Rio's Mongolia financing task toughens www.afr.com

The task to convince lenders to stump up money for projects in Mongolia, such as Rio Tinto's Oyu Tolgoi copper project, just got harder after the nation's financial system was ruled to have deficient safeguards against money-laundering and terrorism financing.

The Financial Action Task Force (FATF), an intergovernmental agency that counts Australia as one of its 39 members, placed Mongolia on its "grey list" along with Zimbabwe and Iceland.

The ''grey list'' contains nations whose financial systems are considered by FATF to be lacking in safeguards against money laundering and the financing of terrorism.

Addition to the ''grey list'' typically prompts financial institutions in nations with strong anti-money-laundering rules to sever ties with banks in the ''grey listed'' nation, and may therefore raise the cost of capital and the cost of doing business in Mongolia.

Nations already on the grey list include Syria, Pakistan, Botswana, Panama, Yemen, the Bahamas, Trinidad and Tobago, Ghana and Cambodia.

''FATF has identified Iceland, Mongolia and Zimbabwe as jurisdictions with strategic (anti-money laundering and combating the financing of terrorism) deficiencies,'' said the task force on Saturday Australian time.

''Each jurisdiction has developed an action plan with the FATF to address the most serious deficiencies. The FATF welcomed their high-level political commitment to this action plan.''

Rio and its subsidiary, Turquoise Hill Resources (TRQ), borrowed $US4.4 billion in 2015 to fund a $US5.3 billion underground expansion of their Oyu Tolgoi copper and gold mine in Mongolia's South Gobi Desert.

But Rio and TRQ revealed in July the cost of the project would rise to between $US6.5 billion ($9.5 billion) and $US7.2 billion, and those estimates do not include the billions more dollars that will be needed to build a power station for the mine.

Rio and TRQ have started speaking to lenders about the potential to tap into extra debt to cover the blow outs.

''Our estimates currently assume an incremental $US3.4 billion in debt (a combination of project financing and infrastructure financing for the power plant) and $500 million in equity financing,'' said Canaccord analyst Dalton Baretto, in a note published on September 23.

Macquarie analyst Hayden Bairstow estimated the additional debt requirements would not be quite as big as Mr Baretto suggested.

''The delay to the ramp-up schedule and power station build requirement has created a $US2.8 billion funding shortfall on our estimates,'' he said.

Mr Baretto met with representatives of Oyu Tolgoi's lending syndicate during a visit to Mongolia last month and said they appear willing to continue working with the project.

But Mr Baretto said the lenders will first require certainty over revisions to the Oyu Tolgoi project scope, and they will also need certainty over the Mongolian government's commitment to the legal agreements that underpin Rio's investment in the mine.

''The lenders will require the details of a revised agreement prior to agreeing to terms on a new debt facility. With an election pending in June (and perhaps earlier if a snap election is called), we fear that this negotiation process may be delayed until after the election results are known, resulting in a significant delay to the funding package,'' said Mr Baretto in the note.

''We are very concerned that the debt component of the funding package
will not be in place in time to prevent a slowdown on construction.''

Addition to the grey list comes as the International Monetary Fund (IMF) continues to withhold funds that were promised to Mongolia in 2017 under a bail-out program designed to prevent the nation from defaulting on its debt.

The IMF has been withholding the funds since late 2018 because Mongolia had not strengthened its banking sector to the extent wanted by the IMF.

The IMF's mission chief to Mongolia, Geoff Gottlieb, told The Australian Financial Review that Oyu Tolgoi was a very important part of the Mongolian economy.

''It is fair to say that (Oyu Tolgoi) is macroeconomically significant. So for example, if the project were to stop, we would have to substantially revise all of our forecasts for the national economy and we would have to revise our policy recommendations because it would have such a big impact for the balance of payments,'' he said in an interview conducted prior to FATF's grey-listing of Mongolia.

Asked whether the Mongolian government's nationalistic rhetoric toward Oyu Tolgoi would make it harder for Rio to source funding for the mine, Mr Gottlieb said he did not want to comment on specific projects.

But he said as a general principle, there was a delicate balance between local residents getting their fair share of wealth from natural resources and foreign investors getting the certainty they require.

''Investors are always interested in both the current terms of an investment and confidence in whether those terms will remain over time, or what the path of those terms will be over time, and if there is concern that terms will change substantially that always increases concern,'' he said.

"From the government's perspective there is always an obligation to residents that foreign investors that are extracting natural resources are doing so in a way that is sufficiently benefiting the country, and there is just a trade off, and that conversation, as I understand it is ongoing in this particular case.

"Our main view is that Mongolia is a country where, to reach its potential, it will need foreign investors over time. It has a lot of natural resources and those natural resources can be used to invest in health and education and infrastructure and other things that Mongolia needs, and it is a shame that right now the foreign investment base is quite narrow.

"I think Mongolia has potential for much higher foreign direct investment than it is currently getting.''

Mr Gottlieb stressed that he did not have any specific view on whether the Mongolian government or Rio Tinto was ''more correct'' in the various disagreements over Oyu Tolgoi.

Despite the IMF withholding funds and the FATF ruling, Mongolia's economy has been faring better in the past two years.

Mr Gottlieb said three economic tailwinds had emerged for the Mongolian economy around the same time as the bail out program was announced in 2017.

''Mongolia is now in the much better place than it was 2 1/2 years ago," he said.

''We were helped by three other factors. One was it coincided with the initiation of the second phase of the Oyu Tolgoi project. The second was a sharp rise in commodity prices and the third was China's decision to import more of its coal, which led to a sharp rise in the volumes of coal exported by Mongolia.''

Last week's move by FATF was not first time Mongolia has been put on the grey list; the developing nation was given the dubious honour in 2013, but made sufficient reforms to be taken off the grey list in 2014.

Ethiopia, Sri Lanka and Tunisia were taken off the grey list by FATF on Friday.

Mongolia Added to Watch List by Agency Policing Money Laundering www.bloomberg.com

Mongolia has been included on a list of countries monitored by an international agency that polices anti-money laundering activities and terrorism financing.

Subcenters, solution for urban development of Ulaanbaatar, advancing www.montsame.mn

The Ulaanbaatar Urban Services and Ger Areas Development Investment Program (GADIP) is currently being implemented in the capital city with the financing from the Asian Development Bank (ADB), the European Investment Bank (EIB), and the Municipality of Ulaanbaatar, with a purpose to ensure implementation of the main policy document ‘Amendment to the Ulaanbaatar City Urban Development Master Plan 2020’ and ‘Development Directions 2030’.

With overall goal to de-centralize by making the city multi-centered as well as reduce air and soil pollution, the GADIP works to develop main trunk infrastructure in total six subcenters namely ‘Bayankhoshuu’, ‘Selbe’, ‘Dambadarjaa’, ‘Denjiin Myanga’, ‘Sharkhad’ and ‘Tolgoit’ in the framework of all three tranches, scheduled to complete in 2023.

As a media tour organized last week by ADB Mongolia Country Office, a media team worked in the project sites under the first tranche-- Bayankhoshuu and Selbe subcenters and witnessed the construction progress and the established facilities to assess the program implementation and disseminate accurate information to the public.

The establishment of the main trunk infrastructure will make it easier to implement other construction projects further that will grow socio-economy of the subcenters. This work is highlighted to be the first-ever long-term solution for urban development of Ulaanbaatar city.

The program’s baseline studies and basic concept was developed starting 2009. Pre-feasibility study was completed in 2010-2011, followed by a completion of feasibility study in 2011-2012. On December 9, 2013 the Government of Mongolia and ADB signed the Framework Financing Agreement (FFA). The next year, in 2014, Mongolia’s Parliament ratified the FFA. Tranche 1 of the program was signed on June 30, 2014 and declared effective on September 24, 2014.

Total financing of the program is USD320 million, of which the financing for tranche 1 is USD106.14 million, funded by the Municipality of Ulaanbaatar (USD24.06 million), EIB (USD28.38 million) and ADB (USD 53.7 million).

In the first tranche, the construction works of the networks of roads, water supply and sewerage, heating supply, electricity and communication and social facilities are underway on the total land of 318 hectares in two subcenters ‘Bayankhoshuu’ and ‘Selbe’ that are home to 28,533 people of 7220 households in total. As planned, the construction of social facilities; kindergarten of 240 children and business incubator and vocational training center with capacity of training 100 students at once are completed.

To date, an overall project progress in two subcenters is at 71.61 percent.

“The beneficiaries of the program are not just those who live inside boundaries of the subcenters, but also all the people around the subcenters will benefit because all the services including public, culture and education will be almost same as that in the city center. Therefore, it will be unnecessary for residents of the ger areas to come to the city center to receive the services. Moreover, establishing infrastructure will create possibility to develop private sector and expand their businesses in ger areas. We see a big potential to develop private sector in ger area because there are around 150-200 thousand people living in the areas of subcenters and around them,” said Arnaud Heckmann, Principal Urban Development Specialist.

An important activity, a part of the project implementation, is the land acquisition and resettlement issues. A total of 904 plots were on the target areas in Bayankhoshuu (421) and Selbe (483). The land acquisition and resettlement issues have been resolved by means of negotiation and compensation. This activity shows over 97.42 percent progress.

Bayankhoshuu subcenter

Covering a total of 162 hectares, constructions of some social and engineering facilities have been complete. For instance, within the project, a fully equipped energy efficient kindergarten for 240 children was established and is operational since last December.

It brought pre-school service closer to young children of this most densely populated area where children’s enrollment to kindergarten was very low. Thanks to the establishment of new kindergarten, 350 children of Bayankhoshuu ger area are now attending this kindergarten which has also already provided jobs to 41 people of the area.

G. Chanzaldulam, director of the kindergarten, said that 90 percent of the kindergarten’s employees are citizens of 8th khoroo of Bayankhoshuu. “The establishment of the kindergarten is giving real contributions to livelihoods of the area, for instance people who were staying at home to take care of their children due to insufficient access to kindergarten now have enrolled their children in the kindergarten and are now able to work again to increase their household income.”

The construction of the business incubator and vocational training center has been already complete and opens this week. The center is to operate as a branch of UB Hub Innovation Center. It is expected to increase access to the public service to support businesses and active employment seekers through various activities, such as GIZ/ADB ‘Build4Skills’ initiatives, to be implemented at the business incubator and vocational training. The first floor of the center is designed to have a One-stop Public Service.

The construction of a 1000-cubic meter concrete water reservoir on the top of Samballkhundev Mountain in the khoroo No.22 of Bayangol District is expected to complete within this October, along with booster pump station and 3.7 km water transmission pipeline.

A 2.3km flood protection embankment construction was complete in October, 2018 but it was necessitated to be lengthened by 2.5km. A relevant detailed plan has been worked out and a contractor of the work has been selected this year. A 4.65 hectares landscaping work along the embankment is currently underway with the progress around 20 percent. It is being executed by a joint venture of Duuren Trade LLC and Baiguulamj LLC.

N. Badam, general engineer of the Duuren Trade LLC, said “We started our work in August this year. As planned, we are working to build 1000 Stupa park, a pedestrian road, sports field, playgrounds and others. It is planned to complete in August 2020.”

A joint venture of CHMM LLC and S&A Trade LLC constructed a connection of heating pipeline to the central system from ‘Khurs’ Trade Center to Khaniin Material residential apartment block. It has been officially commissioned on September 16 this year to make it fully operational.

Constructional works of pipelines of heating (7.6km), water supply (5km) and sewerage (8.8km) are being executed by Chinese and German companies. A 6.57km roadwork is planned to start next year.

Electricity and telecommunication network improvement works are at 51 percent.

A joint venture of Odcon Holding LLC and Ulaanbaatar Barilga LLC is working to connect Bayankhoshuu social facilities, which used to be heated by steam boilers before, to the central heating system. It currently shows a 39 percent progress and is scheduled to complete in January, 2020.

As of today, Khilchin town residential block has been completely connected to the central heating system. Respectively, 720 apartment units were connected to the central heating system and eliminated the emission from burning about 7,000 tons of coal a year.

Others include general education school No.227, Bayankhoshuu temporary resettlement house, building in khoroo No.7 of Songinokhairkhan district, Songinokhairkhan Health Center No.3 Ambulatory, kindergartens No.163 and 78 and school No.76 and Songinokhairkhan district’s police unit No.2. As the facilities are connected to the central system, annual coal consumption will be reduced by 10240 tons, i.e. 6830 porter truck.

Selbe subcenter

In 156 hectares, construction works of some of the social and engineering facilities in Selbe subcenter started later than that of in Bayankhoshuu subcenter, due to some difficulties emerged in preparing site for construction.
As of today, the construction of a 1000-cubic meter Selbe water reservoir has been complete in khoroo No.18 in Sukhbaatar district, with completed pump station and 1.7km water transmission line. Construction works of other social and engineering facilities are ongoing at over 50 percent respectively, including 240-children kindergarten, electricity and telecommunication network improvement works, 2081-sq.m business incubator and vocational training center, 28MW heating plant with advanced technology as well as Selbe road and associated infrastructure.

A joint venture of Nabsan LLC, Terguun Invest LLC and Tegsht Plant LLC is working to construct 1.9km road, 2 km water supply pipeline, 4.2 km sewage pipeline and 4.6 km heating pipeline.

Three iron concrete bridges with lengths of 20m, 30m and 60m are being constructed over Selbe river flood embankment.

S.Jargalsaikhan, road engineer of the project, said: “In Selbe subcenter, engineering facilities are being constructed on 156 hectares since 2017. A 6.7-km-long and 7-meter-wide road, 2.1-km long flood protection embankment with road drainage and protection fence are being built. The construction works of 60-meter and 20-meter bridge are over 80 percent. Actually, it was scheduled to complete the construction of the bridges this year, but rainy conditions during this year’s construction season caused some delays.”

The tranche 2 of the program has been approved and project consultants are onboard since January 2019. Total financing of the tranche 2 is USD121.1 million, of which USD66.35 million will be funded by ADB, USD35.15 million by the Municipality of Ulaanbaatar and USD19.64 million by EIB.

The detailed engineering design and construction supervision consultant, DMEC-BEC-YOOSHIN, has been working on the detailed designs of the tranche 2 subcenters - Denjiin Myanga and Dambadarjaa for improvement of infrastructures, auto road network, urban parks and social facilities.

In addition, sport complex with swimming pool, kindergarten for 240 children and 2-hectare garden park are planned to be built in Bayankhoshuu subcenter. In Selbe subcenter, there will be an additional kindergarten for 150 children and 48MW thermal plant.

Feasibility studies of the tranche 3 or Tolgoit and Sharkhad subcenters are under formulation.

Nobel Peace Prize for late Mongolian diplomat www.news.mn

The Nobel Committee decided to posthumously award its Peace Prize to the late Mongolian diplomat D.Ganbaatar. The Nobel Peace Prize is to be presented to his wife N.Baljin and his son at the Hague today (18 October). The late is being awarded for his contribution in establishing the Organisation for the Prohibition of Chemical Weapons (OPCW).

NBA facing 'substantial' losses over China dispute www.bbc.com

The US National Basketball Association has suffered "substantial" losses after an online comment from a team executive prompted a crisis in its relations with China, the NBA's head has said.

President meets FIFA President www.montsame.mn

Ulaanbaatar/MONTSAME/. October 16, President Kh.Battulga received the President of FIFA Gianni Infantino. Expressing gratitude to Mr. Gianni Infantino for his arrival to Mongolia, President Kh.Battulga praised FIFA’s great support for developing professional football in Mongolia and football practice of Mongolian children.

The British Embassy in Mongolia has moved office www.gov.uk

After residing at Peace Avenue-30 for more than 50 years, the British Embassy in Ulaanbaatar has relocated to the Shangri-La complex.

China-Mongolia relations said to be on fast track www.chinadailyhk.com

The China-Mongolia relationship has embarked on a fast track and taken on an inspiring new look in recent years with concerted efforts from both nations, President Xi Jinping said on Wednesday.

FESCO launches new container train from China to Russia via Mongolia www.railfreight.com

FESCO has launched a new rail freight service between the Chinese city of Chongqing and Vorotynsk station in Kaluga region, Russia. The new link is entirely dedicated to the transportation of Chinese cars in containers. Another feature of the service is the route via Mongolia.

Turkish teachers in Mongolia seek asylum in Canada www.news.mn

Earlier yesterday (17 October), it was reported that the Mongolian Immigration Agency has suspended the documents of eight Turkish teachers at the request of the Turkish Foreign Ministry. The Mongolian Immigration then tried to expel them. However, the Turkish teachers in Mongolia consider that they are victims of a suspected kidnapping attempt and have asked a United Nations agency to arrange asylum. Then 35 Turkish nationals – representing five families – left Mongolia in order to seek asylum in Canada.