Khan Bank, Mongolian commercial bank with largest network announces appointment of new CEO

Khan Bank is pleased to announce the appointment of John Bell as new Chief Executive Officer with an effective date of April 1, 2016. John Bell succeeds Norihiko Kato, who has been the CEO of Khan Bank since 2011.  
Mr. Bell joined Khan Bank as the First Deputy CEO in Charge of Business in August 2015. John Bell has been in the banking and financial industry since 1994, taking the positions of Personal Banker, Branch Operations Supervisor, Liabilities and Investment Product Manager, and Wealth Management Business Head at Citibank. Mr. Bell held senior Citibank positions  in USA, Poland, and Czech Republic. He moved to ABN AMRO as a Retail Product Management and Distribution Head in 2006, and later joined the Royal Bank of Scotland in Romania as Retail Banking Head.
Bank Chairman Hideo Sawada said, “Khan Bank has maintained its strong, competitive position in the banking and financial industry of Mongolia, consistently delivering reliable, accessible and innovative banking services to Mongolian customers. We are delighted that Mr. Bell is taking on the role of CEO. His background and experience is well suited to lead our team in the further growth and success of the Bank.”
Mr. Sawada also added, “We thank Norihiko Kato for his service and contributions. Mr. Kato has been instrumental to the organization and made invaluable contributions to bringing Khan Bank to its present position as one of the nation's leading banks with the highest standards of corporate governance, risk management, and financial strength in Mongolia. He has taken the Bank to a new level of performance and he leaves the Bank in very good standing. We are grateful for all his endeavors. ”
Mr. Bell has more than 20 years of international expertise in the banking business, particularly in retail banking, investment, cost management, payment cards, credit, risk management, banking strategy, and business growth. John Bell’s breadth of experience – spanning various roles and senior positions in the banking sector around the world – will be of tremendous benefit to the next phase of meeting and exceeding our commitments to Khan Bank customers. 
On behalf of all Khan Bank employees, customers, and partners, we extend our warm regards and wishes for the continued success of our newly appointed CEO.
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The Uranium Shakedown: How Mongolia and Russia Conspired Against Western Investors (Part 3)

n the final part of our probe into the curious case of Khan Resources, and the reallocation of its uranium mine to Russian control, we review events leading to the seizure of the company’s Mongolian assets and its chairman’s unusual death in an Ulaanbaatar hotel.
In April 2015, a 59-year-old Canadian named James Doak travelled to Ulaanbaatar to negotiate with Mongolia’s government.
His company, Khan Resources, had been granted $100 million in compensation for the government’s decision to expropriate the Dornod uranium project. But Mongolia was refusing to pay.
Doak, Khan’s chairman, and Grant Edey, its CEO, met with officials on April 22. Then, during lunch at his hotel, Doak fell ill. He went to his room to rest before their flight home.
When Doak didn’t answer his phone later that day, hotel staff opened the door. He was dead.  An autopsy determined that the cause of death was complications related to the onset of late-stage Type 1 diabetes.
A mere three days later, in what could charitably be described as blithely insensitive toward the Doak tragedy, Mongolia’s Justice Minister announced that the government would rescind the payment awarded to Khan and attempt to annul the international arbitration claim.

How to Dismantle a Uranium Mine

Doak’s death has not been treated as suspicious – though whispered rumors abound in Mongolian business and government circles. But the events that stripped his company of its Mongolian assets should be.
It is clear that the government used the reactionary Nuclear Energy Law in 2009 as a construct to re-acquire the Dornod deposit licenses and sell them to Russia. The detail of the law was left opaque on the matter of how to avoid violation. Much clearer was the compulsion that all license holders must re-register, or re-apply – an essential element to coerce foreign mining companies to sign new and disadvantageous investment agreements with MonAtom Mongolia’s Nuclear Energy Agency and MRAM (Mineral Resources Authority of Mongolia).
Russia – through ARMZ, the mining unit of the state-owned nuclear energy company Rosatom – sealed the deal with a hostile bid for Khan’s equity stake, valued at 65 Canadian cents per share. The Russian government also extended some juicy offers to its southern neighbor: debt forgiveness, agricultural loans, and the promise of infrastructure financing and possible nuclear energy plant construction.
China duly provided the decoy with its offer from the China National Nuclear Corporation, or CNNC, of 96 Canadian cents per share for Khan’s stake. And Khan accepted the Chinese offer – less than two days after it had signed a new memorandum of understanding with the Mongolians which paved the way for its licenses to be reinstated.
Khan insists that it had every right to make such a decision on commercial grounds, and of course it did. However, the opaque new laws and anti-Chinese sentiment allowed the government to block the Chinese-Canadian collusion on grounds of national security.
Khan was held in technical breach of the terms of its license by proposing to accept the offer from CNNC. Rather than entering into dialogue or suspending its license, Mongolia confiscated it, revoked it and handed it to the Russians. Khan made a fatal error by misreading the Mongolian political climate in an election year when it agreed to do business with the Chinese.
We also noted a very interesting statement from CNNC, reported earlier this month. In its 2015 year-end financials, published by the Hong Kong Stock Exchange last week, the Chinese company announced:
During the Year, [CNNC] had negotiations with the representatives of the Mongolian Government in relation to the formation of a joint venture company for the operation of the uranium mine in Mongolia. The Group is still waiting for feedback from the Mongolian Government.”
While the exact nature of this ‘joint venture company’ is not yet known, it will be interesting to see whether CNNC soon announces any involvement in the formerly Khan-controlled Dornod project.

A Change of Heart?

But now, to the bigger question: has anything changed?
In these final months before the June elections, everything feels hauntingly similar to events in the run-up to 2012.
Yes, 2015 saw the restoration and re-tendering of the all-important yardstick – the licenses revoked in 2013. And, yes, the Rio Tinto debacle was finally resolved in a ‘work-out’ agreement – seven years in the making. Even Khan – after its five-year battle – has been promised a much-tapered $70 million payment.
But these events, coming in such close succession, seem to be the hallmarks of a jittery government that desperately hopes the investor confidence issue will just go away.
Its actions are being sold to the electorate as being in the public interest. The reality is that Mongolia remains captive to the same old system of tribal protectionism under the guise of national politics. Backdoor deals have done nothing to counter the country’s economic stagnation.
The economic malaise is matched by political stagnation. This election will see a greater influence from fringe parties, and therein a government with many voices. In a country where intra-party factionalism is already a significant barrier to political cohesiveness, Mongolia’s worst fate in 2016 may become a reality: an even weaker government coalition.
Fractured leadership could become Mongolia’s worst nightmare as it attempts to improve its well-deserved reputation within the global mining industry as a wholly unreliable and unpredictable investment partner, where political risk eclipses business opportunity.
To the educated observer, the Rio Tinto workout and Khan settlement look like last-minute attempts to demonstrate commitment to economic reform and improved investor relations. Yet the drumbeat from the main parties is populist. Their reforms have failed to incentivise the return of big business beyond the state sector.

What Lies Ahead?

This year marks the third election cycle in which Mongolia’s government is entering a bind of its own making. The investor confidence issue won’t just go away. Will Mongolia now begin to court international investor confidence by repealing more of the restrictive laws? Or will it choose to continue with the nationalist politics and xenophobic legislative activity that have had such a disastrous effect on its economy?
A transition to more investor-friendly policies would be a tall order for even a united and strong government. Mongolia was unable to accomplish this after the 2012 elections, and it would be little short of miraculous if Mongolia finds such a transition possible after June of this year. The proliferation of fringe parties and rhetoric from the government’s leadership has collectively bred political impotence, with an inability to dampen down resource nationalism or channel it into a more useful force.
The reality in Mongolia is that politicians, not businessmen, are in control of the private sector – and these are the same men who are responsible for re-starting the economy. Too many are fixated on protecting themselves, their personal interests, their factions, and their tribes. The country’s economic health and long-term prosperity is of secondary importance – or, more likely, not even a consideration.
The idea that Mongolia’s government might renege on its promised payment to Khan Resources almost defies logic. The country’s finances are in a dire state, and it has effectively been locked out of the global bond market for the past two years. Both Standard & Poor’s and Fitch downgraded their sovereign ratings to ‘B’ – effectively beneath where most private fund managers will consider offering support.
Earlier this month the Mongolian Finance Ministry announced that they would retain investment bank Credit Suisse to lead a $200m syndicated loan to help shore up the country’s desperate finances. This was after several failed attempts to raise capital from private investors in Hong Kong, Singapore and the USA. While final terms will not be known until April 1 of this year, it is believed that they will be far more attractive treatment than the country could expect to receive from the bond market. And it’s also safe to assume that any astute would-be investor will be watching to see whether Mongolia honors its commitment to Khan Resources.
It is worth mentioning that, after five years of legal wrangling and false horizons, the agreed bill of $70 million is a significant compromise from Khan’s original position. Still, unlike Rio Tinto, Khan has been waved an unequivocal dasvidaniya. Its commitment to Mongolia has been deemed unimportant, and unlike Rio Tinto, it is dismissed as replaceable.
The same short-sighted politicians who sealed Khan’s fate in 2009 are still at the forefront of government and party decisions now. Failure to make a final payment to Khan would certainly put Mongolia at risk of an indefinite lock-out from the global capital markets. Yet Mongolia’s politicians have shown a disturbing tendency to act against their country’s national interest during election years.
To that point, it should be noted that the final $70 million payment to Khan Resources will need to be incorporated in the national budget, which will require approval by parliamentary vote before the May deadline – and only a few short weeks before parliamentary elections in June.
In summary, May 16 will make for a very interesting Monday morning. If Khan understands now what it failed to appreciate when its troubles began, it will have little faith in the payment deadline being met.

Phill Hynes and Mark Burke are analysts at ISS Risk, a frontier and emerging markets political risk management company covering North, South and Southeast Asia from its headquarters in Hong Kong
Source:fronteranews.com
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Mongolian gov't mulls solutions to revive flagging economy

ULAN BATOR, March 30 (Xinhua) -- The Mongolian government addressed potential solutions to reviving the country's tattered economy during the Mongolia Economic Forum 2016 held Wednesday.
In his opening speech, Mongolian Prime Minister Chimed Saikhanbileg blamed populist lawmakers and politicians who often called to review foreign investment agreements with international investors and criticized them for pretending to be patriots.
"We need to address the cause of the crisis. First of all, political parties, the whole country and the public need to reform their economic thinking," the prime minister said, adding that only then would the country's politics and economy be healthy.
He admitted that the country has huge foreign debts, over half of which are due to accounting procedures. He blamed the opposition, the Mongolian People's Party, for distributing 2.3 billion U.S. dollars in public cash handouts.
According to economists, Mongolia's economic growth will be less than one percent this year.
Naidansuren Zoljargal, governor of the Central Bank of Mongolia, said the landlocked country heavily relies on exports of mining commodities, so falling prices in the international market would lead to a sudden drop in currency revenue. To prevent this, he called on the country to develop its non-mining sector.
The annual event drew representatives from different circles, however, there were protests against the government and ruling party organized by a coalition of minor parties and civic groups on Wednesday.
Mongolia is expected to hold parliamentary and local council elections in June. Politicians are courting voters and making many promises to the public as the elections draw near.

Source:Xinhua news agency
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Thousands rally in Mongolia over foreign mining concessions

ULAANBAATAR, Mongolia (AP) — A rare public protest in Mongolia's capital on Wednesday drew thousands of demonstrators who criticized foreign mining concessions and demanded action to prop up the tottering economy.
More than 2,000 demonstrators in Ulaanbaatar's Freedom Square also called for parliament to be dissolved and a new government formed over alleged corruption and the economic crisis battering the vast, landlocked nation.
Protesters say the mineral wealth that accounts for 94 percent of the nation's exports has been exploited by foreign companies, with few benefits going to Mongolia's 3 million people, one-third of whom live in poverty.
"Our wealth is shipped outside of the country. Where is that money going?" former wrestler and opposition lawmaker Battulga Khaltmaa asked the crowd assembled by an umbrella group of small political parties and civil society organizations known as Ethical Mongol.
Battulga was particularly critical of the terms extended to Anglo-Australian miner Rio Tinto PLC to develop the $5.4 billion Oyu Tolgoi copper mine. Talks on expanding the mine have bogged down over the government's demand for more revenue.
Battulga and others also criticized efforts to revive the Tavan Tolgoi coal project, alleging that members of around two dozen influential families with ties to both ruling Mongolian Democratic Party and opposition Mongolian People's Party stand to benefit the most from the deal through their ownership of shares in the Hong Kong-listed Mongolian Mining Corp.
"This business-political group ... has already swallowed its brother, democracy," said Erdenechimeg Luvsan, a Democratic Party lawmaker.
Protesters carried banners reading "Tavan Tolgoi is public property" and "Whatever happened to democracy?"
Parliament last year blocked a proposed deal with an international consortium led by Chinese state-owned mining company Shenhua and Mongolian Mining Corp. and Japan's Sumitomo.
New parliamentary elections are scheduled for June, but critics say the rules will ensure re-election for lawmakers with mining interests in both the ruling and opposition parties.
The global slump in commodity prices has pummeled Mongolia's economy, impoverishing thousands of former herders who had moved to its few cities looking for jobs. China, which receives almost 90 percent of Mongolia's exports, also has an economy that is slowing sharply, further eroding demand for copper, coal and other exports. Foreign investment in the country has practically disappeared.
Economic growth is set to fall below 1 percent this year, down from 17.5 percent earlier in the decade.
Protesters also criticized the arrest by Mongolia's anti-corruption body of several of Battulga's associates, saying it was politically motivated.

Source:AP News Agency
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The Uranium Shakedown: How Mongolia and Russia Conspired Against Western Investors Part 2

In the second installment of the curious case of Khan Resources, Phillip Hynes and Mark Burke document a deal with Russia’s leadership to swap Khan’s uranium mines for hundreds of millions of dollars in aid and debt forgiveness.
Even before Mongolia awarded itself the right to Khan’s uranium deposits, the writing was on the wall.
Speculation was rife that Russia was yearning for the influence it once had over Mongolia’s uranium deposits during Soviet times. The ambition was clear from Moscow’s growing control of the international uranium market, for which it already controls 12 percent of global reserves.
Overtures from Russia notched up after Mongolia’s 2008 election, moderately to begin with, and then more forcefully.
In an agreement that year, Mongolia committed to cooperate with Russia in identifying and developing its uranium resources. Vladimir Putin, as Russia’s revolving door Prime Minister in 2009, met with Mongolian President Tsakhiagiin Elbegdorj. Then in May of that year, Putin visited Mongolia for talks on participation in mining uranium. It was only two months later, in July, that Mongolia began expropriating licenses from companies like Khan under the cloak of the New Energy Law.
A month later, Russia’s President, Dmitri Medvedev, paid a visit to Mongolia, accompanied by Sergei Kiriyenko, chief of the Russian state’s nuclear energy company, Rosatom.
On that visit, Medvedev agreed to end a $150 million dispute over unpaid Mongolian debt “to move ahead with the Dornod [uranium] deposit”, which holds over seven times as much uranium as Russia’s total annual production. Tellingly, Khan Resources management was not even invited into the conversation despite the fact that the Canadian company had been developing the Dornod site since 2005 and legally owned 58% of the joint venture.
At the same time, Medvedev generously signed off on a $300 million loan for agricultural development. Prospective atomic and infrastructure deals were also thrashed out.
It doesn’t take a Mongolian horse-trader to understand that a sudden dispatch of $450 million in investment and debt forgiveness wrapped with promise of future infrastructure deals was being exchanged for an opportunity to win the Dornod license for uranium.

A History Of Bad Deals

After the expressions of Russian interest in 2008 and backroom deals of 2009 came high drama in 2010, with accusations that foreign investors were in breach of Mongolia’s laws.
Along with Russia’s objectives, Mongolia’s politicians had another motive – the manifestation of a national curse: resource nationalism.
This has been a constant throughout both the 2008 and 2012 governments, thriving on the fractious nature of existing parties, intra-party factionalism and the growth in the number of new populist fringe party entrants – especially ahead of the 2016 elections. Resource nationalism has been a common ticket to earning political capital and votes.
Acutely sensitive to dependency on foreign investor giants like Rio Tinto Group as well as China’s economy, interest from Russia has been seen as a useful counterweight, intertwining with the nationalist agenda. Blinded to the damage to foreign direct investment, nationalist legislation has flowed.
The following timeline shows the buildup of nationalist fervor, the sharpening of Russia’s focus on resource security and the legal proceedings between Mongolia’s government and Khan:

2009

  • In January 2009, the Russian and Mongolian governments announce a joint venture tied to uranium extraction. Later that year, Russian state-owned company ARMZ submits a hostile bid for Khan Resources stock in Canada. Khan’s board rejects the offer.
  • In July and August, Russian president Medvedev and prime minister Putin visit Ulaanbaatar within a month. The stated reason for both trips was to pursue control of the Mongolian uranium market.
  • Mongolia introduces the “Law to Prohibit Mineral Exploration and Mining Operations at Headwaters of Rivers, Protected Zones of Water Reserves and Forested Areas” – aka “the Long Name Law.” In essence, it bans mining in environmentally sensitive areas, imposing constraints particularly on gold. This nod to pastoral nationalism – or nomadism – proves highly indicative of what’s to come.
  • The passage of Mongolia’s new Nuclear Energy Law leads to the suspension of all 106 of the country’s existing licenses. Re-registration for those licenses is required the same year.
  • Russia steps up its focus on uranium as a national security objective.

2010

  • In January, Mongolia’s parliament passes a law giving the government an uncompensated 51% stake in any resource extraction project with which it was involved.
  • Russia’s Pravda publishes report on Dornod project in Mongolia titled “Russia To Receive Control Over Uranium.”
  • The Mongolian government places a moratorium on all new mining licenses.
  • Seeing the situation develop against them, Khan Resources begins negotiations with the China National Nuclear Corporation (CNNC) to be acquired. The move spawns protectionist anti-Chinese sentiment within Ulaanbaatar and enables the Mongolian government to revoke Khan’s mining license.

2011


  • Khan announces its lawsuit against Mongolia’s government for $326 million, citing the “expropriatory and unlawful treatment of Khan in relation to the Dornod uranium deposit.” Mongolia challenges the tribunal’s jurisdiction over the claim.

2012

  • In Mongolia, anti-Chinese sentiment builds ahead of the Parliamentary elections, with parties using nationalist sentiment to foment opposition against foreign investment.
  • The Strategic Entities Foreign Investment Law (SEFIL) is passed in May, just before the elections. More than anything, this shamelessly protectionist and reactionary law was responsible for Mongolia’s abrupt fall from grace among foreign investors. It gives the government leverage against any foreign state-owned enterprise looking to dominate Mongolia’s natural resources. The enactment coincides with a proposal from the Aluminum Corporation of China (popularly known as CHALCO) for a deal that would have provided them with control of Oyu Tolgoi, Mongolia’s largest ‘super-mine’ and one of the world’s largest resource extraction projects.
  • An international tribunal is reported to have agreed with virtually all of Khan’s arguments and concludes that Mongolia is in breach of obligations under its Foreign Investment Law. As a consequence, Mongolia also falls afoul of the multilateral Energy Charter Treaty.

2013

  • Mongolia abruptly cancels all 106 exploration licenses issued to foreign and domestic companies between 2008 and 2009, with no legal recourse given. This follows a corruption investigation, in a somewhat contradictory process that was intended to revive investor confidence.
  • Khan’s appeal for the right to pursue a $300 million claim against ARMZ, the Russian mining arm of Rosatom, is dismissed by Ontario Court
  • The disastrous Strategic Entities Foreign Investment Law (SEFIL) is repealed following the collapse of FDI, yet government approval requirements and other restrictions remain for state-owned foreign investors. The new ‘Invest Mongolia’ Agency now has full authority for approving acquisitions by foreign SOEs of over 33% of a Mongolian asset
  • The Mongolian government attempts to communicate a message of equal treatment for local and foreign investors, yet xenophobia and resource nationalism threaten a different reality. A crescendo of acidic rhetoric toward foreign investors, particularly its nemesis Rio Tinto in the Oyu Tolgoi standoff, continues to build within the national media.
  • 2015

    • Of the 106 licenses, 42 are found to have been obtained illegally, 29 are returned to former holders, six are sold to new owners and five become property of the state.
    • An international tribunal orders Mongolia to pay Khan Resources $100 million, an amount in line with previous offers made for the Dornod asset (notably from China’s CNNC in 2010), plus interest and costs.
    • “The Mongolian government, in order to protect its own interests, will work for the invalidation of the arbitration award,” the Justice Minister says. The country launches a formal appeal in France.
    • Mongolia lifts the June 2010 moratorium on new exploration licenses. The exploration licences area, however, is cut from 400,000 ha to 150,000 ha.
    • Rio Tinto and the government settle their dispute, triggering a no-confidence challenge for the Prime Minister, which he survives. The two sides then sign a $4.4 billion package to restart the Oyu Tolgoi project. The deal comes six months ahead of elections, in which addressing the lack of foreign investment is a major campaign issue.

    2016


    • Mongolia’s Finance Minister announces it will pay Khan $70 million by May 15 to end its dispute. In exchange, Khan agrees to stop pursuing court certification of its award in the U.S., which could allow it to seize Mongolian commercial assets there. The settlement comes a week ahead of the Toronto mining convention. Canada is the biggest direct investor in Mongolia after China.

    The curious case of Khan Resources concludes tomorrow as Phillip Hynes chronicles events leading to the stripping of the company’s Mongolian assets and its chairman’s mysterious death in an Ulaanbaatar hotel.

Phill Hynes and Mark Burke are analysts at ISS Risk, a frontier and emerging markets political risk management company covering North, South and Southeast Asia from its headquarters in Hong Kong

Source:Fronteranews.com
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China, Mongolia vow to enhance party-to-party exchanges

BEIJING, March 29, 2016 (Xinhua) -- Liu Yunshan (R), a member of the Standing Committee of the Political Bureau of the Communist Party of China (CPC) Central Committee, meets with a Mongolian delegation led by Miyegombo Enkhbold, chairman of the Mongolian People's Party (MPP) and also vice chairman of the State Great Hural, Mongolia's parliament, in Beijing, capital of China, March 29, 2016. (Xinhua/Rao Aimin)

BEIJING, March 29 (Xinhua) -- Senior Communist Party of China (CPC) official Liu Yunshan vowed on Tuesday to beef up party-to-party exchanges with Mongolia.
Liu, a member of the Standing Committee of the Political Bureau of the CPC Central Committee, made the pledge during his meeting with a Mongolian delegation led by Chairman of the Mongolian People's Party (MPP) Miyegombo Enkhbold, also vice chairman of the State Great Hural, Mongolia's parliament.
Liu briefed Enkhbold with the outcome of the annual sessions of China's top legislature and national advisory body, known as the "Two Sessions", as well as China's 13th Five-Year Plan.
He said China always stands for open, cooperative and win-win development, which will bring opportunities for the world.
The CPC is willing to work with the MPP to strengthen high-level exchanges, promote pragmatic cooperation and push forward the development of China-Mongolia ties, said Liu.
Enkhbold applauded the sound relations between the two parties, saying China's 13th Five-Year Plan will provide new opportunities for bilateral cooperation.
He hoped that the two parties will beef up exchanges and deepen cooperation between the two countries.

Source:Xinhua news agency
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The Uranium Shakedown: How Mongolia and Russia Conspired Against Western Investors

The curious case of Khan Resources exposes how Mongolia seized uranium mine deposits from their Canadian legal owner and transferred them to Russian government control. And with elections imminent, the Mongolian government is now trying to clean up the mess. (Part One of a Three Part Series)

By Phil Hynes
Mongolia is racing against time to make friends.
After years spent reneging on mining deals with the likes of Rio Tinto, the government has suddenly begun to settle its disputes with the promise of compensation and fresh projects.
The reason? Here too, it’s election time. And if you think America’s Democrats face a hard time defending their record, pity Chimediin Saikhanbileg. Mongolia’s Prime Minister has presided over one of the world’s most spectacular nosedives in economic growth – from 17% five years ago to near zero now.
Not all of this is the government’s fault, of course. More than any other country on Earth, Mongolia’s economy relies upon China, with 90% of its exports flowing to its southern neighbor. Sales and prices of its copper, coal and other commodities have crashed with the Chinese slowdown.
But many of Mongolia’s economic troubles are self-inflicted. The government has sent foreign investors packing with punitive new laws to seize their assets. As a result, giant joint mining projects remain idle. Now, under the weight of disappointment from 3 million increasingly impoverished Mongols, the regime is scrambling to mend bridges to foreign investment. After freezing out Rio Tinto in its clamor for a bigger slice of copper and gold projects, the government struck a deal in 2015.
And after years of contesting international court orders, it has finally agreed this month to settle its long-standing dispute with a small Canadian mining company called Khan Resources. Khan’s story reads like an international espionage thriller, and is perhaps the most enlightening in assessing whether Mongolia really is changing – or just papering over the pre-election cracks.

The $70 Million Question

A decade ago all was going well for Khan – a relatively junior company in Mongolia, then known in international mining circles as the land of opportunity.
Khan was issued exploration rights to mine uranium in Dornod, the easternmost of Mongolia’s 21 aimags, or provinces. Its licenses from 2005 were extended for a further three years in 2008. And in 2007 Khan published a feasibility study that confirmed a substantial uranium deposit, with an expected annual production rate of 2.9 million pounds of U3Oand an expected mine life of over 15 years.
But the next year, everything changed. Under its recently-passed Nuclear Energy Law, Mongolia designated uranium as ‘a strategic mineral,’ which retro-actively gave its government control over all existing and future investment agreements.
In an adolescent democracy, prone to bouts of nationalism and inherent in tribalism, this should have rung alarm bells in Vancouver, the global center of the mining industry. Companies like Khan had every reason to fear the ambiguities in the new law.
And it wasn’t only the Mongolian government that they needed to watch. The national media had revealed only months before the law’s enactment that the country was being “courted” (actually, targeted) by its uranium-hungry neighbor and creditor to the north – Russia.

Khan’s Eviction Notice


By April 2010, such fears had been realised. The government suspended Khan’s two licenses, then reinstated them, then suspended again, and finally revoked them following an investigation.
Viewed jealously within the country, Khan’s 58% stake in the rich Dornod province deposits was also openly coveted by Khan’s junior joint venture partner, Atomredmetzoloto. The company, also known as ARMZ, is the mining unit of Rosatom, the Russian state-owned nuclear energy company.
Khan was informed by Mongolia’s Nuclear Energy Agency that it had failed to address violations of the 2009 law and that as a result its licenses had abruptly been invalidated. The company’s chairman, James Doak, responded with a question: “[It’s] difficult to understand why only the Canadian partner should be investigated when there are two other partners in the joint venture. Are they to be investigated as well?” But no answer was forthcoming from the Mongolian government.
Khan sued for $326 million on the basis of ‘expropriation and unlawful treatment.’ That sum was reduced to $100 million in international tribunals before a finding was passed in Khan’s favor – in two separate arbitration hearings. Still, Mongolia rejected the settlement, dismissing appeals in Ottawa which placed the country in breach of the multilateral Energy Charter Treaty.
And now, four years on, it seems the government has had a change of heart. Just two days before a major mining convention in Toronto this month, Mongolia’s Finance Minister announced that the government would pay a reduced fee of $70 million to Khan. Settlement would be completed by May 15, a few weeks before Mongolia’s parliamentary elections. Of course this sudden change of heart was driven by cold-hearted pragmatism. With the country’s finances in a dire state, and its sovereign bonds trading at toxic levels, the finance ministry was desperate to raise money from investors. Yet, while the Mongolian government may not have given a second thought to investor sentiment until now, even they realized that they would have been laughed out of Canada had they not offered closure on the Khan affair.
So, all’s well that ends well? Signs from within the country suggest otherwise.
The nationalist rottweiler is tugging at the government’s leash. When hospitals are cramped and Mongolians are struggling for a roof over their heads, a large payment to a foreign mining company won’t shower the government in glory just six weeks before the general election. In our view, final payment is far from assured.

The curious case of Khan Resources continues tomorrow, documenting a deal between Moscow and Ulaanbaatar that traded Khan’s uranium mines for hundreds of millions of dollars.


Phill Hynes and Mark Burke are analysts at ISS Risk, a frontier and emerging markets political risk management company covering North, South and Southeast Asia from its headquarters in Hong Kong. 

Source:https://fronteranews.com
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Mongolia's Third Neighbor Policy Blooms

“2015 marked increasing diplomatic engagement for Mongolia in East Asia, the Persian Gulf, and even the Americas.”

While Mongolia is located in the northeast region of East Asia, its “third neighbor” foreign policy is poised to allow Ulaanbaatar to boost bilateral and multilateral diplomatic relations with countries around the world. Land-locked between two politically, economically, and militarily powerful nations — Russia and China — Mongolia’s third neighbor policy by no means will exclude these neighbors. Instead, the strategic policy framework intends to use a soft-power approach to international relations as a modus operandi to tackle developing vital sectors such as education, science and technology, mining, and energy infrastructure.

The year 2015 marked increasing diplomatic engagement for Mongolia in East Asia, the Persian Gulf, and even the Americas. Last year, the Mongolian Ministry of Foreign Affairs (MFA) turned the third neighbor policy into bilateral dialogues and agreements with a number of nations, including but not limited to Hungary, Iran, Brazil, the United States, and Japan.
Meanwhile, the Mongolian Cabinet has worked closely with the Ministry of Education and Science in compliance with Cabinet Resolution 71, which granted a number of scholarships and financial assistance opportunities to study abroad in leading professions such as, mining, engineering, and economics. For example, the Mongolian Ministry of Education and Science and Hungarian Ministry of Labor has signed an agreement covering 2,000 students for the Stipendium Hungaricum Scholarship Programme of 2016-2017. Likewise, an “Educational Cooperation Agreement” was signed with the Brazilian Ministry of Foreign Affairs to admit Mongolian students to graduate level programs to further support Mongolia’s educational development. These educational agreements have corroborated the strategic objectives of Mongolia’s third neighbor policy while advancing bilateral agreements not only in the educational sector but also in the mining and energy industries.
Mongolia has also been active closer to home. Geographically, Japan has become the first “third neighbor” of Mongolia. Increasing Chinese influence in the region has forced Japan to seek new levels of partnerships and economic alliances, thus opening the door for Mongolia and Japan to upgrade their ties. In October 2015, Mongolian Prime Minister Ch. Saikhanbileg and Japanese Prime Minister Shinzo Abe signed a Memorandum of Understanding (MOU) for major economic cooperation and development of mining and infrastructure at Tavan Tolgoi, including a railroad. These mega-projects will not only strengthen economic ties between Mongolia and Japan but have a direct effect on employment and support for domestic workers. Furthermore, U.S.-Japan-Mongolia trilateralism is making its way into the policy framework, providing a complement to plans for a Mongolia-Russia-China economic corridor in Northeast Asia.
The most important goal of Mongolia’s foreign and domestic policy is to become a major energy source in the Far East. These agreements show significant progress in Mongolia’s influence in the region, demonstrating the strategic significance of the third neighbor policy. Landlocked Mongolia’s foreign policy now stretches out to many sectors, including oil and energy in the Persian Gulf.
Mongolia imports 90 percent of its oil from Russia, making Russia the strongest energy market in Northeast Asia. With a number of exploration licenses given out by the Mongolian government, however, there have been discoveries of crude oil in the country. Mongolia’s third neighbor policy will play its part in the exploitation of these resources, within the legal framework approved by parliament. Meanwhile, the third neighbor policy is also creating transit transportation arrangements so products can be exported to or imported from third neighbors, changing Mongolia’s energy landscape. In December 2015, for example, Mongolia and Iran  signed an agreement allowing Mongolia to import Iranian oil via Chinese companies.
Therefore, Mongolia continues to strengthen geopolitically advantageous economic and transit ties with Russia and China. In 2011, high level of bilateral transit agreements were signed by the Ministries of Transportation of Mongolia, Russia, and China. The transit agreements will allow Mongolia to export to third countries using Chinese and North Korean shipping ports. Although it will require heavy lobbying and high level meetings, the Chinese-implemented “Belt and Road” economic initiatives will have greater geopolitical influence in Mongolia, Russia, and Japan if these countries come to legally-binding agreements to cement the policy in Northeast Asia. One of the greatest advantages of Mongolia’s ‘third neighbor policy’ is the opportunity for pari passu,allowing Ulaanbaatar more influence in shaping such agreements.
Mongolia’s newly implemented ‘third neighbor policy’ is one of the more innovative foreign affairs approaches in the country’s history. As the global political sphere changes rapidly, Mongolia’s political stability, economic developments, non-traditional national security environment, and far-sighted foreign policy strategies are crucial for continuing its democratic transition and keeping up with new developments in the Asia-Pacific. The challenges ahead are great, but with lessons learned from both developed and developing countries, Mongolian leaders and policymakers do not have room for oversights.

By  Bolor Lkhaajav
Bolor Lkhaajav formerly worked as a Global Security Analyst with Horizon Intelligence (Hozint).

Source:http://thediplomat.com/
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Mongolia’s nomads struggle to survive as starvation decimates livestock herds

By Sanna Ra, Finnish Red Cross 
Baatar Dambasuren, 51, chops firewood in front of his Ger. It’s warm and cosy inside the traditional nomadic dwelling as he throws more chipped wood into a stove. This winter his family has been using more fuel in the stove than usual.
Khurelbaatar Tovuu, 57, lost all his animals during the 2010 devastating dzud. The only profession he knows is herding. Photo Credit: Benjamin Suomela/Finnish Red Cross -

“It’s been so cold. Temperatures have dropped to -50 Celsius at night and stayed at -40 during the day,” said Mr. Dambasuren .  Spring hasn’t brought much relief and he worries about his animals.  A few of them have already died of starvation and he cannot afford to lose more.
 “The pasture is covered by snow and the animals are weak and exhausted. They will be safe only when new grass starts growing.”
The family only has 71 animals, making them eligible for Red Cross emergency assistance.
“The herders have told us that right now their biggest needs are hay and fodder for their animals and food and warm clothes for themselves,” says Davaajargal Baasansuren, Health Promotion Programme Officer at the Mongolian Red Cross.
Mr. Dambasuren has just received a food parcel of rice, cooking oil, salt, milk powder and tea. The food parcel is designed to provide his family with essential items that will last more than a month.
“It’s very helpful for us because we are having financial difficulties and have no cash at hand,” said Mr. Dambasuren, whose family also received warm clothing from the Red Cross.

Occasionally, Mr. Tovuu gets seasonal work slaughtering animals or helping other herders feed their weaker animals. Now without his herd, his reputation has gone down. Photo Credit: Benjamin Suomela/Finnish Red Cross - 

Prone to Poverty
According to the Local Emergency Management Authority in Uvs province, all government hay storage facilities are empty. Only private entrepreneurs have hay and fodder, and the prices are too high for many poor farmers. Families try to slaughter weak animals before they die, but often they are too skinny to be sold.
“If the herders lose their livelihood, it makes them very vulnerable to falling into a cycle of poverty,” says Red Cross Uvs branch secretary, Erkhembayar Dulamsuren.
Uvs is one of the provinces hardest hit by this year’s dzud, where about 7,000 herder households have been affected by extreme winter conditions. Altogether the province has 2.7 million livestock, of which more than 54,000 have already perished. At least 1,000 animals are dying every day.

Sensitive to Climate Change
While dzuds are a natural occurrence in Mongolia, climate change has exacerbated the phenomenon.
“Drought and disasters are increasing year by year,” Ms Dulamsuren confirms.    According to a UNEP climate change study on Mongolia in 2009, the countries’ fragile ecosystems, animal husbandry and agriculture are extremely sensitive to climate change. The study projects that Mongolia will experience climatic variables which include increased temperatures and rainfall as well as reduced water resources and arable land. This means that the nomadic way of life is under threat.
Mr. Dambasuren worries that he might not be able to feed his family if he loses all his animals. The prospect of having to leave the open grasslands and move to a town slum makes him ponder his options.
“My wife makes ger belts and I do some carpentry for extra income, but I have no financial capacity to start a business,” he admits.  
“Most herders have no occupational skills apart from herding,” says Dr Davaajargal Baasaansuren, Head of the Disaster Management Programme at the Mongolian Red Cross Society. “This means that for many, it is impossible to find a job when they come to the urban centers. They are forced to squat in the worst slums where there is no infrastructure. Often they cannot even afford the most basic necessities such as food and clothes and really struggle to survive,” he said.

Baatar Dambasuren, 51, received a food parcel containing rice, cooking oil, salt, milk powder and tea from the Red Cross. Photo Credit: Benjamin Suomela/Finnish Red Cross - 

Worst-case scenario 
In Undurkhangai District Centre this worst-case scenario has become a reality for many former herders. Khurelbaatar Tovuu, 57, lost all his animals during the devastating 2010 dzud.
“We used to sell wood and cashmere for market and we had milk and yoghurt for our children from our animals. I used to start my work early in the morning and come back home quite late when I was a herder, I always had something to do,” he recounts.
The only profession Mr. Tovuu knows is herding and now he only occasionally gets seasonal work slaughtering animals or helping other herders to feed their weaker animals.
“Being with animals in the pasture is great. Before I was riding horses and herding animals, now I have nothing to do. My reputation has gone down. People started treating me badly because I’m a poor man.”
It’s 5pm and he is waiting for his five children to return from school. Child allowance is the family’s only income, about 50 USD per month.
“When I had animals, I was planning that two of our children would become herders. Now, we have no money to educate them I fear they will have the same fate as me.” 
Source:International Federation of Red Cross and Red Crescent Societies
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Mongolian student studying to become a Buddhist monk commits suicide in India

A Mongolian student hung himself inside the toilet of a hostel at the Tibetan Camp II in Mundagod town of Uttara Kannada district on Thursday night.
Mundagod Police Inspector S. C. Patil said the deceased was Byambatsogt (19), son of Uranchmeg, a resident of Mongolia. He was staying at Mundagod Tibetal camp for the last four years to study Buddhism. In his suicide note addressed to his parents, Byambatsogt said that he was depressed as he could not concentrate on his studies. A case was registered on Friday. The Mongolian embassy had been informed about the incident and the body was handed over to the Tibetan camp authorities, Mr. Patil said.

Source:http://www.thehindu.com/
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