NDIC-Brief Introduction of Sainshand Industrial Comlex ENG

NATIONAL DEVELOPMENT AND
INNOVATION COMMITTEE
COMPREHENSIVE INTRODUCTION
“SAINSHAND”INDUSTRIAL COMPLEX”
NATIONAL DEVELOPMENT AND INNOVATION June 30, 2010

COMMITTEE
SAINSHAND INDUSTRIAL PARK COMPLEX
COMPREHENSIVE INTRODUCTION OF
“SAINSHAND” INDUSTRIAL COMPLEX
June 30, 2010
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TABLE OF CONTENTS
ONE. BACKGROUND INFORMATION FOR ESTABLISHING "SAINSHAND" INDUSTRIAL
COMPLEX ............................................................................................................................................. 3
1.1. Background and General information ....................................................................................... 3
1.2. Legal background ..................................................................................................................... 4
TWO. "SAINSHAND" INDUSTRIAL COMPLEX PROJECT ........................................................... 5
2.1. Principles of project implementation /concept / ....................................................................... 5
2.2. Steps for project implementation ............................................................................................. 6
THREE. INFRASTRUCTURE, URBAN DEVELOPMENT AND SOCIAL WELFARE ................. 8
3.1. Infrastructure ............................................................................................................................ 8
3.2. Urban development, land utilization and engineering structure ............................................ 11
3.3. Social welfare and human resource capacity ......................................................................... 13
FOUR. STRUCTURE AND OF MANAGEMENT INDUSTRIAL COMPLEX .............................. 15
FIVE. FUNDING ................................................................................................................................ 17
5.1. Funding of Sainshand Industrial Complex ............................................................................. 17
5.2. Risk assessment of establishing the processing industrial complex in Sainshand ................. 18
5.3. Macroeconomic absorption capacity ...................................................................................... 20
5.4. Financial absorption capacity ................................................................................................. 21
SIX. SIGNIFICANCE OF "SAINSHAND" INDUSTRIAL COMPLEX AND ITS SOCIO-
ECONOMIC IMPACTS ...................................................................................................................... 22
6.1. Projection of cluster impact of Sainshand industrial complex. .............................................. 22
6.2. Direct impact of "Sainshand" industrial complex on real economic growth ......................... 23
6.3. Impact of "Sainshand" industrial complex on foreign trade .................................................. 24
6.4. Impact of "Sainshand" industrial complex on the region........................................................ 25
SEVEN. ANNEX: INTERNATONAL EXPERIENCES OF INDUSTRIAL COMPLEX
ESTABLISHMENT ............................................................................................................................ 31
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ONE.BACKGROUND INFORMATION FOR ESTABLISHING ―SAINSHAND‖ INDUSTRIAL COMPLEX
1.1.Background and General information
This project is formulated with a purpose to fulfill Comprehensive National Development Strategy,
Government Action Plan, Implementation Program, Government ordinance No.320 of 2009 and 118
of 2010 as well as Cabinet meeting note No.52 of 2010.
Establishing processing industries complex in Sainshand and introducing leading technique and high
technology will increase the competitiveness of Mongolia and possibility for industries that are inter-
related in terms of sector activities, technique and technology and capable of producing value-added
end products will be developed and they are very significant in bringing positive impact on social and
economic development of the country.
Sainshand is a capital city of Dornogovi province and has population of 20.4 thousand people. 70
percent of the population lives in housing equipped with engineering structure and 30 percent lives in
private housing. The city is located 463 kms northeast of Ulaanbaatar and 938 m above sea level with
234.6 thousand ha of territory.
Sainshand city has a large terminal which is located on the vertical railroad line linking Altanbulag-
Ulaanbaatar and Zamin-Uud and Beijing-Ulaanbaatar railroad as well as vertical axis of ―Millennium
Road Project‖ passing through the city. There are regular trains connecting Ulaanbaatar-Sainshand,
Ulaanbaatar-Choir-Sainshand-Zamin-Uud every day. In short, passengers have the opportunity to
travel due to sufficient capacity.
Sainshand city is well-connected with central heating system and fiber optic network and engineering
structure developed relatively well in the city. All cell phone carriers are operating there as well.
Center of soum has an integrated system for heating, fresh water supply and sewerage.
Dornogovi province has a high population density and as of 2009, working-age population reached
37.2 thousand which is 3.8 percent higher compared to last year and economically active population
reached 20.7 thousand. A total of 13 thousand students are going to school in Sainshand soum, of
which, 1.9 thousand students are studying in occupational training and production center and Medical
College.
Sainshand soum produced products worth of MNT 5.6 billion in 2009 and sold goods worth of MNT
4.5 billion in domestic and international markets.
In terms of natural resources, the province is rich in construction material, sand, mud and clay,
variety of natural pigments, spar, zeolite, brown coal, petroleum reserves, many wells. The region has
also rich sources of natural plants and fruits including saxaul forest, saltwort, wild leek, wild onion,
goyo /cynomorium soongaricum/, harmag /Nitraria sibinca Pall/, Temeen huh /Vencetoxicum
Sibiricum/. Its wild and pristine nature of Gobi captivates interests of both national and foreign
businessmen and women and tourists.
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1.2. Legal environment
Establishment of industrial complex will be regulated by the Law of Mongolia on Concession, Law
on Legal Status of Production and Technology Complex, Law on Land, Law on Water and Law on
Urban Development.
As stated on the Clause 3.1.1. of Article 3 of the Law on Legal Status of Production and Technology
Complex which is currently in effect, ―production and technology complex‖ means ―production,
technology and services complex that are interrelated with their activities in certain sector in
specially designated area where favorable business environment and infrastructure are provided in
order to implement specific objectives of production and technology development‖. In line with the
law, ―Sainshand‖ industrial complex will be a group of interrelated industries.
If ―Sainshand‘ industrial complex does not meet the requirement by the law to be ―interrelated with
their activities in certain sector‖, there is a possibility to amend and introduce reforms in legal
background in the future. Furthermore, there can be a need to employ a consultant on law and legal
issues. Including:
 Amending the Law on Legal Status of Production and Technology Complex in accordance with
―General Guidelines on establishment and development of production and technology complex‖
which was approved by the Parliament Decree No.54 of 2003. /excluding the part of interrelated
with their activities in certain sector from Clause 3.1.1 of Article 3./,
 Decisively changing the fact that complex management team should have power to grant licenses
because industrial complex will never develop without making the license granting process more
flexible. In other words, law should be amended so that it is mandatory for every legal owner of
factories to be a member of complex council /complex management/ and this council has power
and responsibilities to a level in which they can make decisions in town planning, urban
development and social issues of workers. /When looking at the projections for social protection
of workers, a number of schools, kindergartens, most of the workers will be men as majority of
the industries are heavy industries. Therefore, labor issues of ―women workers‖ should also be
resolved altogether/
It will bring more fruitful outcome if guarantee, reduction and exemption are provided to investors
through industrial complex and concession agreement combined. Project financing forms of
concession can be chosen according to the types of industries, but BOOT / Build-Own-Operate-
Transfer / type will be trusted more by the investors.
In terms of timeframe of Concession agreements: Clause 22.1, Article 22 of the Law states that
―Timeframe of concession contract will be decided by contract parties upon taking into account of
peculiarity of each sector, timeline to implement investment plan, amount of investment, timframe to
return the investment, amount of profit, operating period of concession project and etc. Clause
13.2.7, Article 13 of the Business Entity and Organization Income Tax Law of Mongolia states that
for buildings and constructions within production and technological complex that are the property of
industrial and technological park, depreciation and amortization rates will be calculated for a period
of 20 years. Taking this into account, timeline for concession agreement shall not exceed a period of
20 years.
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TWO. “SAINSHAND” INDUSTRIAL COMPLEX PROJECT
A preliminary projection of investment worth of about USD 10 billion /calculated based on

Government decree No.320 of 2009/ is needed as of current situation in order to implement
construction of ―Sainshand‖ industrial complex including appropriate factories and infrastructure
projects.
Project objective is to construct ―Coking coal‖, ―Black metallurgy‖, ―Coal gasification‖, ―Copper
smelting‖, ―Construction material‖ and ―Petroleum refinery‖ industries with leading technology
through private investment and high technology. All these factors will form an industrial complex
that has engineering and social amenities to ensure steady operation of industries, have environment
friendly and superior urban planning and are economically competitive at the global level.
Industries in the complex will be constructed in steps. For example, ―Coking coal‖ industry will be
constructed at the same time Tavantolgoi –Sainshand railroad line project completes and ―Petroleum
refinery‖ will be interconnected with conclusion of Tavantolgoi-Choibalsan railroad project.
2.1. Principles of project implementation /concept/
Following principles should be adhered in establishing ―Sainshand‖ industrial complex which will
increase export by partial and full processing in its factories based on mineral resource reserves and
produce import-substituting products. These principles are:
 To conduct research on supplies of raw materials, energy, water and labor force needed
for factories in ―Sainshand‖ industrial complex by professional institutions in advance and
provide working group evaluation.;
 To formulate a Master Plan which provides preliminary feasibility studies of related

infrastructure projects, defines connection among engineering constructions and calculate
main indicators of possible industries with 30 percent accuracy if the working group
deems it necessary to conduct further research works on establishment of Sainshand
industrial park;
 To appoint team members of project management and to implement it in line with the
Master Plan;
 To make sure production technology is modern, compatible with world standards and
environment friendly;
 To ensure that infrastructure development projects such as railroad, highway, airport,

electricity, energy and water supply and border point are prerequisites before
implementing industrial projects and execute them step by step in accordance with the
integrated plan /Abide by Public Private Partnership principle/;
 To sign agreements with mining companies to supply coking coal, copper concentrate and
iron ore to national companies first;
 To publish comprehensive research report on labor market, to prepare workforce needed

for factories to be built and construction works with specific policy.
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2.2. Steps for project implementation
―Project implementation steps and timeframe of ―Sainshand‖ industrial complex is shown in Figure
1.
During the first step of project implementation, following consultants will be hired to formulate the
Master Plan:
 General project consultant: it will be a construction and project management company known
worldwide which will develop the Master Plan and must have worked as a General project
consultant in industrial and infrastructure projects worth at least USD 5 billion during the last 5
years. In order to formulate the Master Plan, which will be a guarantee for attracting a large
amount of money needed for the project from international markets in the future, General project
consultant company will be hired with specific criteria.
 International legal and national advisor: International legal advisor is definitely necessary to
give advice, provide recommendation for project implementation and to draft agreements for
shareholders‘, concession, procurement, sales, and loan that can meet global standards and are
compatible with related laws and regulations of Mongolia. Legal advisor will be a private sector
institution or company. National legal advisor, together with the international legal advisor, will
prepare necessary materials to the working group and monitor financing forms and their
regulation. Also, they will act as representatives of the state in financial relations linking the state
and private sector in constructing industries.
Figure1. Project implementation steps
1st phase 2nd phase
Advisors tendering Master plan
• Working group will select • NDIC (With consultants)

following consultants to-
work with NDIC.
These are:
“Sainshand” industrial complex project implementation :
– General project consultant
Decision to ( Each industrial project is to be implemented in following steps
implement and total project implementation timeframe is to be at least 5 years
– A team of international Council
and national legal
consultants 3rd phase 4th phase 5th phase
Decision
to stop
Executors tendering Contract/ financing Construction
To dissolve • NDIC • NDIC • NDIC

working group – Environment • State property office • State property office
– Training and supply of • Consultants (to commission)
workforces • Consultants
• State property office
• Consultants
6 /2010 – 3/ 2011 2011 – 2017
Factory 1
Factory 2
Factory 3 ...etc
Working group will define general direction of the project, integrate it with related
professional institutions and provide general guidance to the advisors. Head of working group will
present the outcome to the Council for decision making.
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If the Council decides to establish ―Sainshand‖ industrial complex after the formulation of the Master
Plan or the 2nd stage, all of 3rd, 4th and 5th stages will be same for all factories. Total amount of time
needed for development will come out from the Master Plan research, but by preliminary projection,
it is to be longer than 5 years.
International and national advisors as listed below will be involved in 3rd, 4th and 5th stages of project
implementation. /table 1/.
Table1. Responsibilities of consultants
№ International consultant Responsibility Timeframe

General project consultant To formulate the Master Plan and feasibility study, to
1 Project completion
(―PMC+‖, ―Program Manager‖) regulate engineering coordination among factories
To formulate drafts of all contracts and agreements, to
International legal and national
3 participate in negotiations and do all organizing works Project completion
consultant
of the project
To raise capital and loan financing from international
4 Financial consultant Project completion
market
To conduct environment assessment in conformity with
5 Environmental consultant Project completion
World Bank requirement
№ National consultant Responsibility Timeframe
To advise the international legal consultant about
1 National legal consultant Project completion
Mongolian laws and regulations
To provide advices on mineral resource reserves
2 Geological consultant Master Plan completion
needed for the project and their locations
To provide advice on water reserve needed for the
3 Water consultant Master Plan completion
project and its location
To conduct environment assessment jointly with
4 Environmental consultant Master Plan completion
international environmental consultant
Completion of
To advice on characteristic of Mongolian buildings
5 Construction engineer construction works of
during construction designs
initial projects
International consultants can employ and cooperate with national consulting companies when
necessary.
General Project Consultant will cooperate directly with the Working group on the agreement basis. In
some cases, the consultant will be in charge of selecting construction work executor. In accordance
with the contracting forms of either Engineering-Procurement-Construction-Management /hereinafter
referred as EPCM) or Engineering-Procurement-Construction (hereinafter referred as EPC),
monitoring quality and timeframe of execution and accepting the final work. If there are
discrepancies in quality or duration of the project that was already accepted by the General Project
Consultant, consultant itself will be liable for financial responsibilities.
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THREE. INFRASTRUCTURE, URBAN DEVELOPMENT AND SOCIAL WELFARE

3.1. Infrastructure
New railroad line. Tavantolgoi-Sainshand-Choibalsan railroad on horizontal axis will be constructed
in 2 stages. /Picture 1/.
1. First stage consists of constructing 400 km railroad network from Tavantolgoi-Sainshand;
2. Second stage will build 600km railway from Sainshand-Choibalsan;
Picture1. Railroad network of Mongolia to connect East Asia
Tavantolgoi-Sainshand-Choibalsan railroad network on horizontal axis
Construction cost for building 1 km of railroad structure is estimated to be around USD 1.5 to 2
million. In terms of preparing supplies of materials needed for railway structure, materials such as
steel concrete sleepers, wooden logs for railroad switches, timber and gap fillers can be prepared
using domestic resources. Rail tracks, railroad switches, their reinforcement materials are bought
from Russia. Therefore, it is essential to study possibility of manufacturing these products
domestically.
Auto road. Sainshand city will be connected with Ulaanbaatar, Choir and Zamin-Uud border point
via national auto road. /Picture2/
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Picture2. Planned auto road and transportation network
Electricity and energy. According to the preliminary study, 400-800 mWt of electricity and energy
are required for the industrial complex and it is not possible to provide it from the central electricity
grid. Therefore, it is planned to conduct studies on options of constructing Tavantologi power station
which will supply Sainshand via overhead power line and constructing a power station in Sainshand.
/Picture 3/.
Picture3. Planned electricity and power network
Water supply. It is possible to supply Sainshand soum and the industrial park‘s water needs from
‗Zeegiin hutul‘ and ‗Bor huuvur‘. These two river basins have a capacity of supplying about 60000
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cubic meter of water per day. Gobi lowland at Bor huuvur is located amid mountains with a length of
about 70 km from east to west on latitude and has width of 13-14 km. /picture 4/.
Picture4. Location of water supply source
Groundwater survey was conducted at the central and wing region of this lowland in 1986-1987 and
bored a total of 26 wells gushing 2-15 liter per second from 94-291 meters below ground level.
Proper hydrogeology experiments and air lifting process were completed and the survey defined that
an aquifer with high absorption of water was formed in Bayanshiree‘s ground layers aging from
around Cretaceous period.
Table2. Water reserve of ―Bor huuvur‖
Groundwater usage reserve

№ Groundwater reserve categories
Liter/second м3/day
1 B category reserve 93.0 8,035.2
2 С1 category reserve 230.0 19,872.0
3 С2 category reserve 428.0 36,979.2
As can be seen from above, B and C1 categories of water resource amounting to 323 l/s or 27,907.2
m3/day are determined in Bor huuvur, but it is crucial to validate this estimation through detailed
hydrogeology research. /table 2/.
Four main water pipeline alternatives are considered for installation from ‗Bor huuvur‘ gobi to
Sainshand and Zamin-Uud, but the shortest option was chosen for further research. Water Authority
of Mongolia has conducted a preliminary study in which 45 km long main pipeline with 600 mm in
diameter and secondary pipeline with 125-300 mm in diameter are to be installed between ‗Bor
huuvur‘ and Sainshand at the initial stage.
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Including accompanying factories and service operators of Sainshand industrial complex, water
consumption is calculated to be around 355 l/s.
3.2. Urban development, land utilization and engineering structure
Urban development and land usage. Right selection of location, rational decision of land usage,
general plan, well-planned development works and preliminary calculations are all important in
successful implementation of Sainshand industrial complex development. Therefore, following
preliminary studies are to be carried out:
1. Territory valuation and location assessment,

2. Assessment on current structure, construction, and engineering infrastructure,
3. Formulating Sainshand development program and general plan,
4. Cost calculation for development works
Picture5. Location of Sainshand Industrial complex /tentative location/
Tentative location for the industrial complex is on largely smooth plain with little bumps, and
southeast of Sainshand soum where it is close to basic infrastructure and under the wind. /picture 5/
This location is suitable for town development and final selection will be made upon territory
valuation, location assessment and comprehensive research on town development.
Current situation of engineering structures in Sainshand soum center. Currently, capacity of
engineering structures of Sainshand soum center, where industrial complex is to be built, is as
follows /picture 6/.
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Picture6. Layout of engineering networks of Sainshand soum center
Water supply. Water supply source is located at 17-24 km north of the city, a place called Zeegiin
hutul. Water is drawn from a facility with 3 Abyssinian wells which have been in use since 1992 and
accumulated in water reservoir with a capacity of 1000 cubic meter after streaming through 3
pumping stations and disinfecting appliance. Water is then distributed through a total of 54.2 km long
pipes with diameter of 100-150mm. Fresh water pumping station is in full operation. Full capacity of
water supply source is 2100 cubic meter per day, but current output is 1250 cubic meter per day.
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Sewerage system. Waste water treatment plant has a capacity of 2700 cubic meter water per day and
put into operation in 1987, but it is not working currently. Central sewerage system for waste water
treatment was commissioned in 1987 and utilizes 10.5 km long cast iron tubes with a diameter of
150-400mm and its capacity level is medium. Within the framework of ―2nd Phase of Integrated
Development of Basic Urban Services in Provincial Towns Project‖ implementation, financed by the
soft loan from the Asian Development Bank, waste water treatment plant was rehabilitated and
upgraded.
Heating supply. Heating is provided by a thermal heating station with a full capacity of 45 gKal/hour
and has КЕ-25/14 types of 3 boilers with a capacity of 45 gKal per hour. Infrastructure has a total of
9 km long pipeline with a diameter of 320-350мм, of which, main line is 5.8 km long. Main line has
been repaired and replaced in parts since 2000. It has 3 centers for water and heat delivery.
A total of 83 customer companies receive its services and their demand volume for heating is 11.9
gKal per hour.
Within the framework of ―2nd Phase of Integrated Development of Basic Urban Services in
Provincial Towns Project‖ implementation, rapairing works for 1st and 2nd boiler of the station,
improvement of boiler, pumping equipment, other accompanied equipments, electricity and
automatic gears, and replacement of heating pipeline are currently in process.
Current capacity of infrastructure and engineering network in Sainshand city is not capable to meet
operating load of Sainshand industrial complex‘s factory and engineering infrastructure, and social
services. Therefore, basic infrastructure , energy and water supply and sewerage system have to be
constructed and improved and capacity of distribution system and network has to be increased.
3.3. Social welfare and human resources capacity
Social welfare. After establishing ―Sainshand‖ industrial complex, scope of production and services
sector will drastically increase in Sainshand soum, province as well as in the region. As a result, there
will be a need to broaden and improve basic social services including health, education, and housing
in the city of industrial complex.
Preliminary calculation states that a total of 5 thousand engineers, technical workers and professional
personals is needed for constructing Sainshand industrial complex. Along with the personals, their
families will need housing and apartments to live. Therefore, it is important to have these people
registered with the local registration office and provide condition to receive basic social welfare
services.
Moreover, with a purpose to prepare specialized workforce, training and production centers operating
in provincial cities such as Dalanzadgad, Choir and Sainshand will need investment for their further
development.
It is advisable to provide local residents with employment and implement policy to distribute positive
impact of the industrial complex to all levels of the population. It is also wise to offer local business
owners and companies an opportunity to make profit though servicing mining companies and
supplying goods and products.
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Human resources capacity: In connection with the increasing production of mining sector, labor
demand, labor force structure and vocational training requirements are changing extensively. As of
current situation, around 4.5 thousand workers are working in coal sector, 399 personnel are working
petroleum and natural gas exploration. In addition, about 7.7 thousand workforces is employed in
extracting metal ores while workforces of around 2 thousand people are currently working in other
natural resources exploitation.
Since Mongolia started training its labor force in 1948, a total of 68.3 thousand people have been
trained in geology, mining and petroleum. For instance, in order to prepare workforce for mining and
energy sector, School of Geology and Petroleum (MUST) trained 2.5 thousand engineers. School of
Mining Engineer (MUST) instructed around 2.6 thousand engineers and technicians while School of
Energy (MUST) supplied around 4 thousand engineers. In addition, Technical College of Darkhan
and Vocational Training and Production Center of Nalaikh district and other training institutions
currently train specialized workforce.
At national level, University of Science and Technology is training 4.5 thousand future engineers for
mining sector. In other words, around 900 personnel are trained annually.
Mongolian Railway College has trained around 8.7 thousand specialists and about 4.5 thousand
workers since 1953. In addition to specialists in railroad sector, the college has trained around 15
thousand professional personnel for road transportation, auto road, communication as well as
petroleum supply sector. Currently, around 700 students are receiving instructions on & main areas
including railway locomotive engineering, railway car engineering, railway construction, track, track
facilities, railway car and machinery utilization, railway automatic tele-mechanic, and railway
electric power supply in Mongolian Railway College. In other words, around 175 personnel are
graduating annually.
In order to construct ―Sainshand‖ industrial complex, a total of 500 engineers and technical workers
are needed according to the calculation.
When constructing the industrial complex, majority of the workforce needed is mainly engineers and
technicians specialized in hydrogeology, petroleum engineering, geo-ecology, engineering-geology,
mining technology, granulation of natural resources, processing, mining machinery, transportation
vehicle, stationary machinery and equipment and mining electricity equipment. Moreover, 97 percent
of total specialized workforce or 60 percent of total engineers and technicians will consist of drivers
or people to operate excavators, heavy capacity trucks, bulldozer, drill and factory, people to install
equipments and other factory workers as well as miners.
In addition, when building railway line, around 200 professional workforces of railway car engineers,
railway locomotive engineers, railway construction engineers, railway track engineers and railway
track facilities engineers, railway automatic tele-mechanic technicians and power supply electricians
are necessary. Another 200 specialized personnel including repairmen and servicemen for railway
car, locomotive, small appliances, and heavy-load machineries and trucks are required. Currently,
such demand is possible to be provided from domestic institutions.
Looking at above calculation and research, there will be a necessity to train a large number of
professional and specialized workforces in the next 5-6 years. According to this calculation, it is
important to formulate special program on training and preparing necessary workforce.
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Following activities have to be implemented promptly after paying special attention on preparing
specialized personnel. For instance:
 To establish training and production center that will provide opportunity to conduct training
and practice on latest equipments and machineries of mining sector.;
 To organize training to prepare specialized workforce based on colleges with enough material
resources and capable teaching staff;
 To support training of specialized personnel relying upon large entities and companies and to
organize on-job training for those personnel.
4. THE STRUCTURE AND MANAGEMENT OF INDUSTRIAL PARK
Figure1. Sainshand Industrial Complex Management
Working Group
National Development and

Innovation Committee
Management of the Complex
Project Director (Mongolian

)
Program Management Consultant
Deputy Director Deputy Director

( Operation ) ( Industry/Social work )
Social work/Warehouse
Construction Preparation for the Camp
factories
Engineering, Transportation Building

Technique/Technology
Infrastructure Material procurement

Supply
Coordinator for the Health/Safety

Planning and Monitoring
factories Security
Finance/Accounting
Officer appointed by the

Program Management Consultant Joint
Government of Mongolia
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According to the paragraph 1.2 of Article 3, Law on Legal Status of the Industry and Technology
Park, the legal entity that holds a park license shall be the park management and its rights and
obligations are to conclude a contract with the central government administrative organization, to
enhance fulfillment of the contract and to make necessary arrangements for the park as it was
referred to Article 11 of this law.
According to the above figure mentioned, the management system of Sainshand Industrial Complex
shall consist of the working group, National Development and Innovation Committee and
management of the complex. It‘s necessary that the working group organizes coordination between
the program management consultant and the project director representing Mongolian side. By
collaborating with the program management consultant, the project director /Mongolian/ will learn
from its experience and ease the transfer process of industrial park management. There will be deputy
project directors who are responsible to the Project Director for day-to-day management of the
project and industrial process. The project deputy director who is responsible for the operation shall
carry out operations on construction, engineering, technique/technology, supply, planning&
monitoring and finance. The project deputy director who is responsible for industry, social work and
warehouse shall carry out operations on land preparation, infrastructure, factories‘ coordination,
material procurement, health and social work with the professional team of Mongolian side.
These factories shall operate activities in accordance with Company Law of Mongolia and other laws
of Mongolia.
Figure2. Proposal for the refinery/manufactory and general structure
Board of
Directors
Director
Chief
Chief Financial
Operational
Officer Officer
Industrial Supply Marketing and Human resourse Financial

division division sales division division division
The main reason for success of industrial parks that managed to attract international investment was
the efficient management system which provided favorable conditions of work as well as tax
exemption and favorable business/legal condition. Jubail industrial city which implemented single
window system that enabled the entrepreneurs and people to submit regulatory documents at a single
location is a successful example of it.
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The management system and structure of industrial complex will be determined after the
accomplishment of Master Plan. Based on the experiences of Jubail Industrial City in Saudi Arabia
and Shanghai Fengpu Industrial park, we have made a this proposal on Sainshand Industrial Complex
management and structure.
/Please see the Annex/
5. FUNDING
5.1. Funding of Sainshand Industrial Complex
According to the previous study, over 10 billion USD is needed to finance Sainshand Industrial
Complex in more than 5 years. Since single funding channel can‘t be enough to raise such a large
amount of capital, there will be multiple options of funding. Fund raising process should be done as it
is mentioned in Master Plan.
The factories to be built in Sainshand shall be funded through public private partnership.
Participation and funding shall be as follows:
Government participation: Those national entrepreneurs who don‘t have sufficient potential
(financial capacity, experience in this field and human resource) to implement this project themselves
demands the Government of Mongolia (the GoM) to contribute the implementation.
The Government of Mongolia‘s participation and support on this project will be within the areas such
as a favorable condition, especially in infrastructure projects, competitive legal system and the
exemptions. Direction of the GoM‘s support on Sainshand Industrial Complex Project will be clear
when the research on this project is in process.
Relations between the government and private sector, a major factor in implementation of the project,
shall be regulated under Concession law of Mongolia and other legal acts. There might be need of
amendments on related legal acts.
Public-Private Partnership (PPP): The legal environment of PPP investment consists of

Government policy on Public-Private Partnership (2009) and Concession Law (2010). According to
the concerning legislative documents1, Sainshand Industrial Complex Project is expected to be
implemented through the public-private partnership process.
Creating favorable condition to attract the investors and enhancing economic benefit are crucial for
success of the public-private partnership processes. And it‘s also vital to create a condition that can
be beneficial for both of public sector authority and private party.
Diversity of the projects expected to be implemented through the public-private partnership process
creates different risks and the feasibility studies therefore should be done for each projects.
1
The legislative documents related to Sainshand Industrial Park Project consist of the following documents:
Government policy on Public-Private Partnership, Concession Law, the Arrangement for implementation of
the Government Action Plan, the Government decree No 320 dated in 2009, the Government decree No 118
dated in 2010 and Record of the government cabinet meeting No 52 dated in 2010.
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Depending on diversity of the projects, public-private partnerships may come in a variety of forms
such as Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT) and Design-Build-
Finance-Own-Operate-Transfer (DBFOOT). By transferring risks to the private party according to
this concept, possibilities of project implementation shall be stronger and responsibility mechanism
of the participators shall be improved.
To implement the projects through the public-private partnership, it‘s necessary to pay attention on
following common requirements: volume of a project, estimated time for a project, estimated time for
tendering process, sources of additional revenues, need of new up-building, diversification of risk,
location, possibility of complex solution, a performance-based contract, innovation and market size
etc. Also, projection to attract investors is crucial for the project implementation.
Options of funding from private sector: There could be two channels of financing for the industrial
park; one through equities of the private companies (30-40%), the other through lending (60-70%).
By building refineries/factories involving private companies, the industrial complex will improve its
competitiveness in the global marketplace. Investment opportunity is open to either domestic
investors or international investors. Based on these assumptions, funding would be fully financed
through the private sector.
Options of funding from the financial institutions: Loans shall be made when the borrower is able
to finance the rest of funding need itself. There could be three options to finance the project through
loan process:
 Export-Import Bank (Export-Import Bank, also Ex-Im Bank, is a financial institution which is
responsible for aiding the export of technology owner‘s goods and services.)
 International financial organizations (World Bank, Asian Development Bank, European
Bank for Reconstruction and Development etc.)
 Commercial Banks.
5.2. Risk assessment of establishing the processing industrial complex in Sainshand
Based on international practices and researches done by international organizations, this table
designed to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in Sainshand
Industrial Complex Project was made.
Table3. SWOT analysis overview for Sainshand Industrial Complex
Strengths Weaknesses
 Geographical location,  Shortage of Grassland/Cropland
 Location laid along the Trans-Siberian  Manpower tightness
Railway,  Need of water prospecting
 Possible to build centralized infrastructure  Negative impacts on the environment
including :
- Railway;
- Electricity;
- Communication;
- Water supply system;
- Gas.
 Possible to expand infrastructure system
(Electricity, Heating, Water supply etc.),
 Nearest location to Oyutolgoi mine and
Tavantolgoi mine. Thus, the investment for
18
railway towards those mines would be less

costly.
 Possible to provide infrastructure
centralization for new factories.
 Exemptions for Industrial Complex and legal
advantages;
Opportunities Threats
 Possibility to accommodate the town‘s  Industrial park‘s insufficient competiveness may
expansion to the city, not meet standards of the global market,
 Main market is nearby,  Lack of natural resources,
 Possible to decrease negative impacts on the  Lack of financial resources,
environment and the community,  Possible price fluctuation may decrease project
 Availability of regional monitoring for the profitability,
environment,  Failure to plan,
 Availability of subsidiary services for the  Possible large amount of financial loss ,
community,  Possibility of time consuming,
By using these strengths and opportunities mentioned above, it would be possible to reduce expenses
of interested national and foreign companies and increase their competiveness through infrastructure
centralization policy of economy and human development implemented by the local government.
To neutralize weakness and threats, it‘s vital to make arrangements as follows.
 To enhance policy coordination for intensive agriculture (By implementing Sainshand

Industrial Complex Project, there would be natural population growth, grassland shortage and
increase in food demand.),
 To elaborate a program designed to provide vocational/technical training within 5 or 6 years

to solve skilled manpower shortage,
 To curb the negative impacts of human involvement on the environment by using
environmental technology (green technology),
 To consider wind direction before choosing location for industrial park (Right location is one
factor to neutralize the risk of accident),
 To hold hydro-geological study to prove groundwater sources and search new groundwater
sources,
 To attract foreign investors with the aim of sharing its risk, involving participation in transfer
of technology/innovation and increasing competitiveness,
 To create commodity exchange system that enables the stakeholders to neutralize price risk
(This system is to avoid decreasing project profitability),
 To clarify conditions of penalty in the contract with the program management consultant and
strategic consultant (It would prevent the project stakeholders from failure of plan, large
amount of financial loss and time consumption),
 To study international unfair trade practices (Mongolia‘s case of threatened commodity
market ) and implement trade policy of restraining possible protectionism from other
countries through methods such as tariffs and export guarantee,
 To find solution to the lack of natural resources,
19
 To find solution to the lack of financial resources,
5.3. Macroeconomic absorption capacity

Large investment projects may be implemented when the evaluation that determines certain country‘s
macroeconomic absorption capacity is deemed done and economic development policy is clear.
Implementation of large investment projects should maximize macroeconomic efficiency of certain
country.
Recent practices of large investment projects at implementation such as Oyutolgoi project have
shown that the Government should focus to increase national capacity of human resource,
technology, finance and the others. Therefore, working group needs to do research in this field when
the project analysis is in process.
Large amount of investment will be needed to finance Sainshand Industrial Complex Project. Under
the circumstances of international cash flow to Mongolia, net official international reserves of
Mongolia is estimated to increase 5.6 times and reach 10 billion USD in 2011-2015 /See Table 4/.
This dramatic growth of international reserves will strengthen Mongolian tugrik against foreign
currencies. As a result of this situation, it will be more expensive to export and impact negatively on
national entrepreneurs.
By distributing export revenue to the right sectors, budget expansion will promote the economic
growth and industrial sector when export revenue is distributed to the right sectors. With Mongolia‘s
economic expansion, productivity in industrial sector will be improved and annual growth in money
supply will be around 30 percent in coming years. As a result of sufficient currency reserves, it will
be possibly to stabilize the foreign exchange market.
Refineries will be expanded through the process of producing refined copper cathode, coke, refined
coal, petroleum products, cement, ferrous metal and other products in Sainshand Industrial Complex.
By producing cement and building armatures in the domestic refineries, Mongolia will be able to
reduce her dependence on imported construction materials. Moreover, producing petroleum products
in domestic refineries will create a condition to stabilize fuel price, one of the main factors that
increases inflation rate.
Establishing Sainshand Industrial Complex shall increase Mongolia‘s currency reserves and decrease
exchange market volatility, besides improving employment, developing infrastructure system and
expanding national economy.
Table4. Forecast of the main macroeconomic indicators /2010-2015/
Indicators 2010 2011 2012 2013 2014 2015

Real GDP growth
7.5 8.5 8.4 22 16.9 15.5
/percentage/
Money Supply
4,137 492.7 5,143 120.7 6,568,917.2 8,663,219.3 10,937 487.7 13,706 586.1
/million tugrik/
Money-Supply Growth
43.7 24.3 27.7 31.9 26.3 25.3
(percentage)
Exchange Rate, US$/₮ 1397.0 1,375 1,375.0 1,375.0 1,375.0 1,375.0
Inflation Rate (percentage) 20.1 9.7 8.6 8.1 8.0 8.5
20
5.4. Financial absorption capacity

As it has been shown in most researches, it is proved that foreign direct investment has a major role
to play in the economic development of the host country when her financial sector development is in
certain level.
Currently, there are fourteen commercial banks, 186 non-banking financial institutions, 207 savings
and loan associations, over 200 pawnbrokers, 16 insurance companies and 49 security brokers and
dealers companies in Mongolia. That commercial banks hold around 95 percent of total financial
sector assets shows they are dominating in Mongolia‘s financial sector. Compared to other financial
service providers except the banks, a number of new achievements have been made by the security
brokers and dealers companies. There is almost no insurance market and pension system in Mongolia
though they nominally exist. Development level of mortgage market is in an early stage. Briefly,
investment opportunity is limited to the commercial bank‘s financial capacity. Expansion of banks
ability to meet the growing financial needs is dramatically increasing their loan amount.
According to international practices, countries can be divided into two groups by their level of
financial sector development: developed countries and less developed countries. Mongolia is a
country where the financial market development is still in an early stage.
Niels Hermes and Robert Lensink found out that the private sector bank loan is a main factor that
makes foreign direct investment to the particular country more beneficial (Niels Hermes & Robert
Lensink ,"Foreign direct investment, financial development and economic growth, 2003). Their
results implied that FDI would have a positive effect on growth in countries where credit to the
private sector as a percentage of GDP is above 12.9 percent and a more developed financial system
contributed positively to the process of technological diffusion associated with FDI.
Chart2. Absorptive capacity of Mongolia
35
30
25
20
15
10
5
0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
- Credit to the private sector as a percentage of GDP

- Optimal percentage
The above chart shows that credit to the private sector as a percentage of GDP was below 12 percent
in 1995-2001. The chart also shows that this indicator has been above 12 percent since 2002 though
there was temporary down trend from 2004 to 2006. Based on this chart that shows Mongolia‘s
21
indicator has been above 12 percent, it can be said that Mongolia‘s absorptive capacity is good
enough to attract FDI.
According to the results of Niels Hermes and Robert Lensink, high interest rates offered by the
commercial banks has negative impacts to absorptive capacity of Mongolia while money supply
(M2) as a percentage of GDP and total assets in the banks have positive ones. Therefore, Mongolia‘s
absorptive capacity will be increased when the interest rate is lowered.
A number of researches indicate that domestic capital market in Mongolia has almost no impacts on
foreign investment. In contrast, development of the banking system has strong impacts on foreign
investment. Mongolia‘s poorly developed capital market is not able to make impacts on Mongolia‘s
macro-economy. Based on the results of researches, development of domestic capital makes impact
on the economic growth with 2 year lag. This is all because of abnormality in domestic capital
market.
SIX. SIGNIFICANCE OF SAINSHAND INDUSTRIAL COMPLEX AND ITS SOCIO-

ECONOMIC IMPACTS
The benefit of this project is a diversified economy. By developing domestic refineries, it will be
possible to diversify the economy, be less reliant on the commodity reserves and stabilize the macro-
economy.
Implementation of this project is vital for Mongolia‘s human development. Industrial complex shall
increase the employment of vocational and technology workers and professionals.
6.1. Proposal of Cluster’s Impacts on Sainshand Industrial Complex
According to the proposal of Sainshand Industrial Complex, the following projects shall be
implemented when the complex is in process:
 Coal gasification factory project

 Copper smelting factory project
 Construction materials factory project
 Oil refinery project
 Railway project
 Water supply network project
 Urban construction project
 Other projects
By building factories within a cluster, the following socio-economic positive impacts will be made:
1. The factories shall be designed to produce final goods by using domestic commodity
resources. Foundation of particular schools of Mongolian University of Science and
Technology around Sainshand Industrial Complex will make it possible to train skilled
vocational workers and professionals for the complex. Thus, Sainshand Industrial Complex
shall serve as a great way for the students to learn more about their professions and obtain real
experience.
22
2. By building factories within a cluster, it will be long term solution to the problems of
infrastructure and welfare services (hospitals, schools and kindergartens etc) that Sainshand
Industrial Complex has to face.
3. Founding vocational education and technology schools in Sainshand doesn‘t only mean to
offer solution to the manpower problem. It shall contribute the research activities and promote
the process of technological diffusion and innovation transfer.
6.2. Direct Impact of Sainshand Industrial Complex on Real Economic Growth
By implementing Sainshand Industrial Complex Projects, it will be possible to build the

factories/refineries such as coal gasification factory, copper smelting factory project, construction
materials factory project, ferrous metals factory and oil refinery that contributes Mongolia‘s real
economic growth and a number of new infrastructure projects will be in process.
Implementation of the project shall create dramatic GDP growth. It‘s estimated that industrial sector
as a percentage of GDP will be 57 percent and refineries a percentage of GDP will be 14 percent
while the average economic growth will be 15.8 in years 2013-2013. Real economic growth will be
4.3 units higher than the base indicator.
Table5. Impacts of Sainshand Industrial Complex on real economic growth
1. Basic indicator 2010** 2011** 2012** 2013** 2014** 2015** 2016 2017 2018 2019 2020 2021
GDP, at current
prices, billion 7043.1 8047.4 9140.8 11675.3 13885.3 16597.3 20303.7 23070.1 26801.3 30236.6 34400.8 39230.1
tugrik
Real economic
7.5 8.2 7.8 20.8 15.6 13.6 16.3 9.7 12.1 8.5 8.1 8.4
growth
GDP per capita,

1824.3 2076.4 2312.1 2892.4 3628.1 4379.0 5303.6 6040.9 6861.8 7567.4 8411.8 9363.2
USD
Industrial sector
as a percentage 34.9 35.7 35.9 42.9 43.9 45.6 49.6 49.3 50.3 49.4 48.8 48.2
of GDP
2. When Sainshand industrial Complex is in operation, the base indicators will be as follows:
GDP, at current
prices, billion 7043.1 8067.9 9210.1 11870.6 14263.4 17291.1 21627.4 25466.6 30331.5 35657.8 42298.9 49963.5
tugrik
Real economic
7.5 8.5 8.4 22.0 16.9 15.5 19.5 14.8 15.1 13.2 12.8 12.2
growth
GDP per capita,

1824.3 2081.7 2329.6 2940.8 3726.9 4562.1 5649.4 6668.4 7765.6 8924.2 10343.0 11925.0
USD
Industrial sector
as a percentage 34.9 35.7 35.9 42.9 45.6 48.0 52.6 53.7 55.1 55.6 56.4 56.8
of GDP
Notice: According to basic indicator, GDP per capita will be 9363.2 USD by 2021. By implementing Sainshand Industrial
Complex Project, GDP per capita will reach 11925.0 USD, up by 2561.8 USD compared to basic indicator.
23
6.2. Impact of Sainshand Industrial Complex on Foreign Trade
By implementing Sainshand Industrial Complex, it will be possible to produce pure copper, coke, coal,
petroleum products, cement, ferrous metals as well as by-products (coal tar and sulfuric acid etc) and offer
these products to the market.
Chart3. Foreign trade 2013-2020 /million USD/
When Sainshand Industrial Complex is in process, by 2023, the total export revenue will be USD 5.7 billion
and be increased from 5.7 percent to 21 percent higher than it would be if mining products were exported as
commodities.
By building cement factory and oil refinery, it will be possible to save 0.8 or 1.5 USD billion from import.
Over USD 10 billion will be needed to build Sainshand Industrial Complex and its railway between 2011 and
2015. 500 or 1000 million USD will also be needed to import construction materials each year.
That average amount of export goods produced by Shainshand Industrial Complex will be 1 billion USD
between 2013 and 2010 means it will be increased 1.3 or 1.7 times higher than that of in 2010. Between 2013
and 2020, average amount of export is expected to reach 10.6 billion USD while import is around 6.5 billion
USD. And there will trade surplus of 4 billion USD in that time /Chart 3/.
Impact of foreign debt.
If Sainshand Industrial Complex Project is implemented, each year external debt will be increased by
500 hundred million USD for six years and external debt as percentage of GDP might rise to 78.8
percent which is 38.8 percent higher than it should be limited /Table 6/.
Table 6. Foreign debt indicators /billion tigrik/
INDICATORS 2007 2008 2009 2010 2010* 2010** 2011* 2011**

External Debt
Debt Outstanding Disbursed (DOD) 1,788.4 2,028.8 2,609.0 2,823.0 11,939.8 11,514.4 11,677.6 11,422.3
Economic indicators
Gross Domestic Product, (current prices) 4,599.5 6,019.8 6,055.8 7,043.1 7,043.1 7,043.1 8,047.5 8,047.5
Export 2,210.2 2,969.2 2,741.3 2,741.3 2,741.3 2,741.3 2,741.3 2,741.3
Government revenue 1,856.0 1,973.0 1,972.6 1,972.6 1,972.6 1,972.6 1,972.6 1,972.6
Government expenditure 1,747.3 2,466.8 2,336.6 2,336.6 2,336.6 2,336.6 2,336.6 2,336.6
Foreign debt indicators
DOD/GDP 38.9% 33.7% 43.1% 40.1% 169.5% 163.5% 145.1% 141.9%
DOD(pv)/GDP (within 40%) 24.5% 24.0% 29.6% 27.5% 107.4% 78.8% 93.6% 93.1%
24
DOD/Export 80.9% 68.3% 95.2% 103.0% 435.6% 420.0% 426.0% 426.7%

DOD(pv)/Expert (within 150%) 51.0% 48.7% 65.3% 70.7% 276.0% 202.4% 274.7% 273.4%
DOD/Government revenue 96.4% 102.8% 132.3% 143.1% 605.3% 583.7% 592.0% 579.0%
DOD(pv)/Government revenue
60.7% 73.3% 90.8% 98.3% 383.6% 281.3% 381.7% 379.9%
(within 250%)
Total amount of principal payment/ Export
2.7% 2.4% 4.5% 3.7% 5.2% 4.3% 6.4% 4.4%
(within 20%)
Total amount of principal payment/
3.2% 3.6% 6.3% 5.2% 7.3% 6.0% 8.9% 6.1%
Government revenue (within 30%)
Total amount of principal payment/
3.4% 2.9% 5.3% 4.4% 6.1% 5.1% 7.5% 5.1%
Government expanditure (within 25%)
Loan disbursement/ Government revenue 5.2% 4.5% 20.4% 10.9% 128.8% 56.9% 116.3% 52.4%
Note: *1,500,000,000.00 USD
** 500,000,000.00 USD
6.4. Impact of Sainshand Industrial Complex on regional development
Population and workforce: That there were 58.3 thousand inhabitants in Dornogovi province in
2009 means the population growth was 1.9 percent higher than that of previous year and number of
the inhabitants was increased by 7.1 thousand or 14.1 percent compared to the result of census held in
2000. Average growth of inhabitants in Dornogobi province has been 1.48 pervent since the
population and housing census held in 2000.
Most inhabitants of this province (province) live in five soums (country subdivision): Sainshand
(20.4 thousand), Zamiin uud (12.8 thousand), Airag (3598), Khatanbulag (2985) and Dalanjargalan
(2554).
In 2009, 1458 people of 298 families migrated to Dornogovi aimak, whereas 1529 people of 301
people migrated to other administrative divisions. It was the first time that net immigration rate was
negative (-0.12) since 2004.
In 2009, numbers of economically active population were 20722 from total labor force of 37144.
Compared to the previous year, number of labor force increased by 3.8 percent. On the other hand,
number of economically active population decreased by 0.3 percent.
Chart4. Employment number
Agriculture, hunting and forestry 6488

Mining & quarring 579
Manufacturing 156
Electricity, gas and water supply 598
Construction 548
Wholesale, retail trade and repair of… 1893
Hotel and restaurant 1284
Transport, storage and communication 2492
Financial intermediation 330
Real estate, rent and other business … 627
Public administration and… 2212
Education 1369
Health and Social welfare 955
Social work 475
Community, social & personal services 164
25
GDP structure of dornogobi province: In 2009, Dornogobi province‘s GDP reached 50.5 billion
tugrik and increased by 8 billion tugrik or 18.8 percent compared to the amount of previous year.
In 2009, dornogobi province‘s gdp per capita reached 875.5 thousand tugrik and increased by 113.3
thousand tugrik compared to the previous year‘s amount.
The factors that contributed to Dornogobi province‘s GDP were agriculture (7.1%), industry (2.3)
and service (9.5).
Chart5. Dornogobi province’s GDP
Public administration
and
Education, 10.6 defense, compuldory
social security, 8.6
Financial
Agriculture, hunting intermediate, 5.1
and forestry, 37.4
Transport, storage
and
communication, 11.5
Mining & Wholesale & retail

quarring, 3.9 trade, repair of motor
Electricity, gas and
vehicle, & personal
water supply, 3.1 Construction, 3.7
Manufacturing, 1.5 household goods, 7.7
Impact of Sainshand Industrial Complex on local budget: According to the preliminary estimates
of 2009, local government revenue reached 7052.4 million tugrik while local government
expenditure decelerated to 6967.4 million tugrik. Local government revenue consists of tax income
(91.2%), non-tax income (6.5%) and income on property (2.3%).
Table 7.Overall Balance of Dornogobi province

/million tugrik/
2006 2007 2008 2009*
Revenue 2 646.5 4 343.5 5 882.2 7 052.4
Expenditure 2 712.1 4 120.8 7 008.5 6 967.4
Overall Balance - 65.6 222.7 - 1 126.3 85.0
* Preliminary estimates
Taxation in the local government consists of following taxes:
 Real estate tax

 Land use fee
 Water and mineral water use fee
 Personal Income tax
26
 Tax on auto vehicles and self-moving vehicles

 Stamp fees
 Royalty
Land use fee: Land fees shall be established as rates or amounts using the base assessment indicators
as defined in Article 6 of Law on land fees within the following limits: for use and possession of city,
village and other settlement land, the fee shall be 0.1 – 1.0% (percent) per hectare2. Annual land use
fee per hectare is usually 7500 tugrik. According to proposal of Sainshand Industrial Complex, 9
hectares land is generally needed for a factory. Therefore, Sainshand Industrial Complex will be
operational in 54 hectares and 405 thousand tugrik will be annually paid to the local government as
land use fee.
Water and mineral water use fee: The following shall be limits of water use fees determined
consistent with the basis described in paragraph 1, Article 6 of Law on Water and Mineral Water Use
Fee3:
Fee Limits
Water Subject to Fees Unit Surface and Well Water Ground Water
minimum-maximum fees Minimum-maximum fees
1. Income earned from production or
service such as hydroelectric power
stations, water transportation,
% S.I. 0.1 – 0.5 - -
breeding of commonly distributed
water flora and fauna, travel and
sport
2. Per cubic meter for portable water
and water used for household MNT/m3 - - 1.00 – 10.00
purposes
3. Per cubic meter of water used for
production, service and commercial
MNT/m3 1.005 – 5.00 1.00 – 20.00
by citizens, economic entities or
organizations
According to this law, 150 tugrik must be paid for per cubic meter of water and annual water and
mineral water use fee of Sainshand Industrial Complex will be 15 billion tugrik for 100 million cubic
meter of water.
Real estate tax: The value of real estate is determined, firstly, by the valuation registered with real
estate state registry. If there is no such registration, the value is determined by the valuation of
insurance on the real estate. And if there is no registration or insurance valuation, the value will be
established as the value that is written down in accounting books4.
Tax rate on real estate is 0.6 percent of the value defined above (Article 5).
2
Land Fees Law of Mongolia, Paragraph 3 of Article 7
3
Water and Mineral Water Use Fee Law of Mongolia, Paragraph 1 of Article 7
4
Real Estate Tax Law of Mongolia, Article 6
27
Table8. Amount of tax and fees /2011-2021/
Water and
Personal
Land Use Fee Mineral Water Real Estate Total amount
Income Tax
(million Use Fee Tax (million (million
(million
tugrik) (million tugrik) tugrik)
tugrik)
tugrik)
2011 0.405 0 0 0.4
2012 0.405 0 0 0.4
2013 0.405 0 0 0.4
2014 0.405 0 0 0.4
2015 0.405 15000 67200 560 82760.4
2016 0.800 15000 67200 560 82760.8
2017 0.800 15000 67200 560 82760.8
2018 0.800 15000 67200 560 82760.8
2019 0.800 15000 67200 560 82760.8
2020 0.800 15000 67200 560 82760.8
2021 0.800 15000 67200 560 82760.8
Impacts on regional GDP and employment (Output-Input Model)
Based on 2008 statistics (at 2005 constant data) by National Statistical Office, this analysis was done
through Output-Input Model.
It indicates that indirect impacts of manufacturing on other divisions are 2.35. It means that 1 tugrik
input in manufacturing is 2.35 tugrik output to other divisions (table 9).
Table9. Indirect impacts of manufacturing on other divisions
Indirect multiplier of manufacturing in Output-Input Table
Divisions
1 Agriculture, hunting and forestry 0.409696
2 Fishing 0.000025
3 Mining and quarrying 0.034033
4 Manufacturing 1.452069
5 Electricity, gas and water supply 0.082956
6 Construction 0.011479
Wholesale & Retail trade, repair of motor vehicle and personal
7 & household goods 0.105703
8 Hotels and Restaurants 0.008567
9 Transport, storage and communication 0.135241
10 Financial intermediate 0.063753
11 Real estate, renting and other business activities 0.040058
12 Public administration and defense, compulsory social security 0.000093
13 Education 0.000269
14 Health and social security 0.002297
15 Community, social and personal services 0.004007
Division multiplier 2.350246
Based on 2009 statistics, direct labor force multiplier of Dornogobi province was estimated (Table
10).
28
Table10. Direct labor force multiplier of Dornogobi province
GDP, by Employment
Divisions divisions, Employment multiplier per
million tugrik* million
Agriculture, hunting and
1 284 787.1 348785 0.2714730
forestry
Fishing 17.5 9 0.5142857
Mining and quarrying 1 337 983.7 34799 0.0260085
Manufacturing 254 301.8 62730 0.2466754
Electricity, gas and water
144 222.6 15637 0.1084227
supply
Construction 49 439.2 49585 1.0029483
Wholesale & Retail trade,
repair of motor vehicle and 363 255.6 160311 0.4413174
personal & household goods
Hotels and Restaurants 34 903.2 23306 0.6677329
Transport, storage and
644 602.6 78852 0.1223265
communication
Financial intermediate 179 285.3 12265 0.0684105
Real estate, renting and other
543 472.4 223 0.0004103
business activities
Public administration and
defense, compulsory social 270 066.1 75888 0.2809979
security
Education 296 862.8 74904 0.2523186
Health and social security 134 471.0 35745 0.2658194
Community, social and
82 403.8 33357 0.4047994
personal services
Note: * Preliminary estimates
According to above estimation, industrial growth of 1 billion tugrik in construction division would
create 246 new employment positions.
Based on statistics by National Statistics Office and its branch in Dornogobi province, direct and
indirect employment multiplier of Dornogobi province was estimated. As results of this estimation, it
was found that growth of 1 billion tugrik in manufacturing would indirectly create 391 employment
positions in other divisions: agriculture, hunting and forestry (208), refinery (11), Electricity, gas and
water supply (12) and Wholesale & Retail trade, repair of motor vehicle and personal & household
goods (38).
Table11. Indirect employment multiplier
Indirect employment
Divisions multiplier
Agriculture, hunting and forestry 0.20808

Fishing 0.00012
Mining and quarrying 0.00142
Manufacturing 0.11028
Electricity, gas and water supply 0.01210
Construction 0.00169
Wholesale & Retail trade, repair of motor vehicle and
0.03820
personal & household goods
Hotels and Restaurants 0.00407
Transport, storage and communication 0.00696
Financial intermediate 0.00481
29
Real estate, renting and other business activities 0.00082

Public administration and defense, compulsory social
0.00001
security
Education 0.00010
Health and social security 0.00100
Community, social and personal services 0.00144
Indirect employment multiplier 0.39110
Based on the results, it is clear that growth of 1 billion tugrik in manufacturing would create 339 new
employment positions: directly 248 and indirectly 391.
30
APPENDIX
INTERNATONAL EXPERIENCES OF INDUSTRIAL COMPLEX ESTABLISHMENT
Jubail Industrial City5
Jubail Industrial City is the largest civil engineering project in the world today. It also is one of
Bechtel‘s most remarkable achievements—a city built from the ground up, requiring vast resources
and logistical planning on an unprecedented scale.
With a population of more than 100,000, Jubail today accounts for more than 7 percent of the
kingdom‘s gross domestic product. The city has evolved into a major player in the global
petrochemicals market, attracting top technical and business minds from 40 countries. Its residents
attend two dozen schools, shop at 14 shopping centers, and play golf at the Whispering Sands course.
The industrial city is the largest industrial complex of its kind in the world and consists of
petrochemical plants, fertilizer plants, steel works, industrial port and huge number support
industries. There is also the Royal Saudi Naval Base plus a separate Commercial Port and Military
Air Base. It holds the Middle East's largest and the world's 4th largest petrochemical company,
SABIC. Jubail is home to the world's largest seawater desalination plant, MARAFIQ. It provides
50% of the country's drinking water through desalination of seawater from the Persian Gulf.
Bechtel has managed the Jubail project, located in the Eastern Province of the Kingdom of Saudi
Arabia, since it began in the mid-1970s. In 2004, the Royal Commission for Jubail and Yanbu asked
the company to manage Jubail II, a $3.8 billion expansion of the city‘s industrial and residential
areas.
Picture8. Jubail Industrial City
5
Bechtel Corporation, Jubail Industrial City, http://www.bechtel.com/jubail_industrial_city.html
31
MidAmerica Industrial Park6
Founded in 1960, MidAmerica Industrial Park has evolved into one of the leading centers for
manufacturing, processing and distribution in the United States. Often described as the nation's
largest rural industrial park, MidAmerica is located between Pryor Creek and Chouteau in northeast
Oklahoma just about 38 miles east of Tulsa. The development has been recognized by leading
economic development publications as a top-ranked expansion or relocation site for growing
companies and has been named as a "Certified Industrial Park" by the Oklahoma Department of
Commerce.
Businesses looking for a new expansion or relocation site will find ample reasons to put us on the
short list. MidAmerica's industries benefit from our profit-enhancing infrastructure with:
 Over 101,000 people in 20-mile radius  Over 328,000 people in 30-mile radius
 Over 913,000 people in 40-mile radius  20%-50% savings on electrical costs
 Skilled workforce with free training  Interstate access to markets
 Very low cost water and wastewater  Abundant, affordable natural gas
 A location in the center of the country  On-site airport with 5,000 foot runway
 Exceptional transportation options  Financing and build-to-suit capability
Picture9. MidAmerica Industrial Park
6
MidAmerica Industrial Park, http://www.maip.com/overview.php
32
Shanghai Fengpu Industrial Park7
After 10 years development, Shanghai Fengpu Industrial Park has formed some mainly industries
such as the electronic and information industry, modern biology and medicine industry, high-tech
material industry, electronic equipments industry etc.
Up to the end of 2003, there had been 77 foreign enterprises with the total investment of USD$1.54
billion, including GE from USA, SGL from Germany, Pioneer, NAIS, HINO, Exedy from Japan,
MAHLE, Autolive, Lemforder from Germany and Plastics of Greece come into Fengpu Industrial
park.
What's more, many famous domestic enterprises also had located in our park such as China Putian,
Shanghai Lei Yun Shang Pharmaceutical enterprise, TCL, ZheZhong Electric and Zhejiang Cixing
Bearing etc.
Picture10. Shanghai Fengpu Industrial Park
7
Shanghai Fengpu Industrial Park, Export Processing Zone, http://industrial-zone.fengpu.com/
33

NDIC-Brief Introduction of Sainshand Industrial Comlex ENG

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NDIC-Brief Introduction of Sainshand Industrial Comlex ENG

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NATIONAL DEVELOPMENT AND

NATIONAL DEVELOPMENT AND INNOVATION June 30, 2010

June 30, 2010

ONE.BACKGROUND INFORMATION FOR ESTABLISHING ―SAINSHAND‖ INDUSTRIAL COMPLEX

1.1.Background and General information

1.2. Legal environment

TWO. “SAINSHAND” INDUSTRIAL COMPLEX PROJECT

A preliminary projection of investment worth of about USD 10 billion /calculated based on

2.1. Principles of project implementation /concept/

 To formulate a Master Plan which provides preliminary feasibility studies of related

 To ensure that infrastructure development projects such as railroad, highway, airport,

 To publish comprehensive research report on labor market, to prepare workforce needed

2.2. Steps for project implementation

Figure1. Project implementation steps

1st phase 2nd phase

Advisors tendering Master plan

• Working group will select • NDIC (With consultants)

To dissolve • NDIC • NDIC • NDIC

6 /2010 – 3/ 2011 2011 – 2017

Table1. Responsibilities of consultants

№ International consultant Responsibility Timeframe

THREE. INFRASTRUCTURE, URBAN DEVELOPMENT AND SOCIAL WELFARE

Picture1. Railroad network of Mongolia to connect East Asia

Tavantolgoi-Sainshand-Choibalsan railroad network on horizontal axis

Picture2. Planned auto road and transportation network

Picture3. Planned electricity and power network

Picture4. Location of water supply source

Table2. Water reserve of ―Bor huuvur‖

Groundwater usage reserve

3.2. Urban development, land utilization and engineering structure

1. Territory valuation and location assessment,

Picture5. Location of Sainshand Industrial complex /tentative location/

Picture6. Layout of engineering networks of Sainshand soum center

3.3. Social welfare and human resources capacity

4. THE STRUCTURE AND MANAGEMENT OF INDUSTRIAL PARK

Figure1. Sainshand Industrial Complex Management

National Development and

Management of the Complex

Project Director (Mongolian

Deputy Director Deputy Director

Engineering, Transportation Building

Infrastructure Material procurement

Coordinator for the Health/Safety

Officer appointed by the

Figure2. Proposal for the refinery/manufactory and general structure

Industrial Supply Marketing and Human resourse Financial

/Please see the Annex/

5.1. Funding of Sainshand Industrial Complex

Public-Private Partnership (PPP): The legal environment of PPP investment consists of

5.2. Risk assessment of establishing the processing industrial complex in Sainshand

Table3. SWOT analysis overview for Sainshand Industrial Complex

railway towards those mines would be less

To neutralize weakness and threats, it‘s vital to make arrangements as follows.

 To enhance policy coordination for intensive agriculture (By implementing Sainshand

 To elaborate a program designed to provide vocational/technical training within 5 or 6 years

 To find solution to the lack of financial resources,

5.3. Macroeconomic absorption capacity

Table4. Forecast of the main macroeconomic indicators /2010-2015/

Indicators 2010 2011 2012 2013 2014 2015

5.4. Financial absorption capacity

Chart2. Absorptive capacity of Mongolia

- Credit to the private sector as a percentage of GDP

SIX. SIGNIFICANCE OF SAINSHAND INDUSTRIAL COMPLEX AND ITS SOCIO-