BUSINESS COUNCIL of MONGOLIA NewsWire

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Issue 120, May 28, 2010

NEWS HIGHLIGHTS:

Business:

EBRD, IFC consider financing Oyu Tolgoi;

Polo Resources to unload Mongolian JV stake;

Hunnu Coal acquires major land position in South Gobi;

Prophecy Resource secures rail transport facilities for Ulaan Ovoo coal;

Manas Petroleum plans gravity survey of oil blocks;

“Getting more capital is not the only thing,” feels Petro Matad official;

Ministers tell MPs of OT employment positions;

USD25 million EBRD loan for APU;

Eznis Airways adds its fourth plane, starts flights to Ulan-Ude;

U.S. company with Mongolian links in talks with MonAtom;

Association of Mongolian Banks re-elect officials;

XacBank upgrades technology;

APU brands win medals at international competition;

BHP says Australia should tax value of minerals;

Rio Tinto shareholders protest against pay policy.

Economy:

Government submits all draft TT proposals to Parliament;

Banks can ask for Government loans to meet mandated reserve needs;

World Bank warns of higher inflation;

MPs, Speaker criticize budget revision;

Council set up for South Gobi development;

Draft law on increasing royalty rates submitted to Speaker;

SPC invites bids for restructuring Mongolian Stock Exchange;

President’s advisor sees Mongolia as a potential regional financial hub;

MP says artisanal miner issue should be resolved first;

Petroleum to cost more as Russia raises prices;

Meat prices unlikely to fall before autumn;

Local talent will emerge with development of capital markets;

Ulaanbaatar to have SME business center in every district;

Global mining industry “back to boom”: PwC;

Chile to study revising fiscal surplus rule;

Spread of mining taxes may mean pricier metals;

Divergent inflation rates spell potential trouble;

Hoarding resources threatens free trade;

China and U.S. strike conciliatory note.

Politics:

MPs refuse to discuss President’s draft on Parliamentary procedures;

MIAT cancels international flights following staff strike;

DP Head prefers coalition to “opposing for its own sake”;

Deputy Mayor faults MPs for not thinking big;

Doing business in Mongolia is a tightrope walk;

MPs consider raised status for Ulaanbaatar, its Mayor;

Speaker to chair next year’s 28-nation Asia-Pacific meeting;

Mongolians abroad want dual citizenship;

Mongolia remains cool as 2010 threatens to be hottest ever;

Present crisis raises worries about survival of nomadic life;

Sale of liquor to be monitored;

U.S. exhibition on Chinggis aims to change perceptions;

China’s century is not yet upon us;

China embarks on bold green techn ology mission.

*Click on titles above to link to articles.

BCM MONTHLY MEETING RECAP

Altogether 65 members attended the monthly meeting on May 24 at the Khan Bank Theater on Seoul Street. The change of venue was found necessary because the space at the Open Society Forum had become too small for the strong attendance at recent meetings.

Mr. Laurenz Melchers was in the chair and made several announcements about upcoming events. A meeting with the Prime Minister was likely to be held in the near future. A big German delegation is coming, with its focus mainly on mining. Mr. Layton Croft, who has been associated with the BCM since the very beginning and is on its Board of Directors, will be leaving Mongolia soon. His absence will be deeply felt.

Executive Director Jim Dwyer revealed that membership now stood at 145. The most recent additions are Crown Worldwide, a Hong Kong-based relocation company; Sustainability East Asia, an environmental and occupational health safety consultancy; Knauf Gips Mongolia, which deals in construction and interior decoration material; Kito, a real estate developer; and Aspire Mining, an Australian-based miner acquiring a Mongolian coal deposit from Altai Gold. The first of the evening‘s three presentations was by Mr. D. Mandakh, Chairman, Authority for Fair Competition and Consumer Protection of Mongolia. His organization is responsible for implementation of the Competition Law and also of the Consumer Protection Law. Their goal is to maintain a sustainable economy and this they do through investigations and market studies. For example, he cited how 20 audit firms have been fined for keeping their rates too high for smaller firms to use their services for the mandatory annual income of accounts. However, the present provisions of the law permit a maximum of fine of MNT250,000 which, Mr. Mandakh felt, was ―a silly amount‖. Even then, the quantum of fines levied has jumped up from MNT1,840,500 in 2009 to MNT12,670,000 in the first four months of 2010.

Mongolia does not have a tradition of competition in its economy and this makes their job somewhat difficult, but they are closely collaborating with similar bodies in other countries to identify areas of expansion and improvement.

Mr. Marat Utegenov, CEO, Mongolia Development Resources (MDR), which is all set to become the first MSE-listed investment holding company, listed their activities and said they hoped to begin secondary offers next year. Work will begin in real earnest as soon as the Financial Regulatory Commission grants them re-registration as Mongolia Development Resources under a new prospectus. Mr. Utgenov ended by asserting his company‘s commitment to protecting shareholders‘ rights and to corporate governance.

This last was the subject of the final presentation, by Mr. J. Unenbat, Executive Director, Corporate Governance Development Center. The Center became functional in June last year. Earlier efforts to instill some norms of governance, particularly in banking, had not come to much, but the Center has been making serious efforts to present the concept of corporate governance as more than a ―fashion statement‖. It now has 12 core module courses, including those for Secretaries and also Directors, and also offers customized training. It has started governance courses for MBA students, has conducted training for trainers, as also in-house training. USAID and IFC have been regular

partners. Mr. Unenbat hoped the awareness will gradually grow, for only a reputation for proper corporate governance will attract and keep capital here.

BUSINESS EBRD, IFC CONSIDER FINANCING OYU TOLGOI Ivanhoe Mines has signed a joint mandate letter with the European Bank for Reconstruction and Development (EBRD) and the World Bank Group's International Finance Corporation (IFC), which will consider providing and arranging finance for the company's USD4.6-billion Oyu Tolgoi project. Under the terms of the letter, the EBRD and IFC may provide a two-part package, including up to USD300 million each as part of a ground of primary lenders, in limited recourse project finance, Ivanhoe has said. The second part of the package would involve the mobilization of another USD1.2 billion from commercial lenders under a 'B loan' structure. Ivanhoe has also has received expressions of interest from export credit agencies to provide up to USD500 million in direct project debt financing. "Securing the proposed financing package - and combining it with possible additional subscriptions of more than USD1 billion through our existing agreements with Rio Tinto and the funds from our cash position that are earmarked for project development expenditures - would advance Ivanhoe a long way toward completion of the construction of the Oyu Tolgoi mine," chairperson Robert Friedland said in a statement. Rio Tinto currently owns 22.4% of Ivanhoe and has the right to increase its holding to as much as 46.6%. The Mongolian government has a minority 34% stake in the project. The company could fund the balance of the capital requirements for Oyu Tolgoi through additional debt, equity offerings, a credit facility, the sale of subsidiaries, equity investments, project financing and/or various corporate transactions, Ivanhoe said. Ivanhoe and adviser Hatch Corporate Finance are continuing discussions with large commercial banks and export credit agencies about the arrangement of the required limited-recourse financing package, with 13 banks having now submitted expressions of interest in providing amounts totaling more than USD2 billion. Two big commercial banks will be selected to join the EBRD and IFC in a group of lead arranging banks, which would jointly structure the debt financing package. Ivanhoe wants the debt package completed by the first quarter of 2011.

Source: Reuters.com, www.miningweekly.com POLO RESOURCES TO UNLOAD MONGOLIAN JV STAKE Polo Resources has announced execution of a memorandum of understanding with Peabody Energy Corporation and Winsway Coking Coal Holdings for the sale of Polo's 50% interest in the Peabody-Polo Resources B.V. Mongolian joint venture. The JV was formed to hold all of Polo's coal and uranium assets in Mongolia. Polo chairman Neil Herbert said, ―We are pleased to be executing the divestment of our non-core holding in the joint venture in Mongolia.‖ Polo, Peabody and Winsway will negotiate the terms of a sale of Polo's interests in the JV for USD15 million in cash, and USD20m payable within 12 months. In addition Polo will receive a 1% royalty for coal sold from licenses currently held in the JV.

Source: Business Financial Newswire HUNNU COAL ACQUIRES MAJOR LAND POSITION IN SOUTH GOBI Hunnu Coal Ltd. has acquired a 90% interest in the Tsant Uul Coal Project in the world class South Gobi coking coal province. The Project covers over 59,000 hectares and is located only 40 km to the south of the Tavan Tolgoi deposit and 6km from the present coal haulage road to China. Hunnu said due diligence at Tsant Uul has included the drilling of seven diamond core drill holes for approximately 960 meters. Coal was intersected as close as 7.8 meters from the surface. Core samples have been submitted for test work and results are pending. The company is currently assessing further acquisition opportunities in the South Gobi.

Source: Hunnu Coal PROPHECY RESOURCE SECURES RAIL TRANSPORT FACILITIES FOR ULAAN OVOO COAL Prophecy Resource Corp. has signed an agreement securing the right to load and the capacity to transport by rail 1.5 million tons of coal annually from its Ulaan Ovoo coal project, with the option to increase capacity based on availability. On May 21, Prophecy contracted Leighton Asia Ltd. to produce 250,000 tons of coal at Ulaan Ovoo in 2010, raising the volume to 2 million tons in 2011. Having established the mine plan and secured rail transport, Prophecy is finalizing a truck leasing agreement to provide hauling of coal from mine

site to Sukhbaatar railway station, thus rounding up the entire transportation logistics to Chinese and Russian markets. Source: www.prophecyresource.com

MANAS PETROLEUM PLANS GRAVITY SURVEY OF OIL BLOCKS Switzerland-based Manas Petroleum Corp. has planned an upcoming gravity survey to prepare a 300-km seismic campaign on blocks 13 and 14 in Mongolia. Manas is debt free and believes that it will be able to meet with the existing funds all its cash requirements planned for the next 12 months. Manas' team of geologists and geophysicists in Ulaanbaatar has initiated the re-interpretation of existing geological data. A plan for environmental protection and restoration has been prepared but is subject to the approval of the Ministry of Environment in Mongolia. Data from a total of 451 existing wells drilled in the Zuunbayan and Tsagaan Els oil field areas and in the company's prospects has been collected. All well data was translated from Russian and Mongolian into English for analysis by international experts.

Source: www.manaspetroleum.com “GETTING MORE CAPITAL IS NOT THE ONLY THING,” FEELS PETRO MATAD OFFICIAL Ms. T.Amarzul, Executive Director of Petro Matad LLC, rates the chances of Mongolian companies getting listed on international stock exchanges as good, but a company must be clear why it wants to go for an IPO, as there are many other ways of attracting investment. ―You can expand and go global, and you can stay put where you are,‖ she says. Getting internationally listed will most likely get a company foreign investment but ―it might also entail instituting changes in the company‘s governance practices and financial transparency, amongst other things,‖ she cautions. ―Anyone who wants to keep ownership of the business restricted to those of his choice should not go for an IPO as that will let others own part of the company. Getting more capital is not the only thing, as every entrepreneur has the right to choose his own way of owning, managing, and expanding the business,‖ is her advice.

Source: The Mongolian Mining Journal MINISTERS TELL MPs OF OT EMPLOYMENT POSITIONS Minister of Minerals and Energy D. Zorigt, Minister of Social Welfare and Labor T. Gandhi, and Ulaanbaatar Mayor G. Munkhbayar told a meeting of MPRP MPs last week that agreements have been signed with Oyu Tolgoi LLC for the creation of 3,300 job places for Ulaanbaatar residents. They will be chosen from among those registered at labor offices and will then be enrolled in training courses. The company, which already employs over 1,300 Mongolians, will also be responsible for putting 700 students in vocational schools. It will offer service and supply contracts worth USD400 million to Mongolian companies. The MPs decided to review progress on the above after a month. Source: Udriin Sonin, Zuunii Medee

USD25 MILLION EBRD LOAN FOR APU The EBRD is providing USD25 million loan to APU, a private brewery, to support the company's drive to expand production capacity and diversify its product range. Established in 1924, APU is the leading beverage producer in Mongolia and one of the first privatized companies in the country. Its products include beer, vodka, juice, UHT milk in Tetrapak packaging, mineral water and soft carbonated drinks. The company, which is locally-owned, is aiming to launch production of canned beer to provide consumers with a competitively priced substitute for imports. APU operates the largest distribution network in the country, and it has been recognized for its excellence in management and continuous innovation. The proceeds of the EBRD loan will help APU to upgrade the brewery facility, increase beer production capacity and to purchase a beer canning line. In addition the project will finance APU‘s working capital needs related to beer production. This project will help APU double its beer production capacity by 2014 and create new jobs. Additionally, due to the implementation of advanced technology, APU will be able to significantly improve its energy efficiency, cutting emissions and production costs. ―The EBRD‘s investment is helping APU to bring to consumers quality and competitively priced products and to raise the environmental standards at its production facilities. The project will enable APU to improve its energy efficiency, which will have a strong demonstration impact on other businesses in Mongolia‖, said Mt. Philip ter Woort, Head of the EBRD Office in Mongolia.

Source: EBRD EZNIS AIRWAYS ADDS ITS FOURTH PLANE, STARTS FLIGHTS TO ULAN-UDE Eznis Airways is adding a fourth plane to its current fleet of three Saab 340B. The aircraft which is also a Saab340B has joined the Eznis fleet on May 27, 2010 at the Ulaanbaatar International Airport and will be in service from June 1. The acquisition of another 34-seat aircraft is a step forward for Eznis in positioning itself for future growth in terms of an expanded route network with more destinations and increased frequencies. The aircraft will also be used for Eznis‘ short-haul regional (international) services such as Hailar and Ulan-Ude. The expansion of fleet is a significant event not only for Eznis, but also for the entire airline industry in a landlocked country which has to depend on efficient and reliable transport to access third country markets. The aircraft which formerly flew for Mesaba Airlines, the Eagan, Minnesota, U.S.-based regional carrier has been bought by Eznis using bank loan proceeds. From June 1 Eznis Airways is for the first time launching scheduled air service between Ulan-Ude (Russia) and UB. Ulan-Ude is the capital city of Russia‘s Buryat Republic which is located about 100 km southeast of the picturesque Lake Baikal. There exist substantial cultural, ethnic and trade relations between Mongolia and the Buryat Republic which has the largest ethnic Mongolian group in Russia. The flights are on Tuesdays and Saturdays. Source: www.eznisairways.com U.S. COMPANY WITH MONGOLIAN LINKS IN TALKS WITH MONATOM U.S.-based Mongolia Forward has opened talks with MonAtom, Mongolia‘s State-owned uranium development company, to form a joint venture to explore, mine, and process uranium in Mongolia. In accordance with the recently enacted Mongolian Nuclear Energy Law, MonAtom will own 51% of the project. Mr. Leo A. Giacometto is Chairman and CEO of Mongolia Forward. He and another company of his, GAGE International, are key advisors on multiple projects in Mongolia including the joint venture between PepsiCo International and GN Beverages, and Gemnet, an Internet service provider. Promising that Mongolia Forward will bring the world‘s best standards and practices to Mongolia‘s uranium mining sector, Mr. Giacometto has said in a statement, ―We intend to work side by side with MonAtom and the Mongolian Government to create a successful and sustainable uranium fuel sector in Mongolia.‖ Mongolia Forward has several Mongolian businessmen on its Board of Directors, along with uranium mining professionals, and political and financial notables, such as Mr. John Bolton, former U.S. Permanent Ambassador to the UN. Source: Onoodor

ASSOCIATION OF MONGOLIAN BANKS RE-ELECT OFFICIALS The recently held Fifth Annual General Meeting of the Association of Mongolian Banks re-elected Mr. B. Medree as President and Mr. M. Bold as Executive Director for another year. The President‘s report detailed how the Association had been focusing on policy issues such as outlasting the global financial and economic crisis with minimum damage, interacting with the government to enable the banking sector to devise and offer services according to international standards, and keeping authorities informed of members‘ views on the state monetary and economic policy, and on laws and regulations. The Association also worked for reducing costs of duplication in banks‘ operations, installing an integrated credit information database system, and having an integrated online center to introduce a single service standard.

Source: Udriin Sonin XacBANK UPGRADES TECHNOLOGY XacBank has upgraded the technology used in all branches, accounting centers, and extensions. This will save customers‘ time, make monitoring of transactions easier and quicker, expedite service, and ensure the same quality of work at all the branches of the bank.

Source: Zuunii Medee APU BRANDS WN MEDALS AT INTERNATIONAL COMPETITION Two brands of vodka from APU won laurels at the just concluded International Spirits Challenge – 2010 show in London. Soyombo was awarded the gold medal at the World Beverage Competition for ―reminding the world of Mongolian history‖, and the Yorool brand won the silver. Brand products of

over 1,000 companies from all over the world participated in the competition. Source: Zuunii Medee

BHP SAYS AUSTRALIA SHOULD TAX VALUE OF MINERALS Australia‘s proposed super profits tax would ―dramatically‖ slow investment in the country‘s resources sector, diversified miner BHP Billiton has said, proposing that a tax be levied on the value of minerals. The miner, which has criticized Australia‘s new taxation policy on mining profits, explained that, when levied on mineral value, it would not unintentionally penalize investments in infrastructure, processing or other enabling activities. It also proposed that the tax should vary by commodity, arguing that investment characteristics and margins of individual minerals were different. BHP Billiton, led by CEO Marius Kloppers, told the government‘s resources tax consultation panel that the proposal lacked four principles of sound tax reform. It said a reform should ensure that the overall tax burden was competitive with other mineral resources countries, be prospective in application to preserve the country‘s position as a stable investment destination, be levied on the value of minerals alone, and vary by commodity. ―BHP conveyed to the resource tax consultation panel that the proposed tax does not recognize how investment decisions are made in the industry and would place Australia in an uncompetitive position globally,‖ the company said in a statement after the meeting. BHP also urged the panel to recommend to the government that time be taken to ―properly engage‖ with the industry on all aspects of the tax. Australia plans to introduce a 40% tax on super profits in 2012. Ivanhoe Australia said the Australian government should take heed of Mongolia's failed attempt to impose a hefty windfall profits tax on mining companies.

Source: www.miningweekly.com RIO TINTO SHAREHOLDERS PROTEST AGAINST PAY POLICY A total of 41 per cent of Rio Tinto shareholders failed to support the multinational miner‘s remuneration report, in the biggest shareholder protest vote this year against top mining companies‘ pay policies. Rio, which is dual-listed, published the results of its annual meetings on Wednesday after concluding its Australian meeting. Some 37 per cent of shareholders voted against the company‘s pay policy, which saw Mr. Tom Albanese, chief executive, earn a base salary of £907,000 and a total pay package worth £3.8m for 2009. Including abstentions the votes not in favor rose to 41 per cent. Protest votes against pay became notable this year among mining investors. The industry was thrown into financial turmoil last year by sharp drops in commodities prices. Many top miners coped with the financial strain by asking shareholders for money in the form of rights issues. Mr. Jan du Plessis, Rio‘s chairman, noted the role of ―increasingly vocal proxy voting agencies like Riskmetrics and CGI Glass Lewis‖ in the outcome. In a report advising institutional shareholders how to vote, Riskmetrics said the year-on-year pay rise at Rio was ―controversial in the context of the overall shareholder experience since the Alcan deal, taking into account levels of indebtedness, and the Chinalco transaction and the rights issue‖. Executives‘ base salaries at Rio have been frozen since 2008 and will continue to be this year. But a new provision will allow executive bonuses to swell from 120 per cent of base salaries to 200 per cent of base salaries in 2010. ―I am going to make it my business personally to understand these concerns more fully by engaging with and listening to our major shareholders in the months ahead,‖ Mr. du Plessis said. Source: The Financial Times

ECONOMY GOVERNMENT SUBMITS ALL DRAFT TT PROPOSALS TO PARLIAMENT The Government submitted to Parliament on Thursday morning the report of the working group on Tavan Tolgoi, which it had discussed and approved the day before. It includes the draft of the investment agreement, suggestions for amendments to the Mineral Law, the draft of the resolution Parliament has to adopt to authorize exploration of Tavan Tolgoi, the draft of the tender bid, and a comprehensive program on development of the South Gobi region. The National Security Council discussed the report on May 18. Minerals Minister D.Zorigt told media after the Government meeting that the tender announcements will be published in newspapers after receiving approval from Parliament and there

will be no restrictions on companies interested in bidding. He said the report has been prepared with the interest of Mongolia and Mongolian companies in mind. Source: Ardiin Erkh

BANKS CAN ASK FOR GOVERNMENT LOANS TO MEET MANDATED RESERVE NEEDS The Central Bank has clarified to the media that its proposed program to strengthen the banking sector will include provision of equity capital and reserve funds to commercial banks to enable them offer more credit, to help them regain and retain public trust, and to make sure there is no need for the government to step in to meet their obligation to account holders. All banks will be told to have a certain amount of reserve funds, and, if they cannot raise it themselves, they can ask for financial support from the Government. However, all such grants will have to be repaid under a strictly enforceable timeframe. The Central Bank will receive progress reports every two months. The government will not interfere in the day to day operations, not even where it has provided financial support of equity capital, which must be repaid by 30 months. Failure to do show will authorize the Government to transfer the amount of outstanding loan into shares of the bank, claiming them for itself or selling them to other investors. The statement from the Public Relations Department of the Central Bank did not contain a specific answer to a question on whether foreign individuals or institutions will be allowed to bid, or whether the whole purpose of the program was to permit and encourage such foreign investment in the country‘s banking sector.

Source: Onoodor WORLD BANK WARNS OF HIGHER INFLATION Mr. Arshad Sayed, resident representative of the World Bank in Mongolia, has told Deputy Prime Minister N.Altankhuyag that the annual International Monetary Fund has not been able to issue its annual review of the budget policy, and this may make it difficult for the Asian Development Bank, the Government of Japan and the World Bank to meet its commitments to its country. Though nothing official has been said, it is believed the delay has been caused by the proposed revisions to the budget. Mr. Sayed felt the terms of the revision could trigger a sharp rise in the rate of inflation, which could go up to 20-30 percent by the end of the year. This might lead people to save in foreign currencies, which brings huge risks to the economy. He suggested that the Government put all additional revenue in Central Bank reserves.

Source: Ardiin Erkh MPs, SPEAKER CRITICIZE BUDGET REVISION Members of the Standing Committee on State Structure have criticized the Government proposal to sell bonds worth MNT170 billion. Minister of Finance S. Bayartsogt explained that the economic crisis and the dzud have exhausted resources and the government needs MNT100 billion to plug the budget deficit and another MNT70 billion for current expenditure. MPs criticized the Government for its failure to control inflation, and wanted detailed information on the present foreign and domestic debt situation, and on how proceeds from earlier bond sales have been actually used before they could agree to a fresh sale. There was also criticism of how Mongol Gazar could sell Olon Ovoot mine to Just Group for USD130 million when loans taken from banks against that mine‘s license remain unpaid. That loss had proved too much for Zoos Bank and Anod Bank and the Government had had to sell bonds to save the former. The MPs felt there was a deliberate policy behind taking measures that increased the budget deficit and then selling bonds to plug the hole. They felt unscrupulous companies were being helped, while herders who have lost their livestock are left to fend for themselves. The Finance Minister said the Government had no choice after Parliament decided to fulfill the political parties‘ pledge to pay cash to citizens, the dzud damage, and the decision to raise public servants‘ wages by 30%. Speaker D. Demberel said the budget revision could have been kept to much less than the proposed 17% now if wages had not been raised. That decision would certainly exacerbate inflation.

Source: Undesnii Shuudan COUNCIL SET UP FOR SOUTH GOBI DEVELOPMENT The Government has set up a South Gobi Regional Development Council in terms of the agreement with Ivanhoe Mines. The Council will assist the government in preparing strategic plans and the

budget, identifying programs, allocating funds and then implementing them. Its main areas of work will be population and city planning, infrastructure development, and ensuring sustainability and stability of the Oyu Tolgoi project. Mr. Kh.Badamsuren will chair the Council.

Source: Ardiin Erkh DRAFT LAW ON INCREASING ROYALTY RATES SUBMITTED TO SPEAKER The Finance Minister‘s draft amendment to the law on minerals, seeking to impose higher royalty rates for mineral resources, was last week submitted to the Speaker for discussion in Parliament. The draft calls for a graduated rate of royalty. The present basic rate of 5% will remain unchanged, and the additions proposed will not exceed another 5%, thus making the maximum royalty payable 10 percent. The new rates will apply to 12 minerals, including copper, gold, molybdenum, iron ore and coal. The Government hopes to earn MNT80 billion a year from the new measures initially. The amount is likely to go up if present trends in commodity prices continue and as production picks up in Mongolia following strategic mining projects going on steam.

Source: English.News.mn SPC INVITES BIDS FOR RESTRUCTURING MONGOLIAN STOCK EXCHANGE The State Property Committee (SPC) has announced the guidelines for companies, whether foreign or local and whether individual business entities or consortiums, that want to participate in the tender bidding process for selection of a management team to take responsibility for restructuring the operational procedures of the Mongolian Stock Exchange (MSE). Once the team has completed the contemplated operational improvements, the SPC will begin the process of privatizing the MSE. All interested in participating in the bidding must submit their request before 4 pm on June 11. More details can be found at the SPC office.

Source: Zuunii Medee PRESIDENT‟S ADVISOR SEES MONGOLIA AS A POTENTIAL REGIONAL FINANCIAL HUB Mr. Ch.Otgochuluu, advisor to the President, was recently in Germany to study the operation of the Frankfurt Stock Exchanges and the legal environment regulating the capital markets in Germany. He feels at present the majority of Mongolian owners of companies do not have the required professional expertise to raise money in foreign markets. Appointing foreign consultants is a very expensive proposition. Some stock exchanges also stipulate that a company has to be listed on a domestic stock exchange first, and the capital raised there has to be offered as collateral if the company wants to be listed abroad. All this will take time, but if the Mongolian Stock Exchange is developed instead, foreign companies could well agree to trade their shares here. Gradually at least some of the billions of dollars circulating on the foreign stock exchanges will flow to Mongolia. Wages will rise here, and qualified Mongolians will not have to migrate. With proper management skills and a stable and satisfactory legal environment, Mongolia can well become a major financial center, at least regionally. He is confident that Mongolians have ―the latent capability to do well, all we need is the impetus and incentive‖.

Source: The Mongolian Mining Journal MP SAYS ARTISANAL MINER ISSUE SHOULD BE RESOLVED FIRST MP L. Gantumur (DP) feels the law prohibiting minerals exploration and extraction in river and forest areas will achieve little of substance, but will encourage artisanal miners to move into the areas vacated by license holders. The work on identifying such areas is proving difficult as the definition of forests is imprecise and apparently includes land with bushes and shrubs, which brings almost everything under prohibition. Demarcation of river basins is also not clearly formulated. People who have already invested in mining and exploration work must be compensated according to the law, but assessment of claims will be a complicated and lengthy process. Besides, this year‘s budget has no provision for such compensation, which will likely require several billion MNT. He admitted that the environment is being degraded, forests are vanishing, and water sources drying out, but said the solution has to be holistic and must follow a logical sequence of actions. Revoking licenses without resolving the issues related to 100,000 or more artisanal miners would create more problems. If they cannot be prevented from taking over large mining areas, without paying license fees and taxes, the entire sector will be in jeopardy.

Source: Zuunii Medee

PETROLEUM TO COST MORE AS RUSSIA RAISES PRICES The Association of Petroleum and Gas Importers has announced an increase in fuel price, because of higher rates charged by the Russian exporting firm. Rosnefti is charging USD31 more per ton of A-80, USD39 for A-92, and USD76 for diesel. The Association has not said what the retail rates in Mongolia would be and how they will vary from importer to importer. The Association has expressed its disappointment the Mongolian and Russian governments have not yet been able to coordinate their tax policies.

Source: Zuunii Medee MEAT PRICES UNLIKELY TO FALL BEFORE AUTUMN There is no immediate relief in sight for harassed housewives. Meat prices that have skyrocketed to reach MNT6,000 at some markets are unlikely to fall significantly before the autumn. Summer is when consumption goes down in Mongolia, but sellers fear that with supply erratic that will not help bring prices down this year. Right now prices are high because supply is inadequate following the death of so many animals. Many families have started buying chicken more, while the poorer sections are buying smaller portions of their favorite lamb. At Khuchit Shonkhor, Ulaanbaatar‘s largest and mostly wholesale market, everybody complain of low sales. One stall holder said in earlier years he would sell the meat of two horses on an average day, but now he has to cajole people to buy. Beef salesmen agree. Most of them also feel that the pricing chain does not work well. Herders often ask for high prices, but that has to be accepted as supply is low. That will change only in autumn when herders will bring animals to sell as students come in numbers to study at universities in Ulaanbaatar.

Source: English.News.mn LOCAL TALENT WILL EMERGE WITH DEVELOPMENT OF CAPITAL MARKETS Mr. D.Achit-Erdene, President of the Mongolian International Capital Corporation, feels a decision on whether to collaborate with the Hong Kong or the Frankfurt Stock Exchange should come only after enforcing here the information disclosure requirements that have already been standardized worldwide. In general, the accounting system followed by Mongolian companies is very poor. ―The language of business is said to be accounting and there is no conversation between a domestic company and an investor‖ in Mongolia, he says. Certain ―essential facts of corporate governance and financial transparency‖ are not practiced by many companies here and he calls this ―the biggest obstacle to the development of our stock exchange and attracting investment‖. Source: The Mongolian Mining Journal

ULAANBAATAR TO HAVE SME BUSINESS CENTER IN EVERY DISTRICT Every district of Ulaanbaatar will have its own SME business center soon, under a program launched in January. Apart from providing training on entrepreneurship, identifying profitable areas of business, and help in finding markets, these centers will also offer graduates concessional loans and some other forms of support in the initial months to put them on their feet. These may include some space where no rent will be charged, and the user will have to pay only for the electricity. There will be special programs for women entrepreneurs. The first of these was recently held in Bayanzurkh district where 30 female heads of households who already run some business attended a workshop to improve their skills.

Source: Onoodor GLOBAL MINING INDUSTRY “BACK TO BOOM”: PwC With commodity prices and mining revenues returning to record 2007 levels, the global mining industry has essentially returned "back to the boom", a PricewaterhouseCoopers (PwC) executive has said, highlighting that growth was largely driven by demand from China. PwC mining director Hein Boegman said that the global mining industry should prepare itself for a "watershed moment" where China would pass North America as the industry's largest customer in the "very near" future. China is predicting an 8% growth for the year, on the back of the economic slump, and Mr. Boegman said that it appeared that the country would be a driving force behind the global mining sector, with India, Brazil and Russia following its lead. Nevertheless, Mr. Boegman noted that mining and operating costs would most probably play a significant role in commodity prices going forward. The sector could lose some footing, owing to increased government interference. Industry CEOs had expressed concern that governments facing challenging budget deficits were looking to the mining sector as a source of additional taxation. Mr. Boegman noted that countries should not "kill the goose that laid the golden eggs".

Read more… Although 2009 saw overall revenues decline, a drop in net profit and a decrease in cash flow in the industry, none of the Top 40 companies were subject to bankruptcy or voluntary administration provisions, largely owing to their ability to remove or restructure debt overhang, strengthening commodity markets towards the second half of the year and the positive impact on demand partly resulting from government stimulus packages around the world. Between the first half of 2009 and the second half of 2009, the mining industry was able to show a market capital rebound of 118% and reduce its debt levels by 21%. "The global mining industry has shown strong long-term fundamentals during the recessionary period that supported a sharp recovery, and these fundamentals will remain the key driver of the industry going into the future," concluded Mr.Boegman.

Source: www.miningweekly.com CHILE TO STUDY REVISING FISCAL SURPLUS RULE Chile's government will study revising the country's structural fiscal surplus rule, which the state has used to save windfall copper profits. The government has appointed a committee of experts to study the anti-cyclical role of the rule and find ways to increase its transparency, declaring that the goal was to perfect it rather than replace it. The rule helped Chile save billions of dollars in copper boom profits in a sovereign wealth fund which it later tapped to counter the impact of the global financial crisis -- and which it plans to tap again to help fund reconstruction after the February earthquake. "We have asked the committee to improve methodology, make the rule more transparent, simplify it and create a mechanism or rule to govern changes in parameters," the Finance Minister told reporters. "We have also asked it to look at the anti-cyclical role of the rule and propose improvements." For years economists have favored relaxing the rule to free more government funds, which could help the equities market. The rule states that the government must have an annual surplus, so long as the copper price is at its long-term forecast level and the economy is growing at its underlying potential rate. The rule was relaxed from 1 percent of GDP to 0.5 percent for the 2008 budget year, and then relaxed again to zero in 2009 to jump-start the economy and counter the ravages of the global financial crisis, though the reductions were supposed to be temporary. Chile's fiscal deficit was 0.04 percent of gross domestic product in the first quarter, as surging copper prices boosted revenues, but did not fully reflect the impact of the quake. The Government sees a structural deficit of 1.2 percent of GDP for 2010.

Source: www.miningweekly.com SPREAD OF MINING TAXES MAY MEAN PRICIER METALS The Australian government's popularity at home has plummeted since its announcement of a mining super-tax. But the move has struck a chord abroad. Brazil and China may follow Australia's lead. India and the Democratic Republic Congo have since promised new mining taxes. There could be major consequences for the industry. Multiple windfall levies could push up metal prices by 10% to 15% longer term, according to UBS. And there could be a major shift in where mining capital is deployed. Of course, the mining industry may have to get used to higher taxation world-wide, particularly if higher commodity prices continue to underpin profits. The sector is relatively undertaxed at around 48%, compared with the effective average 65% rate paid by the oil industry. For investors, it becomes a question of picking companies with the smallest tax risk, such as those which have little or no exposure to Australia. BHP Billiton has the low costs and strong balance sheet to absorb tax increases and flex capital spending despite its Australian presence. Some resource-rich countries like Canada, Chile, Russia and Kazakhstan will likely resist the temptation to raise taxes to increase their share of mining investment. After all, the industry is struggling to keep up with demand. The recession crimped capital spending but the global economy is beginning to recover, and has done so strongly in countries such as China. True, mineral deposits have to be mined where they are found. But as South Africa discovered, an unparalleled resource base was no protection against a sharp decline in its share of global mining value creation amid years of regulatory and political uncertainty. Capital is mobile.

Source: The Wall Street Journal Asia DIVERGENT INFLATION RATES SPELL POTENTIAL TROUBLE Inflation has sped up in economies like China, India and Brazil, while prices remain tame in many

developed nations, highlighting a potential troublesome unevenness in the global recovery. Last month, U.S. inflation slid to its lowest level in 44 years, in the latest sign that high unemployment and excess production capacity were holding down wages and prices in much of the developed world. Developing economies, however, are taking steps to contain high inflation in their booming markets—moves that some economists worry could damp demand for goods from abroad. This could hurt developed countries, where recoveries are partially tied to exports to emerging nations. Emerging economies are going to have to clamp down, which means they cannot sustain the type of demand growth they've had recently. That has implications for the U.S., Germany, Japan and any country that has exports into those countries. A U.S. inflation report released last week offered evidence that retailers are holding off on price increases, even though prices of raw materials ranging from lumber to cotton are rising amid strong demand from Asia. Stripping out volatile food and energy items, consumer prices were flat. The 0.9% annual growth rate is well below the Federal Reserve's informal, long-term inflation goal of 1.5% to 2.0%. While central bankers typically worry about too much inflation, too little can also be a problem. If prices don't rise enough to allow the U.S. Federal Reserve to increase its interest-rate target from the current near-zero level, for example, policy makers would be left without much room to ease rates if the U.S. economy takes a turn for the worse. Read more… Europe, too, is grappling with weak or falling prices. That trend could exacerbate debt problems by affecting sales tax and other revenue governments need to close gaping budget deficits. Asian countries are experiencing much higher inflation rates. One reason is that by effectively tethering their currencies to the U.S. dollar, China and other major exporters expose their economies to the influence of U.S. interest-rate policy. As the Fed holds interest rates near zero to support the U.S. recovery, that is providing excess stimulus to the already-strong economies in Asia. Beyond that, emerging economies are much more susceptible to the rising commodity costs that are putting pressure on prices around the world. It is estimated that labor costs account for about 70% of inflation in the developed world, and less than half in the developing world. The rest, he says, is largely driven by commodity prices. These have eased somewhat from recent peaks, but are still high compared to last year. To be sure, inflation in much of the developing world has so far been moderate by historical standards, and policy moves have been aimed mainly at keeping credit growth on target rather than hitting the brakes to bring down inflation. Still, measures of inflation that strip out food have started to rise, worrying economists and investors that policy makers will be forced to raise rates and possibly snuff out growth. In India, annual nonfood inflation rose to 8.1% in April, from 7.2% in March, as the nation's economy surged. China's consumer-price inflation rose 2.8% in April from the year earlier, compared to 2.4% in March, due to increases in both food and nonfood items. China also is grappling with a possible housing bubble, as average urban property prices rose 12.8% in April from the year earlier. China and India both have raised requirements for banks to hold reserves against loans as a way to restrict borrowing. Brazil and India have raised their interest-rate target, something China hasn't done yet. Elsewhere in Asia, policy makers for the most part have taken only tentative steps to change the loose monetary policy implemented during the depths of the global financial crisis. Australia has been the most aggressive, raising interest rates six times since October. Malaysia and Singapore also have taken policy actions. Yet several prominent Asian economies, including Indonesia, South Korea and Taiwan, are operating with crisis-level interest rates while growth has bounced back to pre-crisis levels.

Source: The Wall Street Journal Asia HOARDING RESOURCES THREATENS FREE TRADE The international trading system is about to encounter an entirely new challenge. The global hunger for natural resources is inspiring a surge in restrictions on exports of crucial raw materials. As with so much else in trade nowadays, the focus of this emerging conflict is on China. The Chinese stand accused by some trading partners of hoarding rare elements and other raw materials that are essential to many globally traded products. But China is hardly the only country considering export restrictions as the race for natural resources heats up in the wake of the recession. The sharp increase in restraints is happening world-wide, and raises fundamental questions about the rules and the resiliency of the World Trade Organization. Export restrictions create economic inefficiencies by distorting the allocation of limited natural

resources. They subsidize local producers by lowering the domestic prices of their inputs, and increase prices for foreign producers. That gives foreign producers an artificial incentive to move offshore to be closer to their raw material sources. For these reasons, and more, restrictions on exports are every bit as harmful as restrictions on imports. Historically, however, conflicts over trade have almost always been about import barriers. It remains to be seen whether the current rules of the WTO-based trading system are strong enough to resolve the growing number of disputes over restrictions on exports. Read more… The first test will likely come from a pending lawsuit in the WTO by the United States, the European Union and Mexico, challenging alleged Chinese export restrictions on nine key raw materials such as coke, bauxite, fluorspar and magnesium. These are vital to the production of steel, aluminum and certain chemicals. China produces 60% of the world's coke, and is a major producer of the other raw materials. A second, and much tougher test, will come if the U.S., the EU, Japan and other affected countries follow up by filing a WTO complaint challenging increasing Chinese restrictions on the export of "rare earth elements". These are basic and so far irreplaceable parts of electronics that are bought and sold throughout the global economy. China mines 93% of the total world production of 17 rare earth elements in the middle of the periodic table. Global demand for them is rising. They are used, often in small amounts, to make magnets, lasers, computer monitors, fiber-optic cables, cell phones, ceramics, stainless steel and much more. Importantly, rare earth elements are critical to new green technologies. Their magnetic properties are important to low-energy light bulbs and wind turbines, and essential to producing batteries for hybrid and electric cars. And, ominously, these elements have extensive military uses. Missiles, radar, navigation, jet engines, "smart" weapons and other cutting-edge military hardware all require rare earth elements. The General Agreement on Tariffs and Trade prohibits all measures that restrict the quantity of exports of a product unless they are applied as export duties, taxes or other charges. Thus, WTO member states are free under the current rules to impose export taxes instead of bans, quotas or other quantitative export restrictions. However, as a condition of membership in the WTO, China agreed to eliminate taxes and other charges on all exports except those on a list of 84 products included in its WTO accession agreement. Neither the nine raw materials in the current WTO case nor the 17 rare earth elements are among the products that China listed. The GATT permits measures that would otherwise violate WTO rules if they are "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption," and if they are not applied as a means of "arbitrary or unjustifiable discrimination". This is likely to be China's defense in the raw materials case, and, should there be one, a rare earth elements case as well. Whatever the outcome of these legal disputes, the members of the WTO need to address this new arena of trade conflict through negotiation, and not solely through litigation. Our globalized world is an interdependent world, and no one country can be fully self-sufficient in every resource. To maintain confidence in the trading system, multilateral action is needed to prevent hoarding and maintain free trade in natural resources.

Source: The Wall Street Journal Asia CHINA AND U.S. STRIKE CONCILIATORY NOTE The U.S. and China tip-toed around each other at the summit in Beijing, going out of their way to avoid open disagreements on North Korea, exchange rates and other thorny issues that divide them. Both governments were at pains to strike a conciliatory note in their public comments even though there were few signs of progress on any of the major subjects. The annual summit, which began focusing on economic issues but which the Obama administration broadened to include security, is essentially a Washington-led effort to engage more with the Chinese government and to enlist its support in managing global issues, although China is less defensive these days than it used to be at such meetings and also brings its own wish-list. President Hu Jintao pledged that China would reform a currency policy that effectively pegs the renminbi to the US dollar – one of Washington‘s main priorities in its dealings with China – although he gave no hints about the timing of any policy shift. ―China would continue to steadily advance the reform of the formation of the renminbi exchange rate mechanism under the principle of independent decision-making, controllability and gradual progress,‖ he said. Mr. Wang Qishan, a vice-premier, urged the U.S. to end export controls on ―dual use‖ technology

that has potential military applications, arguing that such exports could help reduce China‘s trade surplus with the U.S.. Although the U.S. and China needed a forum to discuss long-term interests and potential areas of disagreement, it was not clear whether an annual two-day summit could achieve this as the Chinese system is not suited to putting all the main players in a room to deal with the main issues in public. And in the U.S. there was not enough acceptance of the idea of dealing with China as an equal. Source: The Financial Times

POLITICS MPs REFUSE TO DISCUSS PRESIDENT‟S DRAFT ON PARLIAMENTARY PROCEDURES Members of Parliament have refused to consider for discussion a draft law proposed by President Ts. Elbegdorj to amend present parliamentary procedure. Mr. Ts.Nyamdorj (MPRP) said the President was ―trying to become the 77th MP‖, while Mr. J.Sukhbaatar (MPRP) said the President has the right to attend Parliament sessions, ―but he should refrain from interfering in its internal affairs‖. Instead, the MPs took up for discussion a draft with similar intentions submitted by two fellow members. This draft proposes to restrict the number of MPs taking part in any discussion in Parliament. While some felt this is necessary for improved functioning as ―certain MPs try to talk as if they have special privileges‖, others were not so enthusiastic, and saw it as a move to stifle the rights of the people‘s representatives to speak and ask questions. ―Why have MPs if they cannot speak?‖ asked Mr. L.Gundalai (DP). Mr. S.Erdene (DP) said, ―The media cover the chairmen of the two party groups extensively. Mr. Lundeejantsan pops up whenever I turn on the TV or Mr. Saikhanbileg comes out when I open my refrigerator. Members of government are also very much in the news. Where will MPs express their views if their right to speak in Parliament is now curbed?‖ Mr. A.Tleihan (MPRP) wanted Parliament to have its own TV channel and newspaper as the media are selective in their coverage of MPs. He also wanted a change in the practice of allowing news cameramen in Parliament to stand at a fixed place, as this showed some MPs only from behind.

Source: News.mn MIAT CANCELS INTERNATIONAL FLIGHTS FOLLOWING STAFF STRIKE MIAT‘s international flights have remained suspended since Tuesday. The dislocation began with a sudden strike by its technical staff on Tuesday. Some 94 of the 120 workers in that department, including their head, were dismissed on Wednesday and the Head of the State Property Committee, Mr. D.Sugar and Transport, Construction and City Planning Minister Kh.Battulga assured the media that flights would resume on Thursday with workers drawn from other sources. The airline‘s director has also been replaced. MIAT has three aircraft to fly international routes. According to the summer schedule now in force, the national airline flies daily to Beijing, twice a week to Seoul and Moscow-Berlin, and three times a week to Tokyo. Alternative arrangements are being made for stranded passengers. Mr. Sugar said the work load did not need 120 workers and can be done by 30-40 people who could be supervised by non-Mongolians. Mr. Enkhtur, the dismissed head of the workers, has charged that relatives of high level MIAT officials were given jobs even though they did not have required skills and this caused several problems, including one in Beijing two months ago. ―I don‘t know about this, but we shall investigate and punish the guilty,‖ said Mr. Sugar.

Source: English.News.mn

DP HEAD PREFERS COALITION TO “OPPOSING FOR ITS OWN SAKE” First Deputy Premier and Head of the Democratic Party N. Altankhuyag has said that halfway through the term of the present Parliament, he has no doubts that the coalition government was necessary and has been good for the country. Together the two parties represent a national consensus, and this has helped in reaching an agreement on Oyu Tolgoi and carried forward serious discussions on Tavan Tolgoi. If the DP had sat in the opposition, there would have been constant bickering with the MPRP which would have been holding power. ―We probably would have impressed everybody with our capacity for argument, but I doubt if any concrete decision would have been taken on any national issue of substantial importance,‖ he said. ―We have learnt from this experience that opposing for the sake of opposition is a mistake.‖

Source: Onoodor

DEPUTY MAYOR FAULTS MPs FOR NOT THINKING BIG Ulaanbaatar Deputy Mayor D.Ganbold has said the present practice of sporadic allotments of small amounts of money to implement programs with limited goals will not achieve results in reducing pollution. There should be realistic funding, say around MNT17-18 billion as in the Smokeless Ulaanbaatar program. Now that the Standing Committee on the Budget has refused to give any funds to the program, a miffed Mr. Ganbold feels ―maybe the time hasn‘t come for this program yet‖. Air pollution and urban overcrowding are both big issues that can be addressed only by thinking big. It seems Parliament is not yet ready to support such a big program. City officials went many times to present their case to the Standing Committee, but, Mr. Ganbold said, ―Every time we were there, they canceled their meeting. We have our own jobs to take care of, and cannot be there always, waiting to be called.‖ Calling the MPs‘ decision ―very frustrating‖, the Deputy Mayor said he had to accept the decision of the people‘s representatives. ―I can‘t kick them or shoot them even though I disagree with their views,‖ he said, adding, ―There is no point expecting too many changes from them.‖ Source: Ardiin Erkh

DOING BUSINESS IN MONGOLIA IS A TIGHTROPE WALK Mongolia sits atop billions of dollars of mineral wealth and its economy is poised to grow rapidly, but foreign investors are finding that geopolitics hangs heavy over business in a nation caught between China and Russia. Few companies are more aware of the perils of investing in Mongolia than Canadian miner Khan Resources, now battling the might of Russia for the rights to a uranium deposit in the country's remote northeast. But Khan itself had been planning to sell out to the state-owned China National Nuclear Corporation (CNNC), raising perennial Mongolian fears about Chinese dominance. However, the Chinese company dropped the planned acquisition last week. Mongolia broke away from the crumbling Soviet system in 1990, and while it is struggling to stay neutral between its two giant neighbors, it may still be amenable to some Russian persuasion. China, on the other hand, relinquished any claim to Mongolia in 1950, but has done little to allay suspicions that its economic dominance could lead to political hegemony. But it is always more than mere economics in Mongolia, economists and analysts say. "A country like Paraguay would die to have a market like China on its border, but there is this concern about the imbalance of populations and power," said Mr. Peter Morrow, chief executive of Khan Bank, one of the country's biggest lenders. Mr. Alan Wachman, an expert in Mongolian politics at Tufts University, says China has done nothing to Mongolia to warrant this level of anxiety. "But when I press Mongolians about this, they say there are plenty of people in China who say that Mongolia is fundamentally Chinese and that this suggests an intention that has to be taken seriously," he said. "They ask what are we to do given our size and power if the Chinese begin to act on it? It puts this whole thing in the realm of emotions rather than any kind of rational analysis." Mr. Rodger Baker, director of East Asia analysis with global intelligence company Stratfor, says, "In the end the Mongolian situation is one of excessive insecurity. It could be very realistic from a Chinese businessman's perspective that this is pure business, but if you are Mongolian, how can you take the risk of putting even more of your business in the hands of the Chinese?"

Source: Reuters.com The full story can be found at BCM‘s website – Resources, Mongolia Reports. MPs CONSIDER RAISED STATUS FOR ULAANBAATAR, ITS MAYOR Ulaanbaatar now has almost 50 percent of the total Mongolian population and 70 percent of the country‘s urban population. Concerned MPs feel the only way to halt migration to the capital is to provide better opportunities and make life cheaper in the provinces. They also suggest levying special taxes on newcomers to the city. Some also want a higher legal status for the Mayor, putting him on a par with the chairman of a citizen‘s representative assembly in the provinces, or with a member of the Government. MPs criticized the move to have the capital city‘s representative offices abroad, saying, ―Why do we have embassies?‖ The Governor of Ulaanbaatar explained that the role and function of the proposed offices were to quite different from embassies.

Source: Ardiin Erkh

SPEAKER TO CHAIR NEXT YEAR‟S 28-NATION ASIA-PACIFIC MEETING Parliament Speaker D. Demberel has been elected president of the 19th Annual Meeting of the Asia-Pacific Parliamentary Forum (APPF) to be held in Mongolia in January 2011. Delegates and parliament chairmen from 28 countries will discuss such issues as environmental sustainability, terrorism, natural disaster, financial crises and regional collaboration, energy security and climate change. The last APPF meeting was held in Singapore a year ago.

Source: Xinhua MONGOLIANS ABROAD WANT DUAL CITIZENSHIP A draft law on allowing Mongolians to hold dual citizenship under certain conditions has been waiting for some five years now to be debated in Parliament. Some officials privately admit that the practice is not uncommon, despite being illegal. Children with one parent a foreigner can claim citizenship of both countries. So can children born to the many Mongolian parents living and working abroad. An online survey conducted among Mongolians abroad has found that most of them would like to take foreign citizenship on practical grounds, but do not wish to lose their Mongolian citizenship. Many feel grant of dual citizenship will be in national interest as it would encourage Mongolians settled abroad to invest in Mongolia. However, emotional considerations were more in evidence than commercial ones among the survey respondents favoring dual citizenship. Some concern was expressed about undesirable effects of allowing foreigners to hold Mongolian citizenship. A country with a small population could be overrun by ―a cockroach-like influx of Chinese, Indians, Uzbeks, or Afghans‖, and people can people can escape to their other country of citizenship after committing a crime in one. Source: Zuunii Medee MONGOLIA REMAINS COOL AS 2010 THREATENS TO BE HOTTEST EVER Mongolia was ―cooler than normal‖ in the first four months of a year that is on track to be the hottest ever after data published by America's climate agency this week showed record global temperatures in April and the first four months of 2010. "The combined April global land and ocean average surface temperature was the warmest on record at 14.5 degrees C, which is 0.76 degrees C above the 20th century average of 13.7 C)," the National Oceanic and Atmospheric Administration (NOAA) has said in a report. These temperatures surpassed the previous record set in 1998, NOAA added. The agency said April's global land surface temperatures were the third warmest according to its records, which date back to 1880. It noted warmer-than-normal conditions in Canada, Alaska, eastern U.S., Australia, South Asia, northern Africa and northern Russia. "Cooler-than-normal places included Mongolia, Argentina, far eastern Russia, the western contiguous United States and most of China," NOAA said, adding global snow cover was the fourth-lowest on record. China had its coolest April since 1961, but wettest since 1974. April was the largest since 2001.

Source: Reuters.com

PRESENT CRISIS RAISES WORRIES ABOUT SURVIVAL OF NOMADIC LIFE Mongolia and its 800,000 herders are reeling from the worst winter that anyone can remember. According to United Nations relief officials, nearly eight million cows, yaks, camels, horses, goats and sheep died, about 17 percent of the country‘s livestock. Even if the spring rains arrive soon, 500,000 more animals are expected to succumb in the coming weeks. ―This is not only a catastrophe for the herders but for the entire Mongolian economy,‖ said Mr. Akbar Usmani, the resident representative for the United Nations Development Program. ―We expect the ripple effects for months and years to come.‖ The UN estimates that the current disaster may prompt as many as 20,000 herders to abandon their nomadic life and flee to cities. ―A lot of the herders have no skills, so they usually end up breaking the law and falling into poverty,‖ said Mr. Buyanbadrakh, the governor of a small administrative district. He said 70 percent of the livestock in his district, Zuunbayan-ulaan, were wiped out this year with at least 2,800 families losing their entire herds. ―People are taking it very hard,‖ he said. ―Some have gone crazy.‖ The disaster poses a challenge to a government already struggling to address the needs of the third of the population that lives in poverty. But it also raises a host of thorny questions about climate change, environmental degradation and whether the pastoral way of life that sustains many of the country‘s 3 million people has a future. Mongolians are fiercely proud of their millenniums-old nomadic ways. Although mining and tourism

are a growing portion of the Mongolian economy, a third of the population still depends entirely on husbandry for its livelihood. ―The key question we have to ask is whether this way of life is sustainable,‖ said Mr. Usmani. ―It‘s a very sensitive issue.‖ Read more… Despite the severe winter, one of the more sensitive long-term issues, oddly, is how to curb the explosive growth in livestock, which has quadrupled to 40 million head since the 1990 revolution that ushered in democracy and ended a socialist system that tightly controlled the size of the nation‘s herds to prevent overgrazing. Environmentalists and government officials agree that the two decades of unbridled privatization and a boom in cashmere exports upended the traditional mix of livestock, which had long favored sheep over goats. In the past, sheep made up 80 percent of small-animal herds and goats the rest. But as the price of cashmere soared over the last decade, that ratio reversed, with devastating results for the ecology of the steppe. Voracious eaters, goats often destroy the grass by nibbling at the roots. Their sharp hooves also damage fragile pasture by breaking up the protective tangle of grass and lichens, allowing the wind to sweep away topsoil and encouraging desertification. The other wildcard is climate change, which many herders blame for the increasingly inhospitable weather. Winters are longer and colder, the winds blow stronger and the summers, they say, are drier. ―I don‘t know what happened to the mild spring rains that the grass needs to drink,‖ said Degkhuu, 62, a lifelong herder who lost his entire flock. ―Now, when the rains come they are heavy and create flash floods.‖ A recent World Bank study found that hundreds of rivers and lakes had disappeared in Mongolia, and the diversity of plant species had plummeted by a third since 1997, although researchers partly blamed the proliferation of goats. Those lucky enough to get a spot on the crews in a work-for-cash program, financed with a USD1.5 million UN grant, to gather animal carcasses and bury them in pits are happy for the income, but at best, the money will only delay a looming crisis among families who have run out of food and are saddled with bank loans they took on to buy emergency feed. Mr. Lkhagvasuren, 34, a herder who lost 1,000 animals, said he owed over USD1,800, a huge sum given that the average Mongolian earns USD3,200 a year. He said he lost most of his most prized animals — horses, cows and about 200 yaks — and that it would take at least a decade to replenish his herd of goats and sheep, about 100 of which survived.

Source: The New York Times SALE OF LIQUOR TO BE MONITORED Cafés and restaurants serving liquor, and all shops and supermarkets selling alcohol have been ordered by Mayor G.Munkhbayar to install cameras. The move comes in the wake of persistent complaints that the rule prohibiting sale or serving of alcohol after 12 midnight was being flouted. A recent check found 27 night clubs and restaurants had been regularly breaking the law but continuing to do business after paying a fine. The Mayor has ordered all 27 establishments to be shut down.

Source: News.mn U.S. EXHIBITION ON CHINGGIS AIMS TO CHANGE PERCEPTIONS After a three-month run at the Denver Museum of Nature & Science which drew 175,000 visitors, "Genghis Khan: The Exhibition," is now on show at the Tech Museum in San Jose. On display is an array of artifacts, many of which have never previously left Mongolia, and elaborate re-creations of Mongolian life during Chinggis Khan‘s time. The organizers note that "there‘s hardly anything that is known to have been owned by Chinggis or that his hand touched,", but they were able to assemble close to 250 artifacts drawn from Mongolia‘s Archaeology Institute, five Mongolian museums, private collectors and — in the case of an 800-year-old mummy — the Smithsonian. They include shamans" costumes, elaborately woven silk robes, finely crafted gold bracelets and beautifully detailed swords, saddles and armor from the period. Mr. William Fitzhugh of the Smithsonian Institution‘s Arctic Studies Center says Chinggis was an extraordinary ruler whose historical legacy needs to be reassessed in the West. Records from the period, many only now being uncovered, "give you a view of a person who is a superb organizer, a superb lawmaker, a fair and judicious ruler, somebody who supported women and gave women a lot of rights," says Mr. Fitzhugh, who is a consultant for the exhibition. "It‘s wrong to say that Chinggis created a democracy, but, for the time, he was remarkably enlightened." It is the accomplishments of this "other Genghis" — as well as the achievements of his sons and grandsons — that are at the

heart of the show, The organizers predict that those who visit the exhibit will not only come away with just a very different view of Chinggis Khan but also of "ancient history in Asia, something Americans generally don‘t know very much about. That‘s the central thrust of the exhibit: Let‘s familiarize Americans with a particular period of Mongol history from a time when Mongol and Asian history changed the world." When Mr. Don Lessem, another of the organizers, first traveled to Mongolia in the late 1980s, he had the Western view of Chinggis, perceived as a brutal, ruthless and primitive warlord who brought death and destruction to the civilized world. ―But then,‖ he says, "the Mongolian people set me straight, and I came away thinking, 'This guy is incredible.'" Read more… At its height, the Mongol Empire — ruled by Chinggis' sons and grandsons — covered nearly 13 million square miles (four times the size of the Roman Empire at its height) and stretched from the Danube River in Eastern Europe to the Sea of Japan. It held sway over more than 100 million people. It promoted free trade from China to Europe (the so-called Silk Road) and incorporated technologies from conquered countries into the empire's way of life. Chinggis "wanted to be a benevolent ruler of a civilized world", Mr. Lessem says. "Once you were in the pale of the empire, it was a wonderful place to live — for the time." For one thing, Mr. Fitzhugh says, he displayed a religious tolerance uncommon in that era. Another aspect of his rule was a reliance on a meritocracy, so that ―you could be a slave who was captured by the Mongols, and 10 years later, you could be a Mongol general". Mr. Lessem says when he went to the Mongolian government, they were willing to let a private exhibit person work with them and try to mount an exhibition. ―They knew I cared about the subject, and they thought I would treat it right. So they were willing to loan me just about anything they had from his time." Source: www.thetech.org

CHINA‟S CENTURY IS NOT YET UPON US China‘s current reputation for power benefits from projections about the future. Some young Chinese use these projections to demand a greater share of power now, and some Americans urge preparation for a coming conflict similar to that between Germany and Britain a century ago. One should be skeptical about such projections. By 1900, Germany had surpassed Britain in industrial power, and the Kaiser was pursuing an adventurous foreign policy that was bound to bring about a clash with the other great powers. By contrast, China still lags far behind the U.S. economically and militarily, and has focused its policies primarily on its region and on its economic development. While its ―market Leninist‖ economic model (the so-called ―Beijing Consensus‖) provides soft power in authoritarian countries, it has the opposite effect in many democracies. Even if Chinese gross domestic product passes that of the U.S. in about 2030 (as Goldman Sachs projects), the two economies would be equivalent in size, but not equal in composition. China would still have a vast underdeveloped countryside and it will begin to face demographic problems from the delayed effects of its one-child policy. Moreover, as countries develop, there is a tendency for growth rates to slow. Assuming Chinese growth of 6 percent and American growth of only 2 per cent after 2030, China would not equal the U.S. in per capita income until sometime in the second half of the century. Per capita income provides a measure of the sophistication of an economy. While China‘s impressive growth rate combined with the size of its population will surely lead it to pass the U.S. economy in total size, that is not the same as equality. And since the U.S. is unlikely to be standing still during that period, China is a long way from posing the kind of challenge to America that the Kaiser‘s Germany posed when it passed Britain at the start of the last century. Nonetheless, the rise of China recalls Thucydides‘ warning that belief in the inevitability of conflict can become one of its main causes. The fact that China is not likely to become a peer competitor to the U.S. on a global basis does not mean that it could not challenge the U.S. in Asia, and the dangers of conflict can never be ruled out. But Bill Clinton was basically right when he told Jiang Zemin in 1995 that the U.S. has more to fear from a weak China than a strong China. Given the global challenges that China and the U.S. face, they have much to gain from working together. But hubris and nationalism among some Chinese, and unnecessary fear of decline among some Americans make it difficult to assure this future. Read more… During the past decade, China moved from being the ninth-largest exporter to the largest in the

world, but China‘s export-led development model will probably need to be adjusted as global trade and financial balances become more contentious in the aftermath of the financial crisis. Although China holds huge foreign currency reserves, it will have difficulty raising its financial leverage by lending overseas in its own currency until it has deep and open financial markets in which interest rates are set by the market, not the government. Unlike India, which was born with a democratic constitution, China has not yet found a way to solve the problem of demands for political participation (if not democracy) that tend to accompany rising per capita income. The ideology of communism is long gone, and the legitimacy of the ruling party depends upon economic growth and ethnic Han nationalism. Some experts argue that the Chinese political system lacks legitimacy, suffers from a high level of corruption and is vulnerable to political unrest should the economy falter. Whether China can develop a formula that can manage an expanding urban middle class, regional inequality and resentment among ethnic minorities remains to be seen. The basic point is that no one, including Chinese leaders, knows how the country‘s political future will evolve and how that will affect its economic growth. In 1974, Deng Xiaoping told the United Nations General Assembly: ―China is not a superpower, nor will it ever seek to be one.‖ The current generation of Chinese leaders, realizing that rapid growth is the key to domestic political stability, has focused on economic development and what they call a ―harmonious‖ international environment that will not disrupt their growth. But generations change, power often creates hubris and appetites sometimes grow with eating. Some analysts warn that rising powers invariably use their newfound economic strength for wider political, cultural and military ends. Even if this were an accurate assessment of Chinese intentions, it is doubtful that China will have the military capability to make this scenario possible. Asia has its own internal balance of powers and, in that context, many states welcome a U.S. presence in the region. Chinese leaders will have to contend with the reactions of other countries as well as the constraints created by their own goal of growth and the need for external markets and resources. Too aggressive a military posture could produce a countervailing coalition among its neighbors that would weaken both its hard and soft power. A recent Pew poll of 16 countries found a positive attitude towards China‘s economic rise, but not its military rise.

Source: The Financial Times CHINA EMBARKS ON BOLD GREEN TECHNOLOGY MISSION Uprooting the last traces of rural life on the edge of the northern Chinese city of Dezhou, laborers with chain saws spent a recent morning cutting down trees to make way for a hulking factory. A big red banner trumpeted the future for what used to be farmland: "The Biggest Solar Energy Production Base in the Whole World." Across China, villages are being turned into pollution-belching industrial zones, but nature's retreat on the outskirts of Dezhou boasts a paradoxical purpose -- protecting nature. "This is an experiment. It is a big laboratory," said Mr. Huang Ming, an oil industry engineer turned solar energy tycoon, who is driving one of China's boldest efforts to promote, and profit from, green technology. At the center of his outsize ambitions is Solar Valley, a massive exercise in social, economic and ecological engineering. As part of the project, tens of thousands of farmers have been moved into concrete apartment blocks and their land is being converted into what Mr. Huang and Dezhou's planners hope will be China's clean-technology answer to California's Silicon Valley. The USD740 million plan has attracted about 100 companies and spawned factories, a research center and wide boulevards illuminated by solar-powered lights. It highlights the promise -- as well as the limits -- of China's efforts to reconcile breakneck economic development with environmental concerns. Read more… Short of a calamitous economic collapse or a game-changing technological breakthrough, China's chances look slim: Its mostly coal- and oil-fueled economy is growing so fast that its real but relatively modest green gains simply can't keep up. In Dezhou last year, municipal authorities spent more than USD10 million to install solar lighting along miles of road. They also put up posters cheering low-carbon living on billboards once devoted to political slogans. During that period, though, residents bought 60,000 new cars, an increase of 114 percent over 2008. All the same, a mix of raw capitalism and socialist planning is giving companies such as Mr. Huang's Himin Solar Energy Group a shot at making a difference -- and at boosting their bottom lines. The company is the world's biggest producer of solar water heaters, as well as a pioneer in niche products such as sun-warmed toilet seats and solar-powered Tibetan prayer wheels. Now it has opened a low-carbon five-star hotel and is building Utopia Garden, a gigantic, eco-friendly luxury apartment complex -- both with solar-heated pools.

"Renewable energy doesn't mean people have to be uncomfortable," Mr. Huang has said. He is known in these parts as the "sun king," but he said, "I prefer to be called solar madman." Last year, China invested about USD34 billion in solar panels, wind turbines and other alternative energy technologies, nearly twice as much as the United States, where spending fell sharply. The Dezhou Construction Committee is doing its bit: It requires that all new buildings be equipped with solar water heaters of the type made by Mr. Huang's company. More than 80 percent of buildings in the city now have them. So, too, does the Beijing mausoleum housing Mao Zedong's embalmed corpse. Mr. Huang, a member of China's parliament, first started tinkering with solar water heaters in the early 1990s after the birth of his daughter, which he said got him thinking about the environment. At the time, he was working in a petroleum research institute and "felt guilty." He later quit the institute and set up his own company. He said he realized that clean energy would work only if the profit motive kicked in: "If it can't make money, this experiment will be a big failure." His heating devices, which use vacuum tubes to absorb sunlight, get rave reviews, particularly from re-housed farmers who had no hot water before. "This is real," said a Dutch architect who heads the International Solar Cities Congress, a grouping of scientists and policymakers that champions low-carbon living. Dezhou, he said, "will be a new center of gravity for renewable technologies." Also impressed is Goldman Sachs, which, along with Beijing-based CDH Investments, has invested USD100 million in Mr. Huang's company. Although there is clearly money to be made in new-energy technology, there is skepticism among some experts about its effect on the environment. They say the manufacturing of solar devices helps local economies but won't break or even dent China's reliance on carbon-rich fossil fuels. Mr. Huang acknowledged that, so far, solar energy is "a drop in the ocean," but he said that Dezhou offers a model for the future. "I like big plans," he said.

Source: The Washington Post

NEW MONGOLIAN REGULATIONS

The following new regulations were published in a recent weekly Government bulletin. Unless otherwise decided by Parliament, they will take effect (10) days after publication.

Date Law

19.05.2010 Law on Minimum wage /revised version/

Annulment of Law on Minimum wage adopted on January 8, 1998 Ratification of Amendments to International Labor Organization regulations

Ratification of Optional protocol to the international covenant on economic, social and cultural rights

Please visit BCM‘s website, Legislative Working Group, for a summary of new Mongolian laws. BCM members who wish complete versions of the laws and regulations in Mongolian language are welcome to call or email the BCM office: 332345 or info@bcmongolia.org.

ANNOUNCEMENTS

“BSPOT" on B-TV

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.

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“MM TODAY” on MNB-TV 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.

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NEW POSTINGS ON BCM WEBSITE‟S „MONGOLIAN BUSINESS NEWS‟

As some of you might have noticed, 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.

SPONSORS

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, 2010 *8.3% [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] CURRENCY RATES – May 27, 2010

Currency name Currency Rate

US dollars USD 1,385.81

Euro EUR 1,704.34

Japanese yen JPY 15.37

British pound GBP 1,993.42

Hong Kong dollar HKD 177.65

Chinese yuan CNY 202.88

Russian ruble RUB 44.34

South Korean won KRW 1.11

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.