August 23, 2012

This is bne's Eurasia daily newsletter, a list of the top stories from the country. You can receive the list as a plain text or html email or as a pdf file. Manage your delivery options here: http://businessneweurope.eu/users/subs.php

Eurasia TOP STORY 1. ’s ruling coalition collapses 2. Army fires on demonstrators in east Tajikistan 3. Gulnora Karimova rumoured to be behind MTS’s problems in 4. to support Kyrgyzstan’s Customs Union accession Eurasia Kazakhstan 5. Fitch Assigns Development Bank of Kazakhstan's Islamic Finance Programme, Notes Final 'BBB-' Rating 6. Four Dead in Kazakhstan Helicopter Crash 7. Halyk Bank - dividend policy on heels of state exit 8. MIE below expectations in 1H as Emir Oil development behind schedule Eurasia Other Central Asia 9. Kentor Gold raises US$20.5m in rights issue 10. Kyrgyzstan to conduct environmental audit of Kentor’s Andash project 11. Manas Petroleum sells half of its Petromanas stake 12. Turkmenistan: Dragon Oil – Relatively safe and boring, which is why we like it Eurasia Caucasus 13. Azerbaijan-based banks ranking for assets 14. Azerbaijan-based banks ranking for loan portfolio 15. Construction works in Azerbaijan rise 33% 16. OSCE warns South Ossetia against demolishing Georgian villages 17. Poverty increases in Armenia - Minister Other frontier markets 18. Mongolia News Update – Wednesday, August 22, 2012 19. Oyu Tolgoi ESIA published after long wait

--************************************************************ Eurasia TOP STORY --************************************************************ 1. Kyrgyzstan’s ruling coalition collapses bne August 23, 2012

Kyrgyzstan’s ruling coalition collapsed on August 22 after two of its four members pulled out in a revolt triggered by the corruption scandal surrounding a racehorse alleged to have been given to Prime Minister Omurbek Babanov as a bribe. The breakup of the coalition leaves Babanov’s government without a majority in parliament, and an indefinite period of uncertainty for investors is expected while a new government is formed.

Coalition member Ata-Meken announced it was quitting the Birimdik coalition on August 22, the day after fellow member Ar-Namys pulled out. This leaves only MPs from Babanov’s Respublika party and the Social Democratic Party of Kyrgyzstan (SDPK) still backing the government, which is not enough for a majority in the 120 member parliament.

The coalition’s leader Kanat Isaev announced on August 22 that since the government no longer has a majority in the parliament, it must resign immediately.

While Babanov seems reluctant to quit, it is clear that he will have to either resign or face a vote of no confidence, unless he manages to form a new coalition in the next few days. This would be possible if he keeps the SDPK on board and manages to persuade Ata-Zhurt, the only opposition party in the parliament, to join the government but this is unlikely.

Respublika - SDPK - Ata-Zhurt was the formation of the first parliamentary coalition after the April 2010 revolution, under Kyrgyzstan’s former prime minister and current president Atambaev. However, the socialist SDPK and nationalist Ata-Zhurt are ideologically opposed, and most SDPK MPs have already indicated they want Babanov out.

Ata-Meken, which has turned against the Prime Minister in recent weeks, called for him to leave immediately, instead of serving as acting prime minister while a new coalition is formed. "We, members of the Ata-Meken faction, have to declare our disagreement in principle with the policies of Babanov as the head of the government. We are also convinced that Babanov should not remain the acting prime minister of the republic and should waive his temporary powers immediately,” the party said in a statement cited by 24.kg.

Babanov’s government, which was formed in December 2011, has looked shaky for several months. MPs made an attempt to force a vote of no confidence just before parliament broke up for the summer recess in June, but failed to collect enough signatures on a single petition.

The trigger for already fragile cross-party coalition’s collapse was a corruption scandal that broke in August 2012, concerning Babanov’s race horse, Islander One. Opposition MPs allege that the horse, which they say is worth up to $1.5m, was a bribe given to Babanov by Serka, a Turkish company carrying out construction work at ’s Manas International Airport. Babanov, who is one of Kyrgyzstan’s richest businessmen, says he bought the horse himself and it is worth no more than $20,000.

However, there are longer-standing issues dividing the coalition, in particular the management of Kyrgyzstan’s economy. Technical problems at the Kumtor gold mine, which accounts for around 12% of GDP, in the first half of 2012 have brought down growth forecasts, with growth of just 1% now expected in 2012. This has dashed hopes of bringing Kyrgyzstan’s budget deficit down to a more manageable level.

Other issues include Babanov’s personnel party. Speaking on August 21, Ar-Namys leader Felix Kulov said the decision to quit the coalition was based on Babanov decision to fire officials appointed on the recommendation of his coalition partners, in particular the had of the State Registration Service, Emil Aliev.

Kyrgyzstan, which has seen two revolutions in the last seven years, now enters a new phase of political turmoil, as MPs start horse-trading on a new coalition while waiting for Babanov to quit. It took around six weeks of negotiations to agree on the two previous coalition governments formed since the April 2010 revolution, and with no less than three of the five parties represented in parliament needed to form a majority, a similarly lengthy round of negotiations is expected now.

--************************************************************ 2. Army fires on demonstrators in east Tajikistan bne August 23, 2012

Government forces opened fire on protestors in Tajikistan’s volatile Gorno Badakhshan region on August 22. In a rare demonstration for the Central Asian country, a crowd of up to 3,000 people gathered in the regional capital Khorog to protest against the killing of former warlord Imumnazar Imumnazarov.

The situation in the Gorno Badakhshan autonomous region (GBAO) is reported to be tense following the clashes on August 22, and telephone contact with the rest of Tajikistan has been cut off. The new outbreak of violence dashes hopes that stability has been restored in the region after fighting between government forces and militants in July 2012.

Soldiers in Khorog are reported to have mainly fired into the air after demonstrators started to attack local government buildings. However, AP cites witnesses as saying that two of the protestors were shot in the legs.

Imumnazarov, who has been wheelchair-bound since injuries sustained during the war, was killed at his home in Khorog early on August 22. Unidentified assailants threw a grenade into his house then opened fire with automatic weapons, Asia-Plus reports.

Many Khorog residents are understood to believe that the Tajik government were behind the attack on Imumnazarov, an opposition commander during Tajikistan’s 1992-97 civil war. GBAO was one of the opposition strongholds during the civil war and Imumnazarov and other former warlords remain unofficial rulers of the province. They suspect the Dushanbe has used the assassination of regional security chief Abdullo Nazarov in mid July as the pretext to bring the region more firmly under central control.

GBAO residents have also been angered by a recent demand that all men aged between 18 and 45 must report to the army to answer questions about their military backgrounds.

Imumnazarov’s death comes a month after the government launched a special operation in GBAO, targeting a militant group headed by another warlord Tolib Ayombekov. Dushanbe sent an additional 3,000 troops to the region, backed by helicopter gunships. After several days of fighting in and around Khorog, the group started to surrender on July 28. Ayombekov surrendered on August 12 and urged his followers to give up their weapons.

It then appeared that stability had been restored in GBAO after Tajikistan’s worst outbreak of violence since mid-2010, when government forces fought for several months to put down an insurgency in the Rakhsh Valley, another mountainous region where support for the opposition remains strong. However, Imumnazarov’s murder and the mass protest on August 22 shows that the situation in GBAO has not yet been resolved.

Tajikistan’s authoritarian president Emomali Rakhmon has managed to maintain stability in the country since the end of the civil war through a combination of rapid military response to insurgency, and power sharing agreements that give former opposition leaders a voice in regional and national politics. Rakhmon has maintained stability in Tajikistan for the last 15 years, but the country lives under the constant threat of a new outbreak of violence, because of the continuing influence of former warlords in regions such as GBAO and the Rakhsh Valley, and its long and porous border with Afghanistan. But while the government has successfully crushed attempts at armed revolt, mass protests as seen in Khorog on August 22 are a new departure, and Dushanbe will have to find a new way of dealing with the threat of popular unrest and prevent it spreading to the rest of the country.

--************************************************************ 3. Gulnora Karimova rumoured to be behind MTS’s problems in Uzbekistan bne August 23, 2012

There is growing speculation that Uzbekistan’s “first daughter” Gulnara Karimova could be behind the suspension of Russian mobile operator Mobile TeleSystems’ (MTS) licence in Uzbekistan.

Uznews cites a source at MTS’s offices as saying that Karimova, the eldest daughter of Uzbekistan’s President Islam Karimov, was ultimately responsible for the seizure of MTS’s Uzbek subsidiary Uzdunrobita.

“This is a very old joke... Gulnara Karimova seized the business she liked, which is a habitual thing for her,” Uznws quotes the source as saying.

Uzdunrobita’s licence was suspended on July 17, over after the State Inspectorate for Communications said that the company had committed "numerous and systematic violations, breaching orders from the regulator" - a claim MTS says is groundless. The suspension was initially for just ten days, but was later extended for three months. On August 14, the Commercial Court has revoked all Uzdunrobita’s operating licenses following a petition filed to the court by the SIC.

In addition to the telecoms regulator, MTS has been targeted by Uzbekistan’s tax office and criminal prosecutors, in what appears to be a multi-pronged attack on the company.

The Uzbek Prosecutor Generals office says it has issued warrants for the arrest of Uzdunrobita officials who are wanted on suspicion of embezzlement and tax evasion. The company’s corporate development director Azizillo Mirzamoidinov, while former CEO Bekhzod Akhmedov has fled the country to avoid arrest. MTS says it has also received claims totaling over $900m from the Uzbek tax office, which it says are unsubstantiated.

There is speculation that an operation on this scale against the Russian company would not be possible without Karimov’s sanction.

Karimova is believed to have been the former owner of Uzdunrobita before its sale to MTS in 2004, although MTS announced only that it had bought a majority stake in the Uzbek company from “two private companies”. Under MTS’s ownership, Uzdunrobita has grown into Uzbekistan’s largest mobile operator, with a client base of around 9.5m before its licence was suspended in July 2012.

--************************************************************ 4. Kazakhstan to support Kyrgyzstan’s Customs Union accession bne August 23, 2012

Astana will support Kyrgyzstan’s accession to the Customs Union founded by Russia, Belarus and Kazakhstan, Kazakhstan’s President Nursultan Nazarbayev said during a visit to Bishkek on August 22.

Kyrgyzstan has been working towards membership of the bloc since mid 2011. Creation of the union disrupted Kyrgyzstan’s economy especially in the trade sector since Kazakhstan is its main trading partner.

Nazarbayev also said that Kazakhstan would continue to export gas and grain to Kyrgyzstan, Interfax Kazakhstan reported.

Speaking at a joint press conference with Nazarbayev, Kyrgyzstan’s President Almazbek Atambaev said that food security is a “pressing issue” for Kyrgyzstan.

“Nursultan Nazarbayev pledged his support and agreed to provide 200,000 tons of grain with payment extension," Atambaev said.

--************************************************************ Eurasia Kazakhstan --************************************************************ 5. Fitch Assigns Development Bank of Kazakhstan's Islamic Finance Programme, Notes Final 'BBB-' Rating Fitch Ratings August 23, 2012

Fitch Ratings has assigned the Development Bank of Kazakhstan's (DBK) Islamic Medium Term Note Programme, which has a total value of up to 1.5bn Malaysian Ringgits (RM) (about USD479m), a final rating of 'BBB-'. The agency has also assigned a 'BBB-' rating to the debut five-year RM240m issue of sukuk (Islamic bonds) under the programme.

The final ratings follow the receipt of documents conforming to information previously received by Fitch and completion of the first series of sukuk issuance under the programme. The programme's final rating is the same as the expected rating assigned in June (see 'Fitch Rates Development Bank of Kazakhstan's RM1.5bn Islamic Medium Term Note Programme 'BBB-(exp)', dated 22 June 2012 at www.fitchratings.com).

The RM240m sukuk issue's rating reflects the programme's rating. The notes are due on 3 August 2017 and carry a 'profit payment' at a rate of 5.5% payable semi- annually.

DBK is wholly owned by the government of Kazakhstan ('BBB'/Positive) through the National Welfare Fund Samruk Kazyna. The bank's primary role is to foster development of the country's non-extracting sectors.

--************************************************************ 6. Four Dead in Kazakhstan Helicopter Crash RIA Novosti August 23, 2012

Four people were killed after a military transport helicopter crashed in Kazakhstan on Wednesday, emergency officials said.

The Mil Mi-17 was on a training exercise when it went down at an airfield near Kazakhstan's capital, Astana, around 2:00 a.m. GMT.

An investigation is under way into the cause of the crash.

--************************************************************ 7. Halyk Bank - dividend policy on heels of state exit Troika Dialog Research August 23, 2012

Halyk Bank has posted strong 1H12 results, net income rising 51% y-o-y, well ahead of the consensus forecast, and ROAE hitting an excellent 20%. There was good news on several fronts: 2012 earnings guidance was raised 20% (to KZT60 bln); there finally seems to be progress on NPLs; and the cash-rich bank logically plans to start paying dividends following the state's exit. We make modest adjustments to our model - mainly lower LLPs and a 15% dividend payout, but also a slightly weaker NIM outlook (the only weakness in the results). As such, we raise our target price 4% to $9.60 per GDR and reiterate our BUY recommendation on the stock. It is trading at a 2012E P/BV of 0.8, which is a good value for a bank that delivers sustainable ROAE in the high teens and is returning cash to shareholders.

> Progress on balance sheet cleaning. The lower cost of risk was a key driver for earnings outperformance in 1H12 and the guidance upgrade. Importantly, this was accompanied by sustained signs of progress on bad loans (down 3 pp in 1H12 to 32%), driven by write-offs and repayments. The long-awaited progress on cleaning the balance sheet seems to be gaining traction, as the bank is planning to participate in regulatory mechanisms to the tune of KZT15 bln (1% of loans) in 2012, thus reducing NPLs from current levels, which are still high. We trim our cost of risk estimates by 70 bps for 2012 and 25 bps for 2013 to 1.3% in both years, and model a normalized 1% beyond that.

> More confidence in growth, less in NIM. While leaving its 2012 loan growth target nearly unchanged, the management expressed confidence in Halyk Bank's ability to outgrow the market in 2H12 with an 11% increase. Impressed with 6% Q-o-Q growth in the retail book, driven by low-risk consumer lending (up 29% y-o-y) to payroll clients, we support the 2012 guidance, but still see growth gradually accelerating in the long term from 12% in 2013 to 16% in 2015. Real positive rates are driving retail deposit inflows, strengthening the funding base. Likely accompanied by continued loan yield erosion in 2012-13, we trim our NIM projections 15-30 bps to 4.2-4.4% in 2013-15.

> Turning into a dividend story? The dividend policy suggested to the BoD (in late September) contains a wide 15-50% payout range, implying a yield of 4-13%. The decision to disburse cash (40% of assets) among shareholders following the state's exit is rational and welcome, given Halyk Bank's strong capital position and modest asset growth prospects (10-15% in 2012-15). A generous payout at the higher end of the range could raise minority investors' concerns over loyalty of key shareholder Almex (69% of commons) to its banking business, given Halyk Bank's ability to sustainably earn ROAE in the high teens, but we think the higher payout is unlikely (we model 15-20%).

Ainur Medeubayeva

--************************************************************ 8. MIE below expectations in 1H as Emir Oil development behind schedule Visor Capital August 23, 2012

Impact: NEGATIVE

Facts/News. MIE today published its 1H2012 results (with conference call expected tomorrow). The Company reported improved revenues on a YoY basis of RMB1,756m (US$281m), while 8% below our estimates, as the company’s production at Emir Oil were significantly lower at 2,889boepd versus our estimate of 5,195boepd, due to delays in putting new wells into production. Production from the Kazakh division was announced as having improved significantly in July and the first half of August however, to 3,611bpd. Total production for the period was 13.4kbpd, with the majority of production from the existing Chinese PSAs. MIE reported EBITDA of RMB1,063m (US$170m) and net profit of RMB347m (US$56m).

MIE has increased its capex budget for the year by US$65m to US$368m, adjusting it to account for the newly acquired Sino Gas project, where it plans to spend up to US$44m to drill 17 exploration wells in 2H2012. MIE has also increased its budget for its already existing PSA by US$47m for more horizontal drilling on the Daan and Moliqing fields, while lowering capex of Emir by US$26m in line with the lower planned construction and drilling costs. In 1H2012 the Company spent US$154m and drilled 254 new wells, including three exploration wells, one of on Emir Oil expected to complete and flow tested in the near-term with initial log results indicating potential hydrocarbons.

On 18 June, MIE signed a syndicated loan facility agreement for US$80m, at LIBOR+5% and due date in May 2015, agreed to be repaid in three instalments starting June 2014. To date MIE has drawn down on US$40m of this facility.

Analysis. The net profit was 35% below our estimate, driven by lower than estimated revenues from Emir Oil and a higher than expected effective tax rate of 31% (vs 25% estimated), due to increased non-deductible expenses related to the notes issued May 2011. The Company has also lowered production estimates for Emir Oil due to delays in production delivery and construction of necessary facilities on the fields, with the current upper range of 3.1kbpd lowered significantly versus previous guideline of 4.5kbpd.

Valuation/Conclusion. We believe the results and lowered guidelines are below expectations, and expect negative share impact on these results, however still believe prospects in the medium term. MIE is traded on US$4.7/bbl of 2P reserves, which is above its peers average multiple of US$3.7/bbl. We maintain our TP of HKD2.70/sh and BUY rating.

Zhanar Nazkhanova Dominic Lewenz

--************************************************************ Eurasia Other Central Asia --************************************************************ 9. Kentor Gold raises US$20.5m in rights issue Visor Capital August 23, 2012

Impact: POSITIVE

Facts/News. Kentor Gold this morning issued an entitlement offer in relation to its five for seventeen non-renounceable rights issue, announced on 17 July 2012. The Company announced that out of 34.2m shares offered, the total applications pursuant to the rights issue were for 15.5m shares, while net shortfall equalled at 10.3m shares, worth US$6.2m. Approximately US$5m of the shortfall has been underwritten by Kentor Gold’s largest shareholder, KMP Investments. Following the issue, and subject to no additional shares being issued under the shortfall, KMP will hold 27.3% of the Company’s issued capital.

Kentor has now raised a total of $20.5 million through the placement and rights issue announced on 17 July 2012.

Analysis. We believe the funds raised from the rights issue should progress the development activities at both the Murchison gold project in Western Australia and the Jervois copper and base metals project in the Northern Territory. Although the news is positive for the Company, we believe the main priority for the Company is to resolve its licence issues on its core business, being gold/copper production in Kyrgyzstan and Australia.

Valuation/Conclusion. We believe the announcement is positive for Kentor Gold and expect positive share price move as the Company was able to raise required funds for further development of the Australian assets. The stock is currently trading at 2013 P/E and EV/EBITDA ratios of 4.6x and 1.9x, respectively. We maintain our SELL rating. Our concerns over Company risk with regards to the main developing project, Andash asset in Kyrgyzstan, are reflected in our SELL rating.

Dana Tulepova

--************************************************************ 10. Kyrgyzstan to conduct environmental audit of Kentor’s Andash project Visor Capital August 23, 2012

Impact: POSITIVE

Facts/News. Kentor Gold last night announced that the Kyrgyz Minister for Economic and Antitrust Policy signed an order to form the eight member Inter-Departmental Commission to “resolve the issue of expediency of development of the Andash copper- gold deposit”. The Commission should involve independent international experts to conduct an environmental audit of the deposit. Russian environmental auditing company EMAS has been selected for the task.

Analysis. We believe the announcement is positive for Kentor Gold as development of Andash mine is a core project of the Company. We note that the Company expects to start gold production at the mine within one year after gaining the licence. However, we believe that the risk of Kentor’s loosing the licence for the project in the result of the environmental audit is still high.

Valuation/Conclusion. The stock is currently trading at 2013 P/E and EV/EBITDA ratios of 5.0x and 2.3x, respectively. We believe the announcement is positive for the Company. We retain concern over the Company’s risk of losing the Andash asset in Kyrgyzstan, as reflected in our SELL rating.

Stanislav Chuyev

--************************************************************ 11. Manas Petroleum sells half of its Petromanas stake Visor Capital August 23, 2012

Impact: NEGATIVE

Facts/News Manas announced on Monday that it had sold 90m shares it had held in Petromanas Energy (PMI CN) to 12 purchasers on 17 August. The sale price was CAD0.12/share, generating gross proceeds of CAD10.4m (US$10.5m). This follows the sale of 10m shares at CAD0.17 for gross proceeds of US$1.7m on 6 July. Manas also agreed not to sell any of the remaining 100m shares without the written consent of purchasers until 13 August 2013, or until Petromanas’ share price reaches CAD0.60.

In its 2Q2012 results, also released on Monday, Manas stated that it has entered into an optional agreement to purchase 80% of the equity of a company that owns producing oilfield assets in Central Asia. Since 8 May, Manas has provided a refundable cash deposit of US$7m, and is to submit a further US$3m by 24 August. Due diligence of the project is ongoing, and Manas will have a month after completion of the review in order to exercise its option. So far, no more details are available on the project

Analysis. Following the Company’s strategy of acquiring new assets, we were expecting either farm-out progress or sale of its stake in Petromanas in order to fund such projects. We believe the proceeds of the sale will be used for the acquisition of a newly announced project in CA.

Valuation/Conclusion. We believe the sale of Petromanas shares at a discount could have a negative share impact until more details of a new project are revealed. Manas is traded on US$0.03/bbl of P50 risked resources, which is below its peers average multiple of US$0.98/bbl. We maintain our BUY rating.

Zhanar Nazkhanova Dominic Lewenz

--************************************************************ 12. Turkmenistan: Dragon Oil – Relatively safe and boring, which is why we like it Renaissance Capital August 23, 2012

Today (22 August), we release Turkmenistan: Dragon Oil – Relatively safe and boring, which is why we like it.

We stay with our safety picks. In our note, In times of uncertainty, safety is important, dated 23 May, we recommended Dragon Oil (DGO) and Afren (AFR LN, BUY, TP: GBP1.70, current price: GBP 1.30) as our only picks in the uncertain environment. Despite their outperformance, we still like these two names given their free cash flow generation ability in the current oil price environment. We acknowledge that some of our other names have become more attractive on a valuation basis; but for the time being, “safe and boring” is what we like.

How safe is DGO? $400mn/year. While ongoing operational activities could affect day-to-day volatility of DGO’s share price, the simplest way to look at the name in our view is as follows: hypothetically, assuming the company’s production remains flat (at c. 70 kb/d) would imply about 25 years of reserve life and at least $400mn/year of FCF (i.e. annuity) at the current oil price. A 10-15% discount rate would imply an approximate value of this annuity of between $2.7-4.0bn (excluding the current cash on the balance sheet).

Moderating our production growth estimates and a new valuation approach. Following the operational update, we have moderated our production growth estimates for the next three years to 10-12%. We are also switching to a P/CF valuation methodology (in line with the rest of our producers), assigning a 3.75x 2013E P/CF multiple on our estimates. This has resulted in a lower TP of GBP6.80/share (from GBP7.60/share). We maintain our BUY rating.

No special dividend in the cards for now. Management seems confident that it will be able to find an adequate M&A target. So for the time being, we do not expect a special dividend from the cash pile. The only potential near-term catalyst that we see, therefore, is on the M&A front, which makes the story relatively boring and mostly dependent on continued operational delivery (which has been fairly good so far, in our view).

Dragan Trajkov

--************************************************************ Eurasia Caucasus --************************************************************ 13. Azerbaijan-based banks ranking for assets APA-ECONOMICS August 23, 2012

APA-ECONOMICS regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance.

The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by assets in accordance with the available data as of July 1, 2012.

--************************************************************ 14. Azerbaijan-based banks ranking for loan portfolio APA-ECONOMICS August 23, 2012

APA-ECONOMICS regularly provides ranking of Azerbaijan-based bank organizations for their various figures and financial performance.

The project aims to highlight banks’ financial performance and update the public and potential investors. In the table below, bank organizations are ranked by loan portfolio in accordance with the available data as of July 1, 2012.

--************************************************************ 15. Construction works in Azerbaijan rise 33% APA-Economics August 23, 2012

Construction works conducted by construction companies in Azerbaijan increased by 32.9% in January-July, 2012, compared with a year ago.

State Statistical Committee says that, 73.6% of construction works was new construction, reconstruction and enlarging, 13% - capital repairs, 2.4% - current repair, 11% other construction works. State construction works made 24.5%, non- state construction made 75.5% of total construction works.

--************************************************************ 16. OSCE warns South Ossetia against demolishing Georgian villages bne August 23, 2012

The Organisation for Security and Cooperation in Europe (OSCE) high commissioner on national minorities Knut Vollebaek has contacted the South Ossetian government over reports that Tshkinvili is planning to demolish villages abandoned by Georgian refugees.

On August 14, the leader of the breakaway Georgian republic, Leonid Tibilov, announced plans to destroy villages formerly inhabited by ethnic Georgians who fled on the outbreak of war in August 2008.

Vollebaek called on Tibilov’s government to clarify its plans for the villages. “The houses still belong to the original inhabitants of these villages and they should not be demolished. Under international law, the displaced people have a right to return to their homes and their property should be respected,” Vollebaek said in a statement.

“I call on the de-facto leadership and relevant authorities in control of this area to respect the property rights of displaced persons and to fulfill their obligations under international law,” he added.

--************************************************************ 17. Poverty increases in Armenia - Minister bne August 23, 2012

Poverty increased by 5% in Armenia since 2008, not the higher figure of 12% that has been reported recently, according to Deputy Minister of Finance Vardan Aramyan.

Speaking to journalists in Yerevan, Aramyan said the apparent discrepancy was due to a change in reporting practices, News.am reported.

Aramyan added that the poverty rate has been brought below 50% because of the government’s social spending.

Poverty would have amounted to 51-52% if the government’s social expenditures are not increased, Aramyan told journalists.

“We have not solved all the problems, but we have done what the budget has allowed us to do,” he added.

--************************************************************ Other frontier markets --************************************************************ 18. Mongolia News Update – Wednesday, August 22, 2012 Monet Capital August 23, 2012

The new Government of Mongolia is set to go, with the final cabinet members being announced on Monday. The Prime Minister declared his expectations and demands to the new cabinet members, which do look promising with openness and anti- corruption topping the list. If the new government does obey the demands and live up to expectations, it could be the catalyst for transforming Mongolia into the country it has the potential to be. However investors remain skeptical and will be watching closely.

One concern for investors is the appointment of a well-known resource nationalist as the new mining minister, Davaajav Ganhuyag. We believe that this is not as big a problem as it first appeared. DP have shown support in the past for foreign investment, and that will dampen any of the nationalistic sentiments the new government may have. Also if the government does function efficiently, fighting corruption and acting in the population’s interest then resource nationalism as a concept will lose popularity.

--************************************************************ 19. Oyu Tolgoi ESIA published after long wait Monet Capital August 23, 2012

On August 20, the company that manages the Oyu Tolgoi copper/silver/gold mine announced the disclosure of the project's Environmental and Social Impact Assessment (ESIA) on its website. Oyu Tolgoi LLC, a subsidiary of the London-based mining corporation Rio Tinto, had pushed back the release of the ESIA since December 2011, causing consternation among civil society groups in the region. The disclosure of the document follows a CSO letter written at the end of June to the IFC, which is actively considering financing the $13 billion dollar project. The concerns expressed in the letter include debt management, water resource management, labor disputes, threats to biodiversity and the environment, public health, involuntary resettlement and inadequate consultations, the need for cumulative impact and risk assessments, and a lack of transparency regarding the continued delay of the ESIA. Although the company has disclosed the ESIA in both English and Mongolian, the IFC has not yet disclosed its own Project Information Document on the Oyu Tolgoi mine.