Governmentof Mongolia

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INVESTMENT ENVIRONMENT AND OPPORTUNITIES OF AND OPPORTUNITIES OF

MONGOLIA

JavkhlanbaatarSereeter

Director General

Section 1: Snapshot of Mongolia

Section 2: Legal Environment

Section 3: Projects initiated for Industrialization

Section 4: Invest Mongolia Agency

Contents

Section 4: Invest Mongolia Agency

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Section 1: Snapshot of MongoliaSnapshot of Mongolia

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Title At the center of Global Markets Advantages of Mongolia/Key Reasons to invest

1. Neighboring with two of the largest global economies-China and Russia

2. Large mineral resource base that can

•Text

RUSSIAUS$ 2,014 143

GDP 2013 in USD billions

Population 2013in millions

Mongolia leads with land per capita in the world Territory: 1.6 million sq. kmPopulation: 2.99 million (2014)

4

2. Large mineral resource base that can be leveraged for value added processing

3. Huge potential in agriculture and husbandry-60 million livestock

4. Vibrant and flourishing Democratic Government and friendly FDI environment

5. Developing Industry and InfrastructureSource :World Bank, 2014

CHINAUS$ 8,358 1,351

S.KOREAUS $1,129 50

JAPANUS$ 5,959 127

MONGOLIAUS$ 11,4 3

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Current situation of Mongolian development/International indexes/

• 3,996 USD

Mongolia is ranked in 63rd from Mongolia is ranked in 63rd from 146 world countries.

Mongolia is ranked in 72nd from 189 world countries.

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GDP real growth rate (%)

17,5

12,3 11,812

14

16

18

20

6

Source: NSO bulletin

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3,74,5

6,0 6,0

8,27

0

2

4

6

8

10

2006 2007 2008 2009 2010 2011 2012 2013 2014

Real economic growth forecast %

20

1817.3

16

14

Mining Non-mining GDP Growth

12 12.3 11.610

2014. Q III forecast based in performance

- Agriculture- Manufacturing- Construction- Service

Source: Central Bank of Mongolia, NSO

2011 2012 2013 2014 2015

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% 10

8

6

4

2

0

5.5-6.0

3.4

- Service- Other

6.8

Real GDP growth contribution by sectors As of November 2014, the industrial sector grew by 26.7 percent compared to the same period of 2013.

This increase was mainly contributed to the growth of the mining sector, which was 27.3 per cent.

MiningConstructionNet taxes on products

AgricultureNon-mining sectorReal GDP

Source: NSO bulletin

Trade Balance /USD million/

4 384,7 4 269,1

5 774,6

6 738,46 357,8

5 236,6

- 343,3

- 338,8

-1 487,6

Япон

БНСУ

ОХУRussia

Korea

Japan

-2 353,7 -2 088,8

537,9

2012 2013 2014*

Импорт

Экспорт

Тэнцэл

3 305,2372,3

- 144,0

- 214,1

- 343,3

БНХАУ

Их Британи

ХБНГУ

АНУ

Япон

ImportExport Balance

Japan

USA

Germany

UK

China

Inflation outlook

20%Non food Inflation Food Inflation Annual average inflation

15%

10%

5%

9% 12%

9%9%

8% 9%7%

8%6%

3%

Source: Central Bank of Mongolia, NSO

6%3% 3% 2%

0%

-5%I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

2010 2011 2012 2013 2014* 2015*

Foreign direct investment /in billion USD/

4,99

4,40

2,29

386,36%

2,00

3,00

4,00

5,00

6,00

bill

ion

USD

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0,32 0,37 0,50 0,71 0,80

1,03

0,57

15,85%36,23% 41,80%

13,01%28,06%

-11,82%

-47,95% -75,20%

-2,00

-1,00

-

1,00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014.11.31

bill

ion

USD

FDI Percentage

Foreign invested companies /by number of companies/

971

15051609 1551

769

933

774800

1000

1200

1400

1600

1800

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613

769

390 340

0

200

400

600

800

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

№Top investor countries

1990-2014.09.30%

Amount /in billion USD/

1 Netherlands 29.96 4.2

2 China 26.65 3.75

3 Luxemburg 8.17 1.15

4 British Virgin Islands 7.87 1.10

Foreign direct investment /by countries/

4 British Virgin Islands 7.87 1.10

5 Singapore 5.14 0.72

6 Canada 3.53 0.49

7 South Korea 2.69 0.38

8 USA 2.19 0.31

9 Russia 2.11 0.30

10 Australia 1.84 0.26

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Czech FDI to Mongolia

•FDI from 112 countries have been registered.•The Czech Republic is on the 32nd place

Since 1990 totally:• 81 companies registered from the Czech Republic•Total investment 9.3 million USD

Mining

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43.3%

26.2%

13.5%

5.5%

11.5%Mining

Trade and catering services

Production of foods and beverages

Construction and production of construction materials

Others

Section 2: Legal Environment Legal Environment

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No permission to establish an entity No approval to enter into market and buy a local

company No strategic sectors Only approval for state owned foreign entities but not

from the Parliament and Government; Just from the

Main Points of the Investment Law

from the Parliament and Government; Just from the Ministry

Yes for Investors Protection Yes for Investment Promotion Agency Yes for Tax Stabilization Yes for Diversification

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INVESTMENT POLICY REVIEW TRADE POLICY REVIEW

On April 29th 2014 “Mongolian Foreign investment Policy Review” report drafted jointly by Government of Mongolia and UN conference on Trade and Development /UNCTAD/ was presented at the UNCTAD member countries intergovernmental Meeting

The second review of the trade policies and practices of Mongolia took place on 24 and 26 September 2014. The basis for the review was a report by the WTO Secretariat and a report by the Government of Mongolia.

Business Environment Rating Contd.Ease of Doing Business in

Mongolia

Source: DB 2014 Rank

International Legal Framework

WTO•Member of WTO since 1997

International conventions

•Seoul convention establishing the Multilateral Investment Guarantee Agency•Washington convention on the Settlement of Investment Disputes

BITs

•Foreign Investment Protection and Promotion agreements with 43 countries•BIT with the Czech Republic was signed in 1998

DTA

• Tax treaties with 30 countries• Tax treaty with the Czech Republic was signed in 1997

№

1 EPA

Japan-Mongolia Economic Partnership Agreement

is the first free trade agreement of

Mongolia.egotiations were finalized.

Negotiations were finalized.

2Transparency

Agreement

An Agreement on Transparency in Matters Related

to International Trade and Investment between the

United States of America and Mongolia was signed

in September 2014

More International Engagement in 2014

in September 2014

3 FIPA

Foreign Investment Protection and Promotion

agreements with 43 countries

Mongolian-Canadian BIT negotiations were

re-commenced

4MIGA Guarantee Agreement is underway to

approved at the Parliament.

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THE KEY CONCEPTS OF THE INVESTMENT LAW

№ Laws Establishing a legal presence

1State Policy for Minerals

A policy framework that would define the

country’s priorities and strategies in the

minerals sector in the future.

2 Mineral Law is revised

The amendment to Mineral’s Law seeks

to limit the state’s role in mining and

create a stable and feasible development

in the industry.in the industry.

3 Petroleum Law is revised

The new law provides a number of

incentives available to petroleum

explorers, including exemptions from

customs duty and VAT in the first 5 years,

and income taxes from oil sales.

4 Issue of 106 licences

The Government approved a decree to

settle the uncertainty caused the frozen

106 mining licenses.

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THE KEY CONCEPTS5

SMART Governance

Initiative

Decisive Regulatory reform aimed to

reduce and abolish inefficient, business

unfriendly, excessive government

regulations and red tapes

6 The Glass Account Law

The “Glass Account Law” enables public

control and monitoring of the budget

spending and procurement for

transparency.transparency.

7 State Policy on Railway

1435 mm gauge routes:

- Tavantolgoi - Gashuun - Sukhait

- Khuut - Bichigt 1520 mm gauge routes:

- Arts suuri - Erdenet

- Tavantolgoi - Sainshand - Baruun-Urt - Khuut -

Choibalsan

- Khuut - Numrug

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Section 3: Projects initiated for Projects initiated for

Industrialization

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Major Coal Mining Projects in Mongolia

OvootResource: 330.7 mtOwnership: Aspire Min

Baganuur Resource: 600 mt Ownership: State owned co.

Ulaan Ovoo, ChandganaResource: 209 mt + 1.2 bt2012 mining plan: 1 mtOwnership: Prophecy Coal

Ulaan Ovoo, ChandganaResource: 209 mt + 1.2 bt2012 mining plan: 1 mtOwnership: Prophecy Coal

Big TT

Zeegt, Shine JinstResource: 93+ 229 mtOwnership: Gobi coal

KhushuutResource: 149.2 mt2011 mining plan:0.5mtOwnership: MonEnCo

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Big TTResource: 6.4 bt2011 mining plan: 1 mtOwnership: Erdenes MGL

Small TTResource: 20 mt2011 mining plan: 3 mtOwnership: TT JSC

Ukhaa Khudag Reserve: 288 mt Resource: 578 mt2011 mining plan: 7mtOwnership: Energy ResCHPP: 5 mt 2Q.2011, 5 mt 3Q.2011

Baruun NaranResource: 253 mt2011 mining plan: 1mtOwnership: QGX

Nariin sukhaitResource: 220 mt2011 mining plan: 9 mtOwnership: MAC and MAC/QH

OvootTolgoi, SoumberReserve: 114mt Resource: 360 mt2011 mining plan: 4 mt Ownership: SouthGobiSands

Ownership: Gobi coal& Energy

Ulaanbaatar Engineering Infrastructure

Energy Infrastructure projects

Construction Infrastructure projects

City’s ger district redevelopment Infrastructure projects

More USD 300 million loan has been granted

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Performance: 61.1% Performance: 93.2%

projectsPerformance: 24.2%

103.4Million USD

been granted from ADB and EB from 2013.

Million USD

CHP 3 CHP 4“Baganuur”

SOEAmgalan

Power Plant

USD 30.9 millionUnder the project, the capacity of the plant has been

USD 47.4 millionUnder the project, the capacity of the plant has

USD 10 millionThe capacity for Coal crushing and loading

USD 25.6 millionThis power plant will provide east side of

Light industryPower Plant

26

capacity of the plant has been increased by 50.0 Mw and reached 186 Mw. The cost for producing 1 kw/h energy will decrease from MNT 74.7 to MNT 36.

Performance: 100%

capacity of the plant has been increased by 123.0 Mw and reached 580 Mw.The expansion amount will provide 10% of domestic energy consumption.

Performance: 81%

crushing and loading will increase by 4.5 million ton yearly and can provide heating and Ger district households continuously with coal.

Performance: 100%

provide east side of Ulaanbaatar with energy.

Performance: 75%

Million USD113.9

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267 km railroad Tavantolgoi- Gashuun Sukhait Route isbuilt from 1800 km

Railway

27

Project financing:

184,5 Million USD

Performance: 43%

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145

48.6Million

USD

75.1

888 projects for import substitution and export promotion projectsFinanced 85 entities through the commercial banks

Agriculture and light industry

Light industry

Light industry

145Million

USD

75.1Million

USD

21.3Million

USD

Agriculture and light industry sectorAim to develop domestic final products’ industry and supply domestic demands Financed 110 entities

Projects to develop SMEsFinanced 116 entities through the commercial banks

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Oyu Tolgoi mining filed operation

2008: Oyu Tolgoi completion

2010: Oyu Tolgoi construction

budget of $758 million

2011: Oyu Tolgoi progression

3000

4000

5000

$ million

Phase I: 7.1 billion USD Phase II: underway

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2001: Oyu Tolgoi discovers

mineral deposit

2005: Oyu Tolgoi project

receives approval

2008: Oyu Tolgoi completion

of first construction phase

Total FDI Non-mining FDI

0

1000

2000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Source: UNCTAD FDI/TNC Database and UNCTAD report of Investment Policy Review

Tavan Tolgoi mining filed operation

Coal Production Projection

70

60

50

40

30

20

10

0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Others TT

Breakdown of TT coal

Mega project: 4 billion USD Total reserve: 6.4 billion tons

TT begin negotiation

Investors for TT

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Self -cokingcoal1.8 bt

Source: Sum of various companies‟ projections

Thermalcoal2.4 bt

Amenable to coke production

2.2 bt

Breakdown of TT coal reserves

Investors for TTChina: China Shenhua Energy Co Ltd, Japan: Sumitomo Corporation

Mongolia: Energy Resources LLC

In 2013, the Government of Mongolia approved 57 projects under the condition of PPP mechanism.

№ Sector Number

1 Infrastructure and Construction Projects 8

2 Road Projects 17

3 Pipeline Projects 2

4 Airport Projects 24 Airport Projects 2

5 Energy Projects 12

6 Environmental Projects 4

7 Educational Projects 2

8 Health Projects 4

9 Culture, Sports and Tourism Projects 5

10 Railway Projects 1

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Signed PPP Projects

№ Project name Total Cost Concessionaire

1 “Telmen power plant” project $183.0 MLN

“New Asia Group” LLC

2 “Altanbulag-Ulaanbaatar-Zamyn-Uud highway” project

$5.0 BLN “CHINGGIS LAND DEVELOPMENT GROUP” LLC

3 “Nariinsukhait – Shiveehuren” road project

MNT 88.0 BLN

“RDCC” LLC

4 “Establishment of the mining and metal processing complex” project

USD 725.0 MLN

“QSC” LLC

5 “Tuul-Songino power plant” project

CNY 1.0 BLN

“MORIT IMPEX” LLC

6 “Tavantolgoi-Khanbogd-Hangi” road project

MNT 440.0 BLN

“MCCC” LLC

7 “POWER PLANT #5” (CHP5)project

$1.2 BLN “GDF SUEZ, SOJITZ, POSCO, NEWCOM” LLC

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Section 4: Invest Mongolia Agency Invest Mongolia Agency

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Invest Mongolia Agency

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• Business Friendliness

• Transparent

Core Value

• Efficiency

• Professionalism

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Services to Investors

1. Provide integrated information

2. Guide Investors to

1. Legal Consultancy

2. Project

1. To establish and develop the national systems of innovation policy and regulations

2. To improve the business environment for policy and strategy

1. Investment Research

2. Investment Investors to business and public procedures

3. Organize Field Tours

2. Project Management Consultancy

3. Aftercare assistance

for policy and strategy formulation and implementation of coordination

3. Industrial cluster development policy and strategy formulation and implementation

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2. Investment & Investors Database

3. Targeted Promotion & AD Campaign

• Over 62 forums and conferences

• Over 5000 potential investors of 22 countries

• 340 newly registered foreign entities in first 12 months in 2014

The Interest of investors was Higher in 2014

37

The list of 22 economies:

- China - Hong Kong, PRC- France - Japan - USA - Switzerland

- Canada- Korea- Germany - England - Turkey - Myanmar

- India - Latvia - Austria - Russia- Taiwan, PRC

- Italy - Spain - Poland - Hungary - South Africa

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Thank you for your attention

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