements were legalised before 1999.
At the time Mongolia was not at the centre of attention like it is now. The government was more willing to make concessions then, hoping to attract investment to Mongolia. Mongolia promised a secure environment by creating a flexible taxing environment for foreign investors. There was little economic growth in Mongolia back then.
Mongolia had little experience with economic agreements and did not fully understand the consequences a contract could have. Thus, the authorities signed double taxation agreements with almost any country that applied without reviewing the contract clauses or doing much research. It is a common that developed countries benefit more than developing countries from double taxation agreements.
Three Strikes
Mongolia is like a company seeking great profits. Its owners are hoping for big gains with few losses. But what should he do when a competitor comes in and wants to expunge his company from the market, take all the profits with him? This is the fear that Mongolians have. Obviously Mongolians should respond by protecting their income.
Every country and company seeks profits for their products. Who would want to work without making any gains? But what should be done if big transnational companies want to snatch up the market? What if they want to play a game with their weaker partners, looking for a way to pay the least amount of taxes possible using loopholes in domestic laws, regulations and agreements with other countries?
"We have made rather poor agreements compared to those made by the United Nations, as well as double taxation agreements signed by countries similar to or even more underdeveloped countries than Mongolia, like the Philippines and Ghana", said J. Ganbat, the head of Income Division of the Budget Policy Department at the Ministry of Finance.
Issues derived from double taxation agreements are causing headaches for the Ministry of Finance. It cannot collect taxes from some entities existing within Mongolia due to double taxation regulations. The Mongolian Domestic Income Taxing Law for Enterprisers orders that a non-residential individual or entity must set aside 20 percent of earnings for taxes. However, previous double taxation agreements state that one country (India) is responsible for paying just 15 percent tax, while around 10 others need pay only 10 percent tax. There are also four countries that do not have to pay any taxes at all.
This law also orders 20 percent royalty payments be taken from non-residential tax payers. But those that signed double taxation agreements leave only one country (Russia) left to pay that 20 percent, while 10 other countries pay 10 percent. Even more surprising, the double taxation agreement with Switzerland allows it to avoid paying taxes completely. Mongolia has given too much freedom to its foreign investors.
The amendments made to the Mongolian Domestic Income Taxing Law for Enterprisers, passed on 26 November 2011, has non-residential tax payers responsible for paying 20 percent tax on their Mongolian income. The double taxation agreements signed with Canada, North Korea, India, Italy, Luxembourg, Malaysia and the Netherlands give the Mongolian governments the right to take taxes for money incurred from technical service payments. However, Mongolia can't collect from any other country.
Non-residential tax payers have to pay 20 percent taxes on their income from interest . However, Belgium, France, Luxembourg, the Netherlands and Switzerland are exempt from taxes from interest derived from any banking or financial organization in Mongolia. In addition, countries such as Kuwait and United Arabian Emirates do not pay any kind of tax on interest. The double taxation agreement itself contains lots of fouls and a claim could be filed to World Trade Organisation (WTO).
A recent example is the case of South-Gobi Sands. Changes in laws are being made so Mongolia can have the power to regulate mine transfer and taxing issues. However, Article 13 in the double taxation agreement with Canada, prohibits Mongolia will from collecting any taxes. The article says that Mongolia can take taxes from shared profits both directly and indirectly related to real estate located in Mongolia. It is only enforced, however, on rented estates used for "real estate" purposes. For that reason, Mongolia cannot benefit from taxes from these kinds of assets. Thus, changes to the double taxation agreement with Canada must be made.
Foul
Taking advantage of weakness in the double taxation agreement, foreign companies register their head office in the Netherlands or Luxembourg to avoid taxes. There are statistics revealing that 27 percent of direct investments made from 1999 to 2010 to Mongolia were from companies registered in the Netherlands.
The Mongolian National Foreign Investment Authority states that the Netherlands allowed investments worth USD 232.9 million in 2010. According to Mongolian Natural Resource Authority, 23,502 exploration and exploitation licences have been granted. Of those special licences, 26 percent (6,125) are owned by foreign enterprises. Among these foreign invested companies, the Netherlands possesses 80 licences, while Luxembourg holds four. Mongolia is losing huge sums of tax income to foreign countries.
It would require too much time and effort to correct all these agreements. The Ministry of Finance has sent several petitions requesting changes to Luxembourg and the Netherlands since last year. However, neither replied until the ministry sent a message stating that if they refused to accept the petition Mongolia would cancel the agreement. Shortly afterwards Mongolia's foreign counterparts agreed to negotiate. Even though Mongolia has been trying to make changes and improve the terms of the double taxation agreement, there is still the risk that companies could hold their head offices abroad to avoid paying taxes.
"Even if we could revise and renew the tax laws and regulations, there are still too many flaws in the double taxation agreement", said budget policy head at the Ministry of Finance B. Batjargal. "And these are the main issues to tackle with that create tax exemptions. Non-residential tax payers have to pay a 20 percent tax on dividends, royalties, services and interest. But we are in a position that we can't collect from most of them".
The Ministry of Finance has developed a draft law that would replace the current double taxation law. According to the ministry, all double taxation agreements could be annulled. After some revisions to the domestic tax law, agreements applicable to the reformed double taxation law could be conducted with foreign countries in a diplomatic way.
Batjargal explained if the gap within the law is not filled soon, then Mongolia won't be able to collect on some taxes once the mining industry gains momentum.
The Ministry of Finance and the General Department of Taxation have collaborated on a revision of the Mongolian Domestic Income Taxing Law. It grants that if more than 10 percent of shares of a company with exploration licences is sold, Mongolia could tax the profits from the transaction.
The essence of the double taxation law lies in the fact that the associate must pay tax to the government from where an income comes from. If a Chinese company is making money on Mongolian territory, it has to pay taxes. It is crucial to fix the problem now, when mining is booming and transnational companies are operating in Mongolia.
The Getaway
When introducing the 2012 budget to Parliament in October last year, Prime Minister S. Batbold said that if the double taxation law was found to be detrimental to national security then it must be revised and changed.
Depending on the effect it has on the nation, annulments can be made. Parliament may cancel double taxation agreements beginning at the second quarter of this year. All double taxation agreements are planned for cancellation by 2013. Those affected will be notified before 30 June.
There are examples from abroad of annulling such agreements when impacting on revenue earned. For example, on 30 June 2008 Argentina annulled its double taxation agreement with Austria because the former was not receiving any tax revenue. Both countries' investors were displeased with the decision. On 29 June 1987, America also cancelled its agreement with the Netherlands. The end agreement was a great win for America because a third party could not abuse the agreement.
Although nations have been negotiating for resolutions to problems with amendments to laws for about eight years, Dutch authorities have refused to change their country's status as a paradise for tax collection.
Mongolia's Challenges Need Careful Consideration
May 16 (UB Post by Paul Sullivan, Georgetown University) Mongolia has a potentially great future ahead of it. I am sure you have all heard that before. During a series of meetings I was a part of in Ulan Bator lately I did a quick series of calculations in my head. Mongolia could have well over $3 trillion in the ground in coal, gold, copper, uranium, natural gas, oil, molybdenum, and more. This is a massive treasure chest for the people of Mongolia. I stress the people of Mongolia, because Mongolia is their country.
Mongolia seems to be not ready for the economic, social, political and other shocks that may be in the way if this is not done properly. Sometimes the bigger curse is finding too much wealth too quickly, rather than working for it and building a foundation and base for using it properly over a proper amount of time.
Mongolia is made up of mostly poor people who have little in their lives relative to what may be coming their way. A poor child in a ger above Ulaanbaatar likely does not even imagine the wealth that could be on her country's way. That same poor girl breathes horrifically unhealthy air both inside and outside of the ger in the wintertime as the coal burning warms her family. She likely had to move to the city after the Dzud decimated her family's livestock or for some other shocking reasons. She likely has minimal education and may not have much of a clue about her rights to the wealth of her country. She may also have little idea of how to use that wealth properly without some good and honest advice from those who may have seen this all before in other places. A large part of the future of Mongolia will be found in the little girls and boys who live in the gers. If they do not see this developing correctly or if there is a lot of waste and corruption, when they are older there could be trouble in the newly wealthy, but unequal Mongolia.
For Mongolia to be peaceful and prosperous a lot of institutions, ideas, leadership methods, and more need to fall into place properly.
One of the most important is a rule of law that works for the development of at the very least the majority, and at best, all of the people of Mongolia. I do not mean just a set of mining and investment laws. By this, I mean a full, comprehensive system of laws that protect the weak from the strong and the honest from the dishonest – as well as the country from avaricious outsiders who may want to exploit Mongolia without giving back. There are many examples of proper rule of law to protect the development of Mongolia from some of the worst things that could happen. There needs to be lots of thought and effort, and research put into this. Some Mongolian leaders are already in the process of looking into this. They see the problems.
Some of these leaders also see the potential problems from "Dutch Disease" that could hamper the future peace and prosperity of the country. They are looking into options to put some of the new wealth aside for future development funds, sort of a sovereign wealth fund for Mongolia. Some are also looking into ways to make sure the Mongolian currency does not appreciate too much as the wealth and investments flow in. This last one will not be easy because the Mongolian economy is not a large one at the moment and the capital inflows and incomes expected could overwhelm many of its institutions, especially its governance institutions, banks, and even its infrastructure.
There needs to be a strong focus on keeping corruption at bay. With trillions on the way, the beast of corruption is surely not distant from the situation. The financial system of the country could destabilize if too much flows in at too rapid a pace and without proper controls. The development of stock markets, hedge funds, investment houses and more need to be carefully and thoughtfully considered toward the whole development of the country and its people. The specter of potential vast inequality lurks. In addition, this would not be good for the country in the long run.
I am not recommending state control of the financial system. First off, that is far from my right, I am not a Mongolian. What I am recommending as an economist and developing countries expert of many decades is that there be proper regulations and controls put in place before financial crises hit, not after. This will not be easy, but few important things are easy. A wild west, free-market development of Mongolia may just develop into the sort of free-for-all that could bring instability in the future. Investors, both expatriate and Mongolian should be given the chances to make profits from their efforts and risk taking, but not without some stewardship of the wealth and the environment of the country being done properly. Bottom line: a free market is good if it has proper controls to protect that economy and its people from fraud, misappropriation, corruption and unbridled greed. The financial crises of the US and the EU were in part due to weaknesses in regulations and oversight, so even we have a long way to go to get this right.
Hence, all countries need a rule of law and regulations, but not a rule of law and regulations that smother wealth and development, but allow them to develop in a proper way.
That proper way really should best be decided by the best leaders of the country with some say from the people. Mongolia is a democracy after all. That democracy is rare in its region and it should be cherished and protected by its people. Massive inflows of wealth and income could distort that democracy.
The most important aspect of development of a country like Mongolia is the human development of its people. For stability and prosperity to continue after the first shocks of wealth have happened, the people have to be ready to take on the role of developing beyond mineral wealth. This would require vast increases in technical, engineering, business, and other education programs in the country. It would include having training for Mongolians of all backgrounds in how to start and run businesses. Even more important would be for Mongolians to get enough education and training to develop their own technologies and inventions – and their own technology and invention systems. Mongolia with all of its wealth should become an ideas creator in the long run, not just an idea borrower. Invention networks will be the key to very long-term prosperity, not just counting the money and buying machines and ideas from others.
Mongolia needs to develop value added to its natural resources, not just dig them out of the ground. Many industries could develop out of copper, gold, coal, and the like.
Please excuse this non-Mongolian for caring about the future of your country. I see a lot of hope, but lots of potential problems ahead. Possibly, my column in this newspaper and the comments from the readers and others on them may help the country understand its future possibilities better. It may also help me understand Mongolia and the Mongolians better as well. Maybe we could all be a bit better off from it. I hope so.
Training makes for better mining
May 16 (Central Queensland News) A DELEGATION from a Mongolian mine training centre will tour Xstrata's Rolleston mine as part of a fact-finding mission on how Queensland trains its mining industry workers.
The visit by the 12-member contingent follows the signing of an agreement between the Institute and Millennium Challenge Account Mongolia to assist the Gobisumber Vocational Training Centre in mining training.
The international representatives are in Queensland for a whirlwind tour of the state's world-class training centres and mining operations, and will also visit the Blackwater International Coal Centre on Saturday, May 26, as part of a two-week tour taking in Mackay, Rockhampton, the Capricorn Coast and Central Western Queensland.
Officials will see the Rolleston mine on Wednesday, May 23, when they are in Emerald for three days.
"As a leader in the education and training of mining personnel, Queensland is a great place for international educators to visit and learn from," Central Queensland TAFE's Kim Harrington said.
"We are helping them achieve international standards in the delivery of vocational education and training so they can train local residents for a range of mining projects.
"As part of the contract, we've sent a number of teachers to Mongolia to work directly with the training centre.
"By visiting us in Australia, their training staff can experience first-hand how we're delivering top-quality education and a range of training for the mining industry."
How US money is replacing textbooks in the Countryside
May 16 (UB Post) The student was gripped by the 42 inch plasma screen, headphones glued to his ears and seemingly lost in the virtual reality he was operating in. Except this was no games arcade, this was a classroom in a school on the edge of a small town called Choyr, in Govisumber Province, around 230km south of Ulaanbaatar.
This school, a 'Mining Centre of Excellence,' like the two other schools I visited has received a chunk of the $286million 'Compact' total donation given to Mongolia from the USA as aid through the Millennium Challenge Corporation funding agency that helps developing countries. The equipment for such centres is inspected and installed by the, Millennium Challenge Account TVET Project. I went with the IT and Instructional Media Specialist to witness exactly how vast sums of money are being put to use to advance education and training, within the last year, in some of the areas that have been key to Mongolia's resource boom.
Despite only having a handful of classroom space at their disposal and having to take shifts in how many students can fit in the classrooms at a time, the equipment this school now has in place is enough to make an English private school's ICT room look inadequate. One room is now filled with nine of these simulators, each costing between $30-40 thousand. The students are able to hone their mining skills with brand new CAT Mining Simulators that look like they're designed for a professional XBOX or Playstation tournament. In another room, there sits another set of simulators of except one is slightly more advanced, more realistic. It produces the very same vibrations, sounds and movements as students will encounter once on site in the real mine. Its 41 inch plasma screen and its 31 inch rear view screen. This is the 'Track Type Tractor Simulator System' that costs over $60,000 and allows for training exercises that can measure and record a student's sessions so that teachers can monitor progress. All donated by the US.
Students are sent, once they graduate, to the nearby Coal Mine to operate the vast cranes, trucks and drills that help excavate and collect 2 million cubic metric tons of Coal each year. This mine comprises of three parts, one of which is currently being utilised whilst the other two reserves remain untouched. Without any further expansion to the current site, the mine's coal production could continue for another 300 years. And as the demand expands on this site for a larger workforce, the current flow of students from this particular centre to the mine is steadily increasing.
Students equally get the opportunity to spend a year of work experience in an apprenticeship as an assistant to machine operators. I asked The Head Engineer at the mine how the mine and the centre of excellence's relationship works.
He told The UB Post: "The students, before graduating, they have sufficient experience here with specific areas of operating whilst on their year's job training. So this means they then have enough adequate understanding and experience to work at the mine fully once they graduate. Many graduates from the school are working here professionally already. The crane (pictured) takes four people to operate it, one operator with three assistants. They train the main operators in the school and assistants also graduates from the school. The coal here goes directly to the power plants in Ulaanbaatar, it is not currently exported. The plan is to expand the mining capacity in this mine to 4.5 million tons per year by 2020, there is already plan of building the fifth power plant in the city and so they will manage 70% of the usage of the coal. So the larger workforce is needed".
This is clearly an advanced method of unprecedented interactive learning. But the problem these schools currently face is whether or not the teachers themselves can use such new, hi-tech and unique equipment along with the software in an effective teaching environment. Without sufficient knowledge of how to use the new equipment as teaching tools, the donations would be wasted. That is why this summer $4.3million is being spent across all the schools that have received new equipment on teacher training. Teachers are paid around $300 a month and that figure is the same even in UB. Whilst the Government offers a mere $50,000 on centre renovations a year which is why the renovation and installments being put in place by charitable donations is giving the teachers and assistants positive visions for the future.
Millennium Challenge Corporation is not the only donor seeking improvements to the mining centre of excellence. Beside the current school building is a reasonably large construction site that is building an extension to the centre. That other donor is OT. A Technology College in the far eastern town of Choibalsan in Dornod Province is equally receiving donations from various companies. The classrooms display plaques above their door of donors such as ADB, MAK, KOICA and OT. It's almost their fighting for wall space. MAK installed the very same CAT simulators that are in Choyr, two have been installed (only the day before I arrived).
The Choisbalsan Technology has received an armoury of new and expensive learning materials. Graduates from this technology college will go straight to the Oil Rigs and Mines in Dornod. Students are coming from as far as Darkhan to train to be technicians in this Oil rich province. So far there are two companies that are receiving graduates from Choibalsan, one is Chinese and the other Canadian. Currently out of 1100 students but the training is divided into a year diploma and a two and half year diploma for the 16 year olds. From those, there are eighteen different degrees but the oil rig technicians will take a year's apprenticeship to graduate with immediate employment at the end of their studying. The current figure of graduation is 60%. Vets and Accountants do one year at this college and then study for their Bachelor's Degree here in UB.
Another school I visited, 280 km from UB, in the small town of Mandalgov, Dundgov Province, has been donated $1million from Millennium Challenge Account TVET Project with the installation of hi-tech equipment. This centre is largely focusing on the training of automotive construction, electrician, plumbing and bricklaying. Conference room, video and audio studio, and multimedia equipment will be given to all 3 schools. The conference room is designed to promote efficiency in networking and collaboration between the schools, video and audio and multimedia equipment is there to develop multimedia instructional contents for students and schools can use the multimedia lab to teach high end computer aided design lessons. It's now in the process of constructing a new conference room capable of holding online video conferences.. There is a large computer room beginning construction and two smaller rooms being readied for sound recording. A new school project planned next door to the current school is costing $4.5 million from the Education Ministry. This will include a large cafeteria, Football pitch and event spaces.
Mongolian way of life threatened by dramatic climate change
May 16 (PRI) The average annual temperature has risen more in Mongolia than any other place on earth almost, about 4 degrees. The rain patterns have changed. In fact, some 60 to 70 percent of the country is at risk of desertification. If that happens, the country's nomadic herders will have to give up their herds and their traditional way of life.
(Audio Report)
Mongolia's nomadic herders make up roughly half the country's population, but their traditional lifestyle is seriously threatened by climate change.
In a broad green valley near Mongolia's border with Siberia, two Mongolian girls tend shaggy yaks while their parents invite guests into their nearby ger—a traditional round felt tent.
Inside, the hosts offer tea in tiny cups, heavily salted and made with yak milk, boiled over a crackling fire. Next come chips of dried yak cheese.
Watch a video of the Festival of Games in Mongolia at TheWorld.org.
The couple, Hurelchuluun and Bayambaa, are nomadic herders. As is common here, they rarely use a last name. They've tended livestock in this part of Mongolia for about 20 years. Their guests are Clyde Goulden, a scientist from Drexel University in Philadelphia, and his Mongolian wife, Tuya.
Goulden has worked in Mongolia for about two decades, and for the last few years he's been interviewing local herders. The meetings always follow the same basic pattern — first comes the tea, then the cheese, then pleasantries, then the questions. From his methods, you might think he's an anthropologist. But he's actually an ecologist.
He'd been studying Mongolian forests and grasslands when he noticed that his research site had warmed up dramatically. He soon learned that since the 1940s, Mongolia as a whole has warmed more than almost anywhere else on Earth—about 4 degrees Fahrenheit. Goulden wanted to know what this meant for the region's nomads. So he began interviewing them.
As always, today's visit continues with standardized questions, like "have the seasons changed?
Hurelchuluun and Bayambaa tell him that the weather has gotten much worse in recent years, especially with unusual sudden cold and hot spells.
"Sudden cold is causing the biggest problem," Bayambaa said. "Extreme weather … is causing the death of animals."
The couple also complains of changing rainfall patterns. Goulden says he hears this often — that instead of gentle, light rains that might last for two or three days, the region these days mostly gets short downpours. He says locals call these "rains that don't wet." Instead, the water runs off into creeks, leaving behind dry soil and poor grass.
The herders say this is a huge problem.
"If the grass is not growing well," Hurelchuluun said, "then what the animals will eat? If the animals die, what's the future for us?"
It's a common lament, Goulden said. He says herders also complain it's gotten harder to predict the weather. They used to be able to forecast and prepare for conditions by watching things like how smoke moved away from stoves pipes, what field mice stored away in autumn, or whether ibex moved to summits or valleys in winter.
But Goulden says these omens don't work anymore.
"The weather has become much more unpredictable, so it's much more difficult for them to anticipate what the next winter might be," he said.
Despite the dismal news, today's interview, as usual, ends on a festive note. The family invites the Americans to dinner, and offers them a local delicacy: stuffed yak intestine. Hurelchuluun breaks out his accordion, and his best vodka. They toast to friendship and long life, and sing into the night.
(Audio Recording)
Goulden has had scores of such encounters. In a country with inadequate weather records and poor official information on the health of its crucial grasslands, herders have turned out to be a remarkable repository of information, about both regional climate change and how ecosystems are responding. He said they've noticed problems scientists had not predicted.
The interviews also illuminate the human side of the dramatic changes global warming is bringing to Mongolia.
"Almost every Mongolian can feel the impact of climate change in their daily lives," said Erdenechuluun Zorigt, the environment adviser to Mongolia's president.
Zorigt goes so far as to say that climate change threatens Mongolia's future. Its potential impact on the ecology, economy and culture is that worrisome.
Such fears are shared by many Mongolian leaders. Nyamaa Enkhbold, vice chairman of the country's Parliament, says that's because climate-related changes are happening in Mongolia "perhaps more rapidly than any other place in the world."
Among other things, Enkhbold says that 60 to 70 percent of Mongolian territory is already under threat of desertification. That's bad news for the roughly half of the country's people who still need healthy pastures to raise livestock. Enkbold says desertification could eventually wipe out Mongolia's ancient nomadic lifestyle. Herders would have to flee the countryside, leaving behind their traditions and livelihood.
It's already happening in Ulaanbaator, Mongolia's only large city. The population is swelling with former nomads, whose white tents carpet hillsides around the capital. They leave herding for many reasons in this rapidly changing country, but changing weather patterns is a common theme.
It's unlikely that this human flood will end. But ecologist Clyde Goulden hopes his research might help at least some herders find ways to adapt to their new conditions, and preserve their ancient nomadic traditions.
London 2012 Olympics: Mongolia's fight for new heroes
May 15 (BBC News) Mongolia, a country once steeped in ancient traditions, is changing beyond recognition.
The country of Genghis Khan where nomads and wild horses roam free beneath brilliant blue skies is in danger of becoming a thing of the past.
An unprecedented economic boom is bringing about far-reaching social change.
Soon, over a third of Mongolia's population will have left the countryside to live in the capital city of Ulan Bator.
Few aspects of life here are untouched by the relentless drive to modernise - and that includes the nation's sport.
Badar Uugan Enkhbatyn is one of the most famous people in Mongolia. Dressed in a designer tracksuit, with his baseball cap pulled down low, he carries himself with the air of an MTV popstar.
His fame, however, owes nothing to music and everything to boxing - a relatively new sport here. In 2008 he won Olympic gold - one of two Mongolia earned in Beijing, 44 years after it first competed in the Games.
Badar Uugan is more than just an athlete here. Twenty-one years after the end of communist rule, he embodies what modern Mongolia hopes to be - strong, independent and making a mark on the international stage.
I meet him in the industrial city of Erdenet, where he has taken a break from training to attend the traditional sports festival of Nadaam.
Naadam and the three 'manly games'
These gatherings bring the country to a standstill. The games are over 800 years old and were originally developed to test military skill. They involve three so-called 'manly games' - archery, horse racing and wrestling.
The latter two events are by far the most popular - there is a belief here that touching the sweat of a competition-winner will bring spectators good luck.
The horse races take place across the expanse of the steppes and begin shortly after sunrise. After a four-hour ride out, around 60 riders arrange themselves on the starting line. All are young - the youngest is aged around seven - all are are paid and most come from nomadic families.
Then with almost no warning, in a swirl of red, dry dirt they set off.
The sound of cracking whips, thudding hooves and guttural screams accompany the race back - which is ridden at breakneck speeds across a spectacular terrain.
An hour later, the winners are met at the finish by crowds at least five people deep, cheering loudly and in festive mood.
It is, however, at the wrestling arena that Badar Uugan and I finally meet. Here the best wrestlers in the region fight it out until one of them prevails.
Bouts are not timed. They continue indefinitely until one of the competitors touches the ground with their upper body, knee or elbow.
Each sportsman will have a sort of personal cheer-leading poet - a man, immaculately dressed in a bright silk gown and hat, who improvises verse that celebrates the merits of his fighter.
Until recently, this festival was Mongolia's sole source of sporting legends.
New heroes
But times have changed and Badar Uugan's presence inevitably causes a stir. As we talk, fans rush to talk to, gawp at or demand a vigorous handshake from their Olympic hero. So how does he handle the fame?
"At the beginning it was difficult," he tells me. "Mongolians can get very excited. On the streets people would suddenly appear, jump on me and hug me!"
Badar Uugan remains empathetic though; "You have come here during the Naadam and you have probably seen the three manly sports but the Olympics is a bit different.
"After four decades of expectation, Mongolia finally got a gold medal. When you get something for the first time, it's special, so I'm proud of myself too."
The impact he has had by succeeding in the relatively modern sport of boxing has not eluded him either.
"After the Games people became more interested in a range of sports. They started to realise it's possible to win a gold in the Olympics. It's down to you, you are the one who can achieve success."
Yet, choosing boxing at all was a simple twist of fate. Badar Uugan grew up in the sprawling, shanty suburbs that now surround Mongolia's capital. His family struggled to make ends meet and as a child, he fell into bad company.
"I was a naughty kid. I would say I was 150% bad!" Badar Uugan says with a laugh.
It was Badar Uugan's repeated scrapes that alerted his grandfather to the fact that the boy was a gifted wrestler and lessons soon began at home - but it was the street-smart, edgier sport of boxing that grabbed his attention.
"It was my uncle who suggested boxing," he recalls. "He said if you're out on the streets beating other kids up, then why not become a boxer so that you can beat people up legitimately."
Olympic dreams
Since then, Badar Uugan's influence has spread far and wide. A two-hour drive away from the electricity pylons and mine-scarred hillsides of Erdenet, is one of Mongolia's two small Olympic training camps.
It has become a revolving door for Olympic hopefuls, keen to repeat Badar Uugan's success across a variety of sports - including basketball, shooting and long-distance running.
Taivankhuu Khurelbaatar, a judo coach, warns me not to underestimate the boxer's influence: "There was a special effect on young people when Badar won gold. They got a huge belief that in becoming an athlete you can promote Mongolia and be proud to be Mongolian."
It is this added desire to represent their fledgling democracy on the world stage, that has become a crucial driving force here.
Wedged between two giant neighbours, China and Russia, Mongolia has struggled to have its voice heard but the discovery of huge mineral wealth has brought international investors knocking and the speed of economic and social change is breathtaking.
One estimate suggests Mongolia's economy grew by a staggering 9.8 per cent this year.
The result is that the over 1m people have now poured into the capital. A high proportion of new arrivals live well below the official poverty line but migrants continue to come looking for jobs, education and opportunity.
Meanwhile, the city centre feels increasingly like one big construction site. Glamorous glass and steel buildings are rapidly rising to house international businesses, hotels and even a designer shopping mall for Mongolia's oligarchs and their wives.
Even the odd monk can be spotted stocking up on 'must have' labels.
This aspect of city life is well out of the reach of most Mongolians but there is a palpable and shared desire to modernise almost every aspect of life.
As coach Khurelbaatar says: "By succeeding in the Olympic Games we are demonstrating to the world the success of Mongolia in our development, our culture and economics.
"Although the Olympics take place during peacetime, the Games are a bit like war… it's all about competing against other countries."
As a result, Badar's 2008 gold medal has taken on a significance well beyond a simple sporting challenge - it has shown Mongolians across this nation that they can take on the world and win.
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"Mogi" Munkhdul Badral
Senior Client Manager / Executive Director
CPS International LLC
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