Findings of pre-feasibility study on
Zamiin Uud logistics facility presented

On 22 April at an extended meeting of the National Committee on Trade and Transport Facilitation (NCTTF) that included representatives of the private sector and international community, the project presented the findings of a pre-feasibility analysis of logistics facilities in Zamiin Uud. Michael Bennett, an international logistics expert led the project study team. The findings focused on the border clearance facilities at Zamiin Uud where Customs and the State Specialized Inspection Agency (SSIA) perform inspections and a proposed new road-to-rail logistics facility.

Current conditions Mongolia’s major gateway, its “dry port” is choking, judging from a survey of 550 lorry drivers that the project conducted during 14-19 April. The average waiting times were:
• 23.5 hours for inspection of lorries with non-uniform loads
• 28.2 hours for uniform loads to be scanned
• 135 hours for non-uniform loads of lorries to be transferred to rail
• 34.2 hours for lorries queuing in China waiting to get to the Zamiin Uud border crossing point.

Although April is not “high season” for traffic in Zamiin Uud, the aggregate costs of these queues are enormous. They create a propitious environment for product supply shortages, price speculation, and informal payments that put additional pressure on prices already rising according to world trends. In summary, the inadequacy of logistics facilities infrastructure in Zamiin Uud is constraining the supply of goods and thus contributing to inflationary pressures on the Mongolian economy, coinciding with increased aggregate demand and high liquidity.

Customs and inspections clearance facilities at Zamiin Uud
Facilities and the area are inadequate to support current traffic and projected growth of the economy. They are also one of the constraints for Mongolia’s ambitions to become a competitive transit corridor between China and Europe as proposed in the “Transit Mongolia” national project.

Exhibit 1 shows a satellite image of the current customs and inspections area in Zamiin Uud. The physical improvement plan presented in Exhibit 2 seeks to:
• Expand the area for inspections to facilitate inspections and lorry circulation
• Segregate passenger from freight traffic
• Segregate freight traffic by type of load: uniform loads to proceed directly to a scanner; non-uniform loads proceed to the inspections area.
At an indicative investment cost of $2.5m to expand the customs and inspections area and assuming an average daily cost of operations of $37 per lorry and a $7 daily average cost of inventory, the Economic Internal Rate of Return (EIRR)—benefits to the economy as a whole—are conservatively estimated to be over 200%.

The project has been assisting the Mongolian Customs General Administration (MCGA), as a lead agency to re-structure these facilities, and the State Specialized Inspection Agency (SSIA). Current plans include the developing of drawings for the new layout of the area and construction specifications. The MCGA will issue the tender and supervise construction of the civil works.

These recommendations will allow for proper planning and estimation of financing for needed municipal infrastructure and the design of a transparent system for assigning land rights to generate municipal revenues. Erlian municipality, across the border in China, for example, is partnering with the private sector to develop and urbanize new lands. The private sector develops the land and pays back to the municipality a portion of the proceeds once a plot is sold.

Donor and multilateral representatives attending the meeting expressed potential interest in assisting with Zamiin Uud’s master plan. Through its cross-border trade facilitation project, the Asian Development Bank could assist Zamiin Uud with the development of its master plan.

Exhibit 3 shows the concept and indicative phases for the development of proposed new road-to-rail trans-shipment facilities.

Pending more detailed feasibility analyses that the project will support, current indicative projected cost of the facilities when completed is estimated at $120m. The estimated cost of the first stage to make the facilities operational, exclusive of logistics warehouses, is around $5m.

The potential Public-Private Partnership
The proposed logistics and road-to-rail trans-shipment facility project is extensive (ultimately absorbing +/-170 hectares), multi-faceted (rail; road; storage/distribution/value-added), and costly. Furthermore, it contains elements of public policy and regulation (allocation of land and resources; economic and regional development; customs bonded activities) along with a range of purely commercial opportunities (both support to existing core businesses as well as new self-contained business ventures) assuming costs, particularly start-up costs, can be contained.

The mixture of perspectives and of stakeholder objectives inherent in such an initiative suggest that successful implementation of this project may best be accomplished through a Public–Private Partnership (PPP). If all stakeholders collaborate and cooperate, each can achieve its own ends while the project output can be optimized.

In such a PPP structure—perhaps a special purpose vehicle under current Mongolian legislation—would involve: the public sector through the municipality (land), the Ulaanbaatar Railways (UBTZ) and the Mongolian Railways. The private sector would be involved through freight forwarding companies and potentially a foreign strategic investor and operator. Mongolian freight forwarding companies have expressed willingness to invest in such a partnership under these conditions. The project will continue to assist stakeholders to make this vision a reality.