Draft Resolution Vague

Friday, November 28, 2008 

NEWS HIGHLIGHTS:

Business: Draft resolution vague and disappointing, says Do.Ganbold; BHP Billiton calls off Rio Tinto takeover bid; President discusses financial situation with Peter Morrow; Foreign companies account for 67,000 work places; 50% workers laid off at Oyu Tolgoi; Gold mining company completes technical reclamation; Work starts on Altanbulag trade zone; Construction companies yet to get bank loans; Private carriers raise air fares; Agency against camps in Khuvsgul protected area; Incomnet expands its Gilat SkyEdge network; Camel milk dairy coming up. 

Economy: Parliament guarantees all bank deposits, raises gold tax threshold; Parties come closer on budget; Parliament discusses money issues behind closed doors; MPs hurry with budget reading to meet deadline; Copper drops to near three-year low as global surplus widens; Zinc price also going down; Joint MPs’ group sets copper price higher to compute revenue; Social policy to shift direction from cash to jobs; MPs find merit in audit office proposals; 920-km highway to be built. 

Politics:  Government likely to do without vice ministers; Korea to take fewer workers; Ministers review Mongolia-Russia joint ventures; Environment Ministry wants NGOs’ cooperation; Surface water sources drying up fast; Need for policy on the elderly; Indonesia looks for closer ties; Anti-Corruption Agency staff visits all aimag centers; US university holds Mongolia week. 

An announcement

LAURENZ MELCHERS TAKES OVER AS BCM CHAIRMAN IN JANUARY

The Business Council of Mongolia will begin the new year with a new Chairman, as Mr. Laurenz Melchers takes over from Mr. Peter Morrow, BCM's founding Chairman, who vacates the position he took up on a temporary basis when Mr. Alain Fontaine left the position.  Mr. Melchers has been on the BCM Board of Directors since the middle of this year.

Asked about his reaction, the Chairman-designate said, “The offer was completely unexpected and I feel honored.” What new direction does he hope to give to BCM work?  Mr. Melchers said, “The BCM has a highly skilled and motivated staff, executive board and directors who are already working hard for it and achieving great results. It will be my goal to continue on this successful path and to put in my thoughts and ideas where needed.  The Council’s interest is to see Mongolia become a flourishing economy that will benefit all. If there are opportunities for BCM to be a catalyst in this process, it will take these up and act upon them.”

Mr. Melchers is a co-founder of Mongolian Star Melchers Company (MSM) and has lived in Mongolia with his family since 1997. MSM is a trade and service company, involved in mining and construction equipment supply, automotive retail and service, consumer goods distribution, and health care and hospital supplies.

The MSM motto is Powerful Service. BCM members will be looking forward to some aces from their new Chairman.

PARLIAMENT GUARANTEES ALL BANK DEPOSITS, RAISES GOLD TAX THRESHOLD

Jittery over small bank runs and falling commodity prices, Mongolia's Government is guaranteeing all bank deposits, as the country tries to ward off the global financial crisis. Parliament approved the law Tuesday to try to shore up confidence in Mongolia's 16 commercial banks, which hold USD1.1 billion in deposits, and to ensure banks keep lending to buoy the economy.

"The world economic crisis is not affecting Mongolia directly. However, we are feeling the shock," Prime Minister Bayar told reporters. He said some Mongolians had started to withdraw their savings from banks out of concern they might collapse and that in part prompted the Government to act to issue its 100 percent guarantee for deposits.

Mining, especially of copper, is the lifeblood of the Mongolian economy. High prices for minerals boosted economic growth to better than 9 percent last year, with most of the output sold to China. But copper prices have plunged by half this year, as the world economy slows. The drop has crimped government revenues, most of which come from taxes on copper. As a result, the Government has been forced to reduce spending, laying off some civil servants and telling others to cut back on phone calls and driving official cars. Getting large-scale mining projects going will be the best medicine to reinvigorate the economy, Bayar said. Until then, the Government hopes that banks will continue to lend money, cushioning the economy.

"The Mongolian banking system is sound and stable. It is not on the edge of collapse or anything like that," Finance Minister Bayartsogt told Parliament when urging legislators to approve the 100 percent guarantee on bank deposits. "This law is designed to safeguard collapse of the banking system." To further bolster the banks, the Government has asked Parliament to approve a law to inject USD250 million in state treasury funds into the commercial banks to encourage lending.

In an effort to curb widespread tax evasion and replenish revenues, Parliament also raised the threshold price for the windfall profit tax on gold. The 68 percent tax on profits will be now imposed when gold prices climb above USD850 an ounce, rather than the USD500 mark set two years ago. The USD2,600 a ton threshold for copper remains unchanged.

Source: Associated Press, International Herald Tribune

50% WORKERS LAID OFF AT OYU TOLGOI

Ivanhoe Mines has laid off 50% of its workers at Oyu Tolgoi and 10% of the staff in its Ulaanbaatar office. The company has also cut its 2009 budget by 70%.

Source: Onoodor

DRAFT RESOLUTION VAGUE AND DISAPPOINTING, SAYS Do. GANBOLD

Do.Ganbold, President of the Mongolian National Mining Association, says that while the basic outlines of the draft resolution prepared by the MPs’ working group on mining were better than the suggestions during discussions in Parliament, many of the details in it were impracticable. There were also contradictions. For example, on Tavan Tolgoi the proposal to work within the framework of the 2006 law is soon followed by another to study the possibility of setting up a company where the Mongolian side will own not less than 51 percent. This is against the 2006 law which put the state’s ownership share in projects where the prospecting work had been done at State expense at 50 percent, and not more.

Investors were generally disappointed, he said. It was clear that the draft “was prepared by people who don’t understand mining at all”. Also, much in it had been left vague and will merely make for uncertainty as time goes on, something they were most keen to avoid. He could not be sure whether these inconsistencies were innocent lapses or deliberate equivocation. In any case, investors right now are uncertain if the Government will go for investment agreements first or changes in the law before that. Anyway, with Parliament busy with the budget until December 1, Do.Ganbold saw little chance of any further progress on the mining issue before the new year.

The deteriorating financial situation was making negotiation prospects worse. Earlier, investors might have said, “OK, let us accept the Mongolian terms,” but now any such accommodation will be difficult, with product prices on a downslide, and financial credit hard to come by.  Do.Ganbold thought their present constraints could even lead investors to ultimately reject the conditions that the Mongolian side might insist upon. In business, what was acceptable in the past may not be so any longer and “if the Mongolian side does not understand this, they must not talk about market economy”.

Calling the ideas about asking investors to pay taxes and fees in advance “an absolutely impossible demand”, Do.Ganbold said, “We don’t need to produce tons of paper before beginning talks. Investors are ready for them. It is not a matter of who won and who lost. We need to cooperate at a time of global crisis.”

During the Euromoney Forum some investors openly said, “We are glad that MPRP won the election as it opens up possibilities of cooperation.” Asked if investors took sides in the country’s political contest, Do.Ganbold said neither foreign nor local investors could have any overt preference for any party label, but both wanted to deal with people who were “more organized, more responsible, and more flexible”.

Referring to MPs frantically working on budget cuts following declining mining revenue, Do.Ganbold said the situation would not improve even if new investment agreements were signed soon. New projects will start yielding revenue after three years at the earliest. The budget revenue has fallen because income from Erdenet has fallen. If work on Oyu Tolgoi had started two years ago the situation today would be different, as income from there would have been 3.5 times more than that from Erdenet. 

Do.Ganbold rated as bleak Mongolia’s chances to find money for its share of expenses in Oyu Tolgoi and Tavan Tolgoi unless it went for big loans. Asked about product sharing, he said, loud and clear, “That is impossible.”

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