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Table of Contents
1. Introduction 2. Infrastructure in Mongolia 3. PublicPublic-Private Partnerships System in Mongolia 4. Assessment of Mongolian PPPs 5. Policy Recommendations
1. Introduction
Mongolian government has made effort to increase capital spending in power, transport and communication over the recent years. years
However Mongolian fiscal resources have not been sufficient to provide the requisite investment to supply adequate infrastructure.
1. Introduction
Mongolian government has identified that PublicPublic-Private Partnerships (PPP) as the key instrument to attract much needed private investment for the development of infrastructure. This chapter draws policy lessons and recommendations for Mongolia from Koreas experiences on PPP infrastructure development.
Key policy recommendations are organized into following points:
Complement and strengthen legal and institutional framework Build transparent and competitive procurement process Attract private participants through incentives and risk sharing mechanism Establish adequate fiscal capacity Build capacity of SPC and provide training for public sector officials Need readjustment of pricing policy Implement pilot PPP projects with support of international advice
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2. Infrastructure in Mongolia
Current Status
Current infrastructure capacities do not allow Mongolia to provide sufficient and quality basic public services.
Only 67% of population has access to power (electricity) and 35% to water. Only 3.5% of road is paved and existing ones need capital repair. Railway network capacity does not match the growing export-import cargo flows. Air transport has constraints on tourism development, public perception of poor air safety, and underdeveloped domestic airport system.
World Economic Forum (WEF) Global Competitiveness Report 20102010 -2011 ranks
Mongolia 137 out of 139 countries ranked on the quality of overall infrastructure. Overall Infrastructure: 137 Roads: 138, Railroad: 69, Port: 112, Air Transport: 129, Electricity Supply: 111
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2. Infrastructure in Mongolia
The infrastructure status is expected to get worse when the major mines start production of minerals.
Jobs that are created in the mine areas with most of the employees coming from other regions will lead to more burden on water, sanitation, electricity and heating supply in the southern regions. More road and, in particular, railway construction are needed to transport multimillion tons of the minerals for internal use and exports to Russia and China.
2. Infrastructure in Mongolia
Investment in Infrastructure
Investments in infrastructure reached a record level in 2007 at 19% of total government expenditures (10% of GDP) from 13% (4% of GDP) in 2001~2006.
Over 1995-2005, loans, grants, private investment and the governments investments in infrastructure have averaged US$128mn per year, including grants 20.3% and loans 68.7%, with government and private resources providing the rest.
Total investments needed equal to an annual investment of about 15% of GDP over the coming years.
Assuming that infrastructure investment needs are estimated at US$427mn per year, existing financing sources leave a gap of US$300mn per year.
2. Infrastructure in Mongolia
Government Proposed Investment Program for Transport, 2008-2015
Project Roads Millennium road Western Mongolia North-South Road Other north-south road Completion of UB-PRC road Southern road to Altai Bridge maintenance Road maintenance Subtotal Roads Railways New parallel railway Other railway extensions Mining railways Rail maintenance Subtotal Railways Aviation New international airport Upgrading domestic airports Expansion of the navigation system Subtotal Aviation Urban Roads to aimags in UB Interchanges for outer by pass Traffic management in UB Subtotal Urban Total transport infrastructure investment 100 5 1 10 2 1 2,945 1 4 1 300 40 10 350 1100 500 300 1100 1100 500 300 55 600 800 1100 300 225 120 160 220 60 27 16 24 627 Length/Units Total Cost (million US dollars)
Source: Public-Private Infrastructure Advisory Facility. Foundation for Sustainable Development: Rethinking the Delivery of Infrastructure Services in Mongolia. World Bank. June 2007.
2. Infrastructure in Mongolia
The mismatch between available financial resources and proposed investments suggests that plans will have to be combined with
Effective use of budget spending (PFS) A greater role for private investments (PPP)
Mongolian government, realizing the role for private investment for infrastructure, has made effort to structure legal and regulatory framework for PPP.
State Policy on PPP: approved by Parliament in October 2009 Law on Concessions: January 28, 2010
Related regulations and guidelines are still under document processing
Concession Types
Build-Operate-Transfer (BOT) Build-Transfer (BT) Build-Own-Operate (BOO) Build-Own-Operate-Transfer (BOOT) Build-Lease-Transfer (BLT) Design-Build-Finance-Operate (DBFO) Renovate-Operate-Transfer (ROT)
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Infrastructure
Energy, rechargeable energy Heat transmission and distribution network Information and Communication Water supply, waste water treatment Public transportation Roads Building Others
Environment
Ecology Waste management
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Government
Authorized entity: State Property Committee (SPC), Governor of city, Governor of Provinces (aimag)
(cont.)
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Organizations
Responsibility
grant permission and licenses required for the implementation of a concession, determine prices and tariffs, adopt and enforce rules and regulations pertaining to the concession item or services rendering by it.
Regulatory Authority
Ministry of Finance
give opinion for finalize the draft list of concession items to SPC.
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4. Concession agreement
(drafted by SPC and approved by government)
5. Project Implementation
(preformed by selected executive company )
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Both the government and private company can initiate PPP projects
(1) Solicited Projects
A solicited project is included project into the List of Concession Items which is approved by the Government.
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from SPC to private sector from private sector to SPC Step 2. Selection of the project
Government
Contract award 17
Step 1. Selection of participants from SPC to private sector from private sector to SPC Step 2.1. Selection of the project from SPC to private sector
Step 3. Negotiation
Nevertheless, as the program is now only emerging and the first PPP transactions are being prepared, refinements and amendments that address any gap in the framework need to be further developed.
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Korean PPP
Manage PPP Act, Enforcement Decree, and Basic Plan for PPP; Responsible for budgeting, preparing and implementing PPP investment plans Establish major PPP policies; Establish and modify Basic Plan for PPP; Designate and cancel large PPP project ; Designate concessionaire of large PPP projects (total project cost with KRW 200 billion or above)
Ministry of Finance
Mongolian Concession
Give opinion to finalize draft list of concession items to SPC Submit to SPC proposal for concession item with the cost and benefit analysis; Give related opinion of their respective matter Grant permission and licenses ; Determine prices and tariffs; Adopt and enforce rules and regulations pertaining to the concession item or services rendering by it.
Regulatory Authority
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Korean PPP
Mongolian Concession
Prepare and submit to the government draft list of concession items; Announce publicly the list of concession items;
Devise documents of the tender, and announce the tender, organize and evaluate it; Enter into concession agreements as contracts of the concessionaire to obtain financing;
Provide professional and methodological assistance to relevant local authorities regarding concession; Adopt regulations on the methodology to prepare the cost - benefit analysis for a concession item.
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Institutional Arrangements
Fiscal Discipline: Need for a central government ministry responsible for managing the Concession Law with power to regulate fiscal expenditure.
the Ministry of Finance only seems to play minimal role in the procedure.
Decision-Making Institution Need for an entity that deliberates matters concerning the establishment of major concession project-related policies and key decisions in the process of implementing large scale concession projects.
In Korea the PPP Review Committee (PRC) mandated with such functionality is organized and managed by the MOSF
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Korean PPP
Mongolian and foreign legal entities may submit an unsolicited project proposal to conclude a concession agreement (Article 18, Mongolian Concession Law)
Mongolian Concession
BTL projects can operate irrespective of user fee, and project risk involved for BTL method is relatively low. If the private sector has an option to pursue BTL projects as unsolicited from the government, it could be over-motivated, resulting in reckless proposals of projects.
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Subsidy
(1) Construction Subsidy (2) Compensation for Base Cost Infrastructure Credit Guarantee Special Taxation, Corporate Tax, Local Tax, Exception from Charges Guidelines for Early Termination
Mongolian Concession
Issue a loan guarantee
Provide tax exemptions and waivers in accordance with the relevant laws Issue a guarantee for the minimum amount of the concessionaires revenues under the concession agreement.
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5. Policy Recommendations
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5. Policy Recommendations
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5. Policy Recommendations
Attract Private Participants through Incentives and Risk Sharing Mechanism
Government support to induce private sectors active participation
Construction Subsidy, Infrastructure Credit Guarantee via Infrastructure Credit Guarantee Fund, Tax Incentives, Early Termination Payment
Fiscal management
Aggregate fiscal commitment should be limited to a sustainable level for maintaining fiscal soundness and stability
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5. Policy Recommendations
Build Capacity of SPC and Provide Training for Public Sector Officials
As advisory and project facilitating entity, staffs of State Property Committee require knowledge and expertise in the relevant field.
Through active cooperation with foreign advanced PPP units, it may build inward capacity to be, in the future, disseminated to other ministries and local government officials in charge of concession projects through training and education sessions.
MOU between Korean MOSF and KDI will act as vehicle to promote knowledge transfer between SPC and Korea on PPPs through cooperation and exchange of information.
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5. Policy Recommendations
Need Readjustment Readjustment of Pricing Policy
Ensure level playing field for private providers based on costcost-based tariffs
Set independently regulated cost recovery or market based tariffs followed by a gradual introduction of transport pricing reform
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Thank you...
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