BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 167, May 13 2011

NEWS HIGHLIGHTS: Business:

MCS wins contracts for over USD33 million;

Fuel shortage may curtail SouthGobi operations;

Voyager Resources acquires major porphyry copper project;

Prophecy Resource appoints new Chief Financial Officer;

Manas Petroleum completes public offering and gets TSX-V listing;

Khan Resources expects arbitration proceedings to start soon;

Entree Gold sells non-core assets;

Fresh foods for Oyu Tolgoi from Miami;

Singapore firm solves space problems in Mongolian offices;

Rio Tinto “positive” it will weather storm of fragile global economy.

Economy: Sovereign bond issue, in tranches, to begin this month;

World Bank optimistic, but sees similarities with pre-crisis days;

USD770-million China-Mongolia currency swap agreement valid for 3 years;

Central Bank sees agreement as a landmark;

Government reduces fuel import tax, seeks new Russian supplier;

PM’s company forgoes loan claim after controversy;

Enebish defends slow progress in talks on Erdenes-Tavan Tolgoi;

Imbalance in trade with Russia causes concern;

World Bank funds Mongolia infrastructure feasibility studies;

Government proposes IPO for Mongolian Railway;

Erdenes-TT shares likely to be listed at two exchanges;

MP explains opposition to free shares for companies;

Import duty on potatoes, flour, carrots increased;

Exports estimated to rise by 49% in 2012;

5th power station to be ready by 2020;

Development Bank formally inaugurated;

175,000 people work on Day of Public Labor;

Power transmission losses reduced;

36 coal mines under active exploitation;

Ban on new exploration licenses to continue;

No more free ride for commodities;

Tide shifts suddenly in favor of dollar;

U.S. set to regain industrial crown;

As China invests, U.S. could lose;

China denies large trade surplus result of cheap currency;

China’s efforts to tame inflation fall short;

South Korea seeks to shift reserves to China.

Politics: DP ahead of MPP in survey, though both lose popular support;

MPs urge Speaker to dismiss Minister Zorigt for poor performance;

Convicted Anod Bank official submits information to Anti-Corruption Authority;

MP asked to explain claim he gave bribes;

Headless Anti-Corruption Authority sitting idle;

Fresh report on plan for nuclear waste storage in Mongolia;

DP MPs find Government’s record “very poor”;

New health law to focus on prevention;

Speaker’s choice fails to reach Standing Committee;

State officials to be made more accountable;

Nobody being sent to attend hearing of Khurts’s appeal;

Supreme Court rejects parties’ plea to merge;

Movement leader sees no alternative to peaceful revolution;

Foreign organizations lose registration;

MNT 684.3 million to register Mongolians abroad;

Kazakh party calls for protest against spreading Chinese presence.

*Click on titles above to link to articles.

BUSINESS MCS WINS CONTRACTS FOR OVER USD33 MILLION The Mongolian Mining Corp. has submitted to the Stock Exchange of Hong Kong details of four recent agreements it has entered into, as they are with indirect wholly-owned subsidiaries of the company. This is a mandatory requirement. The agreements are: (i) Power and Heat Generation, Distribution and Management Agreement between MCS International and Energy Resources, whereby MCS would provide services to the Group for approximately USD19 million; (ii) Pipelines and Supporting Facilities Construction Agreement between MCS International and United Power, whereby MCS will construct pipelines and other ancillary supporting facilities for about USD9.5 million; (iii) CHP Concrete Installation Agreement between MCS Property and Enrestechnology, whereby MCS will provide concrete preparation and pouring services for approximately USD4 million; and (iv) Electrical Installation Agreement between MCS International and Enrestechnology, whereby MCS will install high voltage electrical facilities for approximately USD1.2 million. Source: Mongolian Mining Corporation

FUEL SHORTAGE MAY CURTAIL SOUTHGOBI OPERATIONS SouthGobi Resources warned on Tuesday that it is facing fuel shortages and may have to curtail operations following Russia's recent move to curb fuel exports. Russia is the primary supplier of fuel to Mongolia and it has substantially cut fuel exports to Mongolia for the month of May, the company said. SouthGobi said its fuel supplier has claimed force majeure and will be unable to meet contracted fuel supply this month. The company said it has managed to secure an agreement with a new supplier to offset some of the shortfall. The company said the new supply combined with its existing diesel stocks will allow its Ovoot Tolgoi mine to operate for about 45 days under normal conditions, or around three months if operations were partially curtailed to preserve fuel.

Source: Reuters

VOYAGER RESOURCES ACQUIRES MAJOR PORPHYRY COPPER PROJECT Voyager Resources has entered into an agreement to acquire up to 80% of the Khul Morit Copper Project in the Gobi Region of Mongolia, which it calls ―an exceptional project located within an underexplored world class porphyry belt that hosts the Oyu Tolgoi deposit‖. The project comprises five exploration licenses for approximately 50 sq. km of highly prospective ground. Limited drilling conducted to date has returned highly encouraging shallow high grade copper mineralisation, and the company plans to complete at least 10,000 meters of Reverse Circulation and diamond core drilling in 2011 at Khul Morit.

Source: Voyager Resources

PROPHECY RESOURCE APPOINTS NEW CHIEF FINANCIAL OFFICER Prophecy Resource Corp. has appointed Mr. David Jan as its Chief Financial Officer. "We are pleased to have David join the Prophecy management team," said Mr. John Lee, Prophecy's Chairman and Chief Executive Officer. "His coal background is an excellent fit for the company." With Mr. Jan's appointment, Ms. Irina Plavutska, formerly the company's Interim Chief Financial Officer, has been appointed Corporate Controller of the company.

Source: Prophecy Resource

MANAS PETROLEUM COMPLETES PUBLIC OFFERING AND GETS TSX-V LISTING Manas Petroleum Corp. has announced the completion of a public offering of units pursuant to a long form prospectus filed in all provinces of Canada except Quebec and a registration statement filed with the Securities and Exchange Commission on Form S-1 in the USA. Manas sold a total of 44,450,500 units at USD0.50 each for aggregate gross proceeds of USD22,225,250. Each unit consisted of one share of common stock in the capital of the company and one common share purchase warrant entitling the purchaser to purchase one additional common share until May 6, 2014 at a purchase price of USD0.70 per share. Concurrently with the completion of the offering, Manas has been listed as a Tier 2 Oil and Gas issuer on the TSX Venture Exchange. Shares of Manas common stock will trade on the TSX Venture Exchange under the symbol MNP and the warrants issued in the offering will trade on the TSX Venture Exchange under the symbol MNP.WT. Manas will retain its current listing on the OTC Bulletin Board but the warrants will trade only on the TSX Venture Exchange. Manas Petroleum is an international oil and gas company with primary focus on exploration and development in south-eastern Europe, Central Asia and Mongolia. In Mongolia Manas has through its 100%-owned subsidiary, DWM Petroleum AG, an interest of 74% in two production sharing contracts covering Block 13 and 14. Source: Manas Petroleum Corp.

KHAN RESOURCES EXPECTS ARBITRATION PROCEEDINGS TO START SOON Khan Resources reported significant developments during the second quarter included the filing on January 10 of an international arbitration action against the Government of Mongolia for its ―unlawful and expropriatory treatment‖ of Khan in respect of the Dornod deposit. The Tribunal will consist of three well-known and highly respected international arbitrators: Mr. L. Yves Fortier of Canada (appointed by Khan); Mr. Bernard Hanotiau of Belgium (appointed by Mongolia); and Mr. David A.R. Williams of New Zealand (appointed as the presiding arbitrator by Messrs. Fortier and Hanotiau). The Tribunal is expected to convene an in-person hearing to discuss the procedure by which the arbitration will proceed in the very near future. In addition, subsequent to the end of the second quarter, Khan and ARMZ entered into settlement discussions in an attempt to resolve Khan's USD300 million lawsuit against ARMZ. The discussions were not successful and Khan will reintroduce a motion in the Ontario Superior Court of Justice to dispense with or order substitute service in respect of the suit.

Source: Khan Resources

ENTREE GOLD SELLS NON-CORE ASSETS Entree Gold Inc. has sold non-core assets for more than USD3.2 million. The assets were acquired as part of the company's June 2010 acquisition of PacMag Metals Ltd. The Vancouver-based miner focuses on the worldwide exploration and development of copper and gold projects. Its flagship Lookout Hill property in Mongolia surrounds the Oyu Tolgoi project. Source: Entree Gold

FRESH FOODS FOR OYU TOLGOI FROM MIAMI Move One has successfully handled another time- and temperature-sensitive consignment of fresh foods for the Oyu Tolgoi mining project, one of the largest in the world, with thousands of personnel on-site at all times. The value of the project is only matched by the extreme remoteness of the site, meaning that essential supplies need to be shipped in using special equipment. Move One‘s experience in handling delicate and hazardous cargoes has made it an ideal partner to keep the enormous development site supplied and in peak condition. The shipment was delivered all the way from suppliers in Miami, Florida, directly to the major catering contractor in Ulaanbaatar, using temperature controlled containers and storage facilities. Speaking on the technically complex supply project, Move One‘s Country Manager for Mongolia, Mr. Noah Glassco, commented, ―Delivering temperature-sensitive cargo over such distances requires a

great deal of expertise and planning. This is doubly true when delivering to those parts of the world with weaker transport infrastructure.‖ After years of providing freight forwarding services in Mongolia, Move One has recently opened a brand new dedicated office in Ulaanbaatar to centralize its services in the country. With the new office and another to follow shortly in Oyu Tolgoi, Move One is actively involved in the country‘s industrial development, using all resources at its disposal to assist with freight forwarding and logistics services.

Source: Move One Inc.

SINGAPORE FIRM SOLVES SPACE PROBLEMS IN MONGOLIAN OFFICES One solution for most offices strapped for space would be to try to pack more workers into the same work area to save money on rentals and furniture. Enter Wilsin Office Furniture, which has come up with a unique design for maximizing office seating and workspaces. Through its in-house research and development, the homegrown firm in Singapore came up with Deskspace, a series of office furniture that has components which can be reused and extended to accommodate more workers in the same space. Says Cindee Sim, founder and managing director of Wilsin, ―Nowadays, most office staff use a laptop to work. It won't be long before they need only an iPad, and will need even less space than before.‖ According to Ms. Sim, the company‘s first overseas foray in Russia led to Wilsin's exploration of other markets such as Brunei, Indonesia, Maldives and Mongolia. Wilsin has ventured overseas largely through agents and it has been especially successful in Mongolia. Says Ms. Sim, ―We have a strong market presence in Mongolia, almost 80 per cent of the office furniture there is from us, which makes us almost a monopoly.‖

Source: AsiaOne.business

RIO TINTO “POSITIVE” IT WILL WEATHER STORM OF FRAGILE GLOBAL ECONOMY Rio Tinto, the world's third-largest miner, expects global markets to remain fragile in the near term and sees itself in a strong position to weather any turbulence, its chairman has said. The company expected little impact on demand for commodities following the earthquake and tsunami disasters in Japan, and said in the long run demand may increase as Japan moved to rebuild. "As far as the near-term outlook for the business is concerned, world financial markets remain fragile. Persistent economic and financial imbalances continue to pose risks," Mr. Jan du Plessis told shareholders at the group's Australian annual meeting last week. "However our pursuit of operational excellence and our strong balance sheet put us in a positive position to weather this short-term volatility." After struggling through the global financial crisis and paying down $40 billion in debt that it took on for its ill-timed acquisition of Alcan in 2007, Rio recently secured an upgrade in its credit rating from Standard & Poor's to single A, following an upgrade from Moody's. Armed with the stronger balance sheet and soaring cash flows, Rio is back on the hunt for acquisitions, but has made clear it is only interested in small- to mid-size deals, worth less than USD10 billion.

Source: Reuters

SPONSORS

Khan Bank Eznis Airways

Kempinski Hotel Khan Palace Mongolian National Broadcasting

Mongolian Star Melchers

ECONOMY SOVEREIGN BOND ISSUE, IN TRANCHES, TO BEGIN THIS MONTH Resource-rich Mongolia plans to issue its first sovereign bonds this month, marking a milestone. The newly created Development Bank of Mongolia will issue USD700 million in these bonds to fund lending programs, Mr. Ch. Khashchuluun, Chairman of the National Development and Innovation Committee, has said. Mr. Khashchuluun said the issuance would take place in tranches beginning this month, with the first slice likely to be USD100 million. The bond will be in the Mongolian currency, which has appreciated by 1.6 per cent against the dollar since January. The Development Bank of Mongolia has a mandate to do policy loans in areas that include infrastructure, industry, energy and roads. ―With the launch of the Development Bank we hope the investment system will be modernized,‖ said Mr. Khashchuluun. ―Policy loans have not been done for a long time in Mongolia and commercial banks cannot support these needs.‖ The Development Bank is being set up with training from the Korean Development Bank and the Development Bank of Japan. Read more… Two bankers in Ulaanbaatar voiced skepticism about the timing of the issuance, which has been under discussion for several months. ―It‘s great for putting Mongolia on the map in terms of developing the capital markets here,‖ said Mr. Eric Zurrin of Rescap, a corporate finance advisory firm. ―However, I struggle to see how it will happen so soon.‖ He added that yields on the bonds could be quite low, perhaps 6-8 per cent. The Development Bank may be the first Mongolian entity to issue bonds with sovereign guarantees, but it is not the only one. Politicians in Ulaanbaatar have talked about issuing bonds to support a variety of industries, including for a cashmere subsidy fund. Mongolian sovereign debt has a B1 non-investment grade rating from Moody‘s, the credit rating agency. ―Mongolia‘s rating has been constrained by susceptibility to destabilizing boom-bust cycles,‖ noted Moody‘s in its annual report on the country. Source: The Financial Times

WORLD BANK OPTIMISTIC, BUT SEES SIMILARITIES WITH PRE-CRISIS DAYS In its latest quarterly report, the World Bank says Mongolia‘s prospects in the medium term look ―excellent‖ from the perspective of both growth and fiscal management, but cautions that ―staying the course‖ means implementing the landmark Fiscal Stability Law passed last year, and adopting a supportive integrated budget law in the present session of parliament. The Bank tempers its optimism with pointing out several similarities with the situation that obtained prior to the 2008 crisis. Now, as then, there are plans for large cash handouts, exerting upward pressure on prices for the second half of 2011, with the risk of substantial second-round effects in the form of a wage-price spiral. Real interest rates are currently positive due to the fall in inflation, but these could return to negative territory as was the case before the crisis. Similarly, with the trade deficit continuing to widen with the mining boom, the current account is also in deficit, as was the case in 2008. High domestic inflation will cause the currency to appreciate in real terms, ultimately hurting the export sectors, and possibly creating a macroeconomic scenario known as the Dutch Disease. The last quarter of 2010 ended with a broad-based recovery, mostly in transportation, construction and wholesale and retail trade, but the agriculture sector experienced double digit contraction in all four quarters in 2010. There has been a moderation in inflation, but food prices are rising in Russia and China from where Mongolia imports the bulk of its main food commodities. On a 12-month rolling basis, the fiscal surplus increased to 2.4 percent of GDP in March 2011, up from a 5 percent deficit in March last year, but the 2011 Budget envisages a steep increase in government spending to an unprecedented MNT779 billion, which is more than 52 percent of GDP.

The trade deficit continued to widen, reaching USD646 million in March. Read more… The steady rise in NPL ratios in 2009 has been reversed, but solvency concerns continue to plague small and medium banks. Outstanding loans have been on the rise, up 35 percent y-o-y in March 2011 or 29 percent in real terms. With credit growing this fast, as was the case prior to the 2008 crisis, regulatory and oversight issues among Mongolian banks (along with capital adequacy) remain crucial.

Source: The World Bank Quarterly Report, April 2011

USD770-MILLION CHINA-MONGOLIA CURRENCY SWAP AGREEMENT VALID FOR 3 YEARS The swap agreement between the central banks of China and Mongolia on exchanging national currencies was signed on Friday morning last week, a day later than scheduled as the plane from Beijing was delayed because of the weather. The deal is for USD770 million and will be valid for three years, extendable by mutual consent. The agreement comes after two years of negotiation, and is aimed at promoting bilateral trade and offering short-term liquidity to the two countries' financial systems. Central Bank President L. Purevdorj said at the signing ceremony that the deal would help stabilize the MNT against the CNY by allowing the yuan into Mongolia's foreign market in emergency situations. CNY is currently the second most actively traded currency in Mongolia's foreign exchange market, he said, adding that Mongolia will have a stronger demand for the yuan as bilateral ties in trade, economy and investment become closer. Chinese central banker Zhou Xiaochuan said the deal would contribute to the financial stability in both countries and promote bilateral trade and investment. China has stepped up efforts to promote the yuan's use in cross-border trade and finance to reduce its reliance on the U.S. dollar in the wake of the global financial crisis. So far, it has signed currency swap agreements with 11 countries and regions with a combined value of CNY834.2 billion. They include South Korea, Malaysia, Indonesia, Belarus and Argentina. The increased circulation of yuan offshore is also key to China's efforts to internationalize its currency. Read more… Though the volume of yuan-denominated trade remains low, it is growing rapidly. About 7% of China's foreign trade in the first quarter was conducted using yuan, up from 0.5% a year earlier, according to data from the PBOC's quarterly monetary policy report released last week. In 2009, Beijing began allowing exporters and importers in certain regions to use yuan to buy or sell goods abroad, and China's central bank will expand the trial to the whole nation this year, local media reported last month, citing a PBOC official. Most yuan-based trade deals so far have involved Chinese companies using the Chinese currency to buy goods. Around 89% of yuan trade in the first quarter was accounted for by China's imports, according to data from the PBOC. Source: Ardiin Erkh, The Wall Street Journal, Xinhua

CENTRAL BANK SEES AGREEMENT AS A LANDMARK Deputy Governor of the Central Bank B.Javkhlan has said in an interview with local media that the agreement with China is ―a landmark and offers Mongolia a much delayed stepping stone to the global market place by allowing it to trade in new currencies‖. At present, 80% of the country‘s foreign trade is carried out in USD, which ―makes us vulnerable to fluctuations in USD rates and puts our own economy at risk‖, he said. The Central Bank believes that the agreement will allow Mongolia to reduce its USD reserves and this is likely to make the USD lose more value against the MNT in the next few months. With yuan reserves increasing, Mongolia will be able to trade with China in the Chinese currency, ―thereby stabilizing the exchange rate and benefiting our own traders‖.

Source: business-mongolia.com, gogo.mn

GOVERNMENT REDUCES FUEL IMPORT TAX, SEEKS NEW RUSSIAN SUPPLIER After days of silence or issuing vague statements of reassurance that did little to allay widespread popular worry about a possible fuel shortfall and rise in prices following Russia cutting down on exports, the Government finally acted on Wednesday. It reduced import taxes, by as much as MNT200,000 per ton in the case of diesel, to counter increased taxes on Russian fuel exports, and also placed an order with a Russian company TNK LLC for diesel at USD1,250 per ton when it was clear the regular exporter in that country, Rosnefti, will not, or will not be able to, meet Mongolia‘s regular demands. Just a few days ago the Government had insisted it had been assured by Russia that there would be no cut on exports to Mongolia.

Fuel importers say the shortage began in April when Russia exported 35,000 tons of diesel against their demand for 74,000 tons. They had asked for 84,000 tons of diesel in May but Rosnefti has sent just 34,000 tons. It is believed the Russian Government has asked Rosnefti to supply 10,000 tons more during the month. The importers had said on May 5 they had stocks for 19 days. Mongolia‘s demands are increasing with the development of the mining sector. It has imported 186,400 tons of petroleum products so far in 2011, an increase of 10.7% over the same period last year. Russia provides 99% of Mongolia‘s demands, and Kazakhstan 1%. The Government also has to ensure fuel for spring planting operations to proceed smoothly. Many fuel stations have already imposed a 30-liter limit on every consumer. Chief of Mineral Resources and Petroleum Authority D.Amarsaikhan has blamed panic buying for making the situation worse.

Source: English.News.mn

PM‟S COMPANY FORGOES LOAN CLAIM AFTER CONTROVERSY Altai Cashmere LLC, owned by Prime Minister S.Batbold, has withdrawn from Mongol Negtgel, an umbrella organization of cashmere producers, following the controversy over low-interest Government loans to companies in the sector from money raised through sale of bonds. The Government plans to issue bonds for MNT110 billion to support the wool and cashmere sector. Mongol Negtgel has identified 13 organizations as having the capacity to repay loans. Altai Cashmere was one of these and was expected to borrow MNT20 billion. Some DP MPs expressed surprise on Monday that rich companies were to receive preferential loans for such large amounts, and on Tuesday Deputy Minister for Food, Agriculture and Light Industry D.Zoljargal told the Standing Committee on the Budget, as it was discussing the matter, that Altai Cashmere had withdrawn its request to Mongol Negtgel to be included among those seeking a loan. MNT20 billion will now be lent to Buyan LLC of Mr. B.Jargalsaikhan, Chief of Republic Party, and Gobi LLC; MNT12 billion to Eermel LLC, MNT6.5 billion to Goyo LLC, MNT3.2 billion to Erdenet Khivs, MNT3.2 billion to Mongol Nekhmel and MNT3 billion to Cashmere Consmekts LLC. The MPs find it grossly anomalous that rich individuals should get Government loans at 7% interest, while ordinary citizens have to pay more for their apartment loans.

Source: News.mn

ENEBISH DEFENDS SLOW PROGRESS IN TALKS ON ERDENES-TAVAN TOLGOI Mr. B.Enebish, Executive Director of Erdenes MGL has defended the delay in reaching a decision on the Erdenes-Tavan Tolgoi investment agreement by saying the discussions with the shortlisted bidders are on a wide range of issues that are too complex to yield any quick resolution. The talks began on March 11 and are now at the 3rd stage. He would not give any details, beyond saying, ―We shall soon select the investor consortium.‖ Negotiations cover ―not only issues to do with mining the coal mine but also the railways, infrastructure and factories for value added products,‖ he said.

Source: business-mongolia.com

IMBALANCE IN TRADE WITH RUSSIA CAUSES CONCERN Several speakers at a recent meeting organized by the Central Bank to discuss trade issues with Russia felt that Mongolia needs a comprehensive export policy. The meeting was attended by senior officials from the Russian embassy, several Ministries, the Customs Authority, Ulaanbaatar Railway, private companies, mainly those with trade links to Russia, and civil organizations. Speakers from the Central Bank reported that over 30% of Mongolia‘s import in terms of value was from Russia, while exports there accounted for just 3% of the total foreign trade revenue. This imbalance could grow into a major concern with the years, and many speakers felt a long-term policy would be of help.

Source: Undesnii Shuudan

WORLD BANK FUNDS MONGOLIA INFRASTRUCTURE FEASIBILITY STUDIES The World Bank has approved an investment credit of USD25 million for Mongolia to facilitate investments in infrastructure to support mining, and related economic activity, by financing feasibility studies and building local capacity to prepare and transact infrastructure projects. Estimates indicate that the cost to build the required transport, power, water and township infrastructure in Southern Mongolia, where several mineral deposits are poised for significant development, could approach USD10 billion over the next ten years. The Government intends to utilize all sources of funding to finance needed investments, including private sector investment. No matter how these projects are financed (i.e., public funds, private funds, or international assistance), good project preparation will be critical.

―This project provides the Government with the necessary resources to carry out a variety of studies to assess the feasibility of investments that the Government has identified as priorities. These will help ensure that investments in infrastructure are financed wisely and that their potential environmental and social impacts are also taken into account,‖ said Coralie Gevers, Country Manager for the World Bank in Mongolia. The Ministry of Finance will be the main executing agency of the project and will be responsible for its overall management and implementation. A Project Steering Committee, which will include representatives from key line Ministries and Agencies, will be established to determine jointly the infrastructure projects that will benefit from the funds and oversee their use. The project will be implemented between June 2011 and May 2016.

Source: The World Bank

GOVERNMENT PROPOSES IPO FOR MONGOLIAN RAILWAY The Government will propose to Parliament that 49 percent of the shares of Mongolian Railway should be offered for sale to foreign and domestic investors through the stock market. The Government website statement did not specify which stock exchange or exchanges would host the IPO. The proceeds will be used to finance the first two stages of the railway construction plans. The first of these covers the 1,100 km from Dalanzadgad - Tavan Tolgoi – Zuunbayan and Sainshand - Baruun-Urt – Choibalsan and will need USD3 billion, based on preliminary estimates of USD2 million to USD2.5 million cost per km. The second stage would be the 900 km from Nariin Sukhait – Shivee Khuren, Ukhaa Khudag – Gashuun Sukhait, Khuut - Tamsagbulan – Numrug, and Khuut – Bichigt.

Source: open-government.mn

ERDENES-TT SHARES LIKELY TO BE LISTED AT TWO EXCHANGES Mr. D.Sugar, Head of the State Property Committee, has said a decision has been taken that Erdenes-Tavan Tolgoi will be listed at two stock markets. The London Stock Exchange is almost certain to be one of the two, and the Hong Kong exchange is the front runner for the second, not least because the Government expects to get some special terms there. During his visit here, its president hinted that some of their stringent rules and conditions could be relaxed for the sale of Mongolian state-owned companies‘ shares.

Source: Zuunii Medee

MP EXPLAINS OPPOSITION TO FREE SHARES FOR COMPANIES Mr. Ya.Batsuuri, DP MP, has opposed the decision to give Erdenes-Tavan Tolgoi shares to companies, as their claims cannot be verified. The Government‘s final tally of companies has reached 53,000. Half of them do not pay taxes and so should be considered inactive. Half the others have little capital, and just one employee, and many of them, too, do not pay tax. Why should their claim be the same as that of companies with hundreds of staff and whose taxes help run the economy, the MP asked. Even NGO have started queuing up to obtain the shares. Advertisements seeking to buy registration certificates of companies have become common. In the circumstances, national companies should be asked to buy the shares, if they wish, when they are on sale in the stock market, and the quota for citizens should be doubled so that the principle of equality is maintained. Source: Undesnii Shuudan

IMPORT DUTY ON POTATOES, FLOUR, CARROTS INCREASED The Ministry of Agriculture and Light Industry has increased the import tax on potatoes, carrots, turnips and flour in order to support domestic production. The Atar III campaign is aimed at boosting domestic production so that it can meet 100% of the Mongolian demand for potatoes, and 70% of that for other vegetables.

Source: Undesnii Shuudan

EXPORTS ESTIMATED TO RISE BY 49% IN 2012 The National Development and Innovation Committee (NDIC) estimates that foreign trade turnover will increase by 24% between 2012 and 2014, with large mining projects starting to work. The balance of trade will show a surplus of USD0.4 billion in 2012, USD1.8 billion in 2013 and USD2.2 billion in 2014. Exports will increase by 49% in 2012, 32% in 2013 and 18% in 2014. Imports will increase by 30% in both 2011 and 2012, because of the need to bring in mining machinery and equipment, but will fall in 2013 and 2014. Import of fuel would rise in 2013 and 2014.

Source: News.mn

5TH POWER STATION TO BE READY BY 2020 The Government has decided to build the 5th power station near the 3rd. The construction will cost MNT1 billion and will be finished in 2020. The plant will have capacity to produce 820 megawatt of electricity using the latest technology. Two small factories, to produce cement and to process coal waste, will be built as part of the project. The tender to choose the construction company would be announced this year. Meanwhile, the foundation stone of a thermal power station in Baruun-Urt in Sukhbaatar province has been laid. The station will be built with USD5 million in a South Korean grant. Construction is expected to take a year.

Source: Montsame

DEVELOPMENT BANK FORMALLY INAUGURATED The Development Bank was formally inaugurated at a small ceremony on Thursday. It is located in the old building of the Ministry of Finance, and will employ between 40 and 50 people in the first months, the number rising to around 100 after a few years. Five South Korean specialists will be in charge of management. Mr. Ch.Khashchuluun, Chairman of the National Development and Innovation Committee and also of the Board of the Development Bank, has said that a representative each from the Central Bank, the Mongolian Banks‘ Association and the Mongolian National Chamber of Commerce and Industry will be the three mandatory ―independent‖ members of the bank board. An agreement has been concluded with the South Korean Development Bank to manage the bank‘s work in the initial years. The next three months will see Mongolian nationals receiving intensive training in not just Korea, but also in Japan and Germany. The bank will have an international advisory council, which will, however, not be involved in day-to-day work. The sale of bonds denominated in both USD and MNT will begin from mid-May, and the slight delay is because the signature of the Executive Director is needed for this and one is yet to be appointed. However, talks have begun with many investment funds interested in buying the bonds. Apart from large projects in power generation, heating, clean water supply, sewage, and housing, the bank will fund an extensive program for SME development. The Korean Development Bank has rich experience in this and the management team has already identified food, agriculture and processing as areas to focus on. Read more… Work on the Sainshand Industrial Park will begin with installation of heating, water supply and sewage systems and then an SME complex will come up. As the big factories are built, the SMEs will act as ancillary units, and this ―cluster system‖ of development will greatly reduce infrastructure cost, while promoting competition. Such parks will come up in Darkhan, Erdenet, Selenge, and the Gobi regions also. Mr. Khashchuluun made it clear that much of the work will be done by the private sector, with the Government acting mostly as a facilitator. Source: Business-Mongolia.com, News.mn

175,000 PEOPLE WORK ON DAY OF PUBLIC LABOR Last Saturday was the Day of Public Labor and 120,000 people in the provinces and 55,000 people of Ulaanbaatar city organizations marked the day by cleaning streets, weeding and planting trees, repairing roads, cleaning road signs, and repairing children‘s toys. The value of the total work was estimated to be MNT880.7 million. Source: Ardiin Erkh

POWER TRANSMISSION LOSSES REDUCED Losses during electricity transmission and distribution in the central region were brought down 19.4% in the one year since April, 2010. The five distribution networks serving the region, three of them state-owned, distributed 43.1 million kW more of energy in April, 2011 than they did in April, 2010.

Source: Udriin Sonin

36 COAL MINES UNDER ACTIVE EXPLOITATION The Mineral Resources Authority has revealed that of the 50 organizations currently exploiting coal in 36 mines, two are state owned, three are owned by province administrations, and the remaining 45 are private companies. According to the Authority, Mongolia has geological coal reserves of

163.2 billion tons in 300 deposits and occurrences in 15 coal basins, falling in 3 major regions. Of the 172 mining licenses issued to 123 companies, 105 are in active use by these 50 companies. Source: News.mn

BAN ON NEW EXPLORATION LICENSES TO CONTINUE The ban on issue of new exploration licenses legally ended on April 30, but is likely to be extended. Both parties are agreed on the extension, but there is as yet no consensus on its period. Some MPs have proposed the ban to continue until January 2013, but the Democratic Party wants it to be neither so specific nor for so long, preferring instead the issue to be decided along with the Mineral Law that Parliament is expected to discuss soon.

Source: Undesnii Shuudan

NO MORE FREE RIDE FOR COMMODITIES In 1911, Winston Churchill helped kick-start oil's ascent by converting the Royal Navy to run on it. But investors shellacked by the sudden reversal in the price of oil and other commodities this week would be better off remembering words spoken by Churchill decades later as the tide turned in World War II: "Now, this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning." Commodities markets, slammed in late 2008, resumed their bull run in early 2009. Economic recovery, led by China, was a major factor, particularly for oil and copper. But loose monetary policy, which aided recovery and pushed investment dollars toward hard assets, has also helped, particularly for precious metals. Two years into this run, the balance of risk for where commodities prices go from here is turning negative. Last week, silver, a late-comer to the party, dropped almost a quarter. Crude oil slumped as much as 7.7% last Thursday morning despite nominally bullish drops in U.S. inventories announced the day before. Instead, investors are probably focusing on weak gasoline demand. Copper, meanwhile, has struggled to gain momentum since December. Efforts to rein in the property market and inflation in China, which accounts for 39% of global copper consumption, appear to be biting. Monetary policy is tightening already in major emerging markets such as India, Brazil and China—key demand centers for commodities—as well as Europe. For commodities bulls, last week's weak U.S. employment data are actually supportive for commodities, because that should prompt more QE, reducing real rates further. Read more… QE3 is not a given, though. If it were, gold and silver would be strengthening. And while the Fed probably won't reduce the size of its balance sheet for months to come, Chairman Ben Bernanke acknowledged explicitly earlier this month that further monetary easing risked escalating inflation and derailing recovery. There is a further twist. Even if QE3 materializes, it could ultimately hurt industrial commodities especially. China's continuing linkage of the yuan to the dollar means further U.S. monetary easing would intensify domestic inflation. The risk of Beijing slamming on the brakes to contain prices, significant already, would rise further. And if China's appetite for raw materials is sated suddenly, you better be betting on QE33 to sustain the commodities bull run.

Source: The Wall Street Journal

TIDE SHIFTS SUDDENLY IN FAVOR OF DOLLAR After weeks of the dollar not being able to catch a break, the U.S. currency suddenly has found itself the recipient of several all at once. Just as dollar bears were stirring concerns about loose U.S. monetary policy and a potential fiscal crisis, sending the greenback lower, the currency did an about-face in the latter part of a tumultuous week amid a host of events that could lend strength longer term. Late Friday last week in New York, the euro was at USD1.4353 from USD1.4526 late Thursday. The dollar was at ¥80.57 from ¥80.13. The ICE dollar index, which is based on a basket of currencies, was up almost 3% from the three-year low it hit on Wednesday. A combination of factors combined last week to help the U.S. currency start to fare better in what many traders have been calling an ugly-dog contest between three currencies, each with problems: the euro, the yen and the dollar. Even with the tide seemingly turning for the dollar, big-time dollar bears are unlikely to become raging dollar bulls quickly.

Source: The Wall Street Journal

U.S. SET TO REGAIN INDUSTRIAL CROWN The era of widespread offshoring of manufacturing from the U.S. to China is coming to an end, according to a study that forecasts a renaissance for American production industries over the next five years. The report by the Boston Consulting Group (BCG) forecasts that, by 2015 – on the back of good productivity growth and relatively low wages – the U.S. is likely to be slightly ahead of China as a base for making many of the goods destined for sale in North America. Another important factor is rapidly rising wage growth in many parts of China, which is reducing the incentive to base production in that country for anything other than selling to the large domestic market. The study will be welcomed in the White House, where President Barack Obama has made the revival of U.S. manufacturing an important feature of plans for a sustained upturn. In recent months, large companies such as Caterpillar, General Electric and Ford have announced plans for new investments in U.S. manufacturing, while the production sector increased at an estimated annual rate of 9.1 per cent in the first quarter of 2011, making it the fastest-growing part of the U.S. economy. However, the projected rise in U.S. industry‘s fortunes is unlikely to be enough to enable the nation to regain its title as the world‘s biggest manufacturer, which it held for more than a century until China overtook it last year. Mr. Hal Sirkin, senior partner at BCG, said the expected ―immense demand‖ for goods by Chinese industry and consumers in the next few decades would be sufficient to keep China in the number one slot for some time, with supply of most of these products coming from locally based factories. ―All the indications are that the U.S. will remain a strong number two [in manufacturing] and well ahead of other countries such as in western Europe, where the economic trends are less favorable,‖ said Mr. Sirkin. Read more… Mr. John Makin, a resident scholar at the American Enterprise Institute think-tank, said the projected rise in U.S. industry fitted into trends in which more U.S. companies were re-orienting production to ―more sophisticated goods that can be made with novel labor-saving technology‖. Many American companies had a ―great opportunity‖ in the next decade to increase manufacturing in the country, helped by the weaker dollar. Last year, China accounted for 19.8 per cent of world manufacturing output, fractionally in advance of the U.S., with 19.4 per cent. In 1990, China accounted for only 3 per cent of the total. The BCG study says that Chinese manufacturing wage costs seem likely to rise 17 per cent a year in the next five years, compared with only 3 per cent a year in the U.S. While the productivity of the average Chinese factory worker has increased tenfold in the past 20 years, it is still less than a third of the comparable figure in the U.S. – offsetting the fact that Chinese wage costs are typically a tenth of those in America. Since employee costs typically account for 20 to 30 per cent of overall manufacturing expenses, with other costs such as covering equipment often no lower than elsewhere, by 2015 China is unlikely to have a cost advantage over U.S. factories in making many products for the U.S. market. The goods that look like being more attractive to produce in the U.S. include those made in small volumes and involving many design changes – such as construction machines and furniture. Items made in long runs and with little variation – such as mobile phones and televisions – will continue to be made in China, even for sale in the U.S., the study says.

Source: The Financial Times

AS CHINA INVESTS, U.S. COULD LOSE For three decades, wealthy nations have invested hundreds of billions of dollars in China, helping drive one of the most remarkable economic booms in history. Now, China is poised to return the investment favor. The question is whether the United States will be willing and able to fully participate, according to a new study released last week. Flush with capital from its enormous trade surpluses and armed with the world‘s largest foreign exchange reserves, China has begun spreading its newfound riches to every corner of the world — whether copper mines in Africa, iron ore facilities in Australia or even a gas shale project in the heart of Texas. The study, commissioned by the Asia Society in New York and the Woodrow Wilson Center for International Scholars in Washington, forecasts that over the next decade China could invest as much as USD2 trillion in overseas companies, plants or property, money that could help reinvigorate growth in the US and Europe. But the report also warns that the USA risks missing out on a large share of the Chinese investment boom because of politics, a growing rivalry between the two nations and deep-seated perceptions that Chinese investments are unwelcome in America. ―If political interference is not tempered,‖ the study warns, some of the benefits of Chinese investment — ―such as job creation, consumer

welfare and even contributions to U.S. infrastructure renewal — risk being diverted to our competitors.‖ While Wall Street banks have lobbied for more Chinese investments in the United States, hoping that will bring bigger deals for the banks, Washington has remained wary — even though the Obama administration says it welcomes Chinese money. But anti-China rhetoric is hot in Washington and among many state and local officials. One frequently cited worry is that Chinese companies, many of them owned partly or entirely by the government, will use their purchases to gain military secrets. Another concern is that Chinese companies will buy American companies with manufacturing operations in the US, close those factories and move production to China. Read more… China, of course, is already a force in global markets. Over the last few years, it has made multibillion-dollar loans to developing nations and let its state-owned companies acquire minority stakes in global powerhouses like Rio Tinto, Morgan Stanley and the Blackstone Group. China is also a major player in the global debt markets, holding about USD1.6 trillion in U.S. Treasury bonds, an investment that helps keep American interest rates low and finances America‘s enormous debt. But China is still a relatively small player in overseas direct investments, which include purchases of large, voting stakes in foreign companies and plants. That also includes investments in new construction projects on previously undeveloped land — so-called greenfield facilities. Last year, China‘s overseas direct investments amounted to about USD59 billion. By comparison, the USA‘s figure was over USD300 billion. But with Beijing pushing its big companies to go overseas and invest in resources and technology, China‘s investments could soon reach USD100 billion to USD200 billion a year, according to the Asia Society study. The potential problem for Beijing is that Chinese companies are not always welcomed overseas — not only because China wields enormous economic clout but because state-owned giants are believed to be subsidized by the state and possibly working in the interest of the government. A series of proposed Chinese deals in the US have been blocked by regulators or attacked by local politicians, who say they are worried China could gain access to sensitive military technology or take control of valuable natural resources. Angered at what it says is protectionism masquerading as national security concern, Beijing has lodged sharp complaints with Washington. Some experts say anti-China sentiment is so high across the country that the United States is unlikely to attract the huge investments over the next few years that the Asia Society study suggests are possible. ―There‘s no chance this is going to happen,‖ says Derek Scissors, an expert on China at the Heritage Foundation, a conservative policy institute in Washington. ―They want to invest a lot, but no one here‘s going to let them. The political climate in Washington is too anti-China right now.‖ Daniel H. Rosen, co-author of the study with Thilo Hanemann, and a principal at the Rhodium Group, an economic advisory firm in New York, says that if Chinese companies are turned away, it could significantly reduce investment opportunities in the US. And, he warns, it could prompt China to retaliate against American businesses that operate in China, while also discouraging Beijing from pushing ahead with reforms that would make its business and financial markets more open and transparent. To ensure that America gets its share of China‘s money, the study calls on Washington to send a clear, bipartisan message that Chinese investment in the US is welcome, to protect any national security review process from political interference and to work with China to enhance its own transparency when it proposes investing in the US. Some analysts say China deserves some of the blame for opposition to its overseas investments, not just in the US but elsewhere. Chinese companies are not very transparent, and much of the investing by China is done by a handful of government-owned companies that have access to cheap state financing, giving them what some analysts say is an unfair advantage in competing for resources or assets. But many analysts say China and the United States clearly need each other. China now has the capital American business so desperately seeks, and the US has technology and a highly skilled work force.

Source: The New York Times

CHINA DENIES LARGE TRADE SURPLUS RESULT OF CHEAP CURRENCY China recorded a large trade surplus in April as imports of commodities and raw materials slumped and exports surged, renewing pressure on Beijing to allow faster appreciation of its tightly controlled currency. US leaders have been pressing China on its currency and financial sector reform at the two countries‘ annual summit in Washington, which ended on Tuesday.

Mr. Tim Geithner, US Treasury Secretary, said Chinese leaders had made an ―unambiguous‖ decision to make the currency more responsive to market forces to support domestic financial reform and combat inflation. The renminbi has gained about 2.3 per cent against the US dollar over the past six months. In a joint appearance with Mr. Geithner on the Charlie Rose Show, Vice-Premier Wang Qishan suggested that the biggest challenge was to ensure domestic backing for the Chinese leadership‘s financial reform program. ―The biggest challenge for us in this respect is to make sure that everyone is on the same page when we look at the problem,‖ Mr. Wang said. While acknowledging the importance of monetary and fiscal policy in combating inflation, the vice-premier warned against ―politicizing the issue‖ on the mistaken belief that the trade surplus was caused by China‘s cheap currency. ―For all those people who really understand what the exchange rate is really about, they would not say this is so,‖ he said. Read more… China‘s trade surplus reached USD11.4 billion in April, ahead of analysts‘ expectations. The figure marked a dramatic turnaround from the three months to March, when China recorded its first quarterly trade deficit in more than seven years. China‘s fastest-growing exports are labor-intensive, low-margin products whose competitiveness would suffer from a dramatic appreciation of the renminbi. Some economists believe that a decline in raw material imports including copper, iron ore, aluminum and raw plastics showed that government measures to slow the pace of economic growth had started to take effect in April. But most observers warned against reading too much into one month‘s data, arguing that Chinese companies typically build up large inventories of raw materials at the beginning of the year.

Source: The Financial Times

CHINA‟S EFFORTS TO TAME INFLATION FALL SHORT Consumer prices in April rose faster than the Chinese Government‘s target for the fourth month in a row, as bank lending also climbed faster than expected, economic data released Wednesday morning showed. The latest data underlined the challenges that China faces as it tries to tame inflation while at the same time issuing trillions of extra renminbi to prevent the currency from rising quickly against the dollar, which would erode the competitiveness of Chinese exports. Consumer prices were 5.3 percent higher in April than a year earlier. That represented a slight improvement from March, when consumer prices were up 5.4 percent. But economists had expected inflation to edge down to 5.2 percent or below, and the government‘s target for the full year is 4 percent, a level not reached in any month so far this year. Many businesses across China say that they see healthy sales and have the profits or bank lines of credit to allow them to invest in further expansion. Other economic statistics also released by the Government on Wednesday presented a picture of an economy still expanding briskly, signaling that recent moves to tighten credit have not had much effect. Retail sales jumped 17.1 percent in April from a year ago. Fixed asset investment grew even faster, climbing 25.4 percent last month from a year earlier. Western economists had expected inflation to slow more quickly because food prices in China are flat or falling this year, unlike in many countries. Food is the largest component of China‘s consumer price index, making up a third of it.

Source: The New York Times

SOUTH KOREA SEEKS TO SHIFT RESERVES TO CHINA The Bank of Korea plans to invest some of its USD307 billion of foreign exchange reserves in renminbi-denominated assets on the Chinese mainland, as the central bank diversifies away from the US dollar. The bank has applied to Beijing for a quota under the qualified foreign institutional investor (QFII) programme, which allows overseas groups to buy equities and bonds on the mainland. ―It is time to think about directly investing in mainland assets, given China‘s fast-growing economy and Beijing‘s increasing efforts to internationalise its currency,‖ Mr. Kang Sung-kyung, a senior BoK official, said. ―Although there are still many restrictions against foreign investors, we believe China‘s capital markets will eventually open up,‖ Mr. Kang said. China‘s financial markets remain largely closed for foreign investors but the QFII programme permits a number of big foreign investment firms to buy Chinese domestic securities. Beijing has so far granted quotas totaling about USD21 billion to just over 100 qualified foreign investors, including three central banks – in Norway, Hong Kong and Malaysia. China‘s strict capital controls have meant that for decades the renminbi has been little used

outside the country‘s borders. However, in the wake of the global financial crisis, Beijing has accelerated reforms to increase international use of the currency, especially for trade transactions, seeking to reduce its reliance on the US dollar. Source: The Financial Times

POLITICS DP AHEAD OF MPP IN SURVEY, THOUGH BOTH LOSE POPULAR SUPPORT If Parliament elections were held tomorrow, 23.7% (24.5%) people in the countryside, 14.0% (15.6%) in Ulaanbaatar, and 35.7% (37.2%) nationwide will vote for the Democratic Party, while the corresponding figures for the Mongolian People‘s Party are 21.2% (24.5%), 13.8% (15.1%), and 32.8% (36.8%) respectively. The figures in the brackets are from a similar survey six months ago. The erosion in support for both parties could be because of the split in what was the MPRP and of the emergence of new groupings, though neither possibility was part of the April-May 2011 survey by Sant Maral Foundation of 1,000 respondents from the capital and Sukhbaatar, Uvurkhangai, Selenge, and Khovd provinces (distributed proportionally by 4 regional divisions and Ulaanbaatar), collected from April 21 to May 2, 2011. Asked about the two major parties, 27.5% in the countryside, 25.5% in Ulaanbaatar, and 26.7% nationwide thought the MPP was headed in the right direction, while those who thought the other way were 29.2%, 29.0%, and 29.1% respectively. The DP was perceived to be headed in the right direction by 28.8% in the countryside, 25.8% in Ulaanbaatar, and 27.8% nationwide. The opposing figures were 29.3%, 28.3%, and 28.9% respectively. Nationwide, 10.2% said they were ―very satisfied‖ with the Government, 34.9% ―fairly satisfied‖, 29.2% ―rather not satisfied‖ and 19.7% were ―totally unsatisfied‖. The most popular politicians in Ulaanbaatar are Elbegdorj (22.3%), Enkhbayar (16.9%), and Ganbaatar (14.1%), with S.Batbold at 10th place with 7.2%. The ratings in the countryside were Elbegdorj (29.1%), Enkhbayar (22.8%), and Batbold (15%). For the complete Polit Barometer survey, visit BCM website, Resources/Mongolia Reports.

Source: Sant Maral Foundation

MPs URGE SPEAKER TO DISMISS MINISTER ZORIGT FOR POOR PERFORMANCE Three DP MPs - G.Bayarsaikhan, D.Gankhuyag and S.Erdene – last week submitted to Speaker D.Demberel a seven-point note to demand the dismissal of Minister for Mineral Resources and Energy D.Zorigt. Their principal charge relates to Mr. Zorigt‘s failure to implement Parliament‘s instruction that Mongolia should retain 50% ownership of the Oyu Tolgoi deposit. The agreement with the investor does give Mongolia 50% ownership, but only after 30 years of operation. They also charge the Minister with inaction in starting work on the 5th power plant even after Parliament decided in 2008 to build it. The Minister is also blamed for talking no steps to improve mine safety in Nalaikh, where 46 miners have died in recent times. They also fault Mr. Zorigt for the delay in taking decisions on Tavan Tolgoi and for failing to start work on other strategic deposits such as Tumurtei and Tsagaan Suvarga. Another of their charges against the Minister is that he has failed to implement Parliament‘s resolution almost a year ago to establish a copper smelter within six months. No progress has also been made on erecting power generation plants at Shivee Ovoo and elsewhere. ―Work at Oyu Tolgoi depends entirely on generators and it seems once it starts production, it will have to import energy from China. That a country with the world‘s third largest thermal coal resources will import energy is shameful, and we blame the Minister for this,‖ the note from the MPs to the Speaker said. The move, however, received a setback at a special meeting of the DP group in Parliament on Wednesday where the majority did not favor the demand. The talk had been that it would receive the support of 12 DP MPs and 8 MPP MPs. If they achieve their goal, they will launch a wider campaign for the dismissal of three more Ministers, as yet unidentified, the ultimate goal being destabilization of the Government, so that its continuation becomes untenable. According to law, the relevant Standing Committee should discuss the demand and submit its opinion to Parliament within a week. Parliament should reach a decision within another week from then. Source: Udriin Sonin, Zuunii Medee, Ardiin Erkh

CONVICTED ANOD BANK OFFICIAL SUBMITS INFORMATION TO ANTI-CORRUPTION AUTHORITY Lawyers for the convicted member of the Representatives Managing Council of the Anod Bank, Mr.

N.Davaa, told a press conference on Tuesday that their client had submitted to the Anti-Corruption Authority (ACA) information about several state officials, including Chief of Cabinet Secretariat Ch.Khurelbaatar, that has a bearing on the case. The lawyers said they would reveal more only after seeing how the ACA treats the information. They claimed Davaa has been sentenced on political grounds and the information he has forwarded shows how legislative organizations work under political pressure.

Source: News.mn

MP ASKED TO EXPLAIN CLAIM HE GAVE BRIBES The Investigation Department of the Anti-Corruption Authority (ACA) called MP Sh.Saikhansambuu on April 27 to meet them and explain what he had meant by saying in a newspaper interview that he had given bribes to officials, including MPs. The ACA thinks the statement can lead to initiation of criminal proceedings against him for offering bribes to State officials, either personally or through someone else. Mr. Saikhansambuu has said he will give any explanation, ―as part of my civic duty‖, only after receiving an official request from the ACA. The MPP MP said in another newspaper interview that he felt funny sitting in the Parliament chamber ―alongside lawmakers who, I know, received bribes‖. Mr. Saikhansambuu has criticized the present Parliament on other grounds also, saying ―it has so many faults‖ mainly because of the way members are controlled. Many competent members ―would never be told to initiate laws or rules‖ on the ground that they lack enough experience. The coalition, as he feared, has created ―an uncontrolled and chaotic organization of authority‖ and many who supported the move then are today disillusioned. Mr.Saikhansambuu has said the ACA should interrogate ―many many more MPs‖. He expressed surprise that his comments on corruption have suddenly attracted attention as he has been saying similar things ever since he entered Parliament in 2008, but his efforts to do something about it have not succeeded as ―corruption in Mongolia is even more than a State secret, never to be admitted openly‖, and both parties prefer this attitude. He did not wish to suggest that all MPs were corrupt, but ―those of them who are in the Government or any of its agencies certainly are‖. He knew Government members, heads of agencies, customs officers, special inspectors, court officials, policemen, judges etc. ―who should also be called if I am charged with corruption‖, he said. Mr.Saikhansambuu owns the Narantuul Market, a glass factory in Shanghai and several other transnational businesses without links to Mongolia.

Source: News.mn, the UB Post, Zuunii Medee, Undesnii Shuudan

HEADLESS ANTI-CORRUPTION AUTHORITY SITS IDLE As is to be expected, all serious work at the Anti-Corruption Authority (ACA) has come to a halt since its director, Mr. Ch.Sangaragchaa, and his deputy, Mr. D.Sunduisuren, were sentenced to prison terms more than a month ago. The thinking seems to be that that their appeal against the sentence will be upheld and they will resume their positions. It is difficult to understand how one can be so certain of the outcome of a court case. For the time being, the Deputy Speaker of Parliament has asked the head of the ACA Secretariat to be in charge, but there are questions if the running of an organization of such enormous economic and political significance can be left in his hands, and if the stacks of confidential documents it harbors are safe in such ad hoc arrangements. Why cannot our Parliament members bestir themselves and make new appointments? Their inaction is only encouraging the spread of their corruption.

Source: Udriin Sonin

FRESH REPORT ON PLAN FOR NUCLEAR WASTE STORAGE IN MONGOLIA The U.S. and Japan confirmed Monday that they have held discussions with Mongolia about nuclear waste management, but both denied that they have any plans to send their spent nuclear fuel there. The Chief of the Nuclear Energy Authority (NEA), Mr. D.Enkhbat, has, however, denied reports on any talks on the matter. ―The NEA has not talked to anyone,‖ he asserted, adding, ―Who wants to keep others‘ waste, especially nuclear waste?‖ On Monday Japan's Mainichi newspaper reported that the U.S., Japan and Mongolia were set to sign an agreement over the project in February, but put it off after objections from Japan's Foreign Ministry. The newspaper said it would be easier for the U.S. and Japan to sell their nuclear-reactor technology overseas if they could offer countries a place to put their nuclear waste. A U.S. Department of Energy spokeswoman said, "The U.S. government is not negotiating a deal to

send spent nuclear fuel to Mongolia." She added, "No discussions or potential fuel leasing services involve U.S.-origin spent nuclear fuel." Asked whether Japan was talking with Mongolia about nuclear-fuel storage, Japan's Deputy Foreign Minister, Mr. Chiaki Takahashi, said at a news conference Monday that the countries had held an "informal exchange of views" about the subject. He said the talks did not reach a conclusion and Japan does not intend to send its spent nuclear fuel to Mongolia. The U.S. and Mongolia signed a memorandum of understanding on nuclear power in September 2010, when Deputy Energy Secretary Daniel Poneman visited Ulaanbaatar. A U.S. official said that accord included "waste management" but did not give details. A U.S. State Department official in charge of nuclear issues, Mr. Richard Stratford, said March 29 that the U.S. Department of Energy was talking to Mongolia about storing other countries' spent fuel, including possibly fuel that originated in the U.S. In April, the U.S. Embassy in Ulaanbaatar said Mr. Stratford's comments "may have been misinterpreted" and it is "not correct" that the U.S. was talking to Mongolia "about the establishment of a storage facility to accept foreign spent nuclear fuel." Read more… The report in the Mainichi daily said Japanese, U.S. and Mongolian officials, at a meeting shortly before Japan's March 11 earthquake, informally discussed possible construction of a nuclear waste storage facility for countries with nuclear power plants but no spent fuel storage capability of their own. The facility would allow Japanese and U.S. nuclear plant exporters, which include joint ventures and units of General Electric, Hitachi and Toshiba, to better compete with Russian rivals that offer potential nuclear plant customers spent fuel disposal in a package. Source: The Wall Street Journal, News.mn, Reuters

DP MPs FIND GOVERNMENT‟S RECORD “VERY POOR” The Democratic Party group in Parliament has rated the performance of the coalition Government ―very poor‖ after a review of the status of implementation of the Government Program for its four-year term. Household income has gone up only by 30%, ―though the promise was to raise it 300%‖. Unemployment ―is not being taken care of‖ and the anticipated growth in GDP has not materialized. A spokesman for the group told newspersons that ―the only success of the coalition has been in allocating Government positions‖.

Source: Udriin Sonin

NEW HEALTH LAW TO FOCUS ON PREVENTION Minister for Health S.Lambaa has said that the law on health that Parliament passed last week is different from the earlier one primarily because it shifts the emphasis from treatment to prevention. ―We shall not neglect treatment care, but shall work more for a healthy and disease-free Mongolia,‖ he said. As an example of how preventive services will work separately, the Minister said soum hospitals would be renamed health centers to indicate that they are not just placed for the ill. People will get medical check-ups and tests done there.

Source: Udriin Sonin

SPEAKER‟S CHOICE FAILS TO REACH STANDING COMMITTEE Parliament last week approved the appointment of three members to the Constitutional Court, taking its strength to eight, with only one place left to fill. The three are Mr. N.Jantsan and Mr. D.Naranchimeg, nominated by President Ts.Elbegdorj, and Mr. J.Amarsanaa, nominated by the Supreme Court. Mr. R.Rash (MPP) asked the Chief of the Standing Committee on Justice, Mr. D.Odbayar (MPP), why the name of Mr. M.Altankhuyag, former Prosecutor-General, had not been considered after Speaker D.Demberel had suggested it. Mr. Odbayar explained the Standing Committee on State Structure was responsible for reviewing nominations. The Chief of that committee, Mr.J.Sukhbaatar (MPP) said that Mr. Altankhuyag‘s name has not been forwarded to them as yet. The Speaker finally asked the committees to decide on the ninth member and to submit the name to Parliament without delay.

Source: Unuudur

STATE OFFICIALS TO BE MADE MORE ACCOUNTABLE The State Service Council and the Union of Advocates have signed a memorandum of cooperation to institutionalize measures to ensure a more competent and responsible civil service. State officials

will not have any political affiliation, and will be chosen solely on merit and their professional qualification for the post. The lawyers‘ body will also help prepare legislation to hold state officials responsible if any of their decisions or actions damage the interests of the state. This may mean claiming compensation from them, or dismissal from service. Acts like filling vacancies or dismissing anybody in contravention of rules, or ignoring decisions of the State Service Central Organization will also constitute an offence. The advocates will offer their help free of charge, but will receive a certificate from the SSC for their service.

Source: Undesnii Shuudan

NOBODY BEING SENT TO ATTEND HEARING OF KHURTS‟S APPEAL No Government official from Mongolia will be present when a British court hears on May 13 the appeal of Mr. B.Khurts, Chief of Administration at the National Security Council, against an order for his extradition to Germany. The head of the working group monitoring the case, Deputy Minister for Foreign Affairs B.Bolor, has said that the extradition could complicate matters for Mr. Khurts, as the charge against him, that he abducted D.Enkhbat, who was suspected for the murder of S.Zorig, from France in 2003, is a serious one in Europe. The wife of Enkhbat is believed to have given to representatives of the German Government documents, including a doctor‘s statement, that confirm he was tortured during investigation. Representatives of German judicial organizations also have met with family members of Enkhbat several times since the arrest of Mr. Khurts in Britain. The brother, wife, and sons of Enkhbat wanted to testify at the trial but were told the court was not trying Mr. Khurts for any abduction. It would decide only on the extradition. If Mr. Khurts is tried in Germany, they could be asked for evidence.

Source: News.mn

SUPREME COURT REJECTS PARTIES‟ PLEA TO MERGE The State Supreme Court this week cited technical irregularities to refuse permission to the Civil Will Party and the Green Party to merge. The court ruled that the decisions of the special General Assemblies of both parties that had approved the merger had failed to forward these to the court, and, in addition, the Green Party had also failed to keep the court informed of its decision to stop operating as an independent unit following the merger. The court asked the parties to apply again, observing the legal requirements. It also asked the GP to resolve its intra-party differences on the merger.

Source: Unuduur

MOVEMENT LEADER SEES NO ALTERNATIVE TO PEACEFUL REVOLUTION Ms. G.Uyanga has dismissed comments in some newspapers that the movement by the People‘s Assembly was aimed at bringing back the old socialist regime. She has also refuted suggestions that Lenin‘s birthday was deliberately chosen to launch the movement. ―Indeed the day we started was April 25, which is Oliver Cromwell‘s birthday,‖ she said. In a statement to the media she said, ―Our goal is to re-establish the democratic principles that we have begun to lose and we shall do this by peaceful means… It is strange that a country that calls itself democratic country still limits the freedom of speech, and any demonstration against the Government is allowed only with restrictions. Courts are supposed to uphold principles of justice, but they are blind to people in power becoming billionaires, elections being repeatedly corrupt, and businesses surviving only on payment of bribes… Government statistics say GDP has reached USD5,000 per capita, but hide the fact that 48% of assets are owned by 0.1% of the population, and 50% of bank savings are held by 2.4% of the people. Almost 80% of the food consumed is imported, 37% of the population is living under poverty level, 70% of the territory is under desertification and so on and on… Every effort to protest against the ―educated‖ decisions of the politicians now in power has failed to make them reform… We appeal to all to suggest if there is any other way to fight except revolution!‖

Source: Zuunii Medee

FOREIGN ORGANIZATIONS LOSE REGISTRATION The Foreign Citizens‘ Affairs Office has deregistered some foreign organizations including NGOs for their failure to submit regular reports on their work according to law, or because their work did not follow any clear direction. Among these are two German-funded organizations, Tibet Heritage, and People‘s Diplomatic Relations; Uzbekistan Association for Peace with Foreign Countries; Union of

Art Masters of the World; a South Korean humanitarian organization Support for Mongolian Development; Vision International of Britain; Japan‘s Oiska Mongol and a humanitarian organization, International Children‘s Peace Foundation in Asia; and CTV Ministries of the USA. Altogether 113 foreign and international organizations and NGOs work in Mongolia at present.

Source: Zuunii Medee

MNT684.3 MILLION TO REGISTER MONGOLIANS ABROAD MNT 684.3 million will be spent on registering the around 120,000 Mongolians abroad under the new system and to make them eligible to receive allowances and free shares of Erdenes-Tavan Tolgoi. Expatriate Mongolians may also be granted voting rights if an agreement between the Civil Will-Green Party and an NGO bears fruit. At present Mongolians outside the country cannot vote in elections. The agreement calls upon the two political parties to propose the necessary legislation in Parliament, while the NGO will help create popular support for the move. Source: Udriin Sonin, News.mn

KAZAKH PARTY CALLS FOR PROTEST AGAINST SPREADING CHINESE PRESENCE Kazakhstan‘s leading opposition party, the All National Democratic Party (Azat), has called for street demonstrations on May 28 to protest against the country‘s growing business ties with China, and the growing influence of Chinese companies, particularly in Kazakhstan‘s oil and metals sectors. Public protests are usually prohibited in Kazakhstan and it was not clear whether police would sanction Azat‘s plan. Kazakhstan, whose south-east border spans China‘s north-west region, has reoriented its economy towards its neighbor in the past decade, signing more than a dozen oil production deals with Chinese companies and accepting USD10 billion worth of loans pledged against future oil supplies. China has also made inroads into Kazakh mining, acquiring copper, iron ore and uranium assets. Yet many ordinary Kazakhs are wary of Chinese business practices and fear the country will be swallowed up by its powerful, populous neighbor. Suspicion of the Chinese is deep-rooted among ordinary Kazakhs, whose nomadic ancestors fought repeated wars with China over land and trading routes along their shared border. Mr. Bolat Abilov, the co-founder of Azat, said rising food prices and utilities tariffs had caused discontent in Kazakhstan, but China‘s growing presence in the oil industry was an even greater concern. ‖What‘s going on at the oilfields is a threat to the independence of the country and national security,‖ he said. A government proposal to lease land to China touched a raw nerve in Kazakhstan last year, drawing hundreds of protesters on to the streets, some of whom became involved in scuffles with police. ―We know how the Chinese conduct their business. If they arrive on our land tomorrow, there will be no room for us,‖ Azat said.

Source: The Financial Times

ANNOUNCEMENTS RUNGE‟S COURSE ON „MINING FOR NON-MINERS‟, ULAANBAATAR, MAY 19-20 Runge is planning a course on ‗Mining for Non-Miners‘ in Ulaanbaatar, designed for people of a non-mining background who interact with mining personnel. Runge is a world class mining consulting, software and training company with an office in Ulaanbaatar with expat and local staff. The dates are May 19 and 20, with one day focusing on coal mining and the other on metal mining. The course is aimed at providing those from a non-mining background with a comprehensive understanding of the mining industry. After attending, participants will have a greater understanding of the operational practices pivotal to the mining industry, and will be able to interpret essential terminology and feel more comfortable interacting with core mining staff. Please send your expression of interest via return email by Monday, May 16, if you are interested in attending this course to saruul@bcmongolia.org, or telephone 332345. ________________________________________________

GLOBAL ALLIANCE PARTNERS CONFERENCE, MONGOLIA INVESTMENT CONFERENCE, ULAANBAATAR, MAY 24-26 Eurasia Capital is hosting the Global Alliance Partners Conference and the Mongolia Investment Conference on May 24-26 in Ulaanbaatar. Through these back-to-back events, Eurasia Capital seeks to draw attention of international and regional investors to Mongolia and its diverse range of investment opportunities. Mongolia has recently experienced impressive economic growth, become

the best-performing stock market globally and received record levels of foreign investments. As a result of pro-business reforms pursued by the Government, this resource-rich country has emerged as an attractive investment destination for global strategic and portfolio investors. The two events are intended to increase the awareness of the international investor community about emerging opportunities in this new Asian resource powerhouse. High level government officials, representatives of local business groups, international financial institutions, CEOs of mining and non-resource companies will be among the speakers at the 2nd Annual Mongolia Investment Conference on May 25. They will provide information on the current market environment and outlook for the Mongolian economy offer insight into industries that are attracting growing interest assess the risks and rewards evaluate the comparative advantages of various business opportunities present a clear understanding of opportunities worth investing in. To download the preliminary agenda please click here http://enews.eurasiac.com/cgi-bin19/DM/t/hIEW0CUnT0Ddg0PLK60EM. For more information and applications please contact: Ms. Zhyldyz Sadyralieva by email: zhyldyz.sadyralieva@eurasiac.com or phone: +976 9906 1673

COALTRANS MONGOLIA, ULAANBAATAR, JUNE 21-22 Coaltrans Mongolia will be a unique opportunity to see and understand at first hand the development of one of the last remaining coal frontiers. It will address:

Spectacular growth prospects for the Mongolian economy, coming on the back of the development of the country‘s wealth of mineral assets with reserves estimated in value of USD1.3 trillion.

Opportunities that many large scale coal investments offer – in particular the Tavan Tolgoi coal deposit containing 6.4bt of coking and thermal coal which will be privatized.

The prospects for exports of 25-40mt per annum of coal into China and in the longer term through Russia to Pacific markets.

The considerable challenges facing Mongolian transport infrastructure in delivering coal exports across the border into China‘s burgeoning steel industry and power sector.

The challenge of operating coal mines in extreme weather conditions as well as the scarcity of water supply. Among the speakers will be:

D. Zorigt, Minister of Mineral Resources and Energy

B.Enebish, Executive Director, Erdenes MGL

D.Batkhuyag, Chairman, The Minerals Authority of Mongolia

G.Battsengel, Chief Executive Officer, Mongolian Mining Corporation. Business Council of Mongolia is a Supporting Organization of the event. Enquiries about speaking opportunities are to be addressed to Gerard Strahan at gstrahan@euromoneyplc.com, and about benefits available in relation to sponsorship opportunities to David-Griffiths, at cdavid-griffiths@euromoneyplc.com. ________________________________________________

“MM TODAY” on MNB-TV, Fridays at 21:15 BCM is pleased to announce that Mongolian National Broadcasting continues its cooperation with BCM on ―MM Today‖. This English news program is aired every Friday for 10 minutes and is scheduled for 21:15 tonight. Tune in to watch this program that reports stories from today‘s BCM NewsWire. ___________________________________________ “BSPOT” on B-TV, Monday to Friday at 21:30 B-TV (Business TV) now telecasts a 10-minute English-language news program called BSPOT every evening from Monday to Friday at 21:30, taking most of the stories from the BCM NewsWire. ___________________________________________ NEW POSTINGS ON BCM WEBSITE'S 'PRESENTATIONS' AND 'MONGOLIA REPORTS' Presentations from BCM‘s 4 monthly meetings in 2011, from the very successful Mines and Money Hong Kong‘s ‗Mongolia Investment Summit Morning‘ on March 25, and from Voyager Resources‘ CEO

in both English and Mongolian at a March 16 MICC-sponsored gathering as well as Mongolia Reports including the Polit Barometer–May 2011 by Sant Maral Foundation, the U.S. Embassy Mongolia‘s Commercial Section‘s ―2011 Mongolia Investment Climate Statement‖ are among those posted on BCM's website (www.bcmongolia.org) in the "Resource, Presentations" and ―Resource, Mongolia Reports‖ sections for your review. We are now posting some news stories and analyses relevant to Mongolia on the BCM website's ‗Mongolian Business News‘ as they come, instead of waiting until Friday to put them all together in the weekly NewsWire. The NewsWire will, however, continue to be issued on Friday, and will incorporate items that are already on the home page, so that it presents a consolidated account of the week‘s events.

ECONOMIC INDICATORS

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

Year 2007 *15.1% [source: NSOM]

Year 2008 *22.1% [source: NSOM]

Year 2009 *4.2% [source: NSOM]

April 30, 2011 *5.5% [source: NSOM] *Year-over-year (y-o-y)

CENTRAL BANK POLICY LOAN RATE December 31, 2008 9.75% [source: IMF]

March 11, 2009 14.00% [source: IMF]

May 12, 2009 12.75% [source: IMF]

June 12, 2009 11.50% [source: IMF]

September 30, 2009 10.00% [source: IMF]

May 12, 2010 11.00% [source: IMF]

April 28, 2011 11.50% [source: IMF]

CURRENCY RATES – May 12, 2011 Currency Name Currency Rate US dollar USD 1,218.74

Euro EUR 1,732.99

Japanese yen JPY 15.03

British pound GBP 1,991.24

Hong Kong dollar HKD 156.79

Chinese Yuan CNY 187.54

Russian Ruble RUB 43.65

South Korean won KRW 1.12

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.