Mongolia Brief June 19, 2014 Part VI

Unpermitted buildings at Tuul River bank

June 20 (UB Post) Housing prices near the Tuul River are considerably higher due to the favorable conditions of the area, which includes fresh air and location away from noise and crowds.

Construction companies are using tractors to cut down trees and burning bushes and greenery in the area. These activities are polluting the primary fresh water resource of the city, since apartments near the river are sold easily.

Even if the public criticizes officials who issue permits to build near the Tuul River, nothing comes from it. Around 50 percent of Mongolia’s population lives in Ulaanbaatar.

The Tuul River is considered to be the most highly polluted river in Mongolia. An initial discussion on rehabilitating the Tuul River was held this year. The project is expected to be financed by the Tuul River Basin Authority, Asian Development Bank and Japan Fund for Poverty Reduction.

The Ministry of Nature and Green Development hosted the Tuul Forum with Water Resource 2030 Group and a council for the river basin was established. If the project is implemented and its activities intensify, the pollution in the area will be managed, but there are still some worrisome issues such as large scale construction. For instance, we have reported that new buildings are being constructed on the northwest side of the Mongolian State University of Agriculture within 50 meters of the Tuul River, which is a special protected area that does not allow construction.

The construction of Mudi Residence of MUDI LLC is progressing intensively. Although MUDI said that Niislel Urgoo Company is constructing the building, in reality, it was Khishig Khangai Company, when we arrived at the site.

Purchase orders for the buildings have already been made and is expected to commence this September.

Although Khishig Khangai said the apartments are connected to water and sanitary systems, they had clearly dug a well.

One of the workers at site said, “It was really hard to drill the well and it is quite deep.” In order to get the permission to drill the well, entities have to estimate the water reserve and receive approval from the city water authority, Mongol Us. Then they have to drill down to the approved level.

When asked about their approval from Mongol Us, they said the they did not even make a request. It is obvious that these companies have violated several laws on water use. The company also plans to build a swimming pool. Are they planning to drain the residents’ water supply to the pool and dump the waste into Tuul River?

On the east side of Mudi Residence, a housing project for 24 families was delayed due to financial issues. When asked about the contractor of the project from locals, we received reports that Cassandra Mongolia LLC is undertaking the project. The Ulaanbaatar City Land Management Authority said that they didn’t issue the permit and that the company bought the land from households that used to reside at the bank of the river before the Law on National Special Protected Area was passed. The company also did not get permission from the Ulaanbaatar City General Planning Authority.

The following is an interview with Ts.Sosorburam, director of Mongol Us, about Tuul River bank construction permits.

Many buildings are being built on the bank of Tuul River. Aren’t they violating the law?

According to the law, the buildings must be built 50 meters away from the river. But buildings that are being built now are within the protection zone of the city. Building in a national park or special protected zones are violations of the law. It has been a long time since we have transitioned into free-market economy. The free-market economy protects individuals’ property and violators are using it as a shield. We always face problems like whether we should tear down the unauthorized buildings or keep approve them. In my opinion, legal and inspection organizations should make brave steps. There is no use in fining construction companies. It will be a lesson for other companies if we demolish unauthorized buildings, and companies will start building in accordance to the law.

Will building near the river pollute the city’s fresh water supply?

Even if we connect the buildings to central water and sanitary systems, the river will be polluted by industrial activity.

How do you issue permission to drill a well?

We make evaluations on whether drilling wells are consistent with the law. Water reserves must be evaluated and approved.

What kind of measures do you take if an unauthorized well is drilled?

If it is more than 100 cubic meters, we inspect, make evaluations and take measures according to the law.

The following is a short interview with G.Dolgorsuren, chief of the Tuul River Basin Authority, about construction issues around Tuul River.

Construction companies are operating next to the notice board stating, “Special Protected Area of Tuul River 50 meter”. What kind of measures are you taking?

The authorized agency which should take measures is the State Specialized Inspection Agency. We don’t have the rights of inspectors. When we make a request to inspect an unauthorized building, the State Specialized Inspection Agency says, “We don’t make inspection on demand.” Constructions are executed seasonally. When a planned inspection is organized at the end of the year, construction companies aren’t working anymore. We deliver official demands. If they won’t reply, we will go to the court. Therefore, some companies comply to the demand but others release their dogs and do not even permit us to enter their fences.

Do construction companies usually have land ownership certificates and approvals for construction?

They have their permissions. At that time, we tell them that they will suffer losses if they build in the area as they are outside of the dam’s flood protection.  Some of them say, “When will the flood come?” and go on building.

How frequently does Tuul River flood?

It is estimated that the river floods once every 100 years. In 1966, Tuul River flood reached Tourist Street. For the last two years, Tuul River’s flow has decrease. During years with high flow, we can expect a flood. From ancient times, Mongolians used to forbid speaking ill of the low flow rate.

The companies and officials who did illegal things will try to avoid their responsibility when property is lost and people’s lives are endangered.

The Law on Water states that the special protection zone is within 50 meters of the river.

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Mongolian foreign exchange reserves decline to worrying level

June 20 (UB Post) Analysts of Morgan Stanley financial services cooperation, Desmond Lee and Gaurav Singhal reported that Mongolia’s foreign exchange (FX) reserves reached 1.7 billion USD by the end of April. However, Mongolia’s FX reserves were at nearly 2.2 billion USD at the end of February, according to Mongol Bank.

Mongol Bank has not officially published its April report yet. The analysts highlighted that if the FX reserves stay in decline for a few more months, Mongolia will come closer to the two-month import cover, the same point where Mongolia received International Monetary Fund assistance in 2009.

The analysts also pointed out that during this time, when the OyuTolgoi project dispute is not fully resolved and the FX reserves are very low, the Government of Mongolia will have a hard time getting credit again.

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Mongolia secures growth with cement production hike

By Paulius Kuncinas
Regional Editor, Oxford Business Group

New production capacity in Mongolia’s cement industry is set to meet rising demand as advanced technology is replacing old equipment, moving towards self sufficiency in one of the key materials in the construction trade.

In May, Mongolia began production at the country’s largest cement plant, a one million ton capacity facility in Khutul soum of Selenge Province. The plant was refurbished over a one-and-a-half year period, replacing outdated technology from an inactive Soviet-era cement factory with a modern dry process system.

Located 250 km north of Ulaanbaatar, output from the plant will be equal to around 50 percent of the nation’s annual cement consumption. By using the dry process, which does not have water added to the ground-up materials during production – unlike in most older plants – it will require less power to fire its kilns and cause less pollution.

Prior to the Khutul plant coming back on line, Mongolia’s cement production was around 240,000 tons per year, well short of the two million tons poured in 2013. The shortfall in production has traditionally been met by imports, mostly from China, though demands from that country’s domestic market have at times put constraints on sales to its neighbor, limiting construction sector growth in Mongolia.

Increased capacity in the project pipeline

At the end of April, the European Bank for Reconstruction and Development (EBRD) announced it would provide a 65 million USD loan for Mongolian firm Senj Sant to fund the construction, commissioning and operation of a high-tech dry process cement plant. The loan was part of an extended financial package agreed to in May 2013, which included a 20 million USD equity investment in Senj Sant, whose parent company is the Monpolymet Group.

Phil Bennett, first vice-president of the ERBD, said the project represented another step towards the diversification of Mongolia’s economy. “It directly supports and nurtures the development of the private sector in a relatively underdeveloped industry in Mongolia,” he said.

The new plant, located in Dornogobi Province, is forecast to add one million tons of production capacity to the cement industry, with much of its output to be directed towards supplying cement and raw materials to major mining projects in the region.

Demand for cement, along with other building materials, is set to rise sharply in the coming years as both the public and private sectors roll out extensive construction projects. With a boom in the mining sector in particular, the demand for cement to build infrastructure both at mines and for transport links will climb.

At the same time, state-backed projects in infrastructure, housing and utilities will also draw heavily on domestic production and imports. This demand could cause some bottlenecks in the supply pipeline, pushing up prices if the flow of materials cannot be maintained at a level equal to the construction sector’s requirements.

Cement self-sufficiency

The increased demand for cement is also boosting other sectors, notably the mining industry that provides a ready market for raw materials used in the production process as well as for coal to fire kilns. In early May, international mining firm Viking Ashanti announced its Mongolian subsidiary Auminco Mines had been in discussions with local cement manufacturers to supply their coal needs from Auminco’s Berkh Bituminous Coal Project in northern Mongolia.

Apart from the Senj Sant project, there are at least two other cement plants in the works with the Mongonyn Alt Group and Germes Gakhiur building new production facilities, both expected to be completed and begin production some time in 2015.

With the additional production these plants offer, Mongolia is expected to come close to cement self-sufficiency. This could still be tested by rising demand from both the public and private sector, with some estimates putting requirements at up to three million tons a year by 2015.

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