Wednesday, August 6, 2014

Mongolia Brief August 5, 2014 Part III

Troubles for the Khatan Tuul River

August 5 (UB Post) More than half of Mongolia’s population is residing near the Tuul River basin, which takes up three percent of Mongolia’s total land.
The Khatan (Queen) Tuul River has provided clean, clear water since the time of our nomadic ancestors, whose lifestyle depended on the fresh water supply. Unfortunately, due to urbanization and industrialization, the Tuul River is now in need of protection.
Aside from the population of more than two million, various factors are harming the Tuul River’s ecosystem, including some 20,000 factories and enterprises, 400 hectares of irrigated crop production, 330,000 livestock, and Mongolia’s three major thermal power stations, which are the country’s main source of energy.
According to statistics, Mongolia takes 77 million cubic meters of water a year from water reserves of the Tuul River basin to supply the residents of Ulaanbaatar. Damage, erosion and deprivation of the Queen River, vegetative cover along the river banks, and dwindling forests have reached levels of concern owing to the operations of factories, tourism, construction areas and mining. Operations at the Ulaanbaatar Central Waste Water Treatment Plant (UCWWTP) are constantly faulty as a result of overloaded conditions. This is making it impossible for residents in the capital to carry out the traditional lifestyle of following the clean waters of the Tuul.
Mongolia is one of the top five most polluted countries in the world according to the pollution level set by the Global Environment Agency in 2013. Environmental protection agencies say that Mongolian pollution is increasing, instead of decreasing. If this continues, the Queen Tuul River will become the “Trash” Tuul River. It’s time for the government and relevant professional bodies to take notice of the fact that society and economic development may be harmed if ecological degradation continues.
The Tuul River is the sole source for drinking water for residents in Ulaanbaatar. Looking at research from the past two years, the technological capacity of UCWWTP is nowhere near overcoming increasing pollution.
Whenever Tuul River pollution is mentioned, we refer to the issues of the UCWWTP. However, it’s an exaggeration if we say that all of the river’s pollution is caused by the UCWWTP. Even if the UCWWTP upgrades its technology and boosts its cleaning power to 90 percent, it will not make significant changes because the plant is not the only source of pollution. The most significant sources of pollution of Ulaanbaatar’s only source of drinking water are building construction, facilities and plants in random areas, and making infrastructure and pollution issues a low priority while putting together the general development plan for Ulaanbaatar.
The Central Laboratory of Environmental Monitoring took tests along the Tuul River, from Ulaanbaatar down to Songino soum in Zavkhan Province, and Khadan Khyasaa in Selenge Province. The laboratory conducted chemical and pollution analysis. They conducted tests repeatedly for three weeks on wastewater coming into the UCWWTP and processed water coming out of the plant. The results of the tests showed that water from the Tuul River in these areas was either very highly polluted or hazardous for consumption. Specifically, after processed water from the UCWWTP mixes with the Tuul River and reaches Songino soum, Shine Tseg, and Khadan Khyasaa, oxygen levels drop and waver from 0.05 to 2.79 milligrams a liter, allowing pollution to reach hazardous levels. Biochemical oxygen demand (B.O.D) amounts in the water exceeded the acquiescence standard amount by 27 to 28 times. Azotemia ammonia in the water surpassed the acceptable amount by 36 to 94 times, and phosphorus by 5 to 30 times, indicating high levels of pollution. Permanganate oxide exceeded safe levels by 1.5 to 5.7 times, proving the toxicity of water in these areas.
On the other hand, when combined tests from water coming in and out of the plant were taken and analyzed for daily cleaning processes, cleaning capacity had grown from 50.7 to 52.8 percent. Each day, 160 to 200 thousand cubic meters of partially cleaned water drains out of this plant and flows into the Tuul. There’s no assurance that people living along the river and drinking its water can live on this highly polluted waterway. The same applies to animals.
In 2012, the government made Resolution No. 203 and approved the Khatan Tuul Program. In Chapter 2.1.3, it states, “Polluters must pay and consumers must protect.” This principle isn’t being followed, even to this day. It’s even uncertain about whether the program, itself, is being implemented.
There should be a continuity of policies and decisions made by the government. If government policy is approved, its implementation should continue and the parliament should monitor it regardless of changes in ruling parties. This program is clear evidence, proving that the Mongolian policy system doesn’t have continuity. Politics isn’t necessary for protecting the Queen Tuul River. It should be protected despite gubernatorial and ruling party changes. It’s time to let the public know who is implementing or hindering the Queen Tuul Program, where and how.
Sorce: Unuudur (Issue No.178)

Did Chinese factories cause rising cement prices?

August 5 (UB Post) Prices of consumer commodities have increased because of the exchange rate increase. During this construction season, the price of cement has increased. During Naadam, the price of one ton of cement rose to 200,000 MNT. That was the highest price for cement this year. The average price for one bag of cement in construction markets is between 10,000 to 13,000 MNT. Before Naadam, the cost of one bag was around 7,500 to 9,000 MNT. But after Naadam, the price rose significantly and experts say the increase was related to demand during the construction season, average consumer demands and the increased exchange rate. Cement prices have now decreased, but market analysts say they are likely to go up again.
The best solution for this price problem is addressing the influence of domestic production. Head of Ministry of Construction and Urban Development Ts.Bayarsaikhan says government is planning to change the situation of import products and prices dependent on import products in 2015. “Mongolia has its own cement industry, which is able to produce at least 1 million tons of cement a year. Also, two more factories will be built, so we will not buy imported cement in 2015,” he added.
We tried to understand the specific reasons for the price increase, so we spoke to government organizations and non-governmental organizations about the changing price of cement.
Domestic suppliers
B.Tsedevsamba, Head of the Building and Construction Materials Policy Coordination Department at the Ministry of Construction and Urban Development:
Today, the price for one ton of imported cement is 200,000 MNT. Domestically produced cement costs around 170,000 MNT. In the Mongolian market, cement that is imported is leading in sales.
Construction companies require an average of two to 3.5 million tons of cement a year. Cement demand has risen, so we need to import cement. In relation to the exchange rate, cement sellers did not increase its cost suddenly. Honestly, it is possible for cement costs to be lower than today’s. As far as I know, factories in China have increased their cement prices. But this is not a definite fact.
Last year, the government implemented a policy to stabilize costs. It was effective and cement cost 145,000 MNT per ton last year. But the policy received criticism and its implementation has failed. The price of cement is getting higher because of this. The government decided to support domestic production instead of make policy like before, so Khutul’s chalk and cement factory opened. This factory is able to supply 50 percent of cement needs in Mongolia. If MAK opens its cement factory, we will be able to fill our cement needs by ourselves and prices will be stable in 2015. So we should not concentrate on price, just focus on the numbers of domestic suppliers. If domestic suppliers increase, costs will become stable.
Exchange rates
B.Baatar, Chairman of the Board of Directors of the Federation of Cement Producers:
The increase of exchange rates causes cement price increases. Also, Chinese cement factories stopped working and that became another reason for it. Vendors who sell cement usually import cement from three factories in Erenhot, China: Taigo, Mengo, and Tunkhui. These three Chinese factories stopped work for five days in the middle of June. Demand for cement rose and its price went up to 195,000 MNT. When the factories started working again, they increased the cost of their cement. The exchange rate is increasing hour by hour, not day by day. So cement prices increase along with the exchange rate, because 75 percent of cement is paid for in cash.
Companies start construction work in mid August. During this time, the cost of cement will increase again.
Construction costs
E.Usukhbold, Supply Manager at Undur Buyant:
Increased prices during an economic crisis are becoming a strain. People are doing business by barter, not in cash. This is not only happening in Mongolia, it occurs all over. Because of the qualifications for their products and consumer standards, Chinese factories that we import cement from were closed for several days. During this time, it was difficult for Mongolian importers and the cost of transportation was high, so cement suppliers say they raised cement prices.
If we don’t focus on this issue, and try to resolve or lower cement prices, it will eventually influence the costs for construction projects.
Source: Unuudur

Emerging talents fly solo at 976 Art Gallery

August 5 (UB Post) Mongolia’s leading contemporary art hub, 976 Art Gallery, moved to Best Western Premier Tuushin Hotel, and opened with solo shows from emerging talents B.Nomin and B.Baatarzorig. The exhibitions are on view through August 14.
Ersdel Daguulsan Togloom
(Naughty Game)
Solo show by B.Nomin
Nomin was trained in traditional painting methods at the Fine Arts School of the Mongolian University of Arts and Culture. She uses the aesthetics of Mongolian and Buddhist art, commissioned by ancient religious and imperial institutions, to comment on contemporary issues, examining the themes of wealth, politics, nature, and human relationships. Nomin’s goal is to displace current conventions and encourage viewers to evaluate cultural norms from the point of view of Mongolia’s ancient history. She is a member of the International Artist Pension Trust and recipient of a number of prizes in Mongolia. Her works have been displayed in over 30 exhibitions held in leading galleries and museums in Mongolia and overseas, in Hong Kong, Beijing, and Paris. Her work is in the collections of notable individuals from all over the world.
Neg (The One)
Solo show by B.Baatarzorig
Graduate of the Mongolian University of Arts and Culture, Baatarzorig brings attention to the preservation and loss of Mongolia’s cultural heritage in his artwork. He chooses his media and subject based on his concern that part of the country’s roots were cut off during the period of repression in the 1930s, when socialists purged Mongolian nobles and traditions alike. Baatarzorig collects wooden chest cutouts and metal decorations, heirlooms of countryside families, to use as the surfaces of his paintings. He doubly preserves Mongolia’s heritage by painting faces of aristocrats on these artifacts. He also invites his community to question the changes occurring around them by juxtaposing contemporary icons on pieces of Mongolian history. He is a member of the International Artist Pension Trust, a participant in notable residence programs and the recipient of a number of prizes in Mongolia. In 2013, he was nominated for the International Prudential Eye Award by Parallel Contemporary Art.
For more than two years, the gallery was located on the 5th floor of Max Mall, presenting the best artworks of Mongolian masters and emerging talents to the public. The new location is closed, private and comfortable compared to the noise and disturbance of the previous place. The new gallery includes a boutique, where people can have a coffee, while reading art books.
The new location of 976 Art Gallery is on the first floor of the Best Western Premier Tuushin Hotel, Prime Minister Amar Street, 100 meters east of Central Square.

Tsog makes feature length animated movie

August 5 (UB Post) Tsog Pictures, a Mongolian movie producer, announced that they have started working on a feature length animate film inspired from a story by V.Baatarkhuu.
The animate movie is about eight brave warriors who protect the planet and their brothers against monsters.
G.Batmunkh will direct the film and state prized composer B.Munkhbold and producer B.Iderzolboot said they will be involved in the project too.

Mongolia takes second victory at World Chess Olympiad

August 5 (UB Post) The 41st World Chess Olympiad kicked off on August 2.
A total of 177 teams from 172 countries are competing in the men’s contest and 136 teams from 131 countries are competing in the women’s Olympiad this year.
Even though Mongolia’s men’s and women’s teams started the competition well, they lost to France in the second round.
The Mongolian men’s team won against the Saudi Arabian team on the first day, with the final score of 4:0, but lost to France on August 3, 0:4. Mongolia’s women’s team beat United Arabian Emirates’ team 4:0 but lost to the same team on the second round, with 0.5:3.5.
Mongolian grandmaster of Chess Ts.Batchuluun lost to grandmaster Maxime Vachier-Lagvare, grandmaster B.Khatanbaatar lost to Laurent Fressinet, grandmaster B.Gundavaa lost to Romain Aduoard, international master G.Munkhgal lost to Vladislav Ivanovich Tkachiev and international master N.Battulga did not play.
International master B.Munguntuul drew against french chess player Marie Sebag, FIDE master B.Bayarmaa lost to international master Silvia Collas, FIDE master U.Lkhamsuren lost to FIDE master Mathilde Congiu, and international master B.Ankhchimeg did not play.
Mongolian chess teams seized their second victory on the third round of the Olympiad. The Mongolian men’s team won against Nepal 2.5:1.5, and the women’s team defeated the Irish team with 4:0.
On the fourth round, Mongolian men’s team will play against Croatia and the women’s team will face off Algeria.
After three rounds, Mongolian men’s team ranked 72th, and the women’s team was at 38th.

T.Lkhagvadorj: If government lights up a path, businessmen will find their way

August 5 (UB Post) The following is an interview with the Chairman of Board Directors of Wolf Petroleum T.Lkhagvadorj about the oil sector and investment environment of Mongolia. Wolf Petroleum is currently conducting oil exploration in Sukhbaatar and Bulgan Provinces.
Wolf Petroleum established a product sharing contract for Sukhbaatar oil field in Sukhbaatar Province in January 2013. How is exploration work progressing?
Many things have been accomplished since establishing the product sharing contract with the government but drilling work is yet to begin. Two to three million USD is required to set up a drill. Currently, 2D seismic survey and above ground exploration studies are being carried out. Setting up drills without any research or study results in complete failure as it brings a 100 percent risk. Considerably well conducted research studies is necessary to define drilling spots accurately. Despite being a considerably new company, we hired a US experienced advising company, named MNA, to work as project leader in order to work carefully. MNA is leading all exploration work and manages Mongolian companies operating the project. The data we accumulate is processed in the USA.
For seismic survey, MNA drills shallow holes, takes results to the USA for research on oil discovery probabilities and if there’s a probability of oil deposits, they research the oil quality. A report on analysis and processing is sent back to our company. Information and reports we receive are completely independent, without any sort of interference from third parties. Simply put, interferences are impossible. We’re very satisfied with the work results. Regardless of having no drillings, by evaluating from possibilities, it’s possible to get oil resources of one billion barrels. Drilling this amount of oil depends only on the company’s experience, and technological and financial capacity.
In May, Wolf Petroleum made preliminary reports stating that there are approximately 460 million to 2.2 billion barrels of oil reserve. Just now, you mentioned one billion barrel of oil. Compared to other Mongolian oil fields, how much of a reserve is this?
It’s possible to extract ten to 15 percent of identified oil resources. For example, PetroChina extracted 4.5 million barrels of petroleum in 2013 and are planning to extract approximately five million barrels this year. If we extract five million barrels a year, one billion barrel of oil resources can be extracted in 1,000 years. This amount is considerably small compared to oil extraction capacity of other big Mongolian oil fields like Oirkhi Dornod because on average, a petroleum extracting company extracts four to five million barrels a day when our company does it in a year. This may seem very little but it’s a huge opportunity for us. Resources should be identified carefully. Our main objective is to detect correct spots, drill, extract oil, and then analyze oil quality. If the oil is thick and of bad quality, it doesn’t jet out like oil from Oirkhi Dornod and requires different extraction technologies and more funding. Information about state-owned company of China, PetroChina isn’t open to the public and makes it difficult to know oil quality. In accordance with the product sharing contract, Wolf Petroleum hands half of the revenue to the government, making it possible for state budget revenue to increase.
After the reserve amount is identified and approved, will extraction amount be determined?
This depends on drilling, which requires a significant amount of time. Let’s take Oyu Tolgoi as an example. They successfully found abundant supply of copper after conducting 163 drillings. From one side, it’s a matter of luck, but from another, the success rate depends on experience and skill of experts.
When will drillings start?
We’re looking for partners. Although, there are many oil drilling companies all over the world, it’s difficult to find capable partners able to do proper drilling and find enough financial opportunities.
Are investors interested in Mongolian oil reserves?
Yes. However, we’re still searching for markets to supply our extracted petroleum. Our primary market is Mongolia. Although, petroleum product needs are increasing, the market is very small. Additionally, there aren’t any oil refineries in Mongolia. Investors are interested in places where extracted petroleum is transported to. Russia is ranked first in the world through oil resources. China has oil resources but imports oil in large quantities. Selling oil in world standard prices to China is a major work. Competing in such a large market will require a lot of intelligence.
Oil reserve of Wolf Petroleum has advantages of having well-developed infrastructure and being near China, right?
Infrastructure from Sukhbaatar field in Sukhbaatar Province to China is well-developed. Nevertheless, we don’t plan to give everything to China. At current conditions, it’s necessary to ultimately supply domestic markets.
Apart from Sukhbaatar field, your company operates at two other fields. Have product sharing contract been established for those fields?
We have joint petroleum survey contract with the government. This contract has been valid for three years. In five years, exploration and study of oil fields will become possible. If we want to conduct a large-scale exploration work, we can request for product sharing contract. The legal environment was slightly unclear before because it took companies two to three years, or more, to establish product sharing contract, which lessens risks, with the government. Any investor would be fed up from negotiating contract conditions for uncertain period of time. A new law was approved which set the time limit to 180 days. This makes it more understandable and convenient for investors who’re taking up risks to organize work and financial schedules. We still need to discuss when to submit the proposal and establish the contract. Product sharing contracts will be established soon.
Where are these two fields located?
Jinst field is in Bayankhongor and Gobi-Altai region and Baruun-Urt field is in Sukhbaatar Province.
Is it possible to make estimations of their reserve?
It’s not yet at the stage for identifying resource amounts. Geological formations that suggest oil reserve have been detected. The field is enormous. Sukhbaatar field takes up 23,000 square kilometers. Jinst field covers 41,000 square kilometers. Doing exploration work for such a big land is a major work.
The long awaited new petroleum law was put into effect in July 1 this year. How effective is this law?
We can notice that a clearer environment was created by revising the law. The new law clarifies several unregulated aspects including time limit for investment and time limits for the establishment of product sharing contracts and how much tax should be paid. This is its merits.
In September, a large conference will be held for the first time for the oil sector. What are your anticipations for the conference’s outcome?
The oil sector requires huge amounts of investment and gives off profit several times higher. Wolf Petroleum is making preparations for the conference. We’re looking for investors and parners. Many companies interested in investing are also inquiring about the conference. It was supposed to be held in last spring but due to the Petroleum Law approval, it was postponed. All matters will not be resolved in one conference. The conference is significant as it’ll reveal information about the Mongolian oil sector and influence decisions of investors.
In the first half of 2014, foreign direct investment fell by 70 percent. How do you assess the current investment environment of Mongolia? To return lost investments to investors, what should the government do?
Only after losing and winning, we were able to reach stability. Mongolia has had a free market economy for only 25 years. Mongolia did show a “newly rich” attitude and bragged about discovering mineral resources. While making amiable investment environment, Mongolia became arrogant as if to say that we don’t need them and that we can find money from anywhere and kicked out investors. After overcoming many hurdles, Mongolia is now at the stage to accumulate experience. Even if investment environment is improved, investments will not revive so easily. Now, our two neighbors are expressing their interests to invest first. They may have been waiting for this situation. The world economy is darkening at the moment.
Money doesn’t disappear; it transfers from one place to another and circulates in the market. During this difficult time of economic crisis, investors should select places to invest after evaluating available opportunities on how stable it is and whether returns will be high. Everything will not become better by establishing international major agreements or by shaking Oyu Tolgoi. The foremost important duty of the government is to make business environment for private businesses stable and then receive taxes from them. If these conditions are met, within the next two to three years, investments will revive. A few days ago, I watched Bloomberg channel and liked the phrase, “If the path is lit, people will find their way.” Just like this, the government should light up the path.
Compared to the first half of 2014, has the stock value of Wolf Petroleum increased or decreased at the Australian Stock Exchange?
It’s constantly dropping. Currently, it’s stagnating. At first, it was sold at 20 cents at the exchange but now it decreased by four-fold and doesn’t even reach five cents. But we will not give up. We have deposits with abundant amount of oil resources and several investors that want to invest. Only research work for legal, technical, and personnel related issues are consuming time.
Source: Unuudur
Link to interview

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