BUSINESS COUNCIL of MONGOLIA NewsWire

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info@bcmongolia.org

Issue 168, May 20 2011

NEWS HIGHLIGHTS: Business:

Petro Matad finds hydrocarbons at DT-4 well;

Ready for slowing Chinese coal demand: SouthGobi CEO;

Eznis and largest Japanese airline sign agreement;

OT construction 15% complete, Ivanhoe posts USD492.5 million loss;

Import of Chinese labor in Oyu Tolgoi to be reviewed;

Meet obligations or stop work, PM tells Petro China;

Entree Gold announces Q1 2011 results;

SouthGobi Resources Q1 loss narrows on higher prices;

Ivanhoe Energy Q1 loss widens on higher costs;

Denison Mines reports Q1 net loss of USD7.1 million;

Manas to use fresh seismic data to improve technical database;

Boroo Gold again among leading taxpayers;

National Life Insurance appoints new CEO;

Gobi declares dividend at shareholders’ meeting;

Khan Resources unlikely ever to come in from the Mongolian cold;

Rio Tinto raises USD2 billion through bonds in the U.S.

Economy: Coal hauling resumes after repairs to gravel road;

Economic data released;

Government wants power plant in Gobi region ahead of schedule;

Development Bank bonds to be sold in phases until September;

SMEs have created 18,000 jobs, claims MP;

Enough diesel from Russia to meet all needs this month;

President meets with businessmen before Russian visit;

Mongolia more booby prize than trophy for the LSE;

“MSE should be where Mongolians make money”, says MICC president;

U.S. exports to Mongolia surge;

New priorities for Australia's Trade Commission include office in Mongolia;

CNNC finishes exploration work, seeks uranium mining licenses in Mongolia;

ING privately places USD6 million of Khan Bank notes;

Selenge factory to make sugar from beet;

Soaring coal prices force China to ration electricity;

China blunts Germany's edge;

Logistics improvements would deliver big in China.

Politics: Prosecutors forward Davaa’s charges to ACA;

MPs want consideration for those forced to pay bribes;

ACA officials’ appeal to be heard on May 24;

MPP council rejects demand for resignation of Minister Zorigt;

People’s Assemblymen take a break;

Standing Committee approves three new consulates;

Foreign Ministry wants more staff, higher salaries;

Hearing of Khurts’s appeal postponed to June 21;

Sulfuric acid issue holding back decision on copper smelter;

Mongolians lap up the novelty of luxury;

Clean water a difficult challenge in Mongolia;

180,000 toilets to be disinfected with MCF funds;

Ger districts show need to better distribute nation’s wealth;

No legal guarantee exists for media freedom, says NGO leader.

*Click on titles above to link to articles.

BCM MONTHLY MEETING NOTICE

BCM‘s next monthly meeting for members will be Monday, May 23, at 5 PM at the KEMPINSKI HOTEL KHAN PALACE, 2nd floor, Altai Ballroom. Parking will be reserved in front of the hotel for BCM members. The bilingual meeting will feature the following presentations: - N.Algaa, Executive Director, MNMA: Update on the Mining Sector - G.Badruun & B.Onon, Project officers, Zorig Foundation: Introduction to Zorig Foundation - D.Bat-oktyabri, Founder, Startup Weekend Mongolia/Nu-idee LLC: Startup Weekend Mongolia - Stephen Ujvarosy, President, Telchar Systems: Case Study in Legislative Efficiency - B.Byambasaikhan, Managing Director, Newcom Group: Strategic Partnerships. A networking reception will be held for all attendees immediately following the business portion of the meeting. The City Club wine bar membership cards will be available at the meeting for all paid individual BCM members.

BUSINESS PETRO MATAD FINDS HYDROCARBONS AT DT-4 WELL Oil explorer Petro Matad has found hydrocarbons at one of its wells in Eastern Mongolia, almost a year after it discovered oil at the first well it drilled in the region. Initial analysis at its Davsan-Tolgoi-4 (DT-4) well pointed to an oil interval containing a minimum of 6 meters of net pay -- the zone of a reservoir that contains economically producible oil. Petro Matad said the deeper regions of the reservoir also exhibited the presence of hydrocarbons and further analysis was being carried out at the site. Last month, the company restarted drilling at the DT-4 well, after it had been shut down due to harsh winter conditions. This is the fourth well of its drilling campaign. The rig will now be moved to drill its fifth well, Petro Matad said.

Source: Reuters

READY FOR SLOWING CHINESE COAL DEMAND: SOUTHGOBI CEO China‘s slowing growth in industrial output will not lead to softening demand for coal, according to Mr. Alexander Molyneux, CEO of China-focused coal miner SouthGobi Resources. But the company is nonetheless prepared for a demand pull back and has been cautious in its estimates. ―We actually project a roughly 7 percent increase in China's coking coal needs every year, which for the last decade has been running at 12 percent,‖ Mr. Molyneux said. ―So in our whole business model, we are considering a slower growth outlook for China and for industrial production. But they don't have enough good quality coking coal resources left to meet whatever growth they have.‖ SouthGobi sells metallurgical and thermal coal to customers in China, and owns the Ovoot Tolgoi Mine and two development projects in Mongolia. It has posted a first-quarter net loss of USD46.6 million despite a 44.8 percent jump in revenue, which Mr. Molyneux says was due to accounting rules, rather than operational causes. ―The bulk of our losses come from a technical loss. We have a convertible debenture as part of our financing structure, and every quarter we have to mark to market under accounting rules,‖ he said. Mr. Molyneux brushed off concerns about the impact of fuel shortages in Russia, following the

country‘s recent move to curb fuel exports. Earlier, SouthGobi announced that it had to secure alternative fuel sources after its supplier claimed force majeure due to the limits on exports. ―We were lucky in that we immediately went to secure alternative fuel supplies so we had 45 days continuous mining fuel supply. Most people carry about 2 weeks, we are now at 45 days,‖ he said. Fuel makes up about 25 percent of SouthGobi's costs. ―I think we are pretty good shape to see this crisis (through),‖ he added.

Source: CNBC.com

EZNIS AND LARGEST JAPANESE AIRLINE SIGN AGREEMENT Eznis Airways and All Nippon Airways (ANA) have signed a long term agreement of cooperation and strategic partnership. A ceremony at the Eznis office last Thursday to mark the signing was attended by, among others, Prime Minister S.Batbold, Minister for Foreign Affairs G.Zandanshatar and ANA Executive Vice President Keisuke Okada. Newcom Group is the parent company of Eznis Airways. The airlines have agreed to explore bilateral cooperation in a broad range of areas such as management, operations, and charter flight services between Mongolia and Japan to aid the long term development of air transportation between two countries and beyond. The airlines will discuss further details of the partnership in the coming days. Mr. Okada said in a brief speech that the strategic partnership between the two companies will allow ―the aviation industry to play its role in the development of the Mongolia-Japan relationship‖, and will also ―allow ANA to retain its competitive advantage in the Asian market‖. All Nippon Airways is the eighth largest airline in the world by revenue and the largest in Japan by passenger number. Mr. S. Munkhsukh, Eznis CEO, added, ―I am very excited about the changes and progress we will be able to make following this partnership. Furthermore our partnership will create fantastic opportunities for other sectors of Mongolia‘s economy.‖

Source: News.mn, ANA Public Relations

OT CONSTRUCTION 15% COMPLETE, IVANHOE POSTS USD492.5 MILLION LOSS Ivanhoe Mines reported a USD492.5 million net loss in the first quarter, primarily due to the revaluation of a derivative security as it worked on building the huge Oyu Tolgoi copper-gold-silver complex. The company, which owns two-thirds of Oyu Tolgoi, last week said that overall construction was about 15 per cent complete at the end of March — slightly ahead of schedule. Exploration expenses were USD46.2 million, down from USD71.4 million in the first quarter of 2010. Only about USD13.5 million of the exploration expenses were in Mongolia, while USD30.4 million was incurred by Ivanhoe Australia. Revenue from coal sales by Ivanhoe's publicly traded subsidiary SouthGobi Resources was USD20.2 million. That was up from USD13.9 million in the first quarter of 2010, but down from USD41.6 million in the fourth quarter of 2010. During the quarter, Ivanhoe generated USD1.18 billion from a rights offering to shareholders. At the end of the quarter, Ivanhoe had USD1.9 billion of cash and as of May 13 its cash position was USD1.6 billion.

Source: www.winnipegfreepress.com

IMPORT OF CHINESE LABOR IN OYU TOLGOI TO BE REVIEWED The Confederation of Trade Unions (CTU) will study the employment situation in Oyu Tolgoi over the weekend and recommend terms for an agreement expected to be signed by representatives of the Government, the CTU, the Union of Employers and Oyu Tolgoi LLC before June 15. The company needs a large number of workers at the present stage of its development. Since the required number of skilled workers is not available locally, the Government has decided to allow 6,949 Chinese workers to be brought in. As the official agreement stipulates that 60% of the workforce should at all times be Mongolian, employing 6,949 Chinese workers would mean employing more than 11,000 Mongolian workers.

Source: Ardiin Erkh

MEET OBLIGATIONS OR STOP WORK, PM TELLS PETRO CHINA After an on-site visit, Prime Minister S.Batbold has said Petro China will be asked to stop operations if it did not fulfill its contractual obligations. Mr. Batbold, accompanied by Minister of Food, Agriculture and Light Industry T.Badamjunai, the State Secretary of the Road, Transportation, Construction and Urban Development Ministry, and several Members of Parliament, visited some areas where Petro China operated, and found the roads badly damaged by the oil transportation traffic. Not merely has no reclamation work been done, but industrial waste was being buried

underground, against all environmental guidelines. Enquiry following complaints from local citizens revealed that the company did not have an environmental reclamation fund. The Government has now reminded Petro China that it is expected to build a hard covered road, pay oil exploitation fees, conclude a proper product share agreement, build an oil exploitation plant and set aside money for environmental rehabilitation. The Prime Minister made it clear that the company‘s operation in Mongolia will be suspended if sufficient progress is not seen to have been made in all these directions.

Source: Undesnii Shuudan

ENTRÉE GOLD ANNOUNCES Q1 2011 RESULTS The following are among the highlights listed by Entrée Gold Inc. in its interim operational and financial results for the first quarter ended March 31, 2011: Appointment of Mr. Bruce Colwill as the Chief Financial Officer; Extension of Oyu Tolgoi-type mineralization three kilometers to the north of Ulaan Khud; Announcement of joint venture budget of USD7 million for the Entrée-OT LLC joint venture work programs, including USD2 million for development related work on the Shivee Tolgoi license; and Net loss of USD5,342,265 for the period. Mr. Greg Crowe, President and CEO, has said ―substantial exploration and development work is under way on our properties in Mongolia".

Source: Entrée Gold Inc.

SOUTHGOBI RESOURCES Q1 LOSS NARROWS ON HIGHER PRICES SouthGobi Resources Ltd. has posted a narrower quarterly loss, helped by an increase in selling price for coal. The company, which owns the Ovoot Tolgoi Mine and two development projects in Mongolia, sees sales volumes of 0.6-1.3 million tons in the current quarter. It expects selling prices to remain the same sequentially. SouthGobi Resources sells metallurgical and thermal coal to customers in China, and shipped 0.45 million tons at an average realized price of USD50 per ton in the quarter, up from 0.43 million tons at USD36 per ton last year. For the January-March quarter, the company posted a net loss of USD46.6 million, against last year's USD168.3 million. Revenue jumped 44.8 percent to USD20.2 million.

Source: Reuters

IVANHOE ENERGY Q1 LOSS WIDENS ON HIGHER COSTS Canadian heavy oil producer Ivanhoe Energy Inc. posted a wider quarterly loss hurt by higher costs. The company, which has operations in Canada, Ecuador, China and Mongolia, said January-March net loss was USD11.1 million, compared with a loss of USD6.8 million a year ago. Revenue rose 55 percent to USD8.2 million. It had cash and cash equivalents of USD80.8 million at March 31.

Source: Reuters

DENISON MINES REPORTS Q1 NET LOSS OF USD7.1 MILLION Denison Mines Corp. had a net loss of USD7.1 million for the first quarter. The company lost the same amount in the first quarter of 2010, but has narrowed a loss of USD9.4 million in the fourth quarter of 2010. Denison is engaged in uranium exploration on properties in Canada, the U.S., Mongolia and Zambia, and it saw its first quarter exploration costs nearly double to USD3.18 million from the USD1.6 million in the comparable period a year in 2010.

Source: The Canadian Press

MANAS TO USE FRESH SEISMIC DATA TO IMPROVE TECHNICAL DATABASE Manas Petroleum Corp. has published its report for the first quarter of 2011, in which it says that it intends to use the additional 300 km of 2D seismic data for blocks XIII and XIV to improve its technical database and chance of drilling a successful exploration well. After interpretation of the full dataset, the company intends to decide regarding additional seismic to be acquired in 2011. Drilling for the first well is planned for the first half of 2012. Net loss for the three-month period ended March 31, 2011 was USD9,876,323 as compared to net income of USD83,011,315 for the same period in 2010. This decrease is mainly related to the company‘s investment in Petromanas. Cash balance as of March 31, 2011 was USD399,931. Shareholders' equity as of March 31, 2011 was USD64,487,643. On May 6, the company completed a public offering of units, raising gross proceeds of USD22,225,250.

Source: Manas Petroleum

BOROO GOLD AGAIN AMONG LEADING TAXPAYERS Boroo Gold Company is on the list of leading taxpayers in 2010 published by the General Tax Department on May 13. This is for the second year in a row that the company has been so honored. The recognition underscores not just the amount of taxes the selected companies have paid, but also their compliance with tax legislation. Since 2004, Boroo Gold has paid over MNT 209.4 billion in taxes to the state and local budgets. In terms of the amount of taxes paid, Boroo was 2nd in the country in 2007 (MNT 43.8 billion), 3rd in 2008 (MNT 41.5 billion), 1st in 2009 (MNT 40.7 billion) and 3rd in 2010 (MNT 47.4 billion). Mr. Ian McNeil, Senior Operations Manager, says, ―We have been submitting our financial and operational reports to the Extractive Industries‘ Transparency Initiative (EITI) every year since this organization established its branch here. We believe that transparency of operations will play the main role in developing responsible mining in Mongolia.‖

Source: Boroo Gold

NATIONAL LIFE INSURANCE APPOINTS NEW CEO Mr. G. Mongolkhuu has been appointed CEO of National Life Insurance Company in succession to Ms. B. Enhtungalag who resigned on personal grounds. She has, however, agreed to remain associated with the company to assist the new CEO in its day to day running. In a statement the Board of Directors appreciated the ―great diligence and professional integrity‖ Ms. Enkhtungalag displayed since the company was established in 2007 and her ―exceptional work‖ in laying the foundation of the company. Mr. Mongolkhuu is 32 years old and studied business administration at Gadsden State Community College (USA), and finance in Jacksonville State University (USA). He also held jobs in the financial sector in the USA. He was the head of the finance department of National Life Insurance from 2007 to 2009, and CEO of MIBG Investment Brokerage Company under FSCo. Group until he took leave of absence to go to the USA in 2010 for personal reasons. The Board of Directors of National Life has expressed its confidence that he is the right candidate for the job.

Source: National Life Insurance

GOBI DECLARES DIVIDEND AT SHAREHOLDERS’ MEETING Gobi LC, the leading manufacturer of cashmere and wool products in Mongolia, held a general meeting of shareholders on April 22. It reviewed the financial report, the profit and loss account, sales details, raw material stocks in 2010 and the target plan for 2011. This includes, executives told shareholders, a plan to double the capacity of the company‘s knitwear manufacturing plant, a goal to be achieved by purchase of new equipment, and increasing the number of workers. The Board of Directors had decided at a meeting on February 24 to declare a dividend of MNT100 per share. In another development, Gobi launched its new Summer/Spring collection called GOBI by SAVERIO PALATELLA on April 25 at its Factory Store. The cooperation between Gobi and the well known Italian designer, Mr. Saverio Palatella, began last year.

Source: Gobi LC

KHAN RESOURCES UNLIKELY EVER TO COME IN FROM THE MONGOLIAN COLD Underneath the endless brown steppe in the remote northeastern corner of Mongolia, known as Dornod, lies a vast store of uranium. It‘s a four-hour drive on a dirt track from Ulaanbaatar to what is now just a collection of yurts. Six security guards, employees of Canadian junior miner Khan Resources Inc., are stationed there. ―If you stand on the hill that‘s right beside the deposit, you look one way, you can see China,‖ said Mr. Grant Edey, Khan‘s Chief Executive Officer. ―You look the other way, you see Russia.‖ That proximity to Russia has come to haunt Mr. Edey‘s company. In 2009, Mongolia revoked Khan‘s mining licenses and announced a joint venture with Russian state-owned uranium miner Atomredmetzoloto JSC (ARMZ) to develop the Dornod site. Khan, which says it is has spent up to USD40-million since 2005 on feasibility studies and exploration, was left out in the bitter Mongolian cold. The dispute has sparked legal battles in Ontario and Mongolian courts, and is headed for international arbitration. Legal experts call it a cautionary tale for companies doing business in Mongolia or other developing countries, or with large state-owned enterprises. Mongolia is a popular place with Canadian mining firms, with scores setting up shop there in recent years and Ivanhoe Mines involved in a massive copper-gold joint venture. Last September, Khan launched a lawsuit in Ontario against ARMZ, one of the world‘s largest uranium miners. In a statement of claim for USD700 million in damages, Khan alleges that the Russian firm wrongly excluded the Canadian company from the Dornod project and waged a

campaign to discredit it. Earlier this year, Mr. Edey said, ARMZ, as an arm of the Russian government, refused to be served with the Ontario lawsuit, invoking the Hague Convention and calling it an issue of ―national security‖, raising questions about whether such entities can try to use sovereign immunity as a tactic to delay or avoid Canadian courts. A court date last month to hear the issue was postponed for settlement talks between the two sides in London, but no agreement was reached. Mr. Edey expects a judge to hear the issue some time in June. Mr. Larry Herman, a former diplomat and a lawyer who specializes in international arbitration, said the dispute shows how vulnerable Canadian investors are in countries without an investment-protection treaty with Canada. Mr. Edey said he doesn‘t believe Khan can ever reclaim the Dornod mine, but he is trying to get some compensation for his shareholders, and has shifted his sights to a stake in a uranium venture in Peru. He said Khan‘s trials should be a warning to other Canadian firms and investors. ―Political risk is real in a lot of countries. And it is alive and well in Mongolia.‖ Read more… Such treaties, similar to a provision in the North American free-trade agreement, allow disputes between investors and foreign countries to be referred to international arbitration directly, without first having to duke it out in the country‘s local courts. (Canada and Mongolia have such a treaty in the works but it has not been finalized.) ―When there is no bilateral investment-protection agreement, companies don‘t get access to all of the safeguards,‖ said Mr. Herman, who is not involved in the case. Another lawyer and veteran of international arbitration said stories such as that of Khan Resources are a warning for Canadian companies operating in developing countries. More companies need to plan strategically, he said, perhaps by setting up a company in a third country with a strong investment-protection treaty with the country where the investment is going. ―When you‘re a company that‘s going to invest in these sorts of places in the world, you want to think in advance: How do we set this up to give us the maximum protection if something goes wrong?‖ he said. Mongolia has a long history of Russian, and Chinese, domination. The Dornod project once belonged to Russia, in the 1990s. With uranium prices in the basement, the Russians abandoned it, Mr. Edey said. But they still retained a 21-per-cent interest in the dormant venture. Mongolia also maintained a 21-per-cent interest. Uranium prices started to rise as the world began to look again to nuclear power as a cleaner energy source. In 2005, Khan – listed on the Toronto Stock Exchange and set up to develop the site – bought the remaining 58-percent stake, and also acquired the property next door. As a result, Mr. Edey said, his company held about 70 per cent of the estimated uranium believed to be underground, with the total cache worth up to USD2.5 billion at today‘s prices. The plan was to develop the site as a joint venture. Mr. Edey said the Russians showed little interest until early 2009, when President Dmitry Medvedev paid a visit to the remote site, along with Mongolia‘s then Prime Minister, Mr. S. Bayar. Meanwhile, Mongolia was reconsidering the rules of the game. In 2009, it issued a new nuclear energy law that demanded an up-front, 51-per-cent government stake in most major uranium projects. It also suspended Khan‘s mining licenses and said the company had failed to submit its reserve estimates, which Khan denies. Russia and Mongolia then announced their joint venture to develop Dornod, leaving Khan out of the picture. In late 2009, ARMZ launched a hostile takeover bid for Khan, whose share price had plummeted because of the uncertainty about the Mongolian project. Khan sought a white-knight investor in the form of CNNC Overseas Uranium Holding Ltd., a Chinese state-owned company, and ARMZ then withdrew its bid. In its statement of claim, Khan accuses ARMZ of interfering with the Chinese bid and making ―misstatements‖ about the company. The Chinese bid ultimately fell through when the Chinese government failed to approve it.

Source: The Toronto Globe and Mail RIO TINTO RAISES USD2 BILLION THROUGH BONDS IN THE U.S. Rio Tinto has raised a total of USD2 billion in long-term debt bonds. The offer, registered in the U.S. Securities Exchange Commission, consisted of USD700 million in 5-year notes with a coupon of 2.5 percent, USD1 billion in 10-year bonds with a 4.125 percent coupon and USD300 million in 30-year bonds paying a 5.2 percent coupon. The 30-year issue was an increase to an existing offer. Source: Reuters

SPONSORS

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Mongolian Star Melchers

ECONOMY COAL HAULING RESUMES AFTER REPAIRS TO GRAVEL ROAD The Mongolian Mining Corporation (MMC) has revealed that the South Gobi Province Professional Inspection Agency has lifted the temporary suspension of coal hauling on the gravel road from the Tavan Tolgoi area to Tsagaan Khad. The suspension had been enforced on April 21, and lifted on May 14, after an inspection was satisfied with the improvements effected. The inspecting commission comprised experts from the General Agency for Specialized Inspection, the Ministry of Environment and Tourism, the Ministry of Energy and Mineral Resources, the South Gobi Province Professional Inspection Agency, and officials of Tsogttsetsii, Khanbogd, and Bayan-Ovoo districts, through which the road passes. Following the suspension, the MMC began work on improving the gravel road conditions, with help from coal miners also using the road. The results were checked once on May 6, and then again on May 13. On May 14, the company received a notification from the commission that users were free to resume coal hauling. Maintenance work of the gravel road will continue until construction of the paved road is complete. This is expected to be by August this year and will enable uninterrupted and reliable coal logistics and transportation link from the Tavan Tolgoi area to the border between Mongolia and China. Mongolia halted deliveries from the South Gobi on April 20 in a tit-for-tat move after China had technical problems with registering vehicles at the border, the chairman of the Mongolian Mining Club had said at the time. MMC now did not say what impact the trucking ban had had on the coal trade, although when the suspension was imposed, it said it had two weeks' worth of stockpiles that could keep customers supplied while the road was closed.

Source: Mongolian Mining Corporation, Reuters

ECONOMIC DATA RELEASED The following data and indicators are for April 2011 or for the first quarter of the year and the comparisons are with the corresponding period, unless otherwise stated: Economic growth The first quarter of 2011 recorded an economic growth of 9.7% y-o-y at 2005 constant prices, and of 24.1% y-o-y at current prices. Consumer price index The consumer price index in April fell 0.2% m-o-m and 8.0% y-o-y. The y-o-y drop had been 5.5% in March.

Money supply Money supply (M2) in April expanded 8.0% m-o-m and 69.2% y-o-y. Currency in circulation increased 18.4% m-o-m and 41.3% y-o-y. Banking assets, loans Banking sector assets grew 6.6% m-o-m and 52.0% y-o-y at the end of April. Loans outstanding at the end of the month were up by 6.5% m-o-m and by 43.7% y-o-y. Non-performing loans increased 2.5% m-o-m but fell 8.3% y-o-y. Budget, taxes The General Government Budget showed a surplus of MNT70.0 billion at the end of the first four months, while the surplus in the current account amounted to MNT181.4 billion. Tax receipts rose 60.3% y-o-y. Foreign trade Total foreign trade turnover in the first four months increased 77.0% y-o-y, with exports and imports rising 59.4% and 92.5% y-o-y respectively. The total foreign trade deficit in the first four months amounted to USD421.4 million, with April accounting for USD75.7 million of it. Industrial output Total industrial output in April increased 8.4% y-o-y.

Source: The National Statistics Office

GOVERNMENT WANTS POWER PLANT IN GOBI REGION AHEAD OF SCHEDULE The Government yesterday asked Minister of Mineral Resources and Energy D.Zorigt to submit by June initial plans for constructing a power station in the Gobi region so that the Oyu Tolgoi project can proceed on schedule, to enable extraction work to begin as planned. The first decision to be taken is on the location of the planned plant. If this is clear by June, construction can start this year. The plan so far was to build the power station between 2016 and 2018. The choice at present is between Tavan Tolgoi and Oyu Tolgoi mines. If it falls on Tavan Tolgoi, a source for long-term water supply will have to be found, and its environmental impact assessment made. Oyu Tolgoi LLC has suggested building the power station on a specially licensed area in or near its project. The company is at present making arrangements to import electricity from China after receiving special permission from the Government to do so. It has sought Government assistance in setting up transmission lines from the border and the whole thing is expected to be discussed at a Mongolia-China consultative meeting on May 30-31 in Beijing. If a definite decision is not taken, the project might be delayed.

Source: Montsame

DEVELOPMENT BANK BONDS TO BE SOLD IN PHASES UNTIL SEPTEMBER The sale to raise USD700 million in MNT-denominated bonds due in five, 10, and 15 years will begin this month and last in several phases around September. Mr. Ch. Khashchuluun, Chairman of the Development Bank of Mongolia, has said they will have another meeting with investors ―in a week or two to make more concrete plans‖ to set terms for the initial sale. The Central Bank and the Finance Ministry are involved in ―extensive consultations‖ on the sales, he said. The bonds will be offered via the stock exchange and the Central Bank, with a private placement also possible, Mr. Khashchuluun said. The size of the offering may be adjusted to reflect market demand and also bring in a wide range of investors with the number of sales not yet decided, he said. Domestic banks and international investors have shown interest in the debt and yields are being discussed. Moody‘s Investors Service rates Mongolian sovereign debt B1, four levels below investment grade, while Standard & Poor‘s rates it BB-, three levels below investment grade. Moody‘s rates Mongolia the same as Sri Lanka, which sold 10-year bonds to yield 6.25 percent in September last year. ―The bank‘s lending can‘t be very costly, because it is policy-based financing,‖ Mr. Khashchuluun said. However, rates have to be high enough to attract investors, he said, ―so it demands a balance.‖ Read more… The Government has tasked the Development Bank of Mongolia, which opened last week, to help finance rail, road and other infrastructure projects as well as the building of an industrial park. The bank is in a hurry to start the sales so that it can access funding before construction stops due to freezing temperatures in the winter months, Mr. Khashchuluun said. Lack of infrastructure is holding back economic development across the economy, he said.

Source: Bloomberg

SMEs HAVE CREATED 18,000 JOBS, CLAIMS MP The head of the Standing Committee on the Economy, Mr. D.Zorigt, told media after a review of a report by the Subcommittee for SME Development on Monday that the subcommittee has received requests for loans totaling MNT900 billion and more are coming. As capital allocated from the state budget is not enough to meet this demand, a working group has been set up to identify new capital sources and the Government has been asked to consider selling bonds to raise money to be put into the milk and the meat sectors. Refuting allegations that the Government‘s SME policies achieve less than they promise, Mr. Zorigt said that loans have been given to 3,300 SME organizations since 2008 and their projects have generated 18,000 jobs. MNT14 billion of the total MNT28 billion lent has been repaid until the end of April. The repaid amount has been issued as fresh loans to SMEs. The rate of interest on SME loans was fixed at 1% monthly in 2009, but for some types of loan this was reduced to 0.8% last year. He said the subcommittee feels loans can be given for five years at between 6% and 8% annual interest. There is no easy solution to the problem of collateral, particularly as banks insist on guarantees and pledges according to their requirements. Some MPs have prepared a draft law to set up a loan guarantee fund and will submit it to Parliament soon, Mr. Zorigt said. A break-up reveals that 24% of SMEs are in the food sector, 15% in the service sector, 20% in light industry and 10% in building material.

Source: Ardiin Erkh

ENOUGH DIESEL FROM RUSSIA TO MEET ALL NEEDS THIS MONTH Russia has finally agreed to supply 80,000 tons of diesel in May, according to the Mineral Resources and Petroleum Authority (MRPA). This will meet the normal monthly demand of 34,000 tons plus this month‘s special needs for spring planting. The MRPA does not anticipate any rise in retail prices. The higher price of USD1,250 per ton that TNK LLC is charging will be offset by the Government‘s decision to reduce the special import tax. The Ministry of Minerals and Energy hopes things to be normal in June when Russia will have lifted restrictions on diesel export.

Source: News.mn

PRESIDENT MEETS WITH BUSINESSMEN BEFORE RUSSIAN VISIT President Ts.Elbegdorj will be visiting Russia from May 30 to June 3. He will hold talks with officials in the economic and trade sectors in Khalimag and Tuva, while in St Petersburg the focus will be on cultural relations. The President invited business leaders to a meeting on Tuesday to hear their views on trade with Russia. Apart from Mongolian officials and Ministers, Russian Ambassador V.V.Samoilenko was present at the meeting. In his opening remarks, Mr. Elbegdorj said before 1990, 90 percent of Mongolian exports were to the Russian market, but now the figure stands at 2.7 percent. Mongolian exports to Russia bring in USD40 million, whereas its imports from Russia cost USD1.2 billion. He then asked for suggestions on how this gross imbalance can be redressed. Meat producers urged the President to seek Russian help in improving veterinary medical services here that would allow Mongolia to export 100,000 tons of meat annually to Russia. Another suggestion was to explore a wider market for Mongolian meat, taking it beyond Siberia to other areas behind the Ural. Some felt Mongolian cashmere and leather products would find a good market in Russia, but intensive commercial promotion was needed for this.

Source: Montsame

MONGOLIA MORE BOOBY PRIZE THAN TROPHY FOR LSE Quite a lot has happened since the London Stock Exchange (LSE) in February announced a "merger" - the term is in dispute - with the Canadian bourse operator TMX. A multibillion-dollar bidding war has broken out between European and US exchanges over control of western financial markets; a general election in Canada has returned the same conservative government that expressed concerns about the LSE-Canadian plan a few weeks back; and a consortium of Canadian bankers has grouped together to try to block the deal. Oh, and the LSE has done a deal with the Mongolian Stock Exchange. You might have missed that one in the blur of global markets activity, but the LSE announced it was going to help the people of Mongolia to establish their very own bourse. Now, Mongolia is a fascinating place and - thanks to soaring global commodity prices - will be able to boast high rates of economic growth for some time to come. But for an organization such as the LSE, which likes to claim it is the leading financial marketplace in the European time zone, to be even bothering about Ulaanbaatar while the future

of global exchanges is being decided in Frankfurt and New York is indicative of how the LSE's world view has diminished. It also recently signed deals with stock exchanges in India and Malaysia, but, interesting as these places certainly are, they are not going to be the locations for the next major global financial market. And nor is London, judging by the way things are going. The LSE's ambitions are not the only thing that has diminished since the Canadian plan was announced. Its shares have also taken a hammering. From about £930 in February, they had fallen 11 per cent to stand at £826 at the time of writing. Whether the LSE, under the relatively new chief executive Xavier Rolet, is bothered about the concerns of Gulf investors is uncertain. We do know, however, that when the Canadian deal was first announced there was some consternation, at least in Dubai. The emirate had been given only the most perfunctory advance notice of the intended link-up, and some were not impressed with what they heard. The signs are not good that London will emerge from all this with a strengthened strategic position, or very happy shareholders. Still, the LSE will always have Ulaanbaatar.

Source: The National, UAE

“MSE SHOULD BE WHERE MONGOLIANS MAKE MONEY,” SAYS MICC PRESIDENT Mr. D.Achit-Erdene, President of the MICC investment bank, feels the increasing Mongolian participation in foreign miners‘ work is a promising development. Earlier, ―they came, drilled, and went home to raise capital,‖ but now companies listed in the Australia and Hong Kong Stock Exchanges have shares owned by Mongolian companies, and more and more Mongolians are in their management team. ―Indeed, 10 percent of the USD38 billion capital is in Mongolian hands,‖ he says, calling it ―a good sign‖. Mongolians profiting from their shares in these companies will ―encourage more people here to invest similarly‖. Also, Mongolians being part of the management team of a company makes it more trustworthy for Mongolians looking to buy shares. Mr. Achit-Erdene hopes the anticipated restructuring by the London Stock Exchange will make the Mongolian Stock Exchange more attractive to investors, and says, ―The MSE can be stronger only if the companies listed there change their ways. Now 80-90 percent of shares in most good companies are held by a few individuals or families. There is no real public participation. This is disappointing as MSE should be where Mongolians make money by investing in Mongolian companies. International investors will be attracted to MSE only when it becomes locally popular.‖ His experience has been that local companies ―do not value research and suspect our motives when we ask for information‖, making it difficult for MICC to offer reliable advice about MSE-listed companies. There are exceptions like APU and Gobi whose financial accounting meets international standards, but investors cannot be encouraged in companies like Tavan Tolgoi LLC which cannot give any clear idea of its resource reserves.

Source: The Mongolian Mining Journal

U.S. EXPORTS TO MONGOLIA SURGE U.S. export of goods to Mongolia in the first three months of 2011 totaled USD68.2 million, and imports USD5.8 million. The information paints a compelling picture of a surging export relationship. The first quarter exports are about 60% of last year's total of USD114 million. The composition of these exports is more diverse than expected. Of course, mining equipment is important, but cars and materials handling equipment comprise key parts of the export portfolio. The data sets also confirm that Mongolian exports to the U.S. have declined in the wake of the end of the Multi-Fiber Agreement in 2005, dropping from nearly USD240 million in 2004 to less than USD12 million in 2010, and to USD5.8 million in this year‘s first quarter, which shows a deficit of USD62.4 million for Mongolia.

Source: U.S. Census Bureau, Foreign Trade

NEW PRIORITIES FOR AUSTRALIA’S TRADE COMMISSION INCLUDE OFFICE IN MONGOLIA The Australian Trade Minister, Mr. Craig Emerson, says Australia's Trade Commission will close some offices in North America and Europe and new ones will be opened in Mongolia and Central Asia. He says the first review of Austrade in 20 years found it had taken on too many varied projects from different governments. It is trying to do too much, and needs to refocus. "They were being spread too thinly and trying to be all things to all people," Mr. Emerson said. "The review was designed to refocus Austrade's activities, so that it is more effective in doing its job." The Government has set the organization a new priority - to help Australian businesses deal with difficult and emerging foreign markets.

Source: Radio Australia News

CNNC FINISHES EXPLORATION WORK, SEEKS URANIUM MINING LICENSES IN MONGOLIA CNNC International has sold its metal casting business for HKD159 million and will use the proceeds in exploration of mines and trade in uranium resources. The company says it will negotiate with the Government of Mongolia on rights of mining uranium and will start a related project next year. The project is expected to have a capacity of 500 tons by 2015. In Mongolia, CNNCI acquired 100% equity of Western Prospector Group Ltd. in two phases in 2009, thus taking control of several uranium exploration licenses. All the exploration work was completed in 2010. The Group now expects to finalize negotiations with the Mongolian Government for the issuance of mining licenses. Construction work is expected to commence in 2012. Trial runs for production are expected to commence in 2014.

Source: Capital Vue

ING PRIVATELY PLACES USD6 MILLION OF KHAN BANK NOTES ING sold USD6 million of three-year notes linked to Khan Bank LLC, Mongolia's largest bank, paying a coupon of 8.3 percent. Investors in the privately placed deal are exposed to both exchange rate and bank credit risks. Credit-linked notes offer investors exposure to bonds that are normally difficult or costly to access. Banks already active in these countries can source bonds more easily and pass the returns on to investors at a lower cost. Hedge funds are seeking credit-linked notes tied to bonds of the lowest-rated countries as yields on other fixed-income assets remain near record lows. "We have had some hedge funds saying they want some seriously exotic stuff," said Mr. Guy Thomas, the global head of emerging-market credit structuring at ING Groep NV, who sold a credit-linked note on Mongolia last week. "The East European and Latin American countries are pretty well exploited." Banks issued notes linked to Egypt, Venezuela, Romania, Mongolia and Vietnam in the past two weeks, offering coupons as high as 13.2 percent. Ten-year U.S. Treasury yields are currently at 3.22 percent, compared with the 10-year average of 4.1 percent. The difference between yields on corporate debt and government bonds remains near record lows. Demand for notes which offer access to illiquid securities has surged as investors seek the higher-yielding investments.

Source: CT Post

SELENGE FACTORY TO MAKE SUGAR FROM BEET A factory built with money from the SME Support Fund to produce sugar from sugar beets has come up in Bayanangol district in Selenge province and will begin working once the sugar beets are harvested. The district Governor has said beet would this year be grown in 90 hectares. Apart from meeting a part of the domestic demand for sugar, the factory would also encourage local residents to grow sugar beets.

Source: News.mn

SOARING COAL PRICES FORCE CHINA TO RATION ELECTRICITY Chinese provinces are rationing electricity as soaring coal prices squeeze power generation companies, underlining the challenges facing the world‘s largest energy consumer as global fuel prices rise. While China experiences power cuts each summer, some provinces have started rationing earlier than usual this year. In recent days Hunan, Zhejiang, Jiangsu and Anhui provinces have implemented cuts, alongside Shanghai and Chongqing. Chinese officials have been warning for weeks that shortages would be more severe than usual this year. On Tuesday, Ms. Xue Jing of the China Electricity Council, an industry body that reports to state regulators, told state media that China would ―face its most severe electricity shortage since 2004‖. She said there could be a national shortage of 30m kilowatt hours this summer, which she said would equate to the consumption of three Chongqings, referring to the southern city of 31 million. Chinese electricity companies are facing financial pressure from the increase in global energy costs as Beijing hesitates to increase state-controlled electricity prices because of concerns over inflation. While the price of thermal coal – which fuels 70 per cent of China‘s power plants – has risen by nearly one fifth since last year, Beijing has raised electricity tariffs by just 2 per cent during the same period, and the price gap has prompted some stations to close or reduce generation. ―Power plants promise industry regulators that they will generate power at full steam, but privately they don‘t because of their financial losses,‖ explains Mr. Lin Boqiang, an energy

economics expert. Read more… Compounding the problem of rising energy costs, hydropower generation has also fallen after a dry winter in southern China. In Changsha, the capital of Hunan province, which draws much of its electricity from hydropower, roadside lights have been dimmed and city districts are experiencing rotating one-hour power cuts, according to one resident, who first noticed the changes a few weeks ago. The southern province of Guangdong – the most industrialized province in China – has issued stern warnings about its power supply, saying the shortfall could reach 4m kW per hour during May, June and July. Power outages will prompt more manufacturers and businesses to rely on diesel generators for electricity. The shortages are expected to boost demand for diesel, just days after China banned exports of the fuel. Analysts forecast that if crude oil prices rise above USD130 per barrel – from USD110 now – and state-mandated fuel prices remain unchanged, China will see shortfalls of gasoline and diesel as refiners cut back on loss-making runs. Energy is one of the few sectors in China dominated by state price controls, and analysts blamed Beijing for mismanaging prices. ―China is using planned-economy methods to regulate a market economy,‖ said one, citing the state controls on coal contract prices and electricity tariffs. ―Authorities are getting too heavily involved in the [coal and power] market,‖ he added. Source: The Financial Times

CHINA BLUNTS GERMANY’S EDGE Growing competition from China is spurring German machinery makers to reassess how to preserve an edge that has made their industry a linchpin of the country's export-driven economy. Chinese rivals are gaining ground in their home market, unnerving German producers about the competitiveness of a sector that accounts for 7% of the German economy. The German companies find themselves up against a state-driven industry growing in large measure through acquisitions and inexpensive labor and building on lessons learned two decades ago in the textile industry. Mr. Martin Herrenknecht says his tunneling-equipment company entered a joint venture in China, rather than fight for intellectual-property rights. "Germany needs to focus on quality and innovation because when it comes to mass-market machinery, China will soon have the upper hand," says Mr. Bernd Reitmeier, a former member of the German Chamber of Commerce in China. Many industry experts say Germany's reputation for engineering quality and reliability should help the sector counter Chinese challenges for leadership in high-end machinery, such as drilling and factory equipment, and other engineering sectors. Still, the momentum behind China's companies underscores the long-term obstacles German companies face in maintaining an innovative edge as the supply of home-grown engineers and other skilled workers dwindles. German companies—mostly small, family-owned enterprises—continue to hold the largest share in the Chinese market for high-end machinery, which is estimated at between roughly USD110 billion and USD120 billion. German exports to China of high-end machinery reached USD21.79 billion last year, up 34% from 2009, according to German government statistics. Though the Chinese and German figures aren't strictly comparable, it appears China's companies are catching up. Read more… The growth of China's machinery industry recalls the country's approach in the 1990s to textiles, an area China now dominates. Both sectors have benefited from governmental financial support. President Hu Jintao in March announced a five-year plan to invest more than USD500 billion in key industries, including machinery. Beijing two years ago unveiled an equipment-manufacturing revitalization plan meant to increase its market share world-wide and to decrease dependence on foreign-owned companies. Chinese companies also pay lower salaries than their German counterparts, use less expensive parts and receive government subsidies or tax rebates. As a result, Chinese products often cost 10% to 20% less than German ones, analysts say. Chinese programs give away land for free, buildings for free. Many Chinese firms receive tax rebates. German engineering companies long have worried about Chinese rivals violating intellectual-property rights. Chinese companies also gain access to German expertise through acquisitions, mostly of small, low-profile companies. The value of Chinese acquisitions in Germany rose to USD98 million last year from USD3.6 million in 2006. The total already is USD83.4 million this year, with nearly all the deals involving engineering companies.

Source: The Wall Street Journal

LOGISTICS IMPROVEMENTS WOULD DELIVER BIG IN CHINA China's e-commerce companies may yet turn a logistical nightmare into a dream business opportunity. Massive government investment in road, rail and air infrastructure means that China's transport network is approaching developed-world standards. But the cost of moving goods from A to B remains high. Logistics costs as a percentage of GDP are around 21%, compared with 10% in the U.S. and 13% in India. Part of that gap is explained by China's focus on manufacturing. But beyond that, the country has a fragmented system, high tariffs for road transport and multiple providers piling on fees. Even outside the manufacturing sector costs are high. A Chinese government investigation found that two-thirds of the retail price of vegetables represents logistics costs. And even though costs are high, service is often poor. Local logistics providers are famously slow and unreliable. Assuring end-to-end delivery of products across provincial boundaries is a real challenge. That's a particular problem for e-commerce companies such as Alibaba Group, 360buy and Joyo Amazon, which rely on guaranteeing delivery of goods from supplier to customer. The central government says it is committed to the development of a modern, efficient logistics network. But ambitious goals set in Beijing are running up against a difficult reality at a local level. Provincial governments benefit from local firms that contribute tax revenue, even if they are less efficient than larger national players. State-owned firms often run their own in-house transport and distribution services, reducing the size of the market for specialist logistics firms. Read more… For third-party logistics providers, working through the tangle of local regulation has proved difficult, if not impossible. Mr. Jeffery Wong of global advisory firm KPMG says even the bigger players remain mainly confined to provincial markets. But for e-commerce firms, the rapid growth in online sales is providing both motive and opportunity to get to grips with the problem. For Amazon in the U.S., efficient distribution has been the key to keeping prices low and gaining market share. The aspiration for e-commerce firms in China is to do the same. Online retailer Alibaba has invested in its own system of warehouses and is working with existing logistics providers to stitch together a national system, and 360buy is partnering with Wal-Mart to build a network. The rapid growth of e-commerce means that major players can take advantage of scale in their operations. On a single day in November 2010, Taobao Mall, the business-to-consumer arm of Alibaba's online empire, shipped 15 million packages. Building an efficient logistics system won't be easy, especially for e-commerce firms whose core competences lie elsewhere. But the Chinese market is wide open. For companies that can get it right, the solution to a business problem could turn into a driver of future profitability. Source: The Wall Street Journal

POLITICS PROSECUTORS FORWARD DAVAA’S CHARGES TO ACA The Ulaanbaatar Prosecutors‘ Office has forwarded to the Investigation Department of the Anti-Corruption Authority (ACA) a letter Mr. N.Davaa, a member of the Representatives‘ Managing Council of the erstwhile Anod Bank, sent it through his wife. This was his third letter from jail, all of which have leveled corruption charges against important officials. This last letter claims that the Chief of the Cabinet Secretariat, Mr. Ch.Khurelbaatar, has misused his official position to harm the state‘s interests, and the Prosecutors‘ Office has asked the ACA to ascertain the facts of the case. It is believed that Mr. Davaa has plans to ask for investigation of other officials who, he will claim, has caused the state a loss of USD4 billion. Those likely to be named include Prime Minister S.Batbold, Minister for Justice and Internal Affairs Ts. Nyamdorj, and the President of the Central Bank, Mr. L.Purevdorj. Mr. Davaa‘s wife has said that he was arrested and sentenced to keep him silent about many things he had learnt from his association with the Gal Undesten Union. Mr. Davaa has written in his letter that he supports the civil movement for justice, democracy and peace. ―Officials corroded by corruption‖ pose a threat to all three ideals, he has added.

Source: English.News.mn

MPs WANT CONSIDERATION FOR THOSE FORCED TO PAY BRIBES The Standing Committee on Justice has decided to discuss in Parliament the draft amendments on the criminal law relating to some types of corruption. There was consensus that election-related corruption must be curbed, if not totally removed, but members disagreed on what to do with those who paid bribes under certain circumstances. Speaker D.Demberel opposed a provision in the draft that protects someone pleading guilty from being convicted of giving bribes. The head of the President‘s Office, Mr. D.Battulga, had supported

it as ―the present system put pressure on citizens and organizations to give bribes to state officials‖. Mr. S.Erdene had agreed and added that it is common for officials to threaten and shout at those who are unwilling to meet their demands for illegal gratification. ―That is why those who give in should receive some lenience, but such consideration should not apply to those who bribe officials to get irregularities condoned,‖ he said.

Source: Zuunii Medee

ACA OFFICIALS’ APPEAL TO BE HEARD ON MAY 24 The Ulaanbaatar Court has fixed May 24 for hearing the appeals of the Chief of the Anti-Corruption Authority, Mr. Ch.Sangaragchaa, his Deputy, Mr. D.Sunduisuren, and the head of its administration, Mr. U.Altangadas, against their conviction. The court has rejected their plea to be released on bail. The same court will review on May 20 the decision to acquit another ACA official, Mr. G.Badarch.

Source: Undesnii Shuudan

MPP COUNCIL REJECTS DEMAND FOR RESIGNATION OF MINISTER ZORIGT The demand by some DP MPs‘ for the resignation of Mr. D.Zorigt as Minister of Mineral Resources and Energy received another punch last week when the Managing Council of the MPP discussed the issue and issued a statement summarily rejecting the arguments put forward by those MPs. It said the Minister had played an important role in finalizing the successful Oyu Tolgoi investment agreement and also that he bears no individual responsibility for the unavoidable delay in reaching a decision on the Tavan Tolgoi deposit. The council has forwarded its views to the MPP group in Parliament.

Source: Unuudur

PEOPLE’S ASSEMBLYMEN TAKE A BREAK The People‘s Assembly formed on April 22 has decided to take a ten-day recess. Its organizers say that its 800 delegates -- 200 from Ulaanbaatar and 600 from all the 21 provinces -- left the capital on Thursday after a final meeting of this phase of the assembly. This was held not in Sukhbaatar Square, but in the square of the State Academic Drama Theater. Source: News.mn

STANDING COMMITTEE APPROVES THREE NEW CONSULATES The Standing Committee on Security and Foreign Policy approved on Tuesday a proposal to establish consulates in San Francisco, Osaka, and Hong Kong. Earlier Foreign Minister G.Zandanshatar had reported that MNT415 million would be needed annually to maintain the office in San Francisco, MNT483 million in Osaka, and MNT363 million in Hong Kong, but everywhere, some 40% of the expenses could be met from the consular revenue. Reacting to a demand to close down Representative Offices in places where few Mongolians ever went, he said only two, in Laos and Bulgaria, would qualify as such but they served Parliamentary and Government interests. The income in both met their expenses, so there is no need to close them down.

Source: News.mn

FOREIGN MINISTRY WANTS MORE STAFF, HIGHER SALARIES The Ministry of Foreign Affairs and Trade has asked the Standing Committee on Security and Foreign Policy to sanction more staff for it, given the increase in its work in recent times. Minister G.Zandanshatar detailed to the MPs all the international agreements and conventions Mongolia has signed, the international organizations where Mongolia is an active member, and the laws and protocols on foreign relations Parliament has passed, to show how the volume of work has grown enormously bigger, but the ministry works with the same number of employees as it did in 1990. Their salary also is not commensurate with their high level of education and considerable language skills. The Ministry cannot function properly and discharge its responsibilities if it does not increase its staff strength and also change its structure, including salary levels. Members of the committee shared his concern and agreed to discuss further his proposals for more staff and higher salaries, and also to bring the Institute of Foreign Relations under the Ministry.

Source: Udriin Sonin

HEARING OF KHURTS’S APPEAL POSTPONED TO JUNE 21 The hearing of the appeal of Mr. B.Khurts, head of Administration at the National Security Council, has been postponed to June 21 as the judges in the London court found it will take more time to get ready all the documents received from Mongolia. Mr. Khurts is appealing against his extradition

to Germany on a charge of kidnapping a Mongolian citizen from Europe in 2003. Source: Unuduur

SULFURIC ACID ISSUE HOLDING BACK DECISION ON COPPER SMELTER One reason for the lack of progress in setting up a copper smelter, as resolved by Parliament, is that there has been no agreement among specialists on what to do with the sulfuric acid that is released during the refining process. A working group of the Ministry of Mineral Resources and Energy submitted two different proposals to the Government, but both were found unsatisfactory in their approach to this environmentally sensitive issue.

Source: Ardiin Erkh

MONGOLIANS LAP UP THE NOVELTY OF LUXURY In the 13th century, Mongol emperor Kublai Khan and his harem sported silk gowns, fur cloaks and jewel-encrusted head ornaments at their home -- the legendary pleasure palace in Xanadu. Today, latter-day khans are again stepping out in some of the world‘s finest luxury fashions as Mongolia‘s minerals-fueled economy boosts disposable income for the country's nouveaux riches. Louis Vuitton, Emporio Armani, Burberry and Hugo Boss have led the charge of high-end shops opening in the sprawling capital Ulaanbaatar, the flashy stores jarring with the city's Soviet-era apartment blocks and shantytowns. "The domestic fashion industry is growing with the Mongolian economy and people have more money to spend," Hugo Boss shop manager Siizhuugiin Nasantulga said. "They would rather spend it here than go on overseas shopping trips." Landlocked Mongolia, one of Asia's poorest countries, has seen its per capita GDP rise to USD3,300 as foreign mining giants have come calling to tap into its vast deposits of everything from gold to coal. The economy is expected to grow at a healthy eight percent this year and the country's currency advanced 10 percent against the dollar in 2010, making imports cheaper. With an influx of new money and the number of millionaires growing, members of the upper-income set have sought to outdo each other with name-brand fashion and fancy cars. ―Mongolians have great fashion sense and they are always looking for the highest quality products," says Nasantulga, a strapping 28-year-old with fluent English he learned while studying business overseas. "People love to show off their cars and they take pride in dressing as well as they possibly can." Luxury lifestyles have been a foreign concept for most of Mongolia's modern history. It was a communist country for nearly seven decades until a 1990 democratic revolution led to multiparty politics and a market economy. Most of the luxury shops in Ulaanbaatar are located in the Central Tower, a new office building adjacent to Sukhbaatar Square, where the modern Mongolian state was established in 1921. In the VIP room of the Louis Vuitton store, big spenders can lounge on white leather couches as they check out USD1,100 shoes or USD800 sunglasses. Outside, luxury cars ply potholed streets. Flashy SUVs -- Toyota Land Cruisers, Hummers and Land Rovers -- stand snarled in traffic jams with models from Mercedes-Benz, Lexus and BMW. Beyond the capital, a few Mongolians are taking to the roads in custom-built Mercedes-Benz Zetros trucks, packed with ultra-modern features like flatscreen TVs, bidets and even kitchens. Read more… While the upper crust flaunts its wealth, most working class Mongolians barely make ends meet by toiling in mines, herding livestock, driving taxis or selling imported goods from China. The average office-worker salary in the capital is around USD250 a month and the minimum wage just USD115 per month. Foot traffic in luxury shops is therefore understandably low -- but ready to spend. "We have relatively few customers but those that shop buy a lot," explains Armani manager Batbekhiin Batkhuu. "For now the most important part of our business plan is establishing brand awareness. We need to educate people on fashion and which labels are the best." The sizzling real estate market in Ulaanbaatar is helping to make these increasingly luxurious lifestyles possible. When property markets were privatized in the late 1990s, flats were readily available for around USD5,000, says Belgian real estate investor Chris De Gruben, Managing Partner of M.A.D. Mongolia. Those same apartments now sell for around USD90,000. "These apartments form an important part of the economy. Locals can sell their apartment and use the cash to start a business and get a kick-start in life. It allows people to move forward," Mr. De Gruben said. New apartments and penthouses are beginning to appear. In the prestigious Zaisan area in the south of the city, modern units start at around USD2,000 per sq. m. The city's priciest digs are downtown in the sail-shaped Blue Sky building, where penthouses are advertised at USD8,875 per sq. m. ―As soon as people start getting money, they want to display their wealth," Mr. De Gruben said. "You

can see ostentatious displays of wealth anywhere in the world but in a place like Mongolia it's more apparent because it's still surrounded by high levels of poverty." Some Mongolian-made luxury goods are even making their way overseas. The best-known is Gobi cashmere, which sells sweaters, scarves, hats and coats made from the soft fur of Mongolia‘s 20 million goats. "Demand for Mongolian cashmere is growing worldwide and we have a great opportunity to market cashmere products," says Mr. Batkhuu, the Armani representative. "We can‘t quite compete with Italy for the fashion king title but Mongolia can still make a name for itself." Source: AFP

CLEAN WATER A DIFFICULT CHALLENGE IN MONGOLIA Mongolia is a country of contrasts – in summer boiling hot, in winter freezing cold; in the north damp, in the south bone dry. One million of its three million inhabitants live tightly packed together in the capital Ulaanbaatar, while the rest of the huge country is largely populated by nomads and their cattle. Providing a clean supply of drinking water across the entire country is a difficult challenge – beginning with the need to lay freeze-proof water pipes over an area of 1.5 million square kilometers. The people in the countryside therefore use water from rivers, or from wells that they dig themselves. But these traditional ways of obtaining water are reaching the limits of their capacity. In recent decades the periods of rain during the summer months which replenish the reserves of groundwater have become infrequent. They have been replaced by heavy storms unleashing torrents of rain that runs off rapidly without soaking into the ground. At the same time, demand for water has risen with the rapid growth in the country's population. "Providing drinking water is becoming more and more difficult. To create a reliable supply in the long term you have to take many different factors into account and find out how they influence each other," explains Dr. Buren Scharaw from the Fraunhofer Application Center System Technology AST in Ilmenau. Born in Mongolia, he has been working for many years on the project entitled "Integrated Water Resources Management for Central Asia: Model Region Mongolia", known also as MoMo. Project partners include the universities of Heidelberg and Kassel, Bauhaus University Weimar, the Helmholtz Center for Environmental Research, the Leibniz Institute for Freshwater Ecology and Inland Fisheries and various private-sector enterprises. The model region under study by the research scientists is the catchment area for the Kharaa River and Darkhan, a city of 100,000 inhabitants. Read more… Since the start of the project, in 2006, Mr. Scharaw has traveled back to his homeland several times. He has examined the quality of the water from public and private wells along with the distribution network, measured the energy consumption of pumps, and investigated the effectiveness of the sewage system. All of the data he has meanwhile collected has been fed into the computer models developed at Fraunhofer AST. "Our HydroDyn water management solution makes it possible for the first time to visualize the quality as well as the quantity of water resources and to model their future development," the scientist explains. There is plenty of scope for improvement: the water pumps consume lots of energy, the water pipes are in need of repair and nearly half of the drinking water is lost on its way to the consumer because of leaks. Many gers have their own wells, but the water is often contaminated with bacteria from latrines. What can be done? "Having collected data and produced models we are now preparing proposals that make sense in economical and ecological terms", says Mr. Scharaw. His team has developed a software program for the purpose which can determine how the water supply can be sustainably secured using less energy. The Fraunhofer research scientists have also developed a measuring system for locating leaks. Small sensors detect any drop in pressure in the pipes, enabling leaks to be localized with relatively high precision. Once the leak has been found, that section of the pipe can be repaired. To reduce contamination in the water supply, and to increase the efficiency of the sewage system, the MoMo scientists are now building a test sewage plant which contains microorganisms in high concentration: "We expect this test facility to deliver good results also during the cold season when the microorganisms are less active. The findings can then be transferred to a future full-scale plant." In three years' time, when the MoMo project has been completed, the experts intend to present the government administration in Darkhan with a catalogue of measures which will show how the water supply and sewage system can be efficiently and cost-effectively secured. Mr. Scharaw regards it as one of his major successes that he prompted the Mongolian authorities to discontinue mining operations in some regions of the Kharaa catchment area – an achievement that extends far beyond

improving the drinking water supply in Darkhan. Source: Science Codex

180,000 TOILETS TO BE DISINFECTED WITH MCF FUNDS MNT1.5 billion from the Millennium Challenge Foundation will be spent on a program to neutralize soil pollution in Ulaanbaatar, to be implemented by the Mayor‘s Office throughout June. Surveys have revealed that toilet waste has severely affected the soil quality in the city, especially in ger districts where 60% of the people live. Some 180,000 ger district household toilets will be treated with disinfectants in the program, with officials of the State Specialized Inspecting Agency, and doctors and nurses from the district health centers monitoring the work. Source: Unuudur

GER DISTRICTS SHOW NEED TO BETTER DISTRIBUTE NATION’S WEALTH It is a supreme irony in a country once known as the land without fences. Stretching north from the capital Ulaanbaatar, an endless succession of dilapidated boundary markers criss-cross away into the distance. They demarcate a vast shantytown that sprawls for miles and is now estimated to be home to a quarter of the entire population of Mongolia. More than 700,000 people have crowded into the area in the past two decades. Many are ex-herders and their families whose livelihoods have been destroyed by bitter winters that can last more than half the year; many more are victims of desertification caused by global warming and overgrazing; the United Nations Development Program estimates that up to 90% of the country is now fragile dryland. With limited education, few transferable job skills and often no official documents, most end up simply waiting, getting angry with the government and reminiscing about nomadic lives past. Many take to alcohol. "More and more people arrive every year and there are so few jobs available," said Davaasambuu after queuing for 30 minutes to collect his family's daily drinking water from one of 500 water stations that dot the slum. "Nothing has changed in my neighborhood since the last election [in May 2009]. There have been no new jobs or improvements. One little bridge has been added in the last four years, that's it," he said. The basic infrastructure is not in place to support such a large population, which expands by tens of thousands of people a year. Many of them still live in a ger – the traditional round felt tent they arrived with from the countryside and which gives the districts their name and also their sense of impermanence. Read more… Davaasambuu's is not an easy life. The area around his home is falling into disrepair with rubbish piling high. Nightly fights between drunks are getting worse. But at least he can take comfort in the fact that he now has a job with which to support his family, unlike many of his neighbors. "Not everyone in the ger district is dirt poor – some are doing OK – but it is a hard life," said Troy Tvrdik, whose educational and vocational training NGO, Flourishing Future, is based in the district. "Even when it is minus 40, you still have to go out to get water." A World Bank report published last year highlighted the plight of ger district residents, most of whom have limited access to electricity and no running water, sewage or central heating. The report found that during the long winter, when temperatures plummet into the minuses for up to eight months, poorer residents are forced to spend upwards of 40% of their income on wood or coal for heating, which adds to their financial burden as well as to the heavy clouds of pollution that hangs over the city. Roads are simple, unpaved mud paths and streets have no signs, streetlights or even names but are merely the gaps naturally placed between two rows of tents or shacks set up by newly arrived migrants without any input from the government. "The quality of the infrastructure is a major problem," said Mesky Brhane, a senior urban specialist with the World Bank, who helped produce last year's report. "[People] are clearly frustrated by the lack of infrastructural improvements by the government.‖ Protesters, many from the ger districts, have repeatedly descended on the parliament over the past few years, including a large protest last April, demanding a better distribution of the country's mining wealth. Despite the money pouring into the country from the mining of natural resources – Mongolia has a population of just 2.7 million yet has the world's largest mining exploration project and, in Tavan Tolgoi, the world's second largest coal deposit – little of that money makes its way to the residents of the shantytown. Even in the more central ger areas, where many residents have lived for over a decade and built more permanent wooden or brick houses, running water and central heating are unavailable and the streets remain dark, mud roads with open sewage streams and rubbish piled high.

Another big concern is the level of unemployment. While tens of thousands of rural migrants flood the city every year looking for work, setting up their tents at the point where last year's migrants stopped, unemployment remains a critical issue, especially in the ger districts where the unemployment rate can be as high as 62%, compared with 21% in the more developed areas of the capital. The Mongolian Government has officially declared 2011 "employment support year" in an effort to create 70,000 new jobs, but so far few signs of improvement have been visible. "One of the biggest problems is that there is very little economic activity within the ger districts due to inadequate infrastructure – everyone has to leave the area to work," said Brhane. "One new project the World Bank is working on is looking at ways to generate local economic development so people can live and work there. It would make a tremendous difference to people's lives," she said. "We have 12 people in our family and only two have work," said Dashkhord, 50. She and her family moved from the countryside five years ago after one harsh winter took away their entire herd of 100 animals. They arrived with next to nothing and simply pitched their tent on the outskirts of the sprawling shantytown. "The first year was really difficult. It took me over a year to find my first job – cleaning at a hotel. I spent the first few months simply collecting plastic bottles to sell," she said. Today Dashkhord earns £60 a month as a cleaner at a supermarket, a far cry from her pastoral background, while her eldest daughter looks after children for a wealthier family. "My other daughter is also looking for a job helping look after kids but it is hard since there are so few jobs and they are so far away – also, all the job ads now say you must be over 1.7 meters [5ft 6in], beautiful and well educated," she said. "For me, I wish we stayed in the village, but for my daughter and grandkids it is better here," said Baasankhuu, 63, who moved to a ger district three years ago and whose £40 a month pension is barely enough for her and her family to live on. "My grandchildren can get a better education in Ulaanbaatar and maybe have a chance at a real job and future."

Source: The Guardian

NO LEGAL GUARANTEE FOR MEDIA FREEDOM, SAYS NGO LEADER Mr. Kh.Naranjargal, Head of Globe International, has regretted how deliberate confusion has hindered freedom of the media in Mongolia in recent years. The differences between citizens‘ right to information and the media‘s freedom to operate without political pressure have been allowed to be blurred. The first is almost a precondition for media to access information about state organizations, but the Ministry of Justice is in no hurry to make it a legal right, insisting that a law granting media adequate freedom is already there. In actual practice, however, journalists‘ professional work is governed by the criminal code which calls for imprisonment for ―providing false information‖. Since two journalists were sent to jail, the media have been self-subdued, as their capacity to unearth facts is impaired with no right to information. The inability to verify facts makes them liable to be charged with publishing wrong information. Source: Zuunii Medee

ANNOUNCEMENTS 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. ___________________________________________ TRADE MONGOLIA 2011, ULAANBAATAR, JUNE 3 The State Property Committee, the Mongolian Stock Exchange, the Financial Regulatory Commission and Mongolian Mining Exchange NGO will be holding Trade Mongolia – 2011 on June 3 in Ulaanbaatar. The aim of the forum on capital and securities markets is to attract more domestic and foreign investors to the Mongolian capital market and to set up a platform where key players will be able to network. Business Council of Mongolia is an official Supporting Organization for the forum. More information can be had by calling Tel/Fax: 976-70116009; Mobile: 976-99081050, 91927088, 88097675; E-mail: info@trademongolia.mn, buyanaa@trademongolia.mn; and at www.trademongolia.mn. ___________________________________________

"MONGOLIA: CAPITAL RAISING AND INVESTMENT", ULAANBAATAR, JUNE 6-10 This annual Frontier Securities conference provides a perfect opportunity for those interested in exploring the latest developments in Mongolia's business environment to receive direct information from key sources. Investors will be able to discover lucrative opportunities and Mongolian companies will learn of various methods of raising capital abroad. Senior managers from the Korea Stock Exchange, the Hong Kong Stock Exchange, the Australian Securities Exchange, Deutsche Börse AG and Tokyo AIM will share their knowledge and insights regarding capital raising with the audience. The other major theme at the event will be investment opportunities in Mongolian mining, real estate and other expanding sectors. Confirmed participants include investment banks and investors such as BOCI, CICC, Citigroup, J.P. Morgan, Quam Asset Management Fund, as well as professional entities such as Hogan Lovells, American Appraisal, Moody's Investors Service and CRU International. _________________________________________________

CORPORATE GOVERNANCE FORUM, ULAANBAATAR, JUNE 13 The Fourth Annual Corporate Governance Forum, organized by the Corporate Governance Development Center, will bring together Mongolian business leaders and policy makers to identify and stress the linkages between corporate governance and capital market development. It will also present an open platform to discuss a number of topical issues relevant to the current state of corporate governance reform, and to help reach a consensus on the necessary policy and corporate level reform agenda. The forum will end with a resolution and an action statement by the participating business leaders on policies and legal and regulatory frameworks to remedy the current corporate governance challenges in Mongolia. The key discussion points would be:

Country experiences on the role of stock exchanges in corporate governance

Corporate governance reform process: progress and challenges for State-owned enterprises

Corporate governance in the banking sector: Impact of the new Banking Act, issues in CG assessment. Business Council of Mongolia is an Organizing Partner of the event. Requests for registration should be made to Ms. Tsend-Ayush - Tel: 99105111, Email: tsendee51@yahoo.com or tsend-ayush.t@cgdc.org.mn. ________________________________________________ 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. Zorgit, 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 BTV (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 from Sant Maral Foundation and the U.S. Embassy Mongolia‘s Commercial Section‘s ―2011 Mongolia Investment Climate Statement‖ are among the presentations 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 19, 2011 Currency Name Currency Rate US dollar USD 1,220.74

Euro EUR 1,738.09

Japanese yen JPY 14.91

British pound GBP 1,974.97

Hong Kong dollar HKD 157.02

Chinese Yuan CNY 187.68

Russian Ruble RUB 43.60

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.