Mongolia’s infrastructure deficit. The recently released World Economic Forum (WEF) Global Competitiveness Report 2009-2010 ranks Mongolia last out of the 133 countries ranked on the quality of overall infrastructure.1 Based on Executive Opinion Surveys conducted in each country, Mongolian executives had ranked their country next to last in the two preceding years.
The same report provides additional details on indicators of quality of infrastructure—the second of twelve “pillars” considered in the Report—as follows: 2nd pillar: Infrastructure
2.01 Quality of overall infrastructure ................... 133
2.02 Quality of roads ............... 133
2.03 Quality of railroad infrastructure.................... 77
2.04 Quality of port infrastructure ................... 116
2.05 Quality of air transport infrastructure ................... 128
2.06 Available seat kilometers* ...................... 116
2.07 Quality of electricity supply ............................. 112
2.08 Telephone lines* ............. 98
The lack of basic infrastructure is clearly a major factor constraining economic growth and poverty alleviation in Mongolia. This persistent under-investment in infrastructure is having a negative impact on economic growth, living standards, and “transaction costs” of businesses. For examples of this situation see the Hot Topix video clips on logistics (Zamyn Uud: Gate of development), railroads (Transit Mongolia), and the Facts, Figures and Opinions video clip on heating (Ulaanbaatar Heating) on the project website: www.eprc-chemonics.biz.
Judging from these rankings and everyday experiences, Mongolian fiscal resources have not been sufficient to provide the requisite investment to supply adequate infrastructure in logistics, railroads, and energy, to name a few priority sectors. Neither will these resources be enough in the near future as investments in the mining sector put increased pressure on an already inadequate infrastructure. Clearly, a new model to provide the investment needed to modernize Mongolia’s infrastructure will be required, especially in the logistics, transport, and energy sectors. Properly structured Public Private Partnerships (PPPs) and an internationally competitive legal and regulatory framework for concessions are key instruments to attract much needed private investment as a partner in developing the needed infrastructure.
Public-Private Partnerships can be part of the solution. In recent years, developing countries faced with the same fiscal and capacity constraints as Mongolia have turned to the private sector as a partner in the provision of infrastructure services to help reduce this serious investment gap. Well-structured and competitively implemented PPPs are an effective and efficient tool to mobilize private capital to develop badly needed, economically-viable public infrastructure, and to ensure the efficient provision, operation, maintenance, and financing of these services over time.
Draft Concession Law of Mongolia. After adoption of the State Policy on PPP on 15 October 2009, the State Great Khural is in the process of discussing and redrafting this law. Properly set concession arrangements are being used in many developed and developing countries as an effective way to attract private sector investment and participation in infrastructure sectors and other public services and goods. In spite of success stories, there are many failed concession agreements around the world as well as lessons learned. Concession arrangements are diverse and depend on specific economic and social conditions of a country, including its fiscal regime, investment grade, country risk, human resources, institutional arrangements, etc.
As the proposed draft law on concessions goes through successive revisions, it should apply the “lessons learned” from other countries and adapt international best practices to Mongolian conditions. EPRC will join efforts with others to assist Mongolians in applying these lessons and drafting an internationally competitive Concessions Law.
Concurrently and as required the project will continue to provide assistance to the on-going first “pilot” PPP project in Mongolia, the Zamyn Uud logistics facility and contribute to needed revisions to the Energy Law to facilitate private investment in this sector.
The same report provides additional details on indicators of quality of infrastructure—the second of twelve “pillars” considered in the Report—as follows: 2nd pillar: Infrastructure
2.01 Quality of overall infrastructure ................... 133
2.02 Quality of roads ............... 133
2.03 Quality of railroad infrastructure.................... 77
2.04 Quality of port infrastructure ................... 116
2.05 Quality of air transport infrastructure ................... 128
2.06 Available seat kilometers* ...................... 116
2.07 Quality of electricity supply ............................. 112
2.08 Telephone lines* ............. 98
The lack of basic infrastructure is clearly a major factor constraining economic growth and poverty alleviation in Mongolia. This persistent under-investment in infrastructure is having a negative impact on economic growth, living standards, and “transaction costs” of businesses. For examples of this situation see the Hot Topix video clips on logistics (Zamyn Uud: Gate of development), railroads (Transit Mongolia), and the Facts, Figures and Opinions video clip on heating (Ulaanbaatar Heating) on the project website: www.eprc-chemonics.biz.
Judging from these rankings and everyday experiences, Mongolian fiscal resources have not been sufficient to provide the requisite investment to supply adequate infrastructure in logistics, railroads, and energy, to name a few priority sectors. Neither will these resources be enough in the near future as investments in the mining sector put increased pressure on an already inadequate infrastructure. Clearly, a new model to provide the investment needed to modernize Mongolia’s infrastructure will be required, especially in the logistics, transport, and energy sectors. Properly structured Public Private Partnerships (PPPs) and an internationally competitive legal and regulatory framework for concessions are key instruments to attract much needed private investment as a partner in developing the needed infrastructure.
Public-Private Partnerships can be part of the solution. In recent years, developing countries faced with the same fiscal and capacity constraints as Mongolia have turned to the private sector as a partner in the provision of infrastructure services to help reduce this serious investment gap. Well-structured and competitively implemented PPPs are an effective and efficient tool to mobilize private capital to develop badly needed, economically-viable public infrastructure, and to ensure the efficient provision, operation, maintenance, and financing of these services over time.
Draft Concession Law of Mongolia. After adoption of the State Policy on PPP on 15 October 2009, the State Great Khural is in the process of discussing and redrafting this law. Properly set concession arrangements are being used in many developed and developing countries as an effective way to attract private sector investment and participation in infrastructure sectors and other public services and goods. In spite of success stories, there are many failed concession agreements around the world as well as lessons learned. Concession arrangements are diverse and depend on specific economic and social conditions of a country, including its fiscal regime, investment grade, country risk, human resources, institutional arrangements, etc.
As the proposed draft law on concessions goes through successive revisions, it should apply the “lessons learned” from other countries and adapt international best practices to Mongolian conditions. EPRC will join efforts with others to assist Mongolians in applying these lessons and drafting an internationally competitive Concessions Law.
Concurrently and as required the project will continue to provide assistance to the on-going first “pilot” PPP project in Mongolia, the Zamyn Uud logistics facility and contribute to needed revisions to the Energy Law to facilitate private investment in this sector.