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BCM Mongolia Newswire Highlights: Copper Down? Japan Embraces Oil and Uranium PDF Print E-mail
Friday, 10 October 2008

Business Council of MongoliaNEWS HIGHLIGHTS:
    Ivanhoe CEO reassures investors; Khan Resources reiterates “confidence in Mongolia”; Peabody Energy signs Inner Mongolia coal mine deal; The Khan in Mongolian banking; Japan comes looking for Mongolian uranium; Bid to stop bureaucratic harassment of employers; Arbitration court writes to Ministry, Altan Dornod; “Goodbye, Mongolia”.
    Finance Minister sees 2009 as all rosy, except for copper price fall; Planned oil refinery in Darkhan to meet entire domestic needs; President invites foreign investment in new areas; Tax revenue from minerals up, but less gold is sold; Weekly Asia-Europe freight train to go through Mongolia; Decision on wage increase likely soon; Gobi-Altai creates jobs, reduces poverty; Parliament divided over proposals to compensate cashmere producers.
    Bayar worried about budget deficit, proposes levies on fuel; Landlocked counties need more: Enkhbayar; Parliament wants to balance 2009 budget by chopping programs; Mongolia joins China-led space group; Turkish PM cancels visit, hurries home; MPs assail plan to give mothers money; First convictions in July 1 cases.

 For more business news and membership information on BCM, visit BCMmongolia.org/.

Eight years after Peter Morrow took the helm, Khan Bank is Mongolia's largest lender by assets and has expanded from its rural roots into corporate and institutional banking. International expansion is now on the agenda. With 30 years in the banking industry under his belt, Mr. Morrow was invited to take over Khan Bank in 2000, when it was already in receivership. The Mongolian Government had decided the bank had to be kept alive because it was the only one with a sizeable presence in rural areas, where it handled tax collection, pension distribution and other services. Morrow and his new management team were given two years to turn things around, with the incentive that if they were successful, the bank would be privatized. In fact, it was three years before the bank was sold, but overall things went according to plan.

Khan Bank is now 100% privately owned, by the International Finance Corporation and private investors from Mongolia, Japan and the US. Since 2003, it has been transformed from a retail bank focused on rural areas, to a full service bank – working with retail, corporate and institutional clients – with a strong presence in the Mongolian capital. Looking to the future, Mr. Morrow says that the "bricks and mortar" part of its expansion is virtually complete, and Khan Bank will focus on selling new products as the country's economy develops. "There is a lot of potential upside in the small and medium-sized enterprise business," says he. "For Mongolians, the 'sex' in mining is not the mining industry itself, but the supply chain to the mining industry."

Hiroyuki Ishige, Japanese vice minister for trade, will lead a delegation of more than 50 government and company officials, to Mongolia this week to hold talks on jointly developing uranium ore reserves as part of efforts to secure additional supplies of the nuclear fuel. Japan is the world's third-biggest uranium consumer. Japan is stepping up efforts to acquire uranium assets as competition for the fuel intensifies with China and India.

Mongolia has 62,000 tons of proven uranium reserves, or 1 percent of the world's total, according to the Japan Oil, Gas and Metals National Corp. The country has untapped areas that may contain as much as 1.39 million tons, which would make it the world's largest source of the ore, the group says.

Finance Minister S.Bayartsogt shared with journalists last week his Ministry’s positive projections for the national economy in 2009. The most important among them were the following:

‐ The economy will grow 14.1%
‐ GDP will reach MNT 7.95 trillion, based on present prices
‐ GDP per capita will reach US$2,274
‐ The net foreign currency reserve will reach US$1,272 million and CPI rise will be limited to 12%
‐ The Tugrug will be stronger against the USD by 0.6%
‐ The population will grow by 1.6% and reach 2.7 million
‐ The unemployment rate will be 2.7%.

Next year should see a zero deficit budget, even after providing for construction of a new international airport, resolution of the energy problem resolution, and distribution of minerals revenue shares to the citizens.
The Minister did say, however, that there was one cloud on the otherwise bright horizon. Since export of copper accounts for one fifth of the total revenue of Mongolia, the fall in global copper prices could undermine the Mongolian economy, but its extent cannot be gauged in advance.

Mongolsekiu LLC and Toyo Engineering Corporation of Japan have formally submitted to the Mines and Energy Ministry their plans to set up an oil refinery in Darkhan city. The crude will come from Kazakhstan along a pipeline and by train. Its output of 44,000 barrels a day is projected to fully meet Mongolia’s demands in petroleum, diesel and aircraft fuel.

The Toyo team told media that lack of adequate water was a possible problem with the construction, especially during the winter months, “but we are working on alternatives and shall certainly find a way out”.

The total cost of the joint venture is estimated to be more than US$1.2 billion and will be mostly borne by the Japanese Government and the International Cooperation Bank of Japan. The Japanese firm will have 60% share and Mongolsekiu 40%. Construction will begin in spring 2009, a pilot plant is expected to start operating in the first half of 2010, and the refinery will work at full capacity from June, 2012. 
When it starts working the refinery should relieve Mongolia of its stifling dependence on foreign fuel.

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