Koreans Move in Mongolia's Energy Sector

Mongolia is a member of the Northeast Asian Energy Cooperation Initiative, promoted by South Korea since 2001, together with South Korea, North Korea, and Russia. The initiative brought notable cooperation in the energy sector that established Gobitech -Asian Super Grid project. At the forum, co-hosted by the intiative and the Government of Mongolia, the President of Mongolia delivered a speech at the forum about substantial resource of renewable energy in Mongolia's southern Gobi region. The Gobi Desert is estimated to be the third largest potential source of solar energy in the world and also experiences steady, strong wind speeds making it ideal for both technologies.

Yesterday, Energy Ministry of Mongolia signed  a memorandum of understanding with KEPCO or Korea Electric Power Corporation, Korea's biggest power supplier and world's sixth-largest power plant builder, to start power plant project in Ulaanbaatar. Under the concession law of Mongolia, the company is expected to build and operate a fossil fuel power plant during a contract period, but it is still unclear when they will sign an official contract and when construction will begin.
In the news to Korean Times, the company's official said:
"This is a milestone making it possible for us to make inroads into the fast-growing power supply market in Mongolia," KEPCO said in a statement. "This project will make it possible for us to win other projects there." 

Another Korean giant POSCO Energy, a unit of South Korea's top steelmaker POSCO, will kick off power business in Mongolia under joint consortium that comprised of GDF Suez of France, Sojitz of Japan and Mongolia's Newcom Group. In the news to South Korean News Agency Yonhap, 

The consortium has signed a 1.5 trillion won (US$1.34 billion) contract to build and operate a combined heat and power plant in the suburbs of Ulaanbaatar after beating another consortium led by Samsung C&T and Korea Southern Power.

The consortium plans to start building the power plant with an annual generating capacity of 450 megawatts in 2015 and complete it by 2019, POSCO Energy said in a statement.
The consortium consists of POSCO Energy, GDF Suez of France, Sojitz of Japan and Mongolia's Newcom Group, with each of the first three companies holding a 30 percent stake in the project, while Newcom holds the rest, the South Korean company said.
After completing the power plant, the consortium will operate it for 25 years and then transfer it to the Mongolian government, the company said.
"This project will contribute to easing power shortage in Mongolia and help (POSCO Energy) expand presence in the Mongolian energy market in the future," POSCO Energy CEO Hwang Eun-yeon was quoted in the statement.

In the other news, POSCO also joined hand with MCS, one of Mongolia's largest private companies to build a clean energy project, named Baganuur Energy Corp., in the Baganuur district of Ulaanbaatar at the cost of US$2 billion.

POSCO said the joint venture plans to produce 100,000 tons of dimethyl ether and 450,000 tons of diesel oil per year. Won Kang-hee, POSCO's head of Mongolian unit, said,

"Given Mongolia's oil consumption is forecast to rise to 3.5 million tons by 2020 from last year's 800,000 tons, we are optimistic about our business prospect. Once the CTL plant is up and running, Mongolia will become a bridgehead for us to expand toward the world in the new energy resource area."
The Korea Gas Union is also interested to enter Mongolia's energy sector. Korea Gas or KOGAS, through its subsidiary called Elgen LLC a drilling company of Mongolia, stated that has signed memorandum of understanding with Mongolia's Erdenes Tavan Tolgoi coal mine, according several Korean news sources here and here. The three companies analyze coal-bed methane (CBM) and share production technologies and technologies for enhanced CBM recovery, the news report said

In the renewable energy sector, Shinsung Solar Energy Co.,Ltd of South Korea also stated last month that it has signed a document with Ministry of Energy under the frames of the “Gobitech and Asian Super Grid” project.

The document was signed Wednesday by D.Delgertsogt, the State Secretary of the Ministry of Energy; Lee Wan Keun, president of South Korea’s “Shingsung solar energy” LLC; Lee Wang Hee, president of the “Weel” LLC; and by B.Osorgarav, director of the “Mon-Korea” LLC.
Accordingly, the sides will construct a solar energy station of 8 Megawatt near the “Bayanteeg” coal mine in Ovorkhangai aimag’s Nariin teel soum.


Mongolia’s tango with Pyongyang

A Dutch opinion maker Jort van Oosterhout wrote "Mongolia's Tango with Pyongyang" at the NKnews.org, an independent web site headquartered in the US focused on North Korea. The article was also translated and published on News.mn here.

On May 23 Mongolia provided North Korea and the United States neutral ground in its capital for track 1.5 meetings. Presumably, North Korea’s chief nuclear envoy met with two former U.S. State Department officials to discuss resumption of the Six Party Talks, which have been at a complete standstill since 2009. Ulaanbaatar has been keen on normalizing Pyongyang’s fractious relations with its adversaries and assist its Soviet-era ally in implementing economic reform. In this way, Mongolia has unveiled an alternative strategy that could incrementally reconfigure Pyongyang’s behavior, offering the U.S. some lessons for its failing North Korea policy.
Mongolia, as a former socialist country, maintains friendly relations with both North Korea and South Korea, and vigorously try to become stakeholder in six-party talk by hosting a number of official talks in the past in Ulaanbaatar. The President Elbegdorj himself visited Pyongyang in October 2013 at the invitation of Kim Yong Nam, president of the Presidium of the DPRK Supreme People's Assembly as KCNA said, (not at the invitation of the leader Kim Jong Un). During his visit he did not meet with his North Korean counterpart Kim Jong Un. Elbegdorj was the first foreign head of state to visit Pyongyang since 2011 when Kim took over the country following the sudden death of his father and long-time leader Kim Jong Il.

However, Mongolian officials pay regular visits to Pyongyang, the last high profile visit by North Korea was in July 2007. Kim Yong Nam he visited Ulaanbaatar in July 2007 and signed bilateral cooperation agreements on health, trade, marine transport, and labor force exchange.
Mongolian businesses hire more than 1,000 North Korean laborers mostly in construction sector.

The last visit by Mongolian side was just a week ago. It was Member of Parliament Kh.Battulga.
North Korean KCNA News Agency referred him as special "Envoy of Mongolian Leader and his party".

Special Envoy of Mongolian President Pays Tribute to Statues of Kim Il Sung, Kim Jong Il
Pyongyang, July 14 (KCNA) -- The special envoy of the Mongolian president and his party laid bouquets before the statues of President Kim Il Sung and leader Kim Jong Il on Mansu Hill on Monday and paid tribute to them in humble reverence. 
Mongolian people and press was not fully aware of his entire visit and he carried a personal message to North Korean leader Kim Jong Un from Mongolian President. The content of the message was not publicized either in Mongolia or North Korea.

Personal Message to Kim Jong Un from Mongolian President
Pyongyang, July 15 (KCNA) -- Supreme leader Kim Jong Un received a personal message from Mongolian President Tsakhiagiin Elbegdorj.
The message was conveyed to Kim Yong Nam, president of the Presidium of the DPRK Supreme People's Assembly, on Tuesday by Khaltmaa Battulga, member of the State Great Hural, who is the special envoy of the Mongolian president on a visit to the DPRK. 

Kh.Battulga, a businessman and an influential leader among his Democratic Party faction at the Parliament, visited North Korea a number of times in the past. Last year he visited Pyongyang as a Minister of Industry and Agriculture. And, this time he visited as special envoy of President Elbegdorj according to North Korean KCNA. Mongolian news portal web site Gogo.mn reported that Battulga made prior notification to the both Office of the Parliament and Ministry  of Foreign Affairs of Mongolia that he is leaving for Pyongyang, but didn't make purpose of his visit and tour agenda public. Gogo.mn reported under question-marked headline that "Battulga has left for North Korea to build oil refinery?" Another web site Dorgio also reported his visit. 24.mn wrote he left for North Korea to start dialogue to establish oil refinery plant in North Korea that will refine oil imported from Russia in North Korea and ship to Mongolia. Battulga was a businessman that did not win the privatization tender bid of NIC Oil, Mongolia's monopoly state-run oil import company at that time. According to KCNA, he visited West Sea Barrage and enjoyed bird's-eye view of the port

Mongolia Japan will sign economic partnership agreement

President Ts.Elbegdorj at Mongolia Business Forum in Tokyo. Photo source:  News.mn
President of Mongolia Ts.Elbegdorj said at the Mongolia Business Forum held in Tokyo that two countries officials have concluded to sign bilateral economic partnership agreement (EPA) in the nearest future. Since 2012, Mongolia has engaged negotiations with Japan to sign EPA in the areas of trade in goods, investment, trade in services, intellectual property, e-commerce, rules of origin, customs procedures, competition, cooperation, dispute Settlement, sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT). The forum was attended by around 130 business representatives from Mongolia. 


SCO membership in sight for Mongolia — China's FM

Mongolia has held an observer status in the Shanghai Cooperation Organization for the last 10 years
BEIJING, July 11. /ITAR-TASS/. After ten years as an observer state, Mongolia may become a full member of the Shanghai Cooperation Organization (SCO), comprising states in Eurasia and East Asia, Chinese Foreign Minister Wang Yi said.
“We have great prospects for the development of the SCO,” Wang Yi told a reception in Beijing on the occasion of the 13th anniversary of the organization’s foundation. “There are currently five observers and three dialogue partners in the organization.”
“We have received a message from the Mongolian prime minister on the occasion. Although we have not scrutinized the contents of this message yet, we regard it as a good signal,” he added. “Ten years have passed, and it is time to consider preparations for granting Mongolia a status of a full-fledged member of the SCO.”
Founded in 2001, the Beijing-based Shanghai Cooperation Organization is composed of Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. The security organization consolidates efforts to counter terrorism and radicalization in member-states, and also works in other spheres such as politics and trade.
Afghanistan, India, Iran, Mongolia and Pakistan have observer status, while Belarus, Sri Lanka and Turkey are described as 'dialogue partners'.

Source: http://en.itar-tass.com/world/740163

Moody's downgrades three Mongolian banks following sovereign downgrade

Hong Kong, July 18, 2014 -- Moody's Investors Service has downgraded the local currency long-term deposit ratings for Khan Bank LLC, XacBank LLC, and Trade and Development Bank of Mongolia LLC (TDBM) to B2 from B1. At the same time, Moody's has downgraded the foreign currency long-term senior unsecured debt ratings for TDBM to B3 from B1.

The outlook for all the ratings is negative.

See below for a full list of the ratings, both downgraded and affirmed.

The rating action follows Moody's downgrade of Mongolia's sovereign ratings to B2 from B1 on 17 July 2014. Please see the related press release on www.moodys.com.


The rating action on the three banks' ratings is based on the consideration that the creditworthiness of the Mongolian banking system is highly correlated to the sovereign. The sovereign downgrade was driven by its strained external liquidity position, as reflected by a sharp loss in foreign-exchange reserves.
Furthermore, expansionary monetary and fiscal policies have added to demand pressures, fuelled inflation, and heightened spillover risks to the banking system and the balance of payments. Accompanied by a continued rise in the external debt burden, these factors increase the country's vulnerability to external and domestic shocks relative to rating peers.

Separately, Moody's rating action on the three banks also takes into account the risks to the banks stemming from the Mongolian government's pump-priming measures, some of which are heavily credit-driven.
Specifically, the Bank of Mongolia -- in addition to policy-rate reductions and fiscal spending -- provided MNT4.3 trillion ($2.6 billion) in loans to the banking system as of end-2013, representing about 40% of total credit for the banking system.

The banks on-lent these loans to targeted industries and their assets accordingly grew by 74% and loans by 54% during 2013.

These developments -- against the current backdrop of macro-economic and export deterioration -- have increased the risks to the banks' liquidity, profitability, asset quality and ultimately -- their capital adequacy.
Liquidity conditions for the banks continue to tighten as loan growth exceeds deposit growth. The system's loan-to-deposit ratio jumped to 97% at end-2013 from 85% a year ago.

Meanwhile, profitability is shrinking, as the banks lower lending rates to support the government's accommodative policies, while maintaining relatively high deposit rates to stem the deterioration in their funding profiles.

Moody's expects the banks' asset quality performance to deteriorate further during the rest of 2014 and into 2015, as the economy remains under pressure, and as loans booked during the continuing credit boom season.
For example, asset quality has deteriorated in the mining and manufacturing sectors, whose NPL ratios stood at 17.9% and 6.4% at end-March 2014, compared to 12.2% and 3.3% a year ago.

The construction sector has not shown a material deterioration and the NPL ratio for the sector stood at 2.9% at end-March 2014. However, loans to the sector grew by 123.7% year-on-year at end-March 2014, twice as fast as systemic loan growth at 54.5%. Once the loans season, we expect substantial asset quality deterioration.

Moreover, the mining sector remains vulnerable to continued slides in commodity prices and demand, while the manufacturing and construction sectors remain exposed to the subdued state of domestic economic growth.

Below we discuss each individual bank.

Trade and Development Bank of Mongolia

Moody's has lowered TDBM's baseline credit assessment (BCA) to b3 from b2. TDBM's BCA of b3 reflects its: (1) solid market position as a leading corporate lender in foreign exchange and trade-related businesses; and (2) diversified funding sources from both domestic depositors and foreign financial institutions.

However, the ratings are constrained by the bank's vulnerability to a deterioration in asset quality, given its high loan concentration and portfolio of corporate loans.

TDBM's top 20 group borrower exposures were equivalent to 366% of its Tier 1 capital, two times higher than those of Khan Bank and XacBank at end-March 2014. More than 50% of these borrowers are also in risky sectors, such as mining and construction. These sectors accounted for 19.4% and 18.1% of its total loans, respectively, at end-March 2014.

TDBM's BCA of b3 also reflects potential challenges related to corporate governance that could arise from its narrow shareholding structure.

Moody's has not incorporated any systemic support notching uplift to TDBM's B3 foreign currency unsecured debt rating, given its assessment of limited foreign currency support capacity of the Mongolia government. This is despite the systemic importance of TDBM -- as the second-largest lender in terms of loans -- in the Mongolian banking system.

However, Moody's has incorporated one notch of systemic support to its local currency deposit rating of B2, given the proven track record of the Mongolian government of providing support to depositors of failed banks such as Anod Bank (unrated), Zoos Bank (unrated) and Savings Bank (unrated). Moody's expects the government to support deposits at banks that are considered to be of high systemic importance to the economy.
Khan Bank
Moody's has lowered Khan Bank's BCA to b2 from b1. Its BCA of b2 reflects its (1) strong franchise in Mongolia as the largest bank in terms of loans, as well as its extensive nationwide branch network, the largest among all domestic banks; and (2) relatively granular loan book given that retail borrowers accounted for over 60% of its total loan portfolio at end-March 2014.

The ratings do not incorporate any uplift for systemic support because Mongolia's sovereign rating is also B2.


Moody's has lowered XacBank's BCA to b2 from b1. The bank's b2 BCA reflects its (1) growing franchise and well-established expertise in micro-finance; and (2) relatively low credit concentration risk.
The bank's local currency deposit rating does not incorporate any uplift for systemic support because the sovereign rating for the Mongolian government is the same as the bank's standalone rating of B2.

What Could Change the Rating - Up

Given that the B2 issuer ratings assigned to Khan Bank and XacBank are the same as the sovereign rating, an upgrade of the banks' ratings is unlikely. A return to a stable outlook would require a return to a stable outlook on the sovereign rating, as well as evidence that asset quality pressures can be contained as loan books season.

Upward pressure on the B3 issuer rating of TDBM could occur if it substantially reduces its borrower concentration and exposure to risky sectors.

What Could Change the Rating - Down

The following factors could exert negative pressure on the three banks' ratings: (1) corporate governance-related problems that cause a loss of depositor confidence, therefore increasing the threat of a deposit flight; (2) a significant deterioration in asset quality; for example new NPLs to gross loans exceeding 4.0%; (3) a rise in concentrations, or a rise in exposures to risky sectors, in particular construction; (4) the Tier 1 ratio falling below 9%; or (5) a significant deterioration in profitability, such that net income is less than 1.4% of average risk weighted assets.

The resultant ratings and actions are listed below:
Trade Development Bank of Mongolia --
• baseline credit assessment of b2 lowered to b3;
• local currency bank deposits rating of B1 downgraded to B2;
• foreign currency bank deposits rating of B2 downgraded to B3;
• issuer rating of B1 downgraded to B3;
• local currency long-term senior unsecured of B1 downgraded to B3;
• foreign currency long-term senior unsecured debt/subordinated debt of B1/B2 downgraded to B3/Caa1; and
• foreign currency long-term senior unsecured MTN/subordinated MTN of (P)B1/(P)B2 downgraded to (P)B3/(P)Caa1.
The revised ratings all carry negative outlooks.
All other ratings were affirmed: Bank Financial Strength of E+; local currency/foreign currency short-term deposits rating of NP; local currency/foreign currency short-term issuer rating of NP; and ST MTN program rating of (P)NP.

Khan Bank --
• baseline credit assessment of b1 lowered to b2;
• local currency bank deposits rating of B1 downgraded to B2;
• foreign currency bank deposits rating of B2 downgraded to B3;
• issuer rating of B1 downgraded to B2; and
• local currency/foreign currency long-term senior unsecured
MTN/subordinated MTN of (P)B1/(P)B2 downgraded to (P)B2/(P)B3.
The revised ratings all carry negative outlooks.
All other ratings were affirmed: Bank Financial Strength of E+; and local currency/foreign currency short-term deposits rating of NP.

XacBank --
• baseline credit assessment of b1 lowered to b2;
• local currency bank deposits rating of B1 downgraded to B2;
• foreign currency bank deposits rating of B2 downgraded to B3;
• issuer rating of B1 downgraded to B2; and
• foreign currency long-term senior unsecured MTN of (P)B1 downgraded to (P)B2.
The revised ratings all carry negative outlooks.
All other ratings were affirmed: Bank Financial Strength of E+; local currency/foreign currency short-term deposit rating of NP; local currency/foreign currency short-term issuer rating of NP; and ST MTN program rating of (P)NP.
The principal methodology used in these ratings was Global Banks published in May 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Trade and Development Bank of Mongolia LLC, based in Ulaanbaatar, reported total assets of MNT5.1 trillion (US$3.1 billion) as of end-2013.
Khan Bank LLC, based in Ulaanbaatar, reported total assets of MNT4.8 trillion (US$2.9 billion) as of end-2013
XacBank LLC, headquartered in Ulaanbaatar, reported total assets of MNT1.8 trillion (US$1.1 million) as of end-2013.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Hyun Hee Park
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Stephen Long
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077


President Elbegdorj Says No Nuclear Waste

President Elbegdorj, head of the National Security Council, says no to nuclear waste by signing in a decree today. Read the press release by Elbegdorj's Office here and here. The decree strongly advised the government to stop and ban any intergovernment talks to bury nuclear waste within its territory without any prior consultation with the National Security Council.
Монгол Улсын Ерөнхийлөгч Ц.Элбэгдорж Үндсэн хууль, Ерөнхийлөгчийн тухай хууль, Үндэсний аюулгүй байдлын зөвлөлийн тухай хуулийн зүйл заалтуудыг үндэслэн зарлиг гаргаж, цөмийн хаягдлын асуудлаар Засгийн газарт чиглэл өглөө. Зарлигаар, Үндэсний аюулгүй байдлын зөвлөлийн зохих шийдвэргүйгээр цөмийн хаягдлын асуудлаар бусад улс орон, олон улсын байгууллагатай хамтран ажиллах, Монгол Улсын нэрийн өмнөөс аливаа яриа хэлэлцээ хийх, гэрээ хэлцэл байгуулах, баримт бичиг үйлдэхийг хориглов.

 Мөн Монгол Улсын нутаг дэвсгэр дээр цөмийн хаягдлыг хадгалах, түр байршуулах, булшлах зорилгоор импортлох, хил дамжуулан тээвэрлэх үйл ажиллагаа явуулахыг хориглосон Монгол Улсын хууль тогтоомжийн зүйл, заалтыг тууштай мөрдөж ажиллахыг Засгийн газарт чиглэл болгожээ.

Засгийн газарт чиглэл өгсөн уг зарлигт хуулийн дагуу Монгол Улсын Ерөнхий сайд С.Батболд мөн гарын үсэг зурсан байна.


Nuclear visit by Joe Biden?

Whether Mongolia bury nuclear waste within its territory is sensational centerpiece story both on local Mongolian newspapers and TV debates. Following is an article printed on UB Post English weekly titled "Mongolia to become nuclear waste site" based on recent several Japanese press articles.

In recent months, the press in Japan and the US has reported that Mongolia is negotiating with these countries to serve as a regional depository for spent nuclear fuel. The proposed plan would permit geographically constrained countries in the region, such as Japan, South Korea and Taiwan, to dispose of their spent fuel in the spacious Central Asian state.

When the story first broke in March, the Mongolian Foreign Ministry was quick to dismiss the notion that Mongolia would host Asia’s nuclear waste. The statement went on to declare that Mongolia’s constitution prohibits the “import of dangerous waste to Mongolian territory”. The truth of these reports is still unknown. However, the suggestion of burying spent nuclear fuel in Mongolia has risen again. The Mainichi Daily News, the English site of Japan’s Mainichi Newspapers recently reported that the Draft accord describes Mongolia as the home for spent nuclear fuel.

A draft Japanese-US-Mongolian agreement over the creation of a nuclear fuel production and spent fuel disposal cycle clearly refers to Mongolia as the destination of such fuel, according to its text, which was obtained by Kyodo News on July 18th.

Mongolian government keeps denying that they engaged in talks to host nuclear waste, but watch following audio of recent Carnegie International Nuclear Policy Conference held in the U.S..

US Government later released a statement on this that its government official does not mean so.

Now the US Vice President soon make a visit to Mongolia on August 22, a first of its kind after 67 years. he is scheduled to meet with Mongolian President and Prime Minister and head to Japan to continue his Asian trip. No any official said that the visit will touch the issue of Mongolia-US-Japan nuclear waste disposal talk of where, when and how. Of course, no one will. But would fear of nuclear waste be frustrate the visit? One journalist's Facebook voiced a support for a protest by a number of civilian movements be organized during the visit.