99.99 percent of all tax-paying entities exempt from social insurance contribution www.montsame.mn

Ulaanbaatar /MONTSAME/. On April 17, Friday, the press office of the cabinet secretariat issued a press release on the government’s new regulations to implement the measures aimed at easing the economic impact of the COVID-19 pandemic, in which instituted a six-month exemption of monthly social insurance contributions paid by employees and employers, who retain their employees on payrolls despite revenue drops. It was reported that the decision applies to around 45,000 entities.

Economy of Mongolia in 2020: Impact of coronavirus and other risks www.montsame.mn

Ulaanbaatar /MONTSAME/. In addition to the world facing economic difficulties as a result of the coronavirus pandemic, there have been alarming news articles about a possible serious recession on the way that have yet to occur in the last 100 years.

With the coronavirus infection becoming a new challenge for the global economy, the situation drastically changed from late January 2020, with less and less hopes of the economy quickly recovering with each passing day… To prevent a possible deep plunge, policymakers around the world are taking immediate measures, and as of mid-March, over 30 central banks have come to the decision to lower their policy rates. One of those central banks is the Bank of Mongolia, which lowered its policy rate by 1.0 percentage point, and the reserve requirement at banks by 2.0 percentage point.

As the COVID-19 infection is spreading rapidly, it is currently difficult to determine its full impact. However, we can see that the coronavirus has already begun to affect the economy of Mongolia from the data provided by the National Statistical Office. In order to elaborate on the matter, let’s take a few economic indicators that are able to show us the reality of the current state.

The economic performance in the first two months of 2020 presents that the general government budget revenue amounted to MNT 1,464.4 billion, which is a decrease of MNT 173.7 billion or 10.6 percent compared to the same period of the previous year. As a result of export decreasing by 29.5 percent, the revenue of the mineral industry which brings 23.7 percent of the general budget revenue became MNT 347.3 billion, decreased by 32.9 percent compared to 2019. Alongside the decrease in export, the amount of import also decreased by 10.4 percent. This is a result of the abrupt drop in demand for commodities in China due to the coronavirus, with more specifically, the usage of coal decreasing by 30 percent.

One of the unique aspects of Mongolia is that the national GDP equals foreign turnover, which is determined by both export and import, whereas the total amount of export and import of other countries is 2.5 to 3 times less than their GDP. In other words, as Mongolia is too reliant on import-export, the aforementioned statistics show that budget revenue has a direct dependence on export of mining commodities and products. To put in numbers, mining products make 87.1 percent of the total export revenue.

Sensitive sectors

Sectors that immediately received the worst impact from coronavirus are the air transport industry and the tourism sector. The World Travel and Tourism Council has also warned that the coronavirus epidemic was putting up to 50 million jobs in the global travel and tourism sector at risk, with travel likely to slump by a quarter this year.

As the tourism sectors of countries that were previously affected by virus infections such as SARS, H1N1, and ebola required an average of 19-20 months to recover, it seems that the coronavirus spread will have a negative impact on the sector for a long period of time. Despite taking a relatively small percentage (5-6 percent) of the GDP, our tourism sector that creates a large amount of job opportunities (about 60 thousand) has already begun to show preliminary signs of crisis. The number of foreign travelers that arrived in Mongolia in February 2020 has decreased by 21 percent compared to the same period of the previous year, with tourism income dropping by 28 percent.

Blue Pearl Ice Festival - the large-scale annual winter tourism event that takes place at Lake Khuvsgul in Khuvsgul aimag was cancelled. One of the main events that attracts tourists in March, the Eagle Festival was also cancelled this year. Just like so, the main tourism events during the winter were all cancelled due to the global spread of the coronavirus. As a result, the income of the air transportation industry in the first two months of 2020 decreased by 21.7 percent.

Government’s estimation and measures being implemented

The economic indicators of Mongolia began to improve from late 2016. More specifically, while the economy grew by 5.3 percent in 2017, it increased to 7.2 percent in 2018. As for 2019, the economic growth slowed down due to the export of the mining sector, bringing it down to 5.1 percent. Based on the indicators of the last months of 2019, the World Bank estimated the economy of Mongolia to grow by 5.6 percent in 2020, while the Asian Development Bank estimated the growth to be 6.1 percent. However, due to the coronavirus outbreak, the stable, growing economy has been put to a halt. According to the calculations made by the Ministry of Finance, the GDP is expected to decrease by about 1 percent at the current state. In comparison, the growth of the national GDP in 2008 that was at 8.9 percent reduced to 1.6 percent in 2009 during the recession.

Despite the situation, Minister of Finance Ch.Khurelbaatar said with confidence that the Government of Prime Minister U.Khurelsukh can overcome the difficulties of one year by keeping consistent with the economic indicators of previous years. According to the minister, the time and income that was lost can be recovered once the outbreak ends and export is restored back to normal. For a country like Mongolia with a relatively small economic capacity, it is possible for the economy to be regained if export is restored. Moreover, the Chinese side has also expressed that the maximum amount of commodities that can be produced by Mongolia will be purchased.

There are numerous economists that consider that a budget amendment should be made based on their conclusion that the situation is getting worse. However, Minister Ch.Khurelbaatar expressed that the Government and the Ministry of Finance are set on “not making a budget amendment, and completing all works that have been planned with investment from the state budget.”

During the coronavirus pandemic, countries of the world are taking three main measures for their economy. Firstly, to increase the financing and investment in the health sector. Secondly, to support entities with a tax policy. And thirdly, to support business owners with a monetary policy. On this matter, the Government of Mongolia is also taking certain step-by-step measures, highlighted Minister of Finance Ch.Khurelbaatar. To not have consumer goods shortage and price gouging, the supply chain is being operated as normally, and prices are stable as a result of certain measures that were prioritized to exempt the products from customs and delay VAT payments.

On the other hand, as private entities are having difficulties in making social insurance payments, they have been exempt from payments from April 1 to October 1. The previous decision to not place fines for unpaid taxes during the period has also served as a largely significant support for entities.

Foreign exchange reserves

The current foreign exchange reserves of USD 4.3 billion is an amount that can provide for 9 months of import needs as well as keep the exchange rate stable and limit the increase in import product prices, highlighted Director of Economic Analysis and Policy Division at the Monetary Policy Department of the Bank of Mongolia B.Tumentsengel.

Moreover, during the period the border was closed in February 2020, the central bank purchased 952.6 kg gold from entities, which was 10 times more than the same period in the previous year (In February 2019, the Bank of Mongolia purchased 95.9 kg gold from entities), underlined economist J.Batsuuri.

At this speed, the foreign exchange reserves are expected to increase by 25 tons of gold or USD 1.2 billion (without including the income of other foreign exchange) by the end of the year. On top of that, as the price of petroleum has dropped to an amount that is nearly 2.5 times less than its previous price on the global market, there will be less foreign exchange used to purchase petroleum, which is the main import product for Mongolia. Nonetheless, the likelihood for foreign exchange rate to decrease is very low as there are quite big foreign payments to be made in the coming years.

Risks

Risk continues to grow for the economic prospect due to uncertainties in foreign and domestic environments this year, warns the World Bank. In other words, the economic prospect is highly dependent on the political uncertainty due to factors such as the upcoming election, the downwards trend for commodity prices, the reform process in the banking sector (recapitalization of banks), and advancements in operations to combat money laundering. Regarding the risk of the election year for instance, policymakers might begin to show not much concern about the step-by-step measures for reforms that have been implemented in the last few years and seeing the results.

As for the second risk directly correlated with the coronavirus--Fitch Solutions lowering their forecast for China’s economic growth in 2020 from 5.9 percent to 4.2 percent is clearly due to the coronavirus pandemic. Being the result of the slowdown in growth, it is highly likely for the amount of mining commodities purchased from Mongolia to decrease considering that there would be a lower demand in China in 2020. While the price of coal - the main export commodity has been relatively stable, copper prices plunged from USD 6,300 to USD 4,700. Due to factors such as the recovery of the US economy, halt in the trade war between Beijing and Washington, advancements in the Brexit process as well as low amount of copper being kept, copper price had grown sharply earlier in the year, reaching USD 6,314 per ton. If copper price continue to drop below USD 4,500, Erdenet Mining Corporation will begin to have a deficit. As the copper industry provides 40 percent of export income, and about 15 percent of the budget income of Mongolia, there is a risk of lower economic activity due to less export income if the situation persists.

Furthermore, the price of iron ore - another core export product of Mongolia is also likely to drop. In 2019, Mongolia exported 8.4 million tons of iron ore for USD 576.6 million. The National Statistical Office mentioned that exports have grown by 13.4 percent in amount, and 68.5 percent in value. From this, we can see that iron ore export has a larger capacity for income generation compared to the cashmere industry. However, as the demand in China is likely to drop, and the market supply to grow, its price that was at USD 119 per ton is expected to decrease to USD 80 in 2020. Thus, the World Bank came to the conclusion that during the current state of high dependence of the economy of Mongolia on the economy of China, the impact of the novel coronavirus on the Chinese economy will also negatively affect the Mongolian economy.

Moreover, according to the bank’s report on the economy of Mongolia that was published in February 2020, the economy growth has slightly slowed down in speed compared to the previous three years, but continues to stay positive in the mid-term economic forecast.

B.Adiyakhuu

Revenues from mineral resources drop by 33.8 percent in Q1 www.zgm.mn

According to the National Statistics Office (NSO), state budget revenue declined by 8.6 percent to MNT 2.2 trillion in the first quarter from a year ago. In particular, revenue from mineral resources dropped by 33.8 percent to MNT 483 billion compared to the same period of the previous year. Ministry of Mining and Heavy Industry reported that the mining sector comprises 21.7 percent of state budget revenue. Gold, iron ore and fluorspar industries’ contribution to taxes and fees have increased. Specifically, gold rose by 2.3 times, iron by 3.6 times and fluoride by 11.4 percent. In addition, the crude oil sector accumulated MNT 21.3 billion to the mining general budget in the first three months. Moreover, Iron ore prices in the global market were relatively stable compared to the same period of the previous year, which can be influenced by the increase in exports of these products. Mongolia mainly exports fluoride to Russia and China. According to the fluoride exporter, Baylag Jonsh LLC, exports to the Russian market in the Q1 continued normally. Besides, Mongolia exported 3.1 million tons of coal, downturned by 59.8 percent year on year. In monetary terms, it fell by 39 percent to USD 250.6 million. Exports are recovering; however, the target to export 42 million tons of coal this year is likely to decline. Furthermore, copper concentrate export lowered by 15.2 percent to 306,600 tons. It dropped by 68 percent to USD 351.2 million notably due to the COVID-19 pandemic.

TRQ: Definitive estimate of OT project schedule to be provided in Q2 www.zgm.mn

Turquoise Hill Resources Ltd. (TRQ) on Thursday announced the first quarter 2020 production for Oyu Tolgoi and provided an update on underground development, COVID-19, and power. Work continues on the mine design and we still expect this to be completed in the first half of 2020 with the Definitive Estimate of project cost and schedule to be provided in the second half of 2020, the company said in a report. Based on current information, the underground project remains within the range announced in July 2019 of a 16 to 30-month delay in schedule, and an increase of USD 1.2-1.9 billion in development capital, with indications of the preferred technical solution falling in the upper half of the schedule delay range and the development capital overrun trending away from the lower end of the range. On February 14, 2020, Oyu Tolgoi LLC and the Government of Mongolia (GoM) commenced a negotiation process under the PSFA to confirm a mutually acceptable pathway to secure long term domestic power supply for Oyu Tolgoi. Under Phase 1 of this process, the parties had until April 14, 2020, to agree on a way forward for a Tavan Tolgoi-based power plant (TTPP). As the parties have yet to be able to do this, they are now also considering the alternatives specified in the PSFA, an Oyu Tolgoi mine site-based power plant; a primary renewables solution; and grid supply. Under the PSFA, Oyu Tolgoi and GoM currently have until June 14, 2020, to consider these alternatives, failing which Oyu Tolgoi has the right to choose one or a combination of these options to pursue. “The first quarter of 2020 was another notable effort from the Oyu Tolgoi team as we continue to mine through the lower grade material on the periphery of the South West pit. As we progress through 2020, Phase 4b will sink towards the higher gold and copper grades which is expected to result in a significant increase in gold production in 2021,” stated Ulf Quellmann, Chief Executive Officer of Turquoise Hill.

Mongolia-Singapore trade increases fivefold in last 4 years www.montsame.mn

Rio lowers copper target at Oyu Tolgoi www.mining.com

Rio Tinto (ASX, LON, NYSE: RIO) signalled on Friday a recovery in China’s economy as it reported improved shipments of iron ore to the country, but cut its forecast for annual copper output citing coronavirus-related disruptions.

The company, the world’s top iron ore miner, posted higher-than-expected output of the steelmaking ingredient for the first three months of the year. Production stood at 77.8 million tonnes, up 2.4% from the same period last year, despite a cyclone tearing through Rio Tinto’s Western Australian operations in February.

The miner, which makes most of its profits from China, shipped 72.9 million tonnes of iron ore in the three months to March, up 5.5% from a year ago, yet lower than some analysts had expected.

“Demand in China continues to recover,” chief executive, Jean-Sébastien Jacques, said in a statement. He added that the group’s customer order books “remained healthy.”

Just as most global miners, Rio Tinto has been hit by the coronavirus crisis. In March, it suspended operations at its mines in South Africa, and slowed activity at its Canada and Mongolia units to comply with government measures to contain the outbreak.

Copper troubles
Rio Tinto revealed that production of copper, one of its key commodities, would not reach a previous production target of between 530,000 and 570,000 tonnes.

It now expects to churn out between 475,000 and 520,000 tonnes, due to repair works at its Kennecott mine in the US, which was affected by an earthquake in March.

Fears that its 30%-owned Escondida mine in Chile, the world’s biggest copper operation, could soon take a hit, also weighed on the guidance downgrade.

Rio Tinto also flagged copper and gold output drops at its already troubled Oyu Tolgoi mine in Mongolia, where it is carrying out an underground expansion expected to lift production from 125,000–150,000 tonnes in 2019 to 560,000 tonnes at peak output, targeted for 2025.

The company confirmed last year that the project was running between 16 months and 30 months late and roughly $1.2 billion to $1.9 billion over budget.

There were fresh signs of delays on Friday, after it said that it would have to bring experts on site to rectify industrial ropes in the largest and most important access shaft to the underground mine, Shaft 2.

Those ropes service a giant elevator that allows workers, equipment and ore to move between the bottom of the mine, 1.3 km underground, and the surface.

Rio Tinto’s subsidiary and Oyu Tolgoi operator, Turquoise Hill Resources (TSX, NYSE:TRQ), said the covid-19 pandemic was making it hard to get experts to the remote Mongolian mine to conduct “rectification work” on the ropes.

”Underground development progress may be impacted by 30% as a result of travel restrictions due to covid-19 preventing experts from travelling to the Oyu Tolgoi site,” Turquoise Hill said on Thursday.

Earlier this month, Rio investor US hedge fund Pentwater Capital said it would push for a management shakeup at the operation, claiming “a massive devaluation” of the asset. The giant deposit, discovered in 2001, is one-third owned by Mongolia’s government and two-thirds held by Turquoise Hill. Rio has a 51% stake in the Canadian miner.

Coal output of MMC rises 1.8 percent in Q1 www.zgm.mn

The HKSE-listed Mongolian Mining Corporation (MMC)’s coal output rose 1.8 percent to 1.8 million tons from a year earlier. However, it is down 38 percent from the previous quarter. Sales of washed coking coal decreased by 39 percent year-on-year and 50 percent down from the previous quarter to 607,700 tons. Coal exports at the Gashuunsukhait-Gantsmod port were suspended from February 10 to March 23 to prevent the spread of COVID-19. During the time, MMC continued to sell coal from its warehouse to China. The company said in a statement that it was taking measures for unforeseen circumstances, including temporary regulation of its coal production. As reported previously, Mongolian Mining Corporation has suspended some operations since April 10 and laid off 60 percent of its employees, according to sources.

China's Inner Mongolia fuels economic growth with huge investment www.xinhuanet.com

HOHHOT, April 19 (Xinhua) -- North China's Inner Mongolia Autonomous Region planned to invest 505.9 billion yuan (about 71.54 billion U.S. dollars) in 3,109 major construction projects this year, according to local authorities.

New residential area under development in Darkhan www.montsame.mn

Spring construction works are commencing one by one in Drakhan-Uul aimag. As part of the aimag's efforts to make its capital Darkhan a smog-free city, infrastructure development works of apartment blocks with 394 homes – the new 31st residential area - began in the city.

Will passenger trains continue to pollute the environment? www.montsame.mn

Ulaanbaatar /MONTSAME/. Passenger trains of Ulaanbaatar Railway JSC continue to pollute the environment, causing danger to the hygiene of surrounding areas.

More specifically, about 90 percent of 276 passenger trains were manufactured around the year of 1962, equipped with restrooms that have been left far behind in development. To put it differently, the restrooms have a technology that immediately discards human waste to the outside area. Alongside polluting the environment, the old technology negatively affects the safety of trains during winter. It also has a disadvantage of passengers not being able to use the restroom near cities, stations, and crossings.

In 2019, the staff of Ulaanbaatar Railway JSC renovated two passenger train cars into outpatient clinics. In order to do this, they used their available resources in making medical waste containers. Currently, they are also renovating a passenger train car into a car for special use. Studies have shown that a total of MNT 90 million is necessary to build an eco restroom. Equipping old train cars this way is an imperfect solution due to high costs. "Thus, it has become important to renew our train cars into vacuum train cars that can provide better passenger comfort, and equipped with eco restrooms," highlighted Deputy Head of the Passenger Train Car Repairs Department of Ulaanbaatar Railway B.Batdelger.

Most train cars of Ulaanbaatar Railway have already gone past its usage period as the maximum number of years recommended for passenger train cars are 28 years. More specifically, there are 46 train cars that have gone over its usage period by 5 years, while there are 57 train cars that have been running for 34-37 years. There are also 35 train cars that have been used for 38-40 years, and 60 train cars that have been used for over 41 years.

MNT 75 million is budgeted for each car in order to ensure the safety of the old train cars. This is spent on ensuring the traffic safety of the train, repairing its parts, electrical equipment, water supply system as well as repairs for interior fittings. The usage period of the train cars have continued to be extended in this manner.

Despite the need to renew them with modern train cars, it is impossible to do so as Ulaanbaatar Railway JSC operates with a deficit. The deficit for passenger transport alone amounts to MNT 25-30 billion annually. This is due to how Ulaanbaatar Railway JSC transports each passenger for MNT 30 per km. The real amount of cost to transport each passenger per km stands at MNT 52 according to a study.

Thus, increasing the tariff not only keeps the balance but also makes it possible to renew passenger train cars, officials note. As Ulaanbaatar Railway is not a private-owned company, the tariff is set by the Government. The non-inclusion of the Joint Venture status in the laws of Mongolia has also become one of the reasons to trail in sector development.

To take a few examples, in the framework of the renewal of passenger train cars of Ulaanbaatar Railway, 16 new train cars were bought in 2007, and 15 train cars were bought in 2014. The cars are vacuum, and equipped with eco restrooms. For instance, the picture below shows the modern train car imported in 2014 that currently runs en route Moscow-Ulaanbaatar. The train car has a storage to contain 800 liters of human waste, which can be emptied with a vacuum truck. There is no other country other than ours that continues to repair its old train cars, letting it go over the usage period.