Policy-makers warn mineral price drop in 2019 www.zgm.mn

Bank of Mongolia has informed of a potential risk of weaker foreign trade conditions following a likely chance of slump in prices of Mongolia’s main export goods, namely copper, iron ore and coal. On the contrary, Mongolia's main import commodity, oil price is set to further increase in 2019. National Budget Stability Council explains that this could create unsatisfactory situation for budget revenue, which is the main risk for the economy. Davaasambuu Dalrai, Head of the council, warned that the lesser revenue will limit expenditure, ultimately obstructing planned projects. “In order to avoid potential risk of deadlock in multiple projects, the Government should choose a small number of reliable and necessary project,” suggested Mr. Davaasambuu. Ministry of Finance, on the other hand, determined price swing as the key potential risk in the budget revenue. For instance, the trade war between the U.S and China, the U.S sanction on Iran, economic crisis in Turkey and China’s policy on reducing iron production within the frame of reducing air pollution in Beijing caused instability in mineral prices since July.

A scandal in Mongolia: heads roll in government after US$1.3m SME fund embezzlement www.scmp.com

Mongolia’s anti-corruption authority is investigating reports that senior government officials and parliamentarians channelled more than US$1 million in government money to their families and friends, with one minister resigning last week and another expected to step down soon.

The money was from a fund set up 18 years ago to offer loans at 3 per cent interest to owners of small and medium-sized enterprises, as banks and finance companies normally charge between 12 and 30 per cent.

Some 65 billion Mongolian tugrik (US$25.4 million) was allocated to the fund in the 2018 budget.

However, starting two weeks ago it was revealed in reports leaked to the Ikon news website that some of the resource-rich country’s most powerful people have been using the fund to grant loans to their family members’ companies, or putting the money in high-interest bearing accounts.

Among the accused are government ministers, members of parliament, the general prosecutor, general auditor, and the former head of the intelligence authority.

Amid mounting public anger, four civil servants involved in administering the fund were arrested last Friday.

Last week, Food, Agriculture and Light Industry Minister Batjargal Batzorig, who oversaw the SME fund, resigned under pressure from the ruling Mongolian People’s Party (MPP), which controls 85 per cent of the country’s 76-seat parliament. Parliament officially dismissed him on Tuesday.

Workers at Mongolian Charcoal Production and Trade, which has been applying for loans from the SME development fund for three years but has yet to receive a reply. 
He had granted a 1.4 billion tugrik (US$547,000) loan to a transport company run by his wife.

It was also revealed that MPP parliamentarian Enkhbayar Jambal, who owns financing and agricultural companies, borrowed 950 million tugrik (US$371,000) from the SME fund. He insisted the money was used to improve cattle breeding practices, in a country where animal husbandry is the main source of food for the population of 3 million.

Road and Transport Development Minister Sodbaatar Yangug’s job is also at risk, after it emerged that he took loans of 950 million tugrik (US$371,000) from the SME fund and pumped it into a luxury postnatal therapeutic medical centre founded by his wife. The MPP is waiting for the outcome of the anti-corruption agency’s investigation before it acts.

Yangug claimed poor health had prevented his wife from being involved in the business recently and denied any knowledge of the loans, yet according to the income declaration form he submitted to the anti-corruption authority, he has 100 per cent ownership of the centre.

Mongolia, which has relied heavily on agriculture and mining copper and coal for economic growth, is trying to boost entrepreneurship to diversify its economy. It experienced a sharp slowdown between 2014 and 2016 due to a drop in commodity prices and foreign direct investment, but growth has now recovered and the economy is tipped to expand by 5 per cent this year, according to the International Monetary Fund.

SMEs contribute about 17 per cent of GDP and 2.3 per cent of exports but struggle with high profit taxes and a fluctuating local currency.

Byambadash Dashzeveg, co-founder of Mongolian Charcoal Production and Trade, said his company had been applying for loans from the fund for the past three years, had yet to receive any response. His company produces charcoal for barbecues.

He wanted a loan to improve the company’s decade-old equipment, which would allow it to expand the production of its charcoal from 20 tonnes per month to 200 tonnes per month and tap the export market.

LGBTI in Mongolia fighting for rights and recognition
Mongolian Charcoal Production and Trade said there was demand for their products – a Japanese partner had commissioned them to export 200 tonnes of charcoal every month, while there is a similar amount of demand from China – and they had showed proof of this to the SME fund administrators.

“If we had that 3 per cent loan funding, we would already expanded our production by hiring more people and would have already exported our charcoal to Japan, China, and South Korea,”

Dashzeveg told the South China Morning Post.

The company’s products are currently available on Alibaba – which owns the Post – but its current capacity only allows it to export 20 tonnes per month to China.

Small- and Medium-Sized Outrage Building Over Corruption in Mongolia www.thediplomat.com

Political frustration has been building in democratic Mongolia for several years now as allegations of corruption have become a drag on policy decisions. Last week, another corruption scandal broke and is now engulfing nearly all of the political leadership. Could this be the scandal that brings Mongolians onto the streets to bring about a major shift in political culture?

The SME Fund

In 2009, the Mongolian government expanded the Small and Medium Enterprises Development Fund (Жижиг, дунд үйлдвэрийг хөгжүүлэх сан, often abbreviated as Ждүхс or Ждү) to support small- and medium-sized enterprises (SME). This was a moment just before the boom years associated with the initial construction at the giant Oyu Tolgoi copper mine, which saw Mongolia attain the highest rate of growth in the world in 2011.
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The fund provided companies with low-interest loans at 3 percent interest up to five years and 2 billion Mongolian tugrik (roughly $780,000 at today’s exchange rate). The Fund is reported to have dispersed loans totaling nearly 700 billion tugrik, amounting to several hundred million U.S. dollars.

The fund was created in and continues to be overseen by the now-Ministry of Food, Agriculture, and Light Industry. As it has emerged, oversight was lax.

Investigative Journalism Instead of Smear Campaigns

Investigative journalists, especially Ch Bolortuya and her colleagues at Ikon.mn, have been essential in bringing the abuse of the SME Fund to light. Many of the companies that received loans are tied to prominent politicians through ownership of the SMEs that benefited. Journalists and some civil society activists, most notably B Otgontugs, an education economist and professor at the National University of Mongolia, have been relying on leaked lists of loan recipients and then comparing those to ownership records for these companies to identify politicians that have benefited from loans. So far, no one has disputed the leaked lists, suggesting that they are genuine.

The investigations into these entanglements of politicians have been very public and careful. This contrasts sharply with past practice, where finger-pointing has produced a perception of pervasive political corruption, but few prosecutions.

The current investigations have already led the current minister of food, agriculture, and light industry, B Batzorig, a member of parliament for the Mongolian People’s Party (MPP), to offer his resignation. The chief prosecutor has requested parliament to revoke Batzorig’s parliamentary immunity.

Online Protests

So far, protests have primarily occurred on social media, especially Twitter. Mongolians are avid social media users as was shown in the rapid mobilization when a Turkish educator was threatened to be abducted by alleged Turkish security agents in July. Even more than in that mobilization, this past week Mongolians have been rallying around Twitter hashtags like #Ждү to voice their frustrations.

So far, however, few protests have materialized on the streets, although they have been announced for the coming weekend. Whether outrage will lead to demonstrations or even large-scale protests will depend on the government’s reactions to the allegations. While most of those implicated are members in the MPP’s parliamentary supermajority, MPP Prime Minister U Khurelsukh has not been implicated. His reaction will be closely watched for whether he will initiate genuine investigations that might lead to prosecutions or will try to downplay his party’s entanglement. Speaker of parliament M Enkhbold is not directly mentioned in SME Fund publications so far, even though his involvement in the apparent auctioning of state offices in a disputed 2016 whistleblower video robs him of much legitimacy in accusing others of corruption. President Battulga’s family also appears to be implicated.

Constitutional Change or Revolution

It is not only political frustration that is in the air, but also constitutional change. There has long been a sense that the division of powers between the president and parliament, as well as the prime minister, has not been clear enough. In a potentially volatile situation, such discussions might turn into an argument for authoritarian rule, a soft coup of sorts. However, none of the suspects for such an attempted grab for power, most prominently Battulga, has much credibility in the current context. If the reaction to allegations by the Khurelsukh government is seen as wanting by many protesters, anger might quickly turn at parliament, with demands for resignations.

In a small population, many urban professionals will have acquaintances who applied for support from the SME Fund but were denied, which will lend urgency to protests. Professor Otgontugs indicated in an online interview that there are “28 special funds like the SME Fund” suggesting that more evidence of malfeasance is yet to come.

Whether new political forces that are more devoted to a fight against corruption than the current political duopoloy of the MPP and the Democratic Party would emerge from new elections is not clear. It does seem likely, however, that attention to evidence will fuel distrust of political parties further and will ultimately lead to upheavals in democratic Mongolia.

Dr. Julian Dierkes is an associate professor at the University of British Columbia (UBC) in Vancouver, Canada where he teaches in the Master of Public Policy and Global Affairs. He and Mendee blog at http://blogs.ubc.ca/mongolia. Follow him on Twitter @jdierkes.

Mendee Jargalsaikhan is a Ph.D. candidate in Political Science at the University of British Columbia. His dissertation examines the development of Mongolia’s democracy. Follow him @MendeeJ

Wetlands International supports Mongolia’s battle to save its peatland www.dutchwatersector.com

Wetlands International developed a Strategic Plan for peatland restoration and sustainable management in Mongolia, funded by the Asian Development Bank. The development of the plan include a rapid assessment study and a demonstration pilot project on peatlands management and restoration.

Mongolia receives 5th tranche of IMF loan www.xinhuanet.com

ULAN BATOR, Nov. 6 (Xinhua) -- Mongolia has received the fifth tranche of funding from the International Monetary Fund (IMF), equivalent to around 36.22 million U.S. dollars, local media reported on Tuesday, citing the country's central bank.

Oyu Tolgoi: Past, present, future report www.ot.mn

This is a pioneering project, built on the foundation of an agreement between the Government of Mongolia, Turquoise Hill Resources and Rio Tinto that is going to be the third largest copper producer in the world. It is a business that has already made a significant economic contribution to Mongolia, with approximately US$8 billion already directly spent in country, of which over US$1.6billion in taxes, royalties and other payments directly to the state. This has made Oyu Tolgoi one of the largest tax payers in the country, something we are very proud of.
In addition, Oyu Tolgoi – with its contractors – today employs over 16,000 people of whom over 94% are Mongolian nationals. Add to this over 1,200 Mongolian companies that we work with, and a total workforce of over 45,000 people contributing to our progress everyday.
Even as a very young business, we have excelled – meeting and exceeding global standards. Our environmental record is second to none, with a best in class water usage performance and recycling. Oyu Tolgoi’s community development efforts – from water, roads, health, animal health and much more are recognised as among the best in the world and a true partnership with our community.
The project is the largest industrial undertaking in Mongolia today, and will be the foundation of economic development for the country for decades to come. Each member of the Oyu Tolgoi family is proud of the contribution we make, and eager to tell our story to the world.
This book is our effort to tell the Oyu Tolgoi story, from the pioneering beginning, to the exceptional business we are today – and the future we are building for generations to come.
We hope that this book will address any question you may have about Oyu Tolgoi, and equip you to be an ambassador in our pursuit to fulfil our mission: ‘Together deliver a safe and globally competitive copper business that contributes to the prosperity of Mongolia.’

Mongolia-China border checkpoints to be closed on November 8 and 26 www.montsame.mn

Ulaanbaatar/MONTSAME/ There are two public holidays this month in Mongolia: on November 8 and 26. The birth anniversary of Chinggis Khaan is marked on the first day of first month of winter according to the lunar calendar. This year, it falls on November 8. As for November 26, the country will mark Proclamation Day.

Mongolia’s first three-level interchange opens www.news.mn

Mongolia’s first three-level interchange, the new Yarmag Overpass opened to traffic in Ulaanbaatar on Friday. The 4,312-meter three-level interchange is the main route to from the city centre to Chinggis Khaan International Airport and the development zone of the Mongolian capital.

DP caucus asks President to veto 2019 Budget Bill www.zgm.mn

Following the ratification of the draft bill on 2019 State Budget last friday, the President may put a veto on the decision as he previously requested the Parliament to cut expenditure. Although some of his requests, such as allocation to child protection activities, were fulfilled, the Parliament approved MNT 47 billion allocation for Small and Medium-sized Enterprise (SME) Development Fund, which drew public attention as several parliament members (MPs) allegedly tapped high-sum loans at low interest rate. Another key request addressed by the President during the budget discussion last month was to cut budget expenditure by around 15 percent; however, the Parliament adopted the bill without any significant change at MNT 1.9 trillion in deficit. As for revenue, several MPs and experts criticized that the budget has an optimistic assumption. For instance, coal export, one of the key export items was forecasted at 42 million tons in 2019. Parliament members, including the Minister of Mining and Heavy Industry Sumiyabazar Dolgorsuren explained that the amount is attainable with the completion of infrastructure projects currently being implemented in the main coal export route. “The full repayment of the bonds will begin in 2021.

Copper, gold mines now likely cheaper to construct than to buy-research www.mining.com

LONDON, Nov 5 – The cost of building a copper or gold mine is likely to be cheaper than buying an existing one, dampening the prospect of big merger activity in the mining sector, S&P Global Market Intelligence said, citing in-house research.

Data shared with Reuters support comments from major miners, including BHP and Rio Tinto , which say their strategy is to build or to "smart buy", if they can possibly find a suitable mine for sale at the right price or acquire part of a promising prospect.

Keval Dhokia, copper analyst at S&P Global Market Intelligence, said the research provider had analysed the expense of building new mines based on reserves found through exploration.

Research suggests that exploration and building is still the riskier but potentially more cost-effective alternative
S&P Global Market Intelligence compared the decade 2007-2016 with 1997-2006 for copper and found the cost of acquired reserves increased by $742.15 per metric tonne, while the average unit cost of exploration-derived reserves rose $54.93 per tonne.

For gold, comparing the periods 2008-2017 and 1999-2008, the average unit cost in acquired reserves rose by $121.93 per troy ounce, much more than the $41.74 per troy ounce increase in the average unit cost of gold in reserves derived from exploration.

At the same time, the share of gold reserves growth attributable to acquisitions dropped to 30.4 percent in the decade ending 2017 from 51.3 percent in the previous decade.

Growth in copper reserves from big buys fell to 33.8 percent between 2007-2016 from 43.8 percent between 1997-2006.

Copper, one of the most effective electrical conductors, is in focus as miners see good demand prospects from both traditional consumers and from increased use in electric vehicles and global improvements in grid infrastructure.

Although on paper building projects is the better option and for majors offers the chance of tailoring them to maximise returns, finding reserves is harder as the more obvious ore bodies in politically stable countries have been depleted.

The declines in copper prices and exploration budgets that marked 2013 to 2016 had little impact on copper discoveries, which had already sunk to record low levels, S&P Global Market Intelligence said.

One of the few stand-out development projects is SolGold's copper-gold project in Ecuador.

Major BHP in September and October bought shares in SolGold, amounting to an 11.2 percent stake in two stages.

It paid a 32 percent premium to the 20-day volume-weighted average London Stock Exchange price for the second stake and 20 percent for the first in a total spend of around $95 million.

That compared with a previous offer SolGold rejected of $30 million for a 10 percent stake in the company in October 2016.

Dhokia, like other analysts, expects a copper shortfall to deepen over time and boost prices. This year the copper market has fallen nearly 15 percent as trade tensions between the U.S. and China have raised the prospect of reduced Chinese demand.

(REUTERS: By Barbara Lewis and Zandi Shabalala; Editing by Jan Harvey)