BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmmongolia.org

Email: info@bcmmongolia.org Issue 36, September 5, 2008

NEWS HIGHLIGHTS:

Business: Eurasia hedge fund bets on Mongolia; Water supply, drainage charges go up; Rio Tinto

earnings up 113% over last year; Private hospitals under the scanner; Ivanhoe makes ecological survey; Mon Fresh to sell shares to public; German President visits with strong trade team; Seminar on environmental protection in open pit mining (Click to go to Business section)

Economy: Harvest estimates raise hopes of self-sufficiency in food; Labor plans nationwide

protests; 75 of 700 enterprises to be privatized; $4.6 million more in US grant to help policy liberalization; Same punch, another arena; New power plant to be built; With coal and firewood so expensive, how will the ger districts cope? (Click to go to Economy

section)

Politics: Bayar to be PM again, favors DP in government; “We have to work hard to get back our

honor,” says Bayar; Leaders pledge to work together; Speaker elected by 63-3 votes; DP

chooses new chairman; Mongolia neutral on Georgia; IMF to close Ulaanbaatar office

after March (Click to go to Politics section)

___________________________________________________________________________________________________________

RECAP OF BCM MEETING WITH THE MINISTER FOR TRADE AND INDUSTRY

Pressing political commitments did not permit Prime Minister S. Bayar to attend his scheduled meeting with BCM members at Government House on September 1. His place was taken by Kh. Narankhuu, Minister for Trade and Industry. He began by giving an overview of the current economic situation in Mongolia, mentioning that trade deficit had grown along with the volume of foreign trade, and that runaway inflation rates were the major concern.

Questions had been submitted to Mr. Bayar and Mr. Narankhuu answered these. He expressed the inadvisability of making any specific commitments about policies and programs before a new Government took over, at most in two weeks‟ time. New members of Parliament will also most likely have fresh ideas to offer about the proposed amendments to the Mining Law, and these have to be considered carefully. However, the Minister assured the assembly – with 94 attendees, this was the most well-attended BCM meeting to date -- that “a practical and business-like approach” would be taken as “we don‟t have much time and the disputes cannot be prolonged”.

Thanking foreign investors for their contribution to Mongolia‟s economic growth, Mr. Narankhuu made it clear that serious investors, particularly those in mining, who were committed to developing the sector while observing the laws of the land, would face no problems in the coming days, as the Government was determined to “improve the business environment”. It would however prefer the emphasis to shift from simple extraction of ores to processing of mineral products.

For a fuller report on the afternoon‟s proceedings, please visit the BCM website, Showcases.

_______________________________________________________________________________________________

BUSINESS

EURASIA HEDGE FUND BETS ON MONGOLIA

Eurasia Capital Management plans to increase the world's first Mongolia-focused fund fivefold to $100 million to tap economic growth fueled by the nation's mining industry. Eurasia's hedge funds, which have about $200 million of investments across Central Asia, also expect to sell shares on London's Alternative Investment Market or Deutsche Boerse AG by next June, said Alisher Djumanov, managing partner of the Singapore-based firm. Proceeds would be used to start private-equity and

property funds, and expand in Central Asia. Mining in Mongolia will spur “double-digit” economic growth rates over the next 10 years as commodity prices remain high, Djumanov said in an interview. Mining accounted for about two-thirds of Mongolia's exports last year, and foreign direct investment in the country rose more than 33 percent. “The spillover effect from the mining sector will be significant,” Djumanov said. “We're investing in companies that are expected to grow significantly on the back of this strong economic growth.”

Eurasia's Mongolia Discovery Fund rose 12 percent this year, compared with the 16 percent drop in the MSCI World Index. The fund invests in coal mines, water utilities as well as oil and gas companies. Eurasia Capital is not alone in seeking ventures in Mongolia. Almost 70 percent of investments there came from China, according to the Asian Development Bank. Frontier Investment & Development Partners, manager of a private-equity fund, plans to raise $100 million next year to invest in mining, infrastructure, real-estate and tourism projects in Mongolia, said Marvin Yeo, Frontier's Phnom Penh-based co-founder.

Source: www.bloomberg.com

WATER SUPPLY, DRAINAGE CHARGES GO UP

Business and manufacturing units and organizations will start paying more for clean water supply and drainage of waste water from September 1. This follows an increase in electricity, heating and hot water supply charges from July 15. Charges for clean water supply have been raised to MNT 610 per cubic meter for offices, and by MNT 1,105 for factories. The respective drainage charges will be MNT 380 and MNT 2,200.

Source: Onoodor

RIO TINTO EARNINGS UP 113% OVER LAST YEAR

Rio Tinto Limited posted net earnings of US$6.9 billion for the first half of 2008, up 113% over the same period last year. Much of the success was attributed to record breaking production of commodities including iron ore and aluminum.

Tom Albanese, chief executive, said, "There is no question that we are living in an era of unprecedented demand for minerals and metals, and we believe rapid demand growth and supply side challenges will be maintained." Expressing his continued optimism about Oyu Tolgoi, which may be the world‟s largest gold and copper mine, still awaiting government approval to be mined, Albanese said, "We are making progress with negotiations with the new government in Mongolia to develop the deposit."

Source: www.mongolia-web.com

PRIVATE HOSPITALS UNDER THE SCANNER

The privatization of the health sector has proceeded rapidly in recent years, and there are now 1,470 private hospitals and medical clinics in the country. People go to these as they usually have many good and well-qualified doctors, as also modern equipment and facilities. However they are also more expensive than State-funded places, and at times they do not function effectively. A nationwide program began on September 1 to verify the facilities offered at private hospitals for various types of medical care. Centers that were not approved after earlier inspections but have not taken steps to improve their functioning will be deregistered.

Source: www.news.mn

IVANHOE MAKES ECOLOGICAL SURVEY

Foreign and domestic journalists recently visiting the Oyu Tolgoi project site learnt from Kit Marshall, Executive Director of Ivanhoe Mines Mongolia Inc., how the company had undertaken a survey to determine the current ecological and environmental status, and water quality of the region. The company sends an annual environmental report to Ministry of Environment. When mining operations start, large scale flora restoration and afforestation programs will be implemented. For this, the company has started collecting and preserving seeds.

Source: Onoodor

MONFRESH TO SELL SHARES TO PUBLIC

National beverage producer Mon Fresh will make its first public issue of stock on September 17. Brokerage firms registered with the Mongolian Stock Exchange have started receiving orders for 45 million ordinary shares valued at MNT 4.5 billion. Mon Fresh was established 10 years ago and was the first company in Mongolia to use the tetrapack technology.

Source: Onoodor

GERMAN PRESIDENT VISITS WITH STRONG TRADE TEAM

German President Horst Koehler is visiting Mongolia from September 4 to 6 at the invitation of President N.Enkhbayar. He is accompanied by the German Minister of Economics and Technology, Michael Glos, and by leaders of large companies, mostly in the mining sector. They meet Industry and Trade Minister Kh.Narankhuu on September 5. Germany has been consistently assisting in Mongolia's political and economic reforms and is a major donor to aid projects. Trade and investments promotion that has marked bilateral relations is likely to receive a boost with the present visit. Source: www.mongolia-web.com, Montsame

SEMINAR ON ENVIRONMENTAL PROTECTION IN OPEN PIT MINING

Altogether 60 participants from mining companies, ministries, and other government organizations are attending a seminar on “Environmental protection methods in open pit mining” at the Nukht resort complex. The State Professional Inspection Agency, the Ministry of Environment, and the Mineral Resources and Petroleum Authority are organizing the seminar jointly with the German Geology and Minerals Resource Institute. The seminar is expected to contribute to improved efficiency in environment restoration after mining operations.

Source: www.gogo.mn

ECONOMY

HARVEST ESTIMATES RAISE HOPES OF SELF-SUFFICIENCY IN FOOD

Mongolia‟s need to import food is a major contributor to both its trade deficit and inflation. Things may now be looking up, with Harvest-III, the program taken up last year to develop the agricultural sector, raising hopes that domestic production would be enough to meet the country‟s needs in everything but wheat. Actually, there would be a 4 percent surplus in potato and 48.5 percent in vegetables. In wheat also, taken together with imports already contracted from Russia, China and Japan, domestic production will meet 85 percent of the total national demand. Altogether 190,200 acres of land are being farmed this year to grow cereals, potato, vegetables, oil seeds, and fodder for livestock. The anticipated increase over the 2007 harvest is 86,000 tons in non-wheat cereals, 87,500 tons in wheat, 30,000 tons in potatoes, and 2,500 tons in vegetables.

Source: Ardiin Irkh

LABOR PLANS NATIONWIDE PROTESTS

The National Association of Labor Unions, demanding wage increases to counter rising prices, has announced plans for nationwide peaceful protests. All 21 provinces will see demonstrations on September 8, and things will move to the capital on September 11, when a large rally at Sukhbaatar Square is planned.

Asked at a press conference on Wednesday if increasing wages would not worsen the inflation, S.Ganbaatar, head of the Association, said “That is a kind of disinformation, taking advantage of the average citizens‟ little knowledge of economics. We are not asking for extra cash to enter the economy. We are suggesting an increase in wages to be met from savings obtained by reducing state budget expenses, and by an equitable distribution of the wealth that is already there.”

Source: Odriin sonin, Ardiin Irkh

75 OF 700 ENTERPRISES TO BE PRIVATIZED

Mongolia has been privatizing its industrial and business units but even so there are 700 state-owned enterprises operating in the country. MIAT and Mongoliin Tsahilgaan Holboo companies are the largest among them. There are plans to privatize 75 enterprises in the near future.

Source: Zuunii shuudan

$4.6 MILLION MORE IN US GRANT TO HELP POLICY LIBERALIZATION

Under an agreement signed last week, the USA will give a further US$4.6 million as non-returnable aid to Mongolia, bringing the total financing provided under the bi-lateral agreement on economic growth to US$182.4 million. The additional funds are intended to support Mongolian efforts to accelerate and deepen the policy liberalization process. Specifically, USAID will help in developing and implementing a transparent, market-oriented energy regulatory environment to promote efficient delivery of energy services; improving commercial practices, and making the environment for domestic and foreign private investment more attractive; developing policies for foreign trade facilitation and transit; and strengthening and improving financial intermediation. It will also help the Government of Mongolia build a consensus on issues of national significance, through public education and national dialogue.

Source: US Embassy Press Release

SAME PUNCH, ANOTHER ARENA

In a letter to President N. Enkhbayar congratulating him on Mongolia‟s success at the Olympic Games, Arshad Sayed, World Bank Country Manager and Resident Representative in Ulaanbaatar, has expressed the hope that “in the same fashion as the judo thrusts of Tuvshinbayar and the punches of Badar-Uugan, you will now take on the economic challenges and have similar success!”

Source: The media service of the President of Mongolia, and Olloo.mn

NEW POWER PLANT TO BE BUILT

A fifth power station to provide for the energy demands of Ulaanbaatar is planned to be built in Uliastai to the east of the capital. The tender has been issued and will be open until October 11. The successful bidder will have to pay for everything during construction and will be reimbursed only when the 300-mw plant becomes fully operational.

The money will come from foreign loans. The design will have to incorporate advanced international technology so that the plant is environment friendly and does not contribute to the air pollution in Ulaanbaatar.

Source: Zuunii shuudan, Ardiin Irkh

WITH COAL AND FIREWOOD SO EXPENSIVE, HOW WILL THE GER DISTRICTS COPE?

With the price of both coal and firewood high enough to elude a poor man‟s reach it is clear that not many ger district residents are, or will be, spending warm nights this year. Not so long ago, the bazaars were full of trucks loaded with coal, with traders yelling “Cheap coal!” or “Free transportation!” These days coal is mostly sold by the bag. A bag is usually Tg 1,650, but the five kilos of coal it holds is enough for one night only in a four-wall ger. Traders blame the drop in supply on the Government‟s decision to discourage mining by hand. Ninjas are now lucky if they can scrape together 10 tons of coal in a day, working long hours in groups. This time of the year also increases the risk of mine walls collapsing. So coal becomes scarce and the price rises.

Firewood price too has surged. It costs even more than coal. A rough estimate says at present prices, a family in the ger districts will have to pay more than Tg 900,000 to be warm this winter. If the house was specially built to keep out the cold, this may come down to about Tg 450,000.

Source: www.news.mn

POLITICS

BAYAR TO BE PM AGAIN, FAVORS DP IN GOVERNMENT

The MPRP plenum on Wednesday chose incumbent S.Bayar to continue as Prime Minister, after deciding to support his proposal to include the Democratic Party in the next Government. His choice was without a contest and his idea of a joint Government was favored by 213 of the members present, with only 15 against.

Earlier, reporting on the current political situation, Bayar said that the MPRP had an absolute majority in Parliament and needed no support to form a government but he would still favor some DP representation as the need of the hour was for a national consensus. N.Altankhuyag, who was elected leader of the Democratic Party on Saturday, also favors joining an MPRP-led Government as it would be more effective in tackling national problems and would be able to take quicker decisions.

Source: en.News.mn

‘WE HAVE TO WORK HARD TO GET BACK OUR HONOR’ SAYS BAYAR

The MPRP plenum that yesterday nominated S.Bayar to continue as Prime Minister began with Bayar, in his capacity as the party chairman, presenting a report on recent events. On the July 1 incidents, he said these raised some fundamental questions that were not easy to answer. Some politicians were keen on misrepresenting the real situation to serve their own interests and to mislead society. The media had to be controlled, he said, as they had lent themselves to be used for partisan politician ends.

He said the events of a few days had destroyed the good name Mongolia had earned after 18 years of peaceful democracy. “We have to work hard to get back our honor,” he said, adding that the international community was carefully watching how Mongolia proceeded.

On the current economic situation, he said the growth in the last three years was the result of revenues from mining going up when international commodity prices were high. “Too much of politics did not allow us to fully utilize the economic opportunities made available to us.”

He said the country stood at a historical crossroads, and Mongolians needed to show maturity and a sense of responsibility to make sure the country made the right choice of way. “We have to decide whether we will develop or not. We have to adopt a foreign policy that furthers our national interests. Our attitude towards the development of mining has to be pragmatic. Big countries and rich investors are interested in our mines but our failure to make up our mind meant that in the last four years no large-scale new mining exploration was begun, nor did any big factory come up.”

Source: en.News.mn

LEADERS PLEDGE TO WORK TOGETHER

An informal meeting on Monday between MPRP and DP leaders saw the chairmen of both parties pledge themselves to work in tandem to solve the major problems facing the country. The MPRP leader, Prime Minister S.Bayar, told N.Altankhuyag, the newly elected Head of the Democratic Party, that the two parties should work together to solve the many problems in the economic, social and political sectors. Altankhuyag welcomed the ruling party‟s offer of cooperation but was clear that “this must be realistic”. He revealed that he placed so much value on joint work that he had included this in his program when he stood for the DP leadership. The Prime Minister hoped the DP, under a new leadership, would be more amenable to working jointly for the national good. He reminded Altankhuyag of the urgent need to resume full scale activity in the mining sector, and to determine the most beneficial way to let the money from the mining resources flow into the state coffers to be used for the welfare of Mongolians.

The new DP leader agreed cooperation was imperative at a time when economic problems transcended partisan politics. He pointed out that Parliament could work best only when it worked with all 76 MPs. He assured Bayar that he preferred conversation to confrontation. “We are all Mongolians and have common interests. It‟s possible to achieve goals if the issues in governance are shared. Running a country is not only a matter of appointing Ministers or allocating portfolios. We

must never forget that our main responsibility is to make citizens‟ lives better. The DP is looking forward to cooperating with the MPRP for this.”

Source: en.News.mn

SPEAKER ELECTED BY 63-3 VOTE

The MPRP nominee, D.Demberel, was elected Speaker of the new Parliament on Monday, with 63 of the 66 members eligible to vote supporting him. Born in Khovd province in 1941, he is the oldest of all the present MPs and has been in Parliament without break since 1992. Interestingly, the only three who did not support him were E.Bat-Uul, Lu.Bold, and Z.Altai. The first two are senior DP leaders who thus distanced themselves from the rest of their party, and the other is the only Independent MP.

Source: Ardiin Irkh

DP CHOOSES NEW CHAIRMAN

N.Altankhuyag, a former Finance Minister and now an MP from a Ulaanbaatar district, was on Saturday elected the new chairman of the Democratic Party at a meeting of the party‟s supreme body, the National Council. Five names were proposed to succeed Ts.Elbegdorj, who had stepped down, and after rounds of voting had eliminated three of them, N.Altankhuyag prevailed in a run-off. Altankhuyag is in his early fifties and is originally from Uvs province. He maintains close links with Ts. Nyamdorj, a former Speaker and an influential MPRP leader. Thus his election was seen as another step in a carefully orchestrated progress to a coalition government of national unity.

Source: en.News.mn

MONGOLIA NEUTRAL ON GEORGIA

Mongolia remains non-committal on the conflict in Georgia. When the Russian Ambassador, B.A.Govorin, called on Prime Minister S.Bayar last week to inform him of his country‟s recognition of South Ossetia and Abkhazia, Bayar merely said the Mongolian Government thinks it is right to respect the people‟s rights and will. Foreign Minister S. Oyun, who led an official delegation to the Tajik capital Dushanbe for a meeting of the Shanghai Cooperation Organization, a six-nation security alliance of Russia, China,Tajikistan, Uzbekistan, Kyrgyzstan and Kazakhstan, did not make any public statement on the issue either in Dushanbe or on return home.

Mongolia, Iran, India and Pakistan have “observer” status at the SCO and so did not sign a statement that welcomed the EU-brokered cease-fire that ended the fighting and offered support for “Russia's active role in helping to create peace and cooperation in this region”, but stopped short of giving diplomatic recognition to the breakaway regions.

Source: Montsame and Bloomberg.net

IMF TO CLOSE ULAANBAATAR OFFICE AFTER MARCH

The International Monetary Fund will close its office in Ulaanbaatar from April 1, 2009. According to its resident representative here, Mr. Byung Kyoon Jang, the decision had nothing to do with Mongolia‟s economic performance but was part of a restructuring exercise in the IMF. Other countries where offices would be closed include South Korea, Hong Kong, East Timor, Papua New Guinea, and Cambodia. An IMF working group will continue to be based in Mongolia. Mongolia has been a member of the IMF since 1991.

Source: Odriin sonin

______________________________________________________________________

SPONSORS

ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the week ended August 29, 2008, trading activity on the Mongolian Stock Exchange (MSE) totaled 369,700 shares with 31 companies traded. Total market value of transactions was MNT 180.6 million. Total market capitalization of the 358 stock companies listed on the MSE was MNT 722.1 billion, and decreased by MNT 12.0 million or 1.6 % from the previous week.

The Top-20 Index decreased by 30.94 points or 0.4 percent compared to the previous week closing

at 8,639.77 points. The MSE Composite Index decreased by 18.07 points or 0.5 % compared to the

previous week, closing at 4,038.28 points.

Most active stocks traded were: Hermes Center (101,400 shares), Anod Bank (93,400 shares), Khukh

gan (83,500 shares), Genco tour buro (17,900 shares), and Olloo (15.600).

Major share price percentage gainers were: Shariin Gol (52.0%), Sonsgolon Barmat (3.0%), Apu

(2.5%), and Anod Bank (1.9%). Major share price percentage losers were: Ikh barilga (15.1%), Spirt

Bal Buram (15.0%), Erdenet khivs (15.0%), Shivee ovoo (15.0%), Mogoin gol (15.0%), and Zoos Goyol

(11.7%).

INFLATION

Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)] Year 2007 Avg. 9.0% [source: NSOM] Year 2007 *15.1% [source: NSOM]

July 31, 2008 *32.0% [source: NSOM] * year over year (yoy)

CURRENCY RATES - September 4, 2008

Currency name Currency Rate

US dollars USD 1150.26

Euro EUR 1657.18

Japanese yen JPY 10.56

British pound GBP 2034.06

Hong Kong dollar HKD 147.30

Chinese yuan CNY 167.98

Russian ruble RUB 45.91

South Korean won KRW 1.00

ANNOUNCEMENT – SUMATI NAMED VICE CHAIRMAN OF BCM

Luvsandendev Sumati has accepted the position of Vice Chairman of BCM‟s Board of Directors. He succeeds Alain Fontaine who was recently named BCM‟s Chairman succeeding Peter Morrow, BCM‟s founding Chairman.

Mr. Sumati is Director of the SANT MARAL Foundation, Mongolia‟s leading market research and polling firm. SANT MARAL‟s survey, „Politbarometer‟, has been widely followed over the last 15 years with the sponsorship of the Konrad Adenauer Foundation of Germany. Formerly Chairman of the Soros Foundation‟s Open Society Forum-Mongolia, Sumati has been Executive Chairperson of Transparency International of Mongolia since 2003 and a Board member of the Arts Council of Mongolia.

DISCLAIMER: Except for reporting on BCM‟s activities, all information in the BCM NewsWire is selected from various news sources. Opinions are those of the respective news sources.