BUSINESS COUNCIL of MONGOLIA

NewsWire www.bcmmongolia.org Jim@bcmmongolia.org Issue 30, July 4, 2008

NEWS HIGHLIGHTS:

Business: Banks to exchange information on borrowers; Eznis makes flights cheaper for

expats; MPRP victory boosts Ivanhoe Mines stock price; ArcelorMittal may bid for Rio Tinto; Significant coal seams found at Sumber site; Boroo Gold’s social plans for Selenge (Click to go to Business section)

Economy: Petrol becomes scarce, Government sees politics; Online stock trading to begin this

month; World Bank credit and grant for mining sector; Government to pay 50% of interest on loans to agricultural companies; Tg 23 billion so far for agriculture; Council to attract investment meets; Some to pay more for power, heating (Click to go to Economy section)

Politics: All but two results declared, giving MPRP 44 and DP 27; Mongolia cleans up as

Capital under uneasy calm; City wakes up to the rumble of tanks; Justice Minister hopes first emergency will also be the last; We have a duty to save democracy: Elbegdorj; A ringside view; Mongolia’s anti-corruption efforts lauded (Click to go to Politics section)

BCM MONTHLY MEETING JUNE 30 – RECAP

The monthly meeting of the Business Council of Mongolia on June 30, attended by 78 members and guests, began with Yo. Otgonbayar, Secretary General and Election Campaign Manager of the MPRP, explaining the election. He said the results were an expression of the people’s satisfaction with the Government’s performance, and their desire to give a clear mandate to one party to govern without hindrance. William S. Infante of the Asia Foundation which sent observers to 178 polling stations in the provinces was certain that the entire polling process had been fair and free. People had exercised their choice without any obstacle. L. Sumati, Director, Sant Maral Foundation, expected the MPRP to govern with more authority now that it would not have to keep coalition partners happy. Jim Dwyer reported that the induction of four new members since the last meeting – Petrovis, the Turkish Embassy, Nomads Tours & Expeditions, and Tsagaan Alt Wool -- had taken BCM’s strength to 105. The BCM website upgrade has been completed and a large portion of the site is now bi-lingual. South Korean Ambassador J. Park said firms there were eager to invest in the mining and construction sectors in Mongolia but lack of local skilled labor was a constraint. Mongolia’s recent decision to import North Korean workers could also prove problematic. Mark Minton, Ambassador of U.S. to Mongolia, “completely corroborated” that the election had been fair. Expressing the hope that the new Parliament and Government would resolve the uncertainties about foreign investment, he said he deplored various recent efforts in the US media to “misrepresent developments” in Mongolia. The Embassy is working on ways to facilitate easier grant of business visas for Mongolians. With no meeting in July for Naadam, the next meeting has been fixed for August 25. It will be held with Alain Fontaine, CEO of Newcom, in the chair. He has succeeded Peter Morrow who was chairman of BCM and its predecessor firm, NAMBC-Mongolia, for 5 years.

BUSINESS

BANKS TO EXCHANGE INFORMATION ON BORROWERS

Several commercial banks operating in the country, including Xas Bank, Khaan Bank, and the Mongol Post Bank, have signed an agreement with Mongol Bank to exchange information on borrowers. With the banking network expanding in recent years and banks opening more and more branches throughout the country, the number of borrowers has gone up considerably. A review of the situation was recently made by Mongol Bank, the country’s central bank. This showed that banks’ risks went up when the same person or entity borrowed from more than one source. Now with the exchange of information in place, any bank will be able to check on a prospective borrower’s credit status with other banks.

Source: en.News.mn EZNIS MAKES FLIGHTS CHEAPER FOR EXPATS

Foreigners who have a valid residence permit for more than 90 days and are subject to local tax laws will no longer have to pay more than Mongolians when traveling by Eznis Airways. The airline officially eliminated such fare differentiation from July 1 after it found that the practice, followed by other airlines and in several other sectors, had no basis in law in the country. Foreigners who meet the criteria can now buy a seat at Eznis in any available fare category, on presentation of proof of their residence in Mongolia.

Source: www.eznisairways.com MPRP VICTORY BOOSTS IVANHOE MINES STOCK PRICE

Ivanhoe Mines Ltd. shares were up 9.2 per cent to C$ 11.04on the Toronto Stock Exchange at midday on Monday after early vote counts suggested Mongolia's pro-development ruling party will gain a parliamentary majority and remove a hurdle to construction of a huge copper mine. The Vancouver-headquartered company, which is trying to develop the Oyu Tolgoi copper project in Mongolia with its partner Rio Tinto PLC. However, their efforts have been complicated by uncertainty over whether they will receive final approvals. Ivanhoe's shares are still off their all-time high of $18, set in August 2007, due to uncertainty about whether the developers can navigate the schism between the Mongolian government and the country's parliament.

Source: The Canadian Press ARCELORMITTAL MAY BID FOR RIO TINTO

ArcelorMittal, the largest steel company in the world, is believed to be considering a bid for Rio Tinto, one of the largest producers of iron ore and coal globally. If Mr. Laxmi Mittal pitches for the entire Rio Tinto Group, which is headquartered in London, it could cost him a whopping $160 billion, almost five times more than the $33 billion he spent for Arcelor to create the steel powerhouse two years back. Rio Tinto would not only give ArcelorMittal control over coal and iron ore but also open up new vistas in other minerals. Rio owns large aluminum, copper, uranium, titanium dioxide, and borate assets globally. ArcelorMittal declined to comment on its possible bid for Rio. However, there is a possibility that the Luxembourg-headquartered company could be angling only for Rio’s iron ore assets.

Source: The Telegraph, Calcutta SIGNIFICANT COAL SEAMS FOUND AT SUMBER SITE

SouthGobi Energy Resources stocks rose 13.6 percent to $21 on June 30 following announcement of its discovery of high-quality coking and thermal coal seams, including a near-surface seam of 51.5 meters, at its new Sumber coal site in southern Mongolia.

"This discovery validates our expectations that there are multiple, near-surface thermal and coking coal deposits along strike from the existing mine at Oyu Tolgoi," said Gene Wusaty of the company’s coal division. "The existing Oyu Tolgoi mine site, airport and future coal transportation infrastructure will benefit the development at the Sumber discovery,” he added.

Exploration and drilling programs, started in 2005, have so far identified 11 coal seams at the Project, says the company.

Source: MONTSAME

BOROO GOLD’S SOCIAL PLANS FOR SELENGE

Boroo Gold has revealed that it will carry out over 90 social projects at a total cost of US$ 750,000 in Selenge province this year. The company has been running a program for developing soums since 2004, and has already spent US$ 800,000 on it. This year’s plans include grant of soft loans to support family businesses in densely populated soums such as Mandal, Bayangol, and Sukhbaatar, construction of dykes, and providing electricity to farming households. A three-month vocational training course will be organized in Sukhbaatar soum.

Source: MONTSAME ECONOMY

PETROL BECOMES SCARCE, GOVERNMENT SEES POLITICS

For more than a week now, there has been no certainty about availability of fuel at gas stations. Prices of all grades of petroleum and diesel were raised by Tg 40-50 per liter from June 26-27 midnight, but they were immediately brought down to the old levels because of the possible adverse impact on the electorate just days before it would vote for a new Parliament. Despite assurances from several Ministries that fuel prices would remain unchanged until after the end of Naadam on July 13, there is widespread speculation that importing companies would raise prices as soon as the election dust settles.

Some hitches in Russia have affected supply to Mongolia, and all the larger fuel importers -- Petrovis, NIC, Magnai Trade, Shunhlai, and Sod Mongol – found their stocks depleted. They then started to ration the sale of gas. Some restricted sale per car to 50 liters, some honored only coupons issued earlier, some simply stopped sales when the pumps ran dry. In a statement the fuel importers said, “We have very little fuel reserves and the Mineral Resource and Petroleum Authority should explain the situation to the people.”

D. Khurelbaatar, Minister of Fuel and Energy, told a journalist in an interview, “A Government and Parliamentary Resolution is in force to create two months’ fuel reserves. Arrangements are not yet complete, but fuel importers should have no problem storing 20-25 days’ needs. Most gas stations have limited the sale of only AI-92 petroleum. Supply was interrupted because of problems at a major production plant in Angarsk, Russia. We have appointed a working group to find out whether the fuel reserves had really decreased to justify rationing measures or whether the importers were encouraging disruption and panic with a political purpose. We shall know the truth soon.”

Source: MONTSAME ONLINE STOCK TRADING TO BEGIN THIS MONTH

Media reports indicate that a NASDAQ-hosting system will allow individuals and companies to monitor, buy and sell worldwide company stocks from Mongolia. This will not only provide opportunities for Mongolian investors, but also offer exposure to new forms of raising capital for Mongolian companies. An important part of the program allows investors to directly buy and sell stocks without a broker.

Source: www.mongolia-web.com WORLD BANK CREDIT AND GRANT FOR MINING SECTOR

The World Bank’s Board has approved an investment credit and grant of US$ 9.3 million for a Mining Sector Technical Assistance Project (MSTA) in Mongolia. The proposed project is seen as the first phase of a longer-term engagement to support the Government in developing this key sector in the economy. In 2007, mining directly accounted for about 20 percent of Mongolia’s real GDP, 56 percent of its gross industrial output, 69 percent of exports, and 36 percent of Government revenue. In addition to the WB assistance, other external partners such as GTZ, ADB, EBRD and IFC have also committed themselves to offering technical assistance.

The Project consists of five main components:

1. Strengthening the capacity to manage mining sector revenues in the Ministry of Finance and the General Department of National Taxation.

2. Improving the regulatory capacity to manage the mining sector development in the Ministry of Industry and Trade and the Mineral Resources and i9n the Petroleum Authority of Mongolia.

3. Developing the capacity for management of state equity in Erdenes MGL LLC. 4. Project management in the Ministry of Finance. 5. Infrastructure development strategy to support the sustainable development of the south-

eastern parts of the country with a multi-stakeholder group comprising both Central Government Ministries and Provincial Governments.

In addition, there will be collaboration with the Ministry of Nature and Environment on capacity building for environmental monitoring and the development of a regulatory framework.

Source: MONTSAME GOVERNMENT TO PAY 50% OF INTEREST ON LOANS TO AGRICULTURAL COMPANIES

The Government has some time ago signed an agreement with nine commercial banks undertaking to pay 50% of the interest on the Tg 37 billion that 97 agricultural companies have borrowed from them. The nine banks that are thus cooperating with the Government policy to support growth of the agriculture sector in the country are Golomt Bank, Anod Bank, Zoos Bank, Trade and Development Bank, Khaan Bank, Ulaanbaatar City Bank, Capital Bank, Capitron Bank and Xas Bank.

Source: en.News.mn TG 23 BILLION SO FAR FOR AGRICULTURE

The Government has so far spent Tg 23.3 billion this year on loans and investments as part of the Agriculture Campaign III. Farmers have got 230 tractors, 40 combine-harvesters, 455 mini tractors and 1,000 tons of fertilizer. Besides, 334 storage sites and 476 greenhouses have been built with this money.

Source: en.News.mn COUNCIL TO ATTRACT INVESTMENT MEETS

The first meeting of a Consultative Council set up on February 6 by the Government of Mongolia to find out ways and means of developing the private sector and improving the investment environment, was held at the State House on June 27. The Prime Minister heads the Council which also includes the Ministers of Finance and of Trade and Industry, as well as representatives from international donor organizations and from the private sector.

Kh. Narankhuu, Minister of Trade and Industry, reported on likely changes in the investment scenario in Mongolia. Parliament has discussed amendments to the Law on Foreign Investments. The proposed amendments include increasing to US$ 100,000 the quantum of financial assets required to establish a foreign-invested company, and streamlining the paperwork required in the entire process leading to setting up such a company.

John Chomel-Doe, Director of Mongolia, EBRD; Arshad Sayed, Resident Representative of the World Bank; S. Demberel, Chairman of the Mongolian National Chamber of Commerce and Industry; Ch. Gankhuyag, as Chairman of the CEO Club; Peter Morrow, as Chairman of the Business Council of Mongolia;, and Kh. Ganbaatar, Executive Director, Mongolian Employers Federation attended the meeting. It was decided that the Council would meet at least twice each season, and more often if the number and urgency of issues to be addressed so demanded.

Source: MONTSAME SOME TO PAY MORE FOR POWER, HEATING

The Energy Regulatory Authority decided on June 30 to raise electricity and heating charges for customers in the central zone. The increases become effective on July 15.

Source: Onoodor POLITICS

ALL BUT TWO RESULTS DECLARED, GIVING MPRP 44 AND DP 27

The MPRP has won in 44 of the 74 seats in the new Parliament for which the results were officially announced at 8.30 pm on July 2 by the head of the General Election Committee, B.Battulga. The DP’s final tally is 27. Civil Will and Civil coalition have won one seat each and there is one independent winner.

Two results from two constituencies in Ulaanbaatar, Khan-Uul and Bayangol, have been held up. No losing candidate has as yet submitted a formal complaint to demand a recount of votes.

The provinces, or the rural constituencies, send 56 members to Parliament. The MPRP has won 38 of these seats, including a clean sweep in 9 of the 20 electoral provinces. (Two provinces, Dornogovi and Govi-Sumber, are counted as one during elections.) DP has won both seats in Arkhangai, while its 16 other winners are distributed among the 10 other provinces.

Ulaanbaatar has 20 seats, and two results have not yet come in. The DP has a slight majority here, winning 9 seats to MPRP’s 6. No city constituency has chosen all its representatives from the same party.

Source: en.News.mn MONGOLIA CLEANS UP CAPITAL UNDER UNEASY CALM

Ulaanbaatar was calm on Thursday. The city mayor said officials were clearing away about 40 tonnes of debris left by a night of deadly riots as Parliament convened an extraordinary session to decide how to move forward after violence over alleged election fraud. "Parliament has debated the declaration of the state of emergency by the President and has approved it," said Speaker Lundeejantsan in remarks carried on state television.

The General Election Committee announced preliminary results on national television late on Wednesday. The MPRP won 45 seats, giving it a comfortable majority in the 76-seat Parliament. "I think one thing now is very clear -- the election results will remain," said Chuluundorj, a retired Mongolian diplomat. "Maybe there will be disputes about some constituencies, but the main results can't be changed."

The special session of Parliament, which convened late on Wednesday, continued on Thursday, with members discussing how to prevent political violence -- rare in Mongolia -- in future. Lundeejantsan spoke of a need to form a government in order to move forward with the country's business, in particular tackling inflation at a decade-high and easing the poverty which has been blamed in part for the rioting.

The uncertain political situation threatens to further delay deals that could unlock vast reserves of copper, coal, uranium and other resources beneath the country's vast steppes and deserts, seen as key to lifting the landlocked Central Asian state out of poverty. The biggest project at stake is at Oyu Tolgoi, also known as Turquoise Hill, backed by Ivanhoe Mines of Canada and Rio Tinto. The two companies propose to spend up to $3 billion developing the field, which they say could raise Mongolia's GDP by more than a third.

Source: Irja Halasz, Ulaanbaatar (Reuters UK) MONGOLIA WAKES UP TO THE RUMBLE OF TANKS

Ulaanbaatar woke up on Wednesday to see armored vehicles on the streets. To know what was happening, citizens could not go to their favorite TV channel or radio station. From 12 midnight only the public TV channel and the public radio had been allowed to work.

That was also when, for the first time since the Democratic Revolution of the 1990s, the entire Ulaanbaatar City area had been placed under a state of emergency. President Enkhbayar went on TV at 11:30 pm to issue the proclamation, to safeguard national security and protect state property. Starting at midnight of 1-2 July, several civic rights will remain curtailed for four days.

The President invoked the Constitution to justify the proclamation of emergency. It can be done only under two conditions: a natural disaster of extreme magnitude, and a severe threat to national security. The day-long protest before the MPRP headquarters by people refusing to accept the “rigged” election results and demanding a fresh poll had turned violent as the evening wore on. Houses and vehicles were set on fire, and the police fired tear gas shells and rubber bullets to bring back order.

The imposition of emergency has to be ratified by Parliament as quickly as possible. Only Parliament is also empowered to extend the order beyond the initial four days. A special session of Parliament was called for 10 am on July 2, but it had to be postponed to 4 pm as many members needed more time to reach Ulaanbaatar. They finally assembled at 5 pm, but some members wanted a closed-door session, so media persons were excluded.

S. Bayar and Ts. Elbegdorj, chairmen respectively of MPRP and DP, the two principal political parties, met the President some time after 10 pm. Leaders of other political parties were also present. The discussions, it is believed, were confined to the DP demand for a fresh election on the ground that Sunday’s election, and the counting of votes later, had not been free and fair, with the MPRP accused of various malpractices.

What was happening outside, on the streets of the usually quiet and cheerful city, was not mentioned. The President however was concerned. When the leaders had left after the 30-minute talks in which Bayar had summarily denied all DP charges and rejected any demand for a fresh poll, he met with the National Security Council. Apart from the President himself, the others present were S. Bayar, now in his capacity as Prime Minister, and the head of the General Intelligence Agency, who provided inputs about the day’s events.

The President went on air at 11:30 pm and security forces swung into action soon after midnight. They rounded up 700 of the 1,000 or so of the protesters who were still on or around Sukhbaatar Square and all are now in custody. Five deaths were reported. Three of them were young men found on the street near Clinic No. 1. One was declared dead as he was taken into the clinic, another died during emergency surgery, and another yet later. Initially, clinic sources had confirmed all had gunshot wounds and had said nothing about any of them being under the influence of alcohol. Later however, both details were altered. They now had no bullet injuries, and were drunk, and had possibly been in a drunken brawl. Another man was found suffocated to death by the smoke inside the MPRP building parts of which had been set on fire by the protesters.

Source: www.news.mn JUSTICE MINISTER HOPES FIRST EMERGENCY WILL ALSO BE THE LAST

As the protests erupted, Prime Minister Sanjagiin Bayar, of the MPRP, accused the Democrats and Elbegdorj of inciting the violence. "The other party is accusing us of buying the election. It's not true, the election was free and fair," he said from the MPRP headquarters before it was ransacked.

Elbegdorj bluntly accused the MPRP in a press conference on Tuesday of "illegal activities" to rob the Democrats of victory. "People voted for democracy. Ask eight of 10 people and they will say they voted for the Democratic Party. We lost because... corrupt people changed the results," he told reporters. "This was a dark moment in the history of Mongolia."

Justice Minister Tsend Munkh-Orgil told reporters, "Border troops and armed forces are being used to improve security in the city because of an insufficient number of police. We have word that certain groups are organizing for large demonstrations after the end of the state of emergency. The government will suppress any such acts. This is the first ever state of emergency in Mongolia

and I hope it will be the last."

An AFP reporter who walked through the city on Wednesday also saw burnt out cars and other damaged buildings, including the National Palace of Culture, a Soviet-era building that housed many national treasures. "The Palace of Culture was set on fire and the invaluable collection of art inside was looted," Munkh-Orgil said.

Mongolia has a history of political intrigue and turmoil after emerging from 70 years as a Soviet satellite to hold its first democratic elections in 1992. However the violence was among the worst the nation had seen since adopting a democratic model, and many people here were left disenchanted.

Source: www.news.google.com WE HAVE A DUTY TO SAVE DEMOCRACY: ELBEGDORJ

Writing on the events in Ulaanbaatar on July 1, Irja Halasz quoted the Democratic Party leader, Tsakhiagiin Elbegdorj, as saying, "From the Sea of Japan to the eastern border of Europe, we are the only functioning democracy and we have a duty to save it." He condemned the government for allowing the riot to continue so long but also said it may not have been necessary to immediately declare the state of emergency. His party said it did not accept the projected outcome of the election, but members also disavowed the violence.

Analysts and foreign business executives in Mongolia played down the violence, saying it was not supported by most Mongolians and describing it as teething troubles for a young democracy. "The outskirts of the city have a lot of poor and frustrated youngsters who would use any pretext to get to streets and participate in any turmoil," said Luvsandendev Sumati, from the independent Sant Maral Foundation. Inflation, which reached 15.1 percent last year, is at its highest level in decades and many residents expressed frustration with unemployment and the rising cost of living.

Foreign residents in the capital expressed hopes the riot was an isolated case of post-election frustration. "It's just a growing democracy and people learning to live with the reality of not getting elected," said one Mongolia-based foreign business executive.

Source: Thomson Reuters A RINGSIDE VIEW

BCM member Roy Dongen sends this eye witness account of Tuesday’s violence.

Last night there was a riot in Ulaanbaatar. It started with a demonstration against the MPRP, the party that had won the elections, according to the Asia Foundation, in a fair way. Late in the evening young rioters and looters took over and the MPRP head office was attacked. Since there is a large tax free liquor store in the building this was done with a lot of enthusiasm.

The rioters (about 2000) were mainly between 14 and 20 and most had consumed at least some alcohol. Probably a lot of them were students since that day was the registration day for the universities and vocational colleges and the city was crowded with students of whom many were from the countryside. I was among the protesters and rioters until 1 am and the violence was never scary.

They were aggressive only against the police and the MPRP building. Whenever they accidentally ran into me, they always apologized. Some, seeing my pin with the Netherlands and the Mongolian flag together even wanted to be in a picture with me. The only uncomfortable moments I experienced were when I had to protect my nose from the tear gas. MONGOLIA’S ANTI-CORRUPTION EFFORTS LAUDED

In a gesture of recognition of its efforts to curb, if not root out, corruption in the public domain, the International Association of Anti-Corruption Authorities has offered Mongolia full membership.

So far Mongolia has attended the organization’s meetings as an observer. In a letter to the Anti-Corruption Authority, the 150-member and Beijing- based organization has expressed the hope that Mongolia will continue assisting in international anti-corruption activities.

Source: www.mongolia-web.com

SPONSORS:

ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the week ended June 27, 2008, trading activity on the Mongolian Stock Exchange (MSE) totaled 5.1 million shares with 40 companies traded. Total market value of transactions was MNT 1.3 billion.

The Top-20 Index decreased by 48.09 points, or 0.5%, compared to the previous week closing at 10,199.36

points. The MSE Composite Index decreased by 98.80 points, or 0.2%, compared to the previous week, closing

at 4,580.46 points.

Most active stocks traded were: Naco tulsh (3,300,000 shares), Remicon (1,076,000 shares), Hermes (346,000

shares), Anod Bank (117,000 shares), and Genco tur buro (95,000 shares).

Major share price percentage gainers were: Auto impex (35.6%), Olloo (28.5%), Urgats uguuj (15.0%),

Bayanaldar (15.0%), and Bayalag nalaikh (14.8%).

Major share price percentage losers were: Mongol makh expo (-15.0%), Uran barilga (-15.0%), Almaas (-

11.8%), Makhimpex (-9.4%), and HB oil (-5.9%). The total market capitalization of the 358 stock companies listed on the MSE was Tg 801.7 billion, an increase of 3.1 billion, or 0.4%, from the previous week.

INFLATION

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

Year 2007 Avg. 9.0% [source: NSOM] Year 2007 *15.1% [source: NSOM] May 31, 2008 *32.6% - UB City [source: NSOM] * year over year (yoy)

CURRENCY RATES – JULY 4, 2008 Currency Name Currency Rate

US dollar US 1157.25

Euro EUR 1830.54

Japanese yen JPY 10.89 British pound GBP 2302.58 Hong Kong dollar HKD 148.37 Chinese Yuan CNY 168.57 South Korean won KRW 1.11 Russian ruble RUB 49.42

SPECIAL OFFER FOR BCM MEMBERS

The Arts Council of Mongolia, South Korean arts management specialists METAA, and the Mongolian University of Culture and Arts will jointly present Culture Naadam, an exciting program of cultural events at Hui Doloon Hudag Valley on July 11 and 12. There will be an Arts and Crafts Village to walk around and some of North Asia’s finest musicians will present a concert. More information on the festival can be found at www.culturenaadam.com.

BCM Members are entitled to 20% discount on all festival tickets. To take advantage of this offer, please call 319 017 and ask for Sarah Bleby, or email - program@artscouncil.mn. FLYING TO KHARKHORIN

Starting July 12, Kharkhorin, a popular destination for both foreign and domestic tourists, will be only 45 minutes from Ulaanbaatar. Eznis Airways is the first airline to operate regular services between the present and former capitals. Eznis also has tie-ups with local tour operators, and offers excellent and convenient all-inclusive Kharkhorin tour packages.

Source: www.eznisairways.com