ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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2010.08.23

NATIONAL DEVELOPMENT AND INNOVATION COMMITTEE

G o v e r n m e n t a g e n c y o f M o n g o l i a

www.ndic.gov.mn

Industrialization policies of Mongolia

and Development Bank of Mongolia

Ch. KhashchuluunNational Development and Innovation Committee,

Government Agency of Mongolia

1

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• Priority one: Developing mining sector by exploiting mineral resources deposits and setting the foundation for heavy industry

• Priority two: Developing intensified agriculture and implementing industrialization policy: Projects in biotechnology, intensive agriculture to increase food production –

• Priority three: Developing infrastructure: Projects for developing infrastructure linked with exploiting mining deposits such as constructing new railroads, new power stations and constructing paved roads in rural areas.

• Priority four: Providing sustainable development through human development and protecting the environment: Projects on environment protection, promoting tourism, establishing training-production parks for information technology.

• Priority five: Improving governance and supporting private sector: Supporting private sector and developing public-private-partnership.

Strategic priorities in investment, 2010-2015 Government decree No 320, 2009

2

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• Tavantolgoi, other smaller projects. TT project bidding to finish in 2010

• Sainshand industrial complex planning finished, 2 years preparation time. Government resolution and Sainshand industrial complex council chaired by Prime Minister. Working group under NDIC umbrella, international bidding documents for project management are finalized, formally start in September 2010

• Copper smelter plans (small scale in Erdenet), various construction material plants projects

3

Priority one: Developing mining sector by exploiting mineral resources deposits

and setting the foundation for heavy industry

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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A Steering Committee has been created for implementation of the Sainshand industrial and railway infrastructure projects

National Dev. Strag.

Government Resolutions

Task Force per #52 note Implementation Unit Implementation Projects

Ministry of Road, Transport, Construction and Urban Development

Ministry of Mineral Resources and Energy

Ministry of Finance

Ministry of Food, Agriculture, Light Industry

Ministry of Environment

National Development and Innovation Committee

Implementation Task Force(2)

Local and International Advisors:

• Global Project Manager (PMC)

• Local Advisor• International counsel• Local counsel• Financial Advisor• Technical Advisors

­ Industrial­ Mining­ Railway

Copper Smelter

Metallurgical Facilities

Coke Chemical Facility

Coal Chemical Facilities

Power Plant(s)

Railways

Pro

ject

s to

be

imp

lem

ente

d

GOM is ready to kick-start implementation of the complex and integrated industrial and railway infrastructure projects in Mongolia

• Resolution #299• Resolution #320• Meeting Note #52

Steering Committee(1)

1) The Steering Committee shall include Parliament members, Government and non-government organizations.2) NDIC shall be the contracting party to all local and international advisors. MOF is to fund necessary operating capital.

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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Major mines, such as Tavan Tolgoi and Oyu Tolgoi, are heart of industrial and railway projects as suppliers of feedstock

Loca

l Eq

uit

y Sp

on

sors

Inte

rnat

ion

al

Equ

ity

Spo

nso

rs

EQU

ITY:

30

-40

%

Multilateral Tranche

ECA Guaranteed Tranche

Commercial Tranche

DEB

T: 6

0-7

0%

PROCESS UNIT

Tavan Tolgoi LLC

Oyu Tolgoi LLC

Supply Agreement

Freight Agreement(1)

EPC Agreement

Operations & Maint.

Agreement

State Property Committee

Concession Agreement

Products:

• Coke• Iron pellets• HBI/DRI• Copper cathodes• Synthetic gas• Liquefied gas• Industrial diesel

and other oil products

Companies that expressed interest:

• ThyssenKrupp• Noble Group• Posco• Sinopec• Petrochina• Marubeni• Sojits• Itochu• Sumitomo

Offtake Agreement

Freight Agreement(1)

International Banks

Mongolia Commodity Exchange

• Linking with NYMEX and other commodity exchanges

• Provides price discovery• Transparency

1) Please refer to slide 16 for railway financing structure

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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6

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• The National Development and Innovation Committee of Mongolia (“NDIC”) is accepting proposals from engineering, construction and project management companies to serve as Program Manager (“Program Manager”) and provide overall Program Management Consultant Plus (“PMC-Plus” or “PMC+”) services in connection with the greenfield development and construction of certain industrial and infrastructure projects (“Projects”) in Mongolia.

• The anticipated PMC-Plus services will include the development of a Master Plan, the provision of overall program management consulting services for all of the Projects, plus the provision of EPC or EPCM services for offsites and utilities and for certain individual Projects.

• PMC-Plus will be selected based on the principles stated this tender documents and according to the combined evaluation method, which are compliant to the Procurement Law of Mongolia.

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ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• Projects intensive agriculture to increase food production – Atar III national

campaign. In 2007 Mongolia produced 25% of grain consumed. In 3 years, 65% of

equipment and 80% of tractors is updated, 100% self sustainability in grain and

potato, 60% of vegetables is reached. 26 technology-maintenance stations have

been created to service more than 1000 new tractors creating 3300 jobs in the

process.

• High technology policy adopted by Parliament

• NDIC announced first bidding for high tech projects in biotechnology

• 25 million US dollars loan from Hungary

• Information technology town campus to be situated in Nalaih area based on

Information technology faculties of national universities.

8

Priority two: Developing intensified agriculture and implementing

industrialization policy:

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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Regional development index and regional development

goals for 2010-2015

< 0.15Regional development index of the Government of Mongolia consists of9 groups of indicators in total including 80 indicators such as overalldevelopment, infrastructure, healthcare, education, culture, naturalresources and financial capacity

RDI

0.15-0.18

0.18-0.20

0.21-0.22

> 0.22

2009 2015

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• Construction for Mogoit Power station (30-60 mWt) started to supply Western

Mongolia with electricity

• Hydro power stations to gradually attain project capacity (Durgun and Taishir

stations)

• Power Plant No 5 to be situated in Baganuur, feasibility study by ADB to start in fall

2010 to increase production of electricity by 2015

• Currently negotiating terms for Shivee Ovoo coal-based Power Plant (4 gWt)

• Railroad policy is finalized for 2010-2020

• Optic fiber cables network, national scale

10

Priority three: Developing infrastructure: Projects for developing infrastructure

linked with exploiting mining deposits such as constructing new railroads, new

power stations and constructing paved roads in rural areas.

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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Railway plan 2010

1) ЗТБХБЯ-аас дэвшүүлсэн Монгол Улсын Төмөр замын бодлогыг Засгийн газар болон Үндэсний аюулгүй байдлын зөвөлөл нэр 2010 он 4-р сард дэмжиж УИХ-д оруулах зөвлөмж өгсөн болно. УИХ нь Төрөөс баримтлах Төмөр замын бодлогыг батлана.

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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Planned automobile road network

ªëãèé

Õîâä

Óëààíãîì

Óëèàñòàé

Ãîâü-Àëòàé

Áàÿíõîíãîð Àðâàéõýýð

Öýöýðëýã

Áóëãàí

̺ðºí

Ýðäýíýò

Äàðõàí

Ñ¿õáààòàð

Çóóíìîä

Óëààíáààòàð

×îéð

Ñàéíøàíä

Ìàíäàëãîâü

Äàëàíçàäãàä

ªíäºðõààí

Áàðóóí-Óðò

×îéáàëñàí

Óëààíáàéøèíò

Õàíäãàéò

Àðö ñóóðü Áàãà-Èëýíõ

Õàíõ

ÀëòàíáóëàãÝðýýíöàâ

Óëüõàí

Õàâèðãà

Áè÷èãò

Çàìûí ̄ ¿ä

Ãàøóóí ñóõàéò

Áóðãàñòàé

ßðàíòàé

Äàÿí

Õàðõîðèí

Currently under construction 1461.65 км

Øèâýýõ¿ðýí

New roads 1977,95 км

Current roads: 2190.17 км

newly needed roads: 3439,6 км, including:

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• As of 2008, ICT sector produces 9% of Mongolian GDP. • “National Data Centre - the completed project costs around

$5.2 million • “Telecommunication Backbone Network of Mongolia”- the

project costs around $45.0 million - ongoing project.• “Information technology development and training town”

project- the project costs around $100.0 million, in the early stage of implementation

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• In addition to usual hydro power stations, Mongolia has widespread use of

solar, wind energy

• currently the country uses commercially 16 midscale solar and wind power

stations, villages and individual farmers utilize 74 222 solar energy

generators

• Mongolia produces more than 1% of its energy by sustainable energy

resources, which is better than half of EU countries

• This year, 20000 more solar generators will be introduced

• Mongolia aims to produce 5% of its total energy use by renewable energy

means in near future

• Mongoali is preparing a deployment of larger wind power commercial

project 70 mwt

Priority four: Providing sustainable development through human development

and protecting the environment: Projects on environment protection, promoting

tourism, establishing training-production parks for information technology.

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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Mongolian ranking in “Doing business” survey 2010

60

78

103

44

25

71

27

69

155

36

110

58 61

104

49

20

68

25

87

156

35

110

0

20

40

60

80

100

120

140

160

180

Doing business

Starting a business

Dealing with

construction permit

Employing workers

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across border

Enforcing contract

Closing a business

2010 2009

Doing Business, WB 58th out of 181 countries 2009

60th out of 183 countries 2010

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• Concession Law is ratified at the beginning of 2010, 90 projects in pipeline, some have already started in South Gobi

• Business environment reform year 2010

• Preparing legal environment for lobby, business policy advocacy and better links with business by updating NGO legislation

• Improving public tender/bidding process: creating an independent agency to centralize and improve public bidding process

• Improving the Stock Exchange

• Preparing governance reforms including:

– Smaller and more efficient central government and fiscal decentralization

– Rethinking role and functions of local governments and introducing Public Service Standards

– Better planning and fiscal planning system: Fiscal Stabilization Law is adopted, Law on Development Planning and Bugdet Law are prepared

Priority five: Improving governance and supporting private sector: Supporting

private sector and developing public-private-partnership.

16

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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OBJECTIVES, MEASURESRESPONSIBLE

ORGANISATION

IMPLEMETATION

PERIOD,

EXPEDITURES

INDICATORS OF

ACHIEVEMENT

One. Actions and measures directed towards enhancing Mongolia’s ranking in Doing business

survey

1.1. Ease of starting business

1.2. Dealing with construction permit

1.3. Employing workers

1.4. Registering property

1.5. Getting credit

1.6. Protecting investors

1.7. Paying taxes

1.8. Trading across border

1.9. Enforcing contract

1.10. Closing a business

Action plan/Appendix 1. Ease of doing business/

Highlights of the plan:Registration improvement, less bureaucratic procedures

and less costs for startups, e-governance development, one-stop services, reducing licences and permits by up to

90%, encourage entrepreneurship, improve property rights protection, introduce loan guarantees, increase SME funding

by 4 times from 2009 up to 120 billion MNT in 2011, national Corporate Governance

program, development of financial markets, reinvest into securities market balances of government funds, protect

minority shareholders, trade guarantees system, trade logistics improvement, expand capacity of border

points, PPP.

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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OBJECTIVES, MEASURESRESPONSIBLE

ORGANISATION

IMPLEMETATION

PERIOD,

EXPEDITURES

INDICATORS OF

ACHIEVEMENT

Two. Actions measures directed towards improving legal and regulatory environment

Three. Actions measures directed towards improving financial and investment climate

Four. Actions measures directed towards optimizing public service delivery and quality

Action plan/Appendix 1. Ease of doing business/

Improve 81 existing laws, ensure transparency of economic policies, implement public consultations on legislature development, export promotion actions, improve procurement

system, introduction of international standards, Private Sector development strategy, improve legal infrastructure for planning and public investment, improve credit

environment, access to finances through bond issue, Development bank and reform of stock exchange and securities market, transfer some government activities to NGOs, improve

professional inspection, customs, green economy

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• Budget investment - Projected 2010-2013 annual revenue public investment possibilites:

350-600 million USD (GOM), Stabilization and Human development Funds

• Loans and aid - no more than 200 million dollars annually ,with gradual reduction of

concessional loans

• Borrowing: on scale of 500 million dollars annually (source: Sainshand industrial

complex plan, GOM).

Funding

19

Government domestic debt, 1996-2008

-

20.0

40.0

60.0

80.0

100.0

120.0

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

bill

ion

, MN

T

Source: Ministry of Financebond sold bond paid balance Interest expense

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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Introducing Development Bank of Mongolia

• Need for a specialized institution to finance investment using

proceeds from mining and international development finance sources

• Development Bank of Mongolia is a financial institution primarily dealing

with offering long-term capital finance to projects generating positive

externalities in strategic priority development sectors such as infrastructure

and heavy industry

• Government decree of August 2010 approved establishment of

Development Bank of Mongolia with international management team

• Allocation of 14 million US dollars to set bank is approved by Parliament

in 2010 budget amendment in July 2010

• International bidding terms for management team are finalized

20

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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A proposed channel of funds into development

Shareholders

Intl. Org.GoM Private

investors

Development Priority Projects

21

International development capital market

Development Bank of Mongolia

Human Development Fund (240 million in 2011. approximately 400 mln dollars in 2011)Stabilization Fund (from 2013)Together will reach 1 billion US dollars by 2015

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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• According to the resolution of the Government of Mongolia of August 2010, the executives function of Development Bank of Mongolia /hereinafter reffered to as “DBM” / shall be exercised by an international team on a contract basis.

• The selection procedure shall be implemented by a working group organized by the joint order of Board of Directors of Development of Mongolia, National Development and Innovation Committee and State Property Committee

22

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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Development Bank Partnership with Commercial Banks

• The DBM will not compete with commercial banks in their

funding activities, it will provide conditions for

harmonious and mutually beneficial cooperation with

commercial banks.

The DBM will provide long term funding for large, technology intensive

industrial projects that CBs can’t provide.

• The DBM partnership with CBs will create new banking

activities.

Funding large projects through loan syndication

Assisting in raising funds in international markets

Providing guarantees to private sector

23

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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Corporate Governance of Development Bank

• Good corporate governance of the DBM is a key factor

• Therefore, on one hand the DBM needs to secure equity

participation from international organization and on the other

hand the DBM’s Board of Directors should include

representatives from the government and domestic investors –

Government will put highest ranking officials on Board, as well as

invite most respected independent members

• Finding and attracting the best experienced specialists with the

required skills set are vital to the DBM, while their compensation

should be competitive with the compensation offered by

commercial banks - Management team

24

ҮНДЭСНИЙ ХӨГЖИЛ, ШИНЭТГЭЛИЙН ХОРОО

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