BUSINESS COUNCIL of MONGOLIA NewsWire

www.bcmmongolia.org

Email: Jim@bcmmongolia.org Issue 26, May 30, 2008

NEWS HIGHLIGHTS:

Business: EBRD Financing Zoos Bank; Western Prospector Rebuffs Khan Bid; Microsoft Signs Memorandum of Understanding with Mongolia; Rosneft Proposal for 100 Gas Stations Rejected; International Microfinance Conference in Ulaanbaatar

(Click here to go to the Business section)

Economy: Mongolia is an Oil Extracting Country; Tax Exemptions for Agricultural Equipment; Taishir Hydro-Electric Power Station Progress; Coal to be Liquefied

(Click here to go to the Economy section)

Politics: Current Parliament Session Ends; Parliament Ratifies Strategic Deposit List; Blockage in Minerals Law Working Group; Modification of Windfall Tax on Gold Pending; 12 Political Parties and 1 Coalition Participate in 2008 Elections; Government Approaching End of Privatization Process; Land Ownership for Every Citizen; Mongolia and Russia Discuss Joint Uranium Mining

(Click here to go to the Politics section)

BCM MAY MEETING RECAP

It was nice to see so many of you at this month‟s meeting. We had a near record turnout of 76. Our next meeting will be held Monday, June 30, at which we plan a Parliamentary election recap.

Alain Fontaine, Vice Chair of BCM opened the meeting. Alain reviewed BCM‟s progress with cooperative agreements and interaction with Government ministries and agencies. He outlined BCM‟s possible co-sponsorship of Euromoney‟s Investors Forum in UB in September and arrangements for a technology symposium, „Digital Mongolia‟, in October with Intel Corporation as lead sponsor and local entities as co-sponsors.

Executive Director, Jim Dwyer announced that BCM membership has reached 101 members, an increase of six members from the last meeting. A free round trip ticket on Eznis Airways was awarded to Eagle Security for becoming the 100th BCM member. Jim also urged Members to submit business news for placement by the editor of the BCM NewsWire.

H. E. Mr. Ichihashi, Ambassador of Japan to Mongolia, gave a brief update of activities and high level visits so far this year. In March, Foreign Minister, S. Oyun paid an official visit to Japan as well as Minister of Construction and Urban Development, M. Tsolmon. An agreement was signed between Mongolia and Japan regarding the support for construction of a new airport in Mongolia to be funded by soft loans from the Japanese Government totaling approximately US $300 million. The project is awaiting approval by Parliament.

Mr. Do. Ganbold, President of MNMA, gave an update on the status of the draft amendments to the Minerals Law. The first hearing was held last Friday and “the future of mining in Mongolia is still pending”, he said. This week, the MPRP was still discussing the amendments. “It may be that the current session does not make a decision”, he said.

An Election Panel was featured at the meeting. Speakers participating were: Mrs. S. Oyun, Chairperson of the Civil Will Party and Minister of Foreign Affairs; Mr. Munkh-Orgil, Mongolian Peoples Revolutionary Party and Minister of Justice; Mr. Amarjargal, Democratic Party and former Prime Minister, and Mr. G. Tsogtsaikhan, Policy Committee, Democratic Party.

Mrs. Oyun began by presenting the main objectives of her Civil Will Party‟s platform. For more information you may visit their website: www.izn.mn. She noted that her party believes the Windfall Tax should be abolished completely

Mr. Munkh-Orgil, listed the MPRP‟s 12 platform points. For the complete MPRP platform, please visit the BCM website, Articles/Reports on Mongolia, and www.mprp.mn.

Mr. Tsogtsaikhan of the Democratic Party mentioned that his party met with the press recently and gave a presentation of their platform for the upcoming elections. He pointed out that one of his

party‟s main objectives was to create jobs. For more information visit: www.demparty.mn.

BUSINESS

EBRD FINANCING ZOOS BANK

The European Bank for Reconstruction and Development (EBRD) is providing support for the development of the Mongolian financial sector by acquiring an equity stake, extending a loan for small business lending, and providing a trade finance facility to Zoos Bank, the country‟s sixth largest bank.

This will strengthen the Zoos Bank‟s corporate governance and international operating standards, support its growth and expansion plans, and prepare Zoos Bank for a successful listing on an international stock exchange, or a sale to a strategic investor in the future. Zoos Bank is well positioned to grow its activities in the SME and corporate markets in Mongolia and expand further into the retail segment.

Source: The Financial, www.finchannel.com

WESTERN PROSPECTOR REBUFFS KHAN BID

Two weeks after Khan Resources lobbed a hostile bid at Western Prospector Group, the Vancouver-headquartered target advised shareholders not to tender. It has formed a special committee and together with management is “working to evaluate strategic alternatives that may enhance shareholder value.” It also said that it has received overtures from “third parties who have expressed an interest.”

Western Prospector argues that Khan‟s offer is inadequate and fails to reflect the true value of Western relative to Khan. “It is an opportunistic attempt by Khan to acquire Western prior to the release of its feasibility study and completion of its strategic partnering program, which Western made public prior to the Khan offer. Western is much further advanced toward a production decision than Khan, which is one of the reasons why Khan needs Western more than Western needs Khan,” said Eric Bohren, the company‟s chief executive.

Source: Financial Post, www.nationalpost.com

MICROSOFT SIGNS MEMORANDUM OF UNDERSTANDING WITH MONGOLIA

A memorandum of understanding was signed this week between Microsoft Corporation and the Government of Mongolia. The document was signed by Ch. Saikhanbileg, head of the Information and Communications Technology Agency and Goran Radman, Chairman of Eastern and Central Eastern Europe, Microsoft. The memo provides for extending production and service markets of the information and communications technology in Mongolia, improving the quality of training, enhancing ICT education of the public, and protecting intellectual property and copyrights.

Sources: MONTSAME

www.olloo.mn

ROSNEFT PROPOSAL FOR 100 GAS STATIONS REJECTED

The Rosneft Company granted Mongolia a discount of USD 4.8 million last February and March. The majority of committee members expressed their rejection of establishing 100 Russian gas stations in order to supply 10 percent of imported oil. Some members suspect there may be private interests related to gas stations.

During the session, members agreed on some measures of increasing oil product supplies. A task group, headed by Ts. Munkh-Orgil, is working on modifications to the oil product law, but at this time the discussion has been postponed.

The Russian oil export tariff rose to USD241 per ton and if it increases by 16.2 percent in June, the price per ton will reach USD 279-282. Because of the increase, oil prices in the domestic market would go up by MNT219-351. Kh. Narankhuu, Minister of Industry and Trade said the Government should have a policy for an oil processing plant.

Source: MongolWeb

INTERNATIONAL MICROFINANCE CONFERENCE IN ULAANBAATAR

Over 500 representatives will attend the 11th Conference of the Center of International Microfinance in Ulaanbaatar from May 29-31. The conference will bring together officials from large banks and businesses in the region to review the progress of the country‟s banking industry as well as discuss customs, arts, culture and investment opportunities in Mongolia. This is the first time the conference has been held in Asia and is meant to coincide with the tenth anniversary of the Xac Bank. The Center of International Microfinance has its headquarters in Poland and cooperates with more than 110 organizations in East and Central Europe, and Central Asia.

Source: MONTSAME

ECONOMY

MONGOLIA IS AN OIL EXTRACTING COUNTRY

Last week, the oil sector of Mongolia celebrated its 67th anniversary and on the same day, Mongolia was declared as an oil extracting country. The rise in the price of oil in recent years has had a positive impact on the oil exploration of Mongolia. Mongolia imported 640 thousand tons of oil in 2007 and 220 thousand tons as of April 2008. The oil reserves of the Tamsag deposit are 4.4 billion barrels, and those of the Dornogobi basin are 2.6 billion barrels. In 2007, organizations supplying oil products allocated over MNT 100 billion in the state budget. This year, USD 433.1 million will be invested in oil exploration.

Source: MONTSAME

TAX EXEMPTIONS FOR AGRICULTURAL EQUIPMENT

The Government discussed draft laws proposed by the Food and Agriculture Ministry regarding the exemption of customs tariffs and VAT, to import agricultural machinery such as tractors, combines, irrigation systems, fertilizer, and manure tax free. The number of tractors and combines has decreased 2.5 times. Of these, over 90 percent are used machines imported before the 1990s. A priority in the Sector is to provide innovative machinery and technology. The Government believes that implementing this task requires extensive investment and it will be necessary to acquire financial assistance and to create legislative support for investors in the agricultural sector.

Source: MONTSAME

TAISHIR HYDRO-ELECTRIC POWER STATION PROGRESS

The Taishir Hydro-electric Power Station will provide electricity for the Gobi-Altai and Zavkhan aimags, creating favorable conditions for the development of this region. US $40 million dollars were required to build the power station. US $20 million was granted by the Kuwait Foundation, and US $13 million was financed by the United Arab Emirates‟ Abu-Dhabi Fund for Development.

The balance was given by the Mongolian Government.

Source: Mongol Messenger

COAL TO BE LIQUEFIED

According to B. Ganbaatar of the Ministry of Fuel and Energy, plans are being worked with the French "AXENC" group to liquefy coal. US $300,000 has been allocated from the state budget for this work. Samples of five coal deposits have been sent for testing. By studying the composition of the coal, technology of liquefying coal will be determined. Specialists are being trained at the Mongolian University of Science and Technology and the National University of Mongolia as well as in Germany and Australia. The next step is the implementation of a "Coal" program and a state policy on fuel and energy. A law on coal is expected to pass and the liquefying coal is of importance to attract foreign investments in this sector.

Source: MONTSAME

POLITICS

CURRENT PARLIAMENT SESSION ENDS

During the MPRP‟s meeting on Monday, members agreed the final session for the current Parliament should be held after the election and pushed for the current session to end Thursday, May 29. Both the MPRP and the opposition DP submitted draft resolutions on mining that are currently being discussed. MPRP members argued these draft resolutions should be discussed by the next parliament members. In an interview by Mineral News Daily, MP N. Batbayar, Chairman of the Working Group on the Draft Amendment to the Minerals Law said, “I will oppose its adoption if the hearing is conducted in a manner of last Friday. Instead, it is better to leave it to the next Parliament.” Parliament sessions will resume in early October.

Sources: UB Post

Mineral Daily News, www.miningmongolia.mn

PARLIAMENT RATIFIES STRATEGIC DEPOSIT LIST

Last Friday, the first discussion of the drafts was held, incorporating the draft law initiated by 19 MPs. A task group, headed by N. Batbayar unified the drafts law. According to this, strategic deposits include gold deposits with resources of more than 100 tons, copper deposits with resources of more than 5 million tons, silver deposits with resources of more than 500 million tons, and iron deposits with resources of more than 150 million tons estimated in accordance with international standards. Uranium, rare-earth elements and pure quartz deposits that are of special significance to the National Security shall be included in the strategic list without considering resource amount.

Source: www.business-mongolia.com

BLOCKAGE IN MINERALS LAW WORKING GROUP

This week, Parliament approved the revised General Tax Code. Mr. L. Purevdorj, chairman of the Standing Committee who initiated the law, was interviewed by Mineral Daily News. In general, the draft law eases the complicated relationship between tax payers and the tax office.

Mr. Purevdorj is also a member of the Minerals Law working group and had this to say: “The main bottleneck is in the Minerals Law working group. Instead of finalizing this issue, members of the group work individually in rural areas making it impossible to discuss this law. Parliament needs to approve the law and give the Government permission to act. Because of this, the Oyu Tolgoi project is delayed.”

Sources: www.olloo.mn

Mineral Daily News, www.miningmongolia.mn

MODIFICATION OF WINDFALL TAX ON GOLD PENDING

Mongolia collects a considerable portion of its budget from the windfall tax imposed on copper and gold. This week, the Government submitted a proposal to revoke the provision for the windfall tax on gold to the Economic Standing Committee. Democratic Party members expressed their support. Although gold extraction has not diminished, the amount of gold sold to the Bank of Mongolia has sharply declined since the introduction of the tax. If the Government proposal is approved and the windfall tax imposed on gold is abolished, it will result in royalty increases.

Source: Zuunii Shuudan

Mineral Daily News, www.miningmongolia.mn

12 POLITICAL PARTIES AND 1 COALITION PARTICIPATE IN 2008 ELECTIONS

12 Political parties and one coalition party will participate in the 2008 Parliamentary Elections. On May 22, these participants received their election mandates from the General Election Committee (GEC). The participating political parties will be registered on the ballot according to registrations as follows: Mongolian People‟s Revolutionary Party (MPRP), Democratic Party (DP), Civil Coalition/Civil Movement Party, with the Green Party, Civil Will Party (CWP), Mongolian Traditional United Party, The Motherland Party, Mongolian Liberal Party, RP, Party of the People, National New Party, Party for Implementing Freedom, Development Program Party, and the Mongolian Democratic Movement Party. The elections will be held on Sunday, June 29.

Sources: Mongol Messenger

MONTSAME

GOVERNMENT APPROACHING END OF PRIVATIZATION PROCESS

B. Sukhbaatar, Chairman of the State Property Inventory, Control and Monitoring Department of the State Property Committee and Chairman of the Central Commission for Inventory was recently interviewed about privatization.

“We are approaching the end of the privatization process. There are 700 state owned entities, mostly schools and hospitals. 75 entities are barely balancing their budgets. The Government has started counting how much capital it owns. The state capital census is carried out every four years. The last inventory showed the state capital had reached 3.4 trillion tugrugs, 1 trillion of which are state owned enterprises. Approximately 1000 entities will be involved in the inventory.

This year, the State Property Committee is giving special attention to the privatization of MIAT and AeroGeodesy-Cement, Lime and Ferrous metal factories of Khutul.”

Sources: Unuudur

Mineral Daily News, www.miningmongolia.mn

LANDOWNERSHIP FOR EVERY CITIZEN

On May 22, Parliament approved amendments to the Law on Landownership, under which every family member has the right to own land. The Government extended the term of landownership until 2013. The size of land was not changed, and citizens in the capital city and large settlements have the right to own 0.07 hectares of land, in provinces 0.35 hectares and, in soums, 0.5 hectares of land designed for household needs, entities and farms. The land location will be defined by the land planning office and at the permission of the Governor. Only 0.12 percent of Mongolian territory is to be privatized under landownership which means 1.5 million hectares of territory will be divided amongst 2.7 million citizens.

Source: Mongol Messenger

MONGOLIA AND RUSSIA DISCUSS JOINT URANIUM MINING

Prime Minister Bayar traveled down a uranium mine shaft with Russian officials on Monday as he negotiated joint uranium development in Mongolia. Russia seeks to mine uranium from the six Mongolian uranium sites in the country. Estimates place Mongolia as having 62,000 tons of uranium ready for mining, with another 1.3 million tons not yet developed. This means Mongolia has the

fourth largest uranium reserves in the world. Noting the recent rise in uranium prices, Kiriyenko told reporters, “At present the price of one kilogram of uranium is about 100 dollars, but quite recently a kilogram of uranium cost only 40 dollars on the world market,” he said. “This situation makes the uranium production for the needs of the developing nuclear industry economically profitable. Russia intends to produce uranium everywhere it is economically profitable for us.”

Source: MONTSAME

SPONSORS

ECONOMIC INDICATORS

MSE WEEKLY REVIEW

For the week ended May 23, 2008, trading activity on the Mongolian Stock Exchange (MSE) totaled 26.2 million shares with 43 companies traded. Total market value of transactions was MNT 3.243 billion.

The Top-20 Index decreased by 143.17 points or 1.26 % compared to the previous week closing at

11,180.36 points. The MSE Composite Index increased by 8.58 points or 0.2% compared to the

previous week closing at 4,973.59 points.

Last week there were two IPO‟s: Hermes Center sold 23,562,900 shares at 100 MNT totaling 2.356

billion MNT; Remikon sold 2,204,800 shares totaling 220.5 million MNT. Remikon now has 96,787,

800 shares listed.

Most active stocks traded in the secondary market were: Jenco Tour Bureau (162,600 shares), Zoos

Bank (94,700 shares), Tuul Songino Usnii Noots (57,800 shares), Olloo (33,500 shares, and UID (State

Department Store) (27,400 shares).

Major share price percentage gainers were: Mandalgobi Impex (14.9%), Usib (14.8%), Hermes Center

(10.0%), Zoos Bank (7.5%), and Tuul Songino Usnii Noots (7.2%). Major share price percentage losers

were: Spirit Bal Buram (10.2), UID (State Department Store) (9.3%), Mongol Shiltgeen (8.3%),

Shariin Gol (7.4%), and Baganuur (6.1%).

Total market capitalization of the 358 stock companies listed on the MSE was MNT 806.4 billion,

and increased by MNT 12.6 billion or 1.6% from the previous week.

INFLATION

Year 2006 6.0% [source: IMF] Year 2007 Avg. 9.0% [source: ADB] Year 2007 *15.1% [source: World Bank] May 23, 2008 *26.4% [source: MongolBank] * year over year (yoy)

CURRENCY RATES - May 29, 2008

Currency name Currency Rate

US dollars US 1.161.59

Euro EUR 1.825.55

Japanese yen JPY 11.14

British pound GBP 2.299.89

Hong Kong dollar HKD 148.86

Chinese yuan CNY 167.28

Russian ruble RUB 49.24

South Korean won KRW 1.12