ANNUAL REPORT 2008 - ebrd.com · Annual Report 2007 7 well as preparation of spade work for the...

Country Overview Introduction of the Bank Management Report Auditor’s Report CapitronBank 1

Consultative Council on InvestmentClimate and Private Sector

Development under the Prime Minister of Mongolia

ANNUAL REPORT

2008

Ulaantaatar, Mongolia

1. INTRODUCTION 3

1.1. Constitution of the Consultative Council 3

1.2. Functioning of the Consultative Council 3

1.3. Composition of the Consultative Council 4

1.4. Rules of Procedure of the Council 5

1.5. Secretariat of the Consultative Council 5

2. Background and Objectives of the Consultative Council on Investment Climate and Private Sector Development in Mongolia 6

2.1. Background and Objectives 6

2.2. Activity 1 8

2.3. Activity 2 8

3. Conclusion 15

4. List of Annexes 17

C ontents

2008Consultative Council on Investment Climate and Private Sector Development in Mongolia

Peace Avenue-13, Sukhbaatar district,Ulaanbaatar-210648,MongoliaTel: +976 11 327329Fax: +976 11 327467E-mail: [email protected]

Annual Report 2007

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H.E.S.Bayar, the Prime Minister of Mongolia and the Chairman of the Consultative Council on Inuestment Climate and Private Sector Development in Mongolia, and the team of the Secretariat.

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AnnualReportConsultative Council on Investment Climate and Private Sector Development in Mongolia

Besides speedy changes and growth of Mongolian

economy in recent years, the role of the private

sector in Mongolian economy has been steadily

increasing. The private sector share in the total

economy was over 80 percent as of 2008. Therefore, in order to

further support the development of the private sector and enable

favorable business environment and investment climate with a view

to accelerating the country’s social and economic development,

the Government of Mongolia with a joint initiative of the European

Bank for Reconstruction and Development took a decision to create

a “platform” for dialogue between the state and business.

This initiative found expression in the establishment under the

Prime Minister of Mongolia of a consultative and advisory body to

support private sector and help improve the business environment

and investment climate in Mongolia by providing for direct high-

level dialogue with private sector representatives and investors

with a view to finding effective solutions for current business and

investment problems.

On 6 February 2007, the Consultative Council on Investment

Climate and Private Sector Development in Mongolia (hereinafter

to be referred to as “Consultative Council”) was established by

the Government Resolution No.40 under the Prime Minister of

Mongolia.

1.1. Constitution of the Consultative CouncilIn the process of constituting the Investment Council, the effective

participation of representatives of the business community and

the international organizations (donors) was ensured by creating

a transparent procedure for selecting members of the Council

based on parity for the representatives of the state, the business

community and the international donor organizations through equal

participation in the decision-making. Rotation of the members

of the Council from the international organizations and business

made it possible to broaden their representation on the Council.

1.2. Functioning of the Consultative CouncilThe Council is a consultative and advisory body under the Prime

Minister of Mongolia that develops and prepares recommendations

and proposals for the Prime Minister of Mongolia, the Government

of Mongolia and other state bodies concerning improvements

to the business environment and the climate for investment in

Mongolia and their implementation, with a view to accelerating the

country’s social and economic development.

The Council’s main task is to assist the Prime Minister of

Mongolia, the Government of Mongolia and other state bodies with

the preparation and implementation of measures to support private

sector through improving the national business environment and

enabling investment climate.

The Consultative Council may:

• hear, at its meetings, proposals and initiatives of the business

community and investors as well as the heads of government

departments on questions related to the improvement of

business environment and investment climate;

• Enlist, under the established procedure, the assistance of

specialists and academics, domestic and foreign, to obtain

expert appraisals of the progress made with measures to support

private sector and improve the business environment, attract

and utilize foreign investment, reform state administration

with a view to improving the regulatory functions of the state,

and determine the strategy and priorities for attracting foreign

investment;

1. Introduction



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• Adopt and submit recommendations to the Prime Minister

of Mongolia, the Government of Mongolia and other state

bodies concerning the further development of state policy

on supporting private sector through improving the business

environment and investment climate;

• Supervise and follow-up the timely implementation of adopted

recommendations jointly with private sector and other relevant

organizations.

1.3. Composition of the Consultative CouncilChairman: Prime Minister of Mongolia;

Deputy Chairman: Minister of Finance;

Members:

Minister for Industry and Trade;

2 representatives of international organizations

(external partners);

2 representatives of bilateral partners;

5 representatives of private sector;

head of Secretariat of the Consultative Council.

1.4. Rules of Procedure of the CouncilThe Consultative Council meets when necessary, but not less than

once a quarter. A quorum is considered to exist if two thirds of

the membership is present. Decisions of the Council are taken

by majority voting on the items considered and set out in the form

of minutes with proposals and recommendations to the Prime

Minister of Mongolia, the Government of Mongolia and other

state bodies on supporting private sector through improving the

business environment and investment climate.

1.5. Secretariat of the Consultative CouncilThe Secretariat of the Consultative Council, headed by the head

of Secretariat, is responsible for providing organizational and

technical support for the work of the Consultative Council.

Under the procedure laid down, the head of Secretariat:

• May request from the state bodies any information necessary

for the work of the Council;

• Monitor the Consultative Council’s recommendations;

• Prepare reports for the Consultative Council and keep the

Chairman and members of the Council informed with regard

to the Consultative Council’s recommendations;

• Consolidate the proposals of ministries, government

committees and departments as well as business

representatives on improving the business environment and

investment climate;

• Participate in the preparation and organization of the

Consultative Council meetings;

• Lead the expert groups of the Consultative Council;

• Supervise and follow-up the implementation of adopted

recommendations.

Secretariat regulations concerning the functions, powers, structure

and manning of the Secretariat of the Consultative Council were

approved by the head of Secretariat and agreed by the Chairman

and Vice Chairman of the Consultative Council.

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2.1. Background and Objectives

T he EBRD gives a strong focus to private sector

development in its countries of operations, as the Bank’s

private sector oriented operational framework can play

a pivotal role in unlocking the economic potential in

the early transition countries (ETC’s) and providing longer-term

sustainable solutions to poverty alleviation. Effective public/

private dialogue and communication is vital for private sector

development, as it can steer and encourage needed reforms by the

government while providing governments in turn with support from

the private sector community.

As part of the Bank’s “Revised Approach and Action Plan for

the ETCs” which launched the ETC Initiative (“ETCI”) and

in the subsequent respective country strategies, the Bank

highlighted policy dialogue on investment climate as an area of

priority, including through investor councils (the “Councils”) to

supplement and leverage on the Bank’s operational work. To date

policy dialogue in this area has been conducted largely on an ‘ad

hoc’ basis, mostly in the context of presentation and distribution of

selected publications of surveys conducted by the Bank, high level

visits, participation in advisory councils in one country, interaction

with central banks as part of the Bank’s operations in the financial

sector, and legal transition work. As part of the ETCI, it was felt

that a more systematic approach was needed and a decision was

made to establish a mechanism such as permanent secretariats

for undertaking dialogue amongst the stakeholders (the Bank,

Government, business community and donors).

Following extensive consultations over the past year, at senior

governmental levels, as well as with the private sector, donors and

international financial institutions (“IFIs”) in Mongolia, it was felt

that that there was sufficient support needed to launch and support

the consultative processes through a council focusing on business

climate issues, and involving the government, perhaps also the

parliament, the private sector, selected IFIs and donors.

As a result of consultations with the Government of Mongolia on 16

May, 2007 the Government of Mongolia issued the Decree No.120

on Approval of the Council (Annex 1) with the aim of establishing

a favorable environment for utilization of loan funds provided by the

EBRD. however, the status of the Decree did not meet the overall

objectives highlighted during the extensive negotiations with the

Government of Mongolia. Concretely, the proposed objectives of

the Council were to focus on the stronger role in policy dialogue

between related stakeholders, particularly, dialogue between

government and business community, legislative and institutional

reform, donor coordination on the private sector agenda, notably

the improvement of investment climate and development of private

sector nationwide. According to the Decree No.120, the Council’s

scope of work was however limited to improvement of investment

environment for effective utilization of loans from EBRD.

Therefore, it was essential to amend the status of the Decree

No.120 of 16 May 2007, and refocus on initial objectives and

aims. Consequently, a number of meetings were organized with

the senior officials of the new government, during the first half

of December 2007, to introduce objectives and functions of the

Secretariat. As a result of extensive negotiations and consultations

with the newly formed Government of Mongolia, the Protocol of

the Government of Mongolia and a Government Degree No.40 was

issued on 6 February 2008 (Annex 2 and 3). The changes include

revised purpose and objectives of the Council, and change in

membership of the Council, including more representatives from

business community and international financial institutions and

external partners, not only focusing on government officials as it

is stated in the earlier signed Decree. Based on the Government

Decree and with an assistance of the EBRD RO, the Secretariat of

the Consultative Council accelerated its activities by setting up

its office and hiring legal, economic and financial consultants.

With the staff, the Secretariat started to work on formulation of

documents on its structure, procedures, strategy and plans as

2. Background and Objectives of the Consultative Council on Investment Climate and Private Sector Development in Mongolia



Annual Report 2007

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well as preparation of spade work for the first Consultative Council

meeting.

2.2. Activity 1The first meeting (Annex 4) of the Consultative Council was

held on 26th June 2008. The Prime Minister as the Chairman

of the Consultative Council and representatives of the private

sector, multilateral and bilateral cooperation participated in the

meeting. The first meeting of the Consultative Council focused on

procedural issues, namely the constitution, functions, composition

of the Consultative Council, rules of procedure and secretariat of

the Consultative Council. Also issues such as investment climate

and its future trend, and the ranking of Mongolia compared to other

countries according to the "Doing Business" by the World Bank

as well as major obstacles to improve the business climate and

attract investment in Mongolia were discussed.

During the first meeting, h.E.S.Bayar, the Chairman of the

Consultative Council highlighted that it would be important to

involve more key senior officials from ministries who are relevant

to the agenda of the meeting for the next CC meeting, and by

doing so increase the importance of the meeting. The Chairman

of the Consultative Council and other participants of the meeting

stressed that it would be important for the CC to coordinate its

activities with other organizations and entities in order to avoid

duplication and overlapping. It was also mentioned that the

Secretariat of the CC should come up with concrete issues to

be discussed during the next meeting. Some of the participants

pointed out the significance of establishing the CC in resolving

some of the obstacles and hindrances faced by the private sector

and investors in undertaking their activities.

During the Consultative Council meeting, it was resolved to put as

a goal-to improve Mongolia’s rating in the “Doing Business” by

the World Bank and raise its position to improve it within top ten

countries in Asia and top 30 in the world by 2012.

Within this goal it was decided to invite an expert group from the

World Bank to assess Mongolia’s position in the “Doing Business”

by the World Bank as well as to study and analyze the possibilities

for further improvements of the investment and business climate

in Mongolia.

Documents Prepared:

For the purpose of implementing measures discussed during the

Consultative Council meetings the following research documents

and instruments were developed:

• Introduction to the Consultative Council on Investment

Climate and Private Sector Development and its Secretariat

• Investment climate and its future trend in Mongolia

• Reform Recommendations for Mongolia in “Doing Business”

by the World Bank

• Major Obstacles to Improve the Business Climate and Attract

Investment in Mongolia

Recommendation of the Consultative Council Meeting:

1. To put a goal to improve Mongolia’s rating in the “Doing

Business” by the World Bank and raise its position to include

it within top ten in Asia and top 30 in the world by 2012.

2. To invite an expert group from the World Bank to assess

Mongolia’s position in the “Doing Business” by the World

Bank as well as to study and analyze the possibilities for

further improvements of the investment and business climate

in Mongolia.

3. Instructions were given to Mr.Kh.Amarsaikhan, the head

of Secretariat, to increase the number of participants to the

Council meeting and to come up with concrete issues for

discussions for the next meeting.

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Participants of the First Meeting of the Consultative Council on Investment Cliniate and Private Sector Development in Mongolia.



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Agenda 9.00-9.05 Opening statement h.E.Mr. S.Bayar, the Prime Minister of Mongolia, Chairman

9.05-9.15 Introduction to the Consultative Council on Investment Climate and Private Sector Development and its Secretariat Mr. Kh.Amarsaikhan, head of Secretariat

9.15-9.25 Investment climate and its future trend in Mongolia. h.E.Mr. Kh.Narankhuu, Minister of Trade and Industry

9.25-9.35 Reform Recommendations for Mongolia in “Doing Business” by the World Bank Mr. Arshad M.Sayed, Resident Representative, the World Bank

9.35-9.45 Major Obstacles to Improve the Business Climate and Attract Investment in Mongolia Mr. S.Demberel, Director, Mongolian National Chamber of Commerce and Industry

9.45-9.55 Questions, comments and feedback

9.55-10.00 Closing speech-Conclusion, decisions and recommendations of the meeting h.E.Mr. S.Bayar, The Prime Minister of Mongolia, Chairman

1 h.E.Mr. S.Bayar Prime Minister of Mongolia, Chairman

2 h.E.Mr.Ch.Ulaan Minister of Finance, Vice Chairman

3 h.E.Mr. Kh.Narankhuu Minister of Trade and Industry

4 Mr. John Chomel-Doe Director, Mongolia, the European Bank for Reconstruction and Development

5 Mr. Arshad M.Sayed Country Director, the World Bank

6 Mr.Martin Marschke Country Director, GTZ

7 Mr.Barry Primm USAID Representative

8 Mr. S.Demberel Director, Mongolian National Chamber of Commerce and Industry

9 Mr. Peter Morrow CEO, Khan Bank, & Chairman, Business Council of Mongolia

10 Mr. Ch.Gankhuyag CEO, XacBank & President, CEO Club

11 Mr.Kh.Ganbaatar Executive Director, Mongolian Employer’s Federation

12 Mr.G.Tserenpurev Executive Director, Mongolian Bankers Association

13 Mr. Kh.Amarsaikhan head of Secretariat

List of Participants


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2.3. Activity 2The second meeting (Annex 5) of the Consultative Council on

Investment Climate and Private Sector Development in Mongolia

(hereinafter referred to as “Consultative Council”) convened on 23

October 2008 at the Conference hall “V” of the Government house.

h.E.S.Bayar, the Prime Minister of Mongolia and Chairman of

the Consultative Council, co-chaired the meeting with Mr.Varel

Freeman, the First Vice President of the European Bank for

Reconstruction and Development, and representatives of the

private sector, multilateral and bilateral community participated in

the meeting.

During the second Consultative Council meeting the following two issues were discussed:

1. The implementation of a Single Electronic Window for foreign

trade to reduce the currently heavy transaction costs of

processing our imports and exports; and

2. Improvement of logistics infrastructure facilities in Zamiin

Uud to expedite the movement of goods.

With the purpose to reform and improve transportation and

logistics that are the main factors for foreign trade, and to develop

a comprehensive sector, and that meet needs of the modern

conditions and requirements, in 2008 the Government of Mongolia

has approved the “Transit Mongolia” National Program as well

as its implementation plan until 2015. however, the current

implementation of this program caused by several factors is not as

we have expected. Also there is an urgent need for prior actions

to set up the basis and conditions for forthcoming actions. These

and other issues were brought up by private sector representatives

who vigilantly observed and delivered their voices and comments

to us that.

Therefore, during the second meeting of the Council, two main

issues within the framework of the “Transit Mongolia” National

Program: the Introduction of the Single Electronic Window

to facilitate foreign trade, and the establishment of the Logistics

Facility of Zamiin-Uud that will help to eliminate some problems,

obstacles and red-tape that are negatively affecting the overall

economy, and private sector investment, were discussed.

Documents Prepared:

For the purpose of implementing measures discussed during the

Consultative Council meetings the following research documents

and instruments were developed:

• Introduction on Single Electronic Window on Trade

Facilitation

• Introduction on Logistic Facilities in Zamiin-Uud

• Institutional and human Resource Capacity Building in Trade

and Transport Facilitation in Mongolia

• Feasibility Study on Logistic Facilities in Zamiin-Uud

• “Transit Mongolia” National Program

• “Transit Mongolia” Comprehensive Development Policy

• Introduction on Doing Business-Mongolia

• On Existing Situation of Foreign Trade in Mongolia, Need

for Trade Facilitation or Introduction of the Single Electronic

Window

• On Requisite for Establishment of Logistic Facilities in

Zamiin-Uud

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Recommendation of the Consultative Council: 1. It was advised to assign the Minister of Finance S.Bayartsogt

and the Chief of the State Property Committee D.Sugar the

task of establishing a state-owned legal entity, approving its

initial paid-in capital and directing its activities to implement

functions of introducing the Single Electronic Window in

Mongolia pursuant to the Resolution of the Government no.

131 of 2007. The legal entity will expand into a business

oriented entity with state ownership participation obtaining

form of a private-public partnership (PPP).

2. It was advised to assign the Minister of Finance S.Bayartsogt

and the Chief of the State Property Committee D.Sugar the task

of establishing a state-owned legal entity with state ownership

participation, approving its initial paid-in capital and directing

its activities to implement functions of establishing a public-

private partnership “Zamiin-Uud Logistics Facility” pursuant

to the Resolution of the Government no. 183 of 2008. The legal

entity will expand into a business oriented entity with state

ownership participation obtaining form of a private-public

partnership (PPP).

3. With the aim of successful implementation of earlier proposed

issues, to propose to involve not only the Government

and private sector, but also representatives of bilateral

and multilateral external partners to share the ownership.

To request the European Bank for Reconstruction and

Development and the International Financial Corporation for a

support in terms of liability investment to establish the state-

owned legal entity.

4. To work closely with the World Bank expert group coming in

November to assess Mongolia’s position in “Doing Business”

by the World Bank. The Government will put it as its priority

to improve the indicators in “Doing Business”. The meeting is

to assign the Minister of Finance S.Bayartsogt responsible for

drafting an Action Plan to improve regulations in all ten areas

of business environment, to be submitted to the Cabinet.

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Agenda 15.00-15.05 Opening statement h.E.S.Bayar, the Prime Minister of Mongolia, Chairman

15.05-15.10 Opening Remarks by Mr.Varel Freeman, First Vice President, EBRD

15.10-15.20 On Existing Situation of Foreign Trade in Mongolia, Need for Trade Facilitation or Introduction of the Single Electronic Window

Mr.Fernando Bertoli, Chief of Party, EPRC project, USAID

15.20-15.30 Discussions 15.30-15.34 On Requisite for Establishment of Logistic Facilities in Zamiin-Uud Mr. N.Zorigt, General Director, Tuushin Co., Ltd

15.34-15.40 On Requisite for Establishment of Logistic Facilities in Zamiin-Uud Mr. T.Zanashir, General Secretary, Mongolian Freight Forwarders Association

15.40-15.50 Discussions

15.50-15.55 “Doing Business 2009” Mongolia - Issues to be Addressed Mr.David Lawrence, Program Manager, IFC

15.55-16.05 Questions, comments and feedback 16.05-16.08 Wrap-up by h.E.S.Bayartsogt, Minister of Finance

16.08-16.10 Closing speech h.E.S.Bayar, the Prime Minister of Mongolia, Chairman

1 h.E. S.Bayar Prime Minister of Mongolia, Chairman

2 h.E.S. Bayartsogt Minister of Finance, Deputy Chairman

3 Mr. Varel Freeman First Vice President, EBRD, Co-Chair

4 Mr. Ichihashi Yasuyoshi Ambassador Extraordinary and Plenipotentiary of Japan

5 Mr. Nicholas M.hill Deputy Chief of Mission, Embassy of the United States of America

6 Mr. John Chomel-Doe Director, Mongolia, the European Bank for Reconstruction and Development

7 Mr.Adrian h.Ruthenberg Country Director, Asian Development Bank

8 Mr. David Lawrence Program Manager, IFC

9 Mr. Fernando Bertoli Chief of Party, EPRC project, USAID

10 Mr. T.Zanashir General Secretary, Mongolian Freight Forwarders Association

11 Mr. N.Zorigt General Director, Tuushin Co., Ltd

12 Mr. Kh.Amarsaikhan head of Secretariat

List of Participants

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Participants of the Second Meeting of the Consultative Council on Investment Climate and Private Sector Development in Mongolia. During his first visit to Mongolia, Mr.Varel Freeman, the First Vice President of the EBRD, co-chaired the second meeting of the Consultative Council.

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Over the operational reporting period the Secretariat of

the Consultative Council has succeeded in creating

stable conditions for the work of the Consultative

Council on Investment Climate and Private Sector

Development in Mongolia. The Council operates on the basis of

parity and democratic principles, and the selection and rotation

of Council members from business associations and international

institutions are carried out openly and on a competitive basis. They

are widely represented on the Consultative Council.

The Consultative Council is gaining a reputable position within the

country’s institutional structure. This is largely due to the political

will of the Prime Minister of Mongolia, the Chairman of the

Consultative Council and the Finance Minister, the Vice Chairman

of the Consultative Council. The country’s political leaders have

gained a clear understanding of the barriers which businesses

face and have taken a solid measure to establish a mechanism that

allows monitoring of the implementation of their decisions aimed

at removing such barriers.

The Council has become a well-established operating mechanism

which ensures that recommendations of interested parties are

taken into account and that Council members can participate

actively in the working processes of the Consultative Council. A

key feature of the work of the Secretariat and Consultative Council

is that the most important issues raised by business associations

and private sector representatives are discussed and put onto the

agenda of the Consultative Council. This has also helped to raise

the profile of the Consultative Council. A mechanism has been

established allowing the wide distribution of the ideas, results

and achievements of the Consultative Council and the Secretariat.

There is a high level of awareness of the work of the Consultative

Council and the Secretariat among business associations and

Government organizations.

The Council has begun to play an important role in improving the

business environment and the investment climate. Following the

3.Conclusionprevious recommendations by the Council, important decisions

have been taken in respect of the trade facilitation, the optimization

of the permit and regulatory system and trade logistics. The efforts

of the Council have led to the establishment of the necessary

environment for the further implementation of reforms in the

priority areas and enabled the establishment of the joint company

based on public private partnership referred to in the report.

In these priority areas the Consultative Council will track the

implementation of reforms using as a yardstick the country’s

progress in the rating category “Doing business”. As far as other

aspects of improving the business environment are concerned,

there still remains much legislative work to do.

The Consultative Council has improved the coordination of

donor assistance for improving the business environment

and the investment climate of our country. To strengthen the

Secretariat’s capabilities, its staff have attended international

conferences, business forums and other events at the request of

the Government.

To put the Secretariat’s activities onto a more robust footing, the following steps should be taken:

1. The Secretariat’s efforts to widen the participation of donors

in the activities of councils and to cooperate with international

bilateral and multilateral institutions, State organizations and

the business community must be strengthened;

2. The participation of international bilateral and multilateral

institutions in the work of the Secretariat should be expanded.

In this context, the EBRD could play a vital role in coordinating

activities in this sphere.

3. Participation of the Secretariat in the preparation of national

programmes, seminars and other actions initiated by the

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Prime Minister will help to strengthen the political consensus

importance of the Consultative Council.

4. The capabilities of the secretariats of investment councils must

be strengthened. This can be achieved through bilateral and

multilateral meetings of the staff of the various secretariats,

with the participation of EBRD representatives. Efforts must

be made to ensure the participation of secretariat officers in

international conferences on investment matters, particularly

those held of secretariat officers in international conferences

on investment matters, particularly those held under the

auspices of the EBRD.

5. At the same time, it should be noted that the Secretariat has

insufficient staff and equipment to carry out its work since the

scope of its activities and responsibility has grown as the work

of the Consultative Council has increased.

It should be strongly emphasized that, if it is to establish an

enduring relationship with the Government, the Secretariat

must carry out the specific instructions of the Government: this

includes holding investment seminars and participating in the

implementation of resolutions issued by the Prime Minister and

the Government. To sum up, it should be emphasized that the

Consultative Council has now become an important vehicle for

dialogue between the Government and the business community

and that it has demonstrated its ability to bring to the fore

and resolve the essential issues facing business. It requires

development and needs support both from the Government and

from the international community in order to further promote the

private sector in Mongolia. The Secretariat is ready to take all

efforts to improve the investment climate and promote the private

sector in Mongolia through realistic dialogue between relevant

stakeholders and follow-up implementation of resolutions to

reduce barriers to private sector development.

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AnnualReportConsultative Council on Investment Climate and Private Sector Development in Mongolia16

4. List of Annexes1. Unofficial translation of the Decree No.120 on Approval of the Council2. Unofficial translation of the Decree No.40 on Re-establishment of Consultative Council3. Unofficial translation of the Protocol of the Government of Mongolia4. Minutes of the first meeting of the Consultative Council on Investment Climate and Private Sector Development in Mongolia5. Minutes of the second meeting of the Consultative Council on Investment Climate and Private Sector Development in Mongolia

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Annex 1

Unofficial translation

The Government of Mongolia Decree

May 16, 2007 No. 120 Ulaanbaatar city

Approval of the Council

It is hereby resolved by the Cabinet of Mongolia:

In order to facilitate a favorable environment for utilization of the loan funds to be provided by the European Bank for Reconstruction and

Development to approve the setting up of the Investment Consultative Council with the following composition:

Chairman: Prime Minister of Mongolia

Deputy Chairman: Minister of Finance

Members: • Minister of Industry and Trade

• Minister of Nature and Environment

• Deputy Minister of Foreign Affairs

• Economic Policy Advisor of the President

• Advisor to the Speaker of State Great hural

• Chairman of the Chamber of Commerce and Industry (by agreement)

• Chairman of Foreign Investment and Foreign Trade Agency

• head of Resident Office of the European Bank for

Reconstruction and Development (by agreement)

Secretary: Director of Budget Policy and Coordination Department, Ministry of Finance

Prime Minister of Mongolia (signed) M.Enkhbold

Minister of Finance (signed) N.Bayartsaikhan

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Annex 2


The Government of Mongolia Decree

February 6, 2008 No 40 Ulaanbaatar city

On re-establishment of the Consultative Council

The Government of Mongolia is RESOLVING:

1. In order to enhance Mongolian social economic development acceleration by supporting favorable business environment and

investment climate development in Mongolia to re-establish the Consultative Council with following members:

Chairman: Prime Minister

Vice Chairman: Minister for Finance

Members:

Minister for Industry and Trade

2 representatives of international organizations

2 representatives of external partners

5 representatives of private sector

head of Secretariat of CCIC

2. Depending on Council’s meeting agenda the Secretariat is to identify representatives names in consultation with Prime Minister of

Mongolia, Minister for Finance, Minister for Industry and Trade and to organize Council’s meetings.

3. In connection with this Decree endorsement to annul the Government Decree No.120 dated May 20, 2007.

Prime Minister of Mongolia (signed) S.Bayar

Minister for Finance (signed) Ch.Ulaan

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Annex 3


The Government of MongoliaPROTOCOL

February 6, 2008

DISCUSSED: on re-establishment of Council in order to enhance Mongolian social economic development acceleration by

supporting expansion of business environment and favorable investment climate in Mongolia

RESOLVED:

1 on re-establishment of Council in order to enhance Mongolian social economic development acceleration by supporting expansion of

business environment and favorable investment climate in Mongolia to endorse the Government Decree

2 with the aim to maintain regular activity of Council’s Secretariat to receive financial support from the EBRD

Signature

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Annex 4

Minutes of the First Meeting of the Consultative Councilon Investment Climate and Private Sector Development

in Mongolia

The first meeting of the Consultative Council on Investment Climate and Private Sector in Mongolia convened on 26 June 2008 at the

Conference hall “V” of the Government house.

The Prime Minister S.Bayar as the Chairman of the Consultative Council on Investment Climate and Private Sector Development in

Mongolia (hereinafter referred to as the “Council”) delivered an opening speech at the first meeting of the Council. During his opening

speech he briefly introduced the Council’s structure and topics to be discussed at the Council’s meeting. Also he expressed that the

Council will be a bridge between the Government of Mongolia, private sector and investors to work out critical issues that are faced by

investors. The Prime Minister remarked that the Government of Mongolia is always open to local and foreign investors and will take all

efforts to do its best to establish favourable investment climate in Mongolia.

Moreover, the Prime Minister expressed his hope that the first meeting shall not be limited to any topics, however the tone of the

meeting should be friendly and at the same time official. The Prime Minister proposed to discuss and find together a better ways to solve

difficulties faced by private sector and investors. he requested from the representatives who attended the first meeting that the decision

of the Council meeting should not be political or a “dream” decision, but a concrete decision that could be implemented in a real life.

The Prime Minister expressed his gratitude to the Management of the European Bank of Reconstruction and Development for the

establishment of the Council’s Secretariat and permanent support to its operation.

After the opening speech the Chairman of the Council invited the head of Secretariat Mr.Kh.Amarsakhan to introduce the Council’s

activities and the Secretariat’s responsibilities.

The head of Secretariat Mr.Kh.Amarsaikhan presented the Council’s structure and noted that the aim of the Council is to

support activities directed towards creation of the favourable investment climate and development of the private sector, and hence

acceleration of the social and economic development in Mongolia. Mr.Amarsaikhan mentioned that one of the broader objectives of the

Council is to make Mongolia from a “landlocked country” to a “landlinked one”.

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Furthermore, he stressed that the Secretariat provides methodological, structural and technical supports to the Council’s operations, and

one of the focal duties of the Secretariat is to analyse and propound ideas initiated by the business sector to the Council meeting level.

It will also provide support to the Government agencies to initiate documents and plan to improve investment climate. In addition, the

Secretariat will effectively collaborate with private enterprises, multilateral and bilateral organizations, and put its effort to generate

necessary methods to implement Council’s decision and control to the implementation.

Succeeding the presentation of Mr.Kh.Amarsaikhan, the head of the Secretariat, Mr.D. Khurelbaatar, the State Secretary of the Ministry

of Industry and Trade, representing Minister Kh.Narankhuu, gave a speech on investment climate and its further trend in Mongolia.

Mr.D. Khurelbaatar, the State Secretary of the Ministry of Industry and Trade, gave a general introduction to the investment

climate in Mongolia, and he highlighted the boost of the foreign investment and stated that during 1995-1996 total accounted foreign

investment was USD30-40 million, however today this figure has reached USD400 million or above. As of 1June 2008, 97 countries’

8577 foreign investment entities have been registered since 1990, of which 76 percent were registered between 2004-2008.

Mr.D.Khurelbaatar mentioned that foreign investment flows to Mongolia are not only one of the indicators that support stable growth of

the economy, but also they give an opportunity to get involved growing global and regional economic integration.

Mr.D.Khurelbaatar furthermore stated that the government of Mongolia pursues a policy to draw attention of the foreign investors to

our leading economic sectors such as agriculture, food production, light industry, tourism, infrastructure (power plant, construction,

information technology) and mining. Also he informed that within the framework of activities to create favourable investment climate and

to establish economic free zone and industrial park, the draft law to make amendments to the “Foreign Investment Law of Mongolia” was

passed through final discussions of the Parliament. Amendments to the above mentioned law were briefly presented as well.

Then Mr.Arshad M. Sayed, the World Bank Resident Representative emphasized the need to take into account the state of

Mongolia’s actions in terms of investments compared to other countries. he expressed his wish first of all to agree with positive measures

undertaken and implemented by Mongolia and words of Mr.D.Khurelbaatar. he said it was important to pose a question not on the rating

Mongolian business climate but on comparing Mongolian position against the rest of the countries. Unfortunately Mongolia’s rating

compared against other countries has been deteriorating. If in 2007 Mongolia ranked 46th according to the World Bank Doing Business,

its position went down to 52nd in 2008 while in 2006 it was ranked 41st. Also it’s essential to compare Mongolia with other countries

in order to attract foreign and domestic investors. Therefore, his presentation covered topics including challenges faced by Mongolian

business people from the start of their operations throughout its close down as well comparison against Asian and other countries.

Though Mongolia enjoys fairly high position in terms of registering property, protecting investors, enforcing contracts which all are

included in 10 criteria for Doing Business, the country is in low end on criteria including getting credit, paying tax, closing a business and

trading across borders. Therefore, in order to attain improvement in above mentioned criteria it is necessary to take specific measures.

For instance, reduce number of documents needed to trade across borders, shift to electronic customs clearance system, and determine

ways to overcome the obstacles through developing detailed mapping of steps connected to export and import transactions.

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Mongolia needs to pay special attention to attracting investors in variety of sectors. Because it is critical to pay special attention to not

neglect other sectors while the mining sector is expanding and try not to repeat bitter experience of some other countries.

S.Bayar: Thank you for extended comparative analysis and conclusions. S.Demberel, Chairman of Mongolian National Chamber of

Commerce and Industry shall talk on important topic of obstacles for creating favorable investment and business climate in Mongolia.

S.Demberel: This time I will not talk on obstacles since you all familiar with them and the World Bank has also specifically

mentioned them. I prefer to tackle several practical issues around the Council activities. The Council is expected to convene on a

quarterly basis so how does this correlate to other Council activities? Secondly, I would like to congratulate head of Secretariat and its

staff. The rationale behind this is very confident and intensive start up of their activities so I wish to never see this Council convening

with the only purpose to just have a meeting.

This February the private sector and donor community jointly organized Conference on the Private Sector Development Strategy. This

Conference drafted 30 pages long, though not finalized paper on the private sector long term development strategy. When this document

is expected to complete? Also there was an initiative to upgrade Mongolia to Top 10 in Asia and Top 20 in the World measured by

the Doing Business. At that time some people did not fully understand it. As for me I have been studying this matter since 2006. Also

besides the Doing Business the heritage Foundation, the Fraser Foundation, Transparency International, and even human Resource and

happy Planet have their respective ratings that assess business climate. Two major parties have signed Memorandum of Understanding

on Cooperation which incorporates consolidated views of Chamber of Commerce and Industry and other business associations. This

document envisions four years for the cooperation. This document reflects the vision to upgrade Mongolia by 2012 to Top 10 in Asia

and Top 20 in the World in measured by the World Bank Doing Business. It is fair to draw your attention to the fact Mongolia is the

first country that incorporated the World Bank research methodology into its policy toolkit. Therefore, I wish our Council to work in this

direction in four upcoming years. Mongolia is ranked very low in terms of foreign trade aspect within the Doing Business. In this regard

the Government of Mongolia has issued Decree to facilitate single electronic window, unfortunately no agency except the customs office

is implementing this Decree. This field needs financial and expert assistance, it requires practical activities. Also there are numerous

issues related to the logistics. As Mr.Amarsaikhan, head of Secretariat mentioned previously, first investments had been made to convert

Land-locked Mongolia into Land-linked Mongolia. Therefore I believe the Council needs to cooperate with international organizations

on this and other issues.

Let me tackle an issue already included in the presentation. There are international mechanisms to settle business disputes. These

mechanisms do exist in Mongolia, for instance Law on Arbitration. This law is very progressive one. In this regard we need to pay more

attention on balancing disputes, so there is no need to establish new institutions. Next issue is related to the existing Labor Law. Our law

protects interests of employees only. Conclusions drawn by organizations involved in studying labor issues have the same opinion. So

we have to address this issue in order to balance this relationship.

Above mentioned Memorandum of Understanding also includes matters of developing in Mongolia alternative sources of credit and

financing, including creation of a credit guarantee system in Mongolia. Finally, impact of General Law on Taxation is not clear yet.

however by the end of this year its impact shall be more tangible. I hope this law ensures balance of rights for both parties. Starting

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from 2009 some functions of state organizations shall be transferred to non-governmental organizations and this is very critical for the

business community. We need to consider the quality of foreign investments so I support USD100,000 threshold for the establishment

of a foreign invested company. Mongolia has kept its doors open for foreign investors for last 18 years. If at that time we were more

concerned with quantitative features, I believe now it is time to put more emphasis on quality.

Kh.Ganbaatar: Our institution supports activities of the Council. We believe it is critical to create investment climate and

determine proper policies in order to develop Mongolian economy. As far as I see, activities of Minister Ulaan and Chairman Demberel’s

Council and this Consultative Council are not overlapping because the first Council does not involve foreign investors. We believe

it is necessary to consider several issues to create investment climate. I think the Council shall work towards increasing awareness

of citizens and general public on investments. Also I hope we shall cooperate on improving capacity of Mongolian business people.

I believe it is essential to address issue of developing national consultants who are capable to provide consultancy and assessment

services on investment transactions. We are doing now and plan for future certain activities in this regard. Also I believe it is critical to

inform and make the general public aware of the Council activities. In addition it is necessary to create mechanism for the implementation

of the Council recommendation by appropriate institutions of the Government of Mongolia.

Ch.Gankhuyag: As I understand we are discussing matters on how to improve Mongolia competitive edge. We have met on

numerous occasions with representatives of EBRD and discussed experience of certain other countries. Depending on issues brought

for discussion, ministers and/or agency directors who are in charge of respective issues are invited to the meeting and receive specific

instructions with definite deadlines. Respective person is required to report back and becomes accountable for the implementation. On

other hand life broadcasts of the meetings via media outlets provide citizens with certain knowledge on the governance. As for technical

consultation we have discussed a lot on matters of the Government and the private sector partnership. So I believe the current meeting,

when we have an opportunity to meet the Prime Minister directly and share our thoughts, is among new work methods. In my view

in order to ensure success for the activities of this Council it is essential to come up with specific and real results from the very first

meeting. For instance, there is an issue of credit information database. In our view credit information database located at the Bank of

Mongolia is not very effective.

It is necessary to change the management of certain agencies. here I would like to mention Real estate registration agency. This agency

has become institution that creates inconvenience for people, causes losses of hundreds of million tugrugs to banks. Therefore, since

this agency is directly affiliated to you, I would like to request to address this issue. At the end I would like to call for the need to make

success in short run in order to facilitate further successful activities of this Council.

John Chomel-Doe: I wish to congratulate on the occasion of the first meeting of the Council. This meeting is introductory one

and ought to determine the design for the future meetings. In course of next meeting we shall discuss specific issues on the business

climate improvement. I support Mr.Ganbaatar’s opinion who believes issues related to the implementation of the Council decisions have

been carefully considered during its establishment process.

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Arshad Sayed: We congratulate members of the Council and express our belief in the need for this initiative. The World Bank has

its unit dealing with Doing business rating. hitherto this unit has been providing with assistance on certain issues in over 20 countries

in the World including Albania and Poland. Therefore, the World Bank is ready to provide with assistance in 10 above mentioned fields

or on general issues if the Council requires assistance.

Barry Primn: I am pleased to take part in this Council meeting. It is appropriate for the Council to determine sectors and fields

it will be active in. It is also necessary to decide whether the Council shall discuss issues of broader scope or just specific ones. Also I

believe it is necessary to address issues related to legal environment besides simply administrative ones.

S.Bayar: During today’s meeting of the Council its members raised - though in brief - very specific issues. In just few days

election results shall be known, however irrelevant of its outcomes issues discussed here and its decisions shall stay in force. Detailed

analysis made by Sayed, the World Bank Resident Representative reveals numerous obstacles faced by not only domestic but by foreign

investors as well. Chairman of the Chamber Mr.Demberel, Mr.Ganbaatar, CEO of Xacbank Mr.Gankhuyag all urge for specific results

from this meeting. The State Great hural is the institution that generates results. Therefore, I believe we shall convene for next post-

election meeting having wider range of participants. On other hand we know that some of our Government organizations are way too

bureaucratic, using mechanical terms they work as a “marsh” for vehicles and create lot of troubles to citizens. Till now we have annulled

1,200 rules and regulations. In other words we have been digging just peak of an iceberg and it is hard to imagine what to expect further.

My discussions with Minister of Justice and Internal Affairs in this regard could not give us any hint on the magnitude of the issue.

But this is certainly among issues the Government needs to address. Because we will work with both domestic and foreign businesses

the Secretariat, in my view, needs to organize next meeting on a specific topic. I consider feasibility to arrange next meeting before the

autumn session of the Parliament in the second half of September to cover broader topic. Let’s attract attention of the State Great hural

and business community and depending on the meeting topic contact in advance potential invitees to have wider range of participants.

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Annex 5

Minutes of the Meeting of the Consultative Councilon Investment Climate and Private Sector Development

in Mongolia

The meeting of the Consultative Council on Investment Climate and Private Sector in Mongolia (hereinafter referred to as “Consultative

Council”) convened on 23 October 2008 at the Conference hall “V” of the Government house. h.E.S.Bayar, the Prime Minister of

Mongolia and Chairman of the Consultative Council, co-chaired the meeting with Mr.Varel Freeman, the First Vice President of the

European Bank for Reconstruction and Development, and representatives of the private sector, multilateral and bilateral community

participated in the meeting.

S.Bayar: The meeting of the Consultative Council on Investment Climate and Private Sector Development has convened. The

handouts for the meeting were distributed earlier. Let me open this meeting with opening remarks.

Dear Mr.Freeman, Dear Members of the Consultative Council, Dear Participants,

Allow me to open the second meeting of the Consultative Council on Investment Climate and Private Sector Development in Mongolia.

One of the main foundations for Mongolia’s development depends on strong and sound private and business sectors. Within the

framework of activities to develop the private sector and create a favourable environment for investment, the Government of Mongolia has

been undertaking a number of actions not only at the policy level, but also practical actions to eliminate problems and obstacles faced

by businesses in real life. A vivid example that can be mentioned here is an establishment of the Consultative Council on Investment

Climate and Private Sector Development in Mongolia. The goal of this Council is to become a “bridge” between the Government

and private sector, and investors, and to resolve major issues that they are facing. In this respect, I would like to emphasize that the

Government of Mongolia welcomes not only local, but also foreign investors for discussions, and is taking all its efforts to create a

favourable investment climate.

The first meeting of the Consultative Council was held on 26 June. During our first meeting, we discussed the structure, organization

and activities of the Council. Moreover, we received detailed information on analysis of the World Bank “Doing Business” rating in case

of Mongolia for required policy and practical actions in order to do business and create more favourable environment for investment.

According to this rating Mongolia has slid down from 45th place in 2006, to 54th in 2007, 62nd in 2008 and 58th in 2009, and in

particular, according to its foreign trade criteria from 2006 to 2009, Mongolia’s rating constantly ranged from 156 to 168th place.

Unfortunately, these criteria show that it is not that pleasant to do foreign trade and business activities in Mongolia.

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Therefore, I think it would be right to pay attention, and organize our meeting today on transportation, logistics and infrastructure sector

for trade facilitation, which play a crucial role in the economic life of Mongolia. Due to lagging transportation, logistics and infrastructure

sectors, it is becoming ever more difficult to trade and do business, and these factors hinder local and foreign investors.

With the purpose to reform and improve transportation and logistics that are the main factors for foreign trade, and to develop a

comprehensive sector, that meets the needs of modern conditions and requirements, the Government of Mongolia in 2008 has approved

the “Transit Mongolia” National Program as well as its implementation plan until 2015. however, the current implementation of this

program, caused by several factors, is not what we have wished. Also there is an urgent need for prior actions to set up the basis and

conditions for forthcoming actions. These and other issues were brought up by private sector representatives who vigilantly observed

and delivered their voices and comments to us.

Therefore, during this meeting of the Council we will discuss two main issues within the framework of the “Transit Mongolia” National

Program: the Introduction of the Single Electronic Window to Facilitate Foreign Trade, and Establishment of the Logistics Facility of

Zamiin-Uud that will help us to eliminate some problems, obstacles and red-tape that is negatively affecting the overall economy,

investments and private sector.

I hope that the Council meeting will not be restricted to any boundaries, and will convene in friendly and working environment, and let us

openly discuss and resolve jointly the issues that we are facing.

Thank you for your attention.

here, I would like to invite the co-chair of this meeting Mr.Freeman, the First Vice President of the EBRD.

V.Freeman: Thank you Mr.Prime Minister, Ministers, Excellencies, Distinguished colleagues. It’s my pleasure to be here with you

today and participate in this important meeting. Two things strike me. First, as Prime Minister’s introduction has indicated, Mongolia

takes the investment climate for the private sector very seriously. It is making efforts to improve the conditions for the private sector and

for businesses in Mongolia. This is commendable. This is a country, which is had a great deal of engagement between the public and

the private sectors, and has witnessed by this council and bodes well for Mongolia to become more competitive and prosperous nation.

The second notable fact is that this is the second meeting of this council. The agenda today follows on very closely the conclusion of the

first meeting. That’s notable, because many times when we come together for this fora we talk, we debate, but we take little action. The

commitment to action, which has been shown to the follow through, is very, very important and points which are going to be discussed

today are totally in line with the needs and priorities that the council found in its first meeting.

Newspapers and press are full of news of recession in the United States, recession in Europe and international difficulties. Mongolia

has fortunately avoided most of the effects, but it is becoming more difficult and challenging world economy. And I say this as a word

of “warning” and a word of “encouragement”. The measures, which may be taken as a result of this council, are important to meet the

challenges that this more difficult world economic situation presents to all of the businessmen here in the room today and indeed all of

the companies operating in Mongolia. So with that, we have points to discuss that may help us to become more efficient, may develop

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more robust economy, and may indeed result in closer cooperation between the public and private sectors, and some very interesting

business opportunities for the private sector to develop. With that let me thank you for your attention for these brief moments of

discussion. I look forward to a very interesting and engaged discussion with each of you on the points to be debated today.

Thank you.

S.Bayar: Thank you Mr.Freeman. Now Mr.Fernando Bertoli, the Chief of Party of the USAID project, will present the issue on the

present situation of foreign trade in Mongolia, requisite for trade facilitation or introduction of the Single Electronic Window.

F.Bertoli: Thank you Mr. Prime Minister, Ministers and Distinguished members of the diplomatic core, representatives of

international organizations, and distinguished colleagues.

I am here speaking on behalf of the hard work of the working group on establishment of the Single Electronic Window. This was an

inter-agency working group. Unfortunately, at this point, the working group has finished its tasks and with the new government they

have gone to do other things. So I am here to summarize the work of the group. And I will do that in four parts. I will start by describing

the situation of foreign trade in terms of the electronic movement of information or generally the red-tape part of it. This session is

interesting because it has both the restrictions to the physical movement of goods as envisioned in the situation right now in Zamiin-

Uud, and the other one is the restrictions that these red-tape of all these agencies involve in foreign trade and the cost that they bring

to trade in Mongolia. Don’t worry I am not going to go through all the statistics that we have on subject matter. Just picture a “plate of

spaghetti” which is the slide that you have in front of you. And that gives you an idea. If you are a big trader or a big company, usually

it is solved with a quiet phone call, and if you are like a rest of the companies it takes a lot more doing to get your paper work done.

In the next slide, we have a comparison of selected products and again I am not going to go through all these products. But if you select

a product, you can see the steps and projected time it takes to process all the paper work. Obviously, you could multiply the time,

assume an average cost to the time employed, multiply times the number of transactions and you have what our friend-economists

would call the aggregate transaction cost. In here, it is so patterned and so evident that it is just not necessary, unless one wants to

support the consulting industry. So it is patterned. There is a lot of friction in there. Mongolia, in particular, being an open economy,

and relatively simple structure in the economy, is crucially dependent on foreign trade. When Mongolia acceded the WTO about 11

years ago, the margin that was put on terrace was 25 percent, the effective rate about 7.5 percent, so the real friction now comes in the

paper work in imports and exports. The other “plate of spaghetti” we have is in Zamiin-Uud, and I hope that Mr.Zorigt will speak about

it.

Next few slides talk about specific products and the number of days. The bottom line, as Mr.Prime Minister said, Mongolia is at the

bottom of the heap, when it comes to foreign trade facilitation, the trading across borders indicator of Doing Business. We looked at it

in detail, we may play with the time and phases in there, but the bottom line is that we could do a lot better.

The consequences of the current situation are patterned, but they are very evident. high transactions costs, time consuming and

I might also add a crucial element. There is a lack of transparency. Customs as we know in a country after country is a favourite

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beating horse for crisis for transparency and etc. The Single Electronic Window (SEW) comes to solve all that. The SEW is basically

a centralized system that provides one time data entry. In its ultimate form it can be accessed from any point, in any place through the

internet nowadays. You don’t have to walk the papers from spot to spot, basically it’s a one-time data entry and all the agencies share

one information or fundamentally the same information, that is customs, the metrology and standards, and state inspection agencies,

depending on the nature of the information that they require, they can access the same database. These are the advantages: single

submission, you don’t have to go around too many offices, and waste the time, the processing is very quick. There are different business

models to implement the SEW. We have in the United States a state-owned SEW, although in reality the United States does not have a

SEW, it is rather a composition of new technologies with border control and it is a real messy thing the way it runs now. In case of public

private partnership, you can see successful experiences of Finland, hong Kong and etc. Privately owned case is in Guatemala, which is

an extreme and an interesting case in Central America, and an NGO in Korea.

What are the results of implementation of the SEW? The most significant aspect of it to us, besides the reduction of costs and time,

was that the customs revenue almost uniformly rose and very significantly. So I think Minister of Finance, you have a vested interest

in getting this going as quickly as possible. Customs revenue rose by 30-35 percent. That would itself pay for probably 20 percent of

investment. It saves a lot of frustration and time. Reducing the friction, the drag on imports and exports, will become one of helpers in

controlling the rates of inflation.

Let’s summarize, what we have done in Mongolia to implement the SEW? Fundamentally the working group worked on the Government

Action Plan, it was approved and has been adopted.

What are the main characteristics that the government approved? It stated that the whole operation of the SEW should be business

oriented, it should be structured as the model where the state has a participation, but so does the private sector, or in other words PPP.

It could be a joint venture with potential foreign strategic investors, who could also put money in bringing technology.

Characteristics what the SEW requires and why PPP is desirable? Obviously, with the normal salary of civil servants you can’t attract the

kind of personnel this system requires on an on-going basis, it’s not only an initial investment. Customs here in Mongolia is fairly well

advanced and uses the Gamus system, or system which controls all imports and exports; and all customs collections is fairly reasonable,

fairly the state of the art. Probably the way the government will have a share in the company is through valuation of what the government

brings to the table through the Gamus. It still needs to be adopted and adjusted, but it’s really a good start.

What we have done? We have done a fair amount of education on the SEW through TV programmes. The most interesting thing for us

was whether we can attract the interest of foreign investors. And we managed to attract the interest of Swiss company SGS, which is

very large company and has a trade net product. We brought them through the project, the second time they came on their own nickel.

They did the prefeasibility analysis. We are testing the waters whether there is an interest from overseas strategic players to come to

Mongolia and possibly participate with Mongolians, with a private sector and the government to establish such as company, and the

answer was “yes”.

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Now that, a working group has finished its work, it is required some kind of legal entity. Starting a PPP from a scratch is still a bit

daunting given the framework in Mongolia. As I understand the legal framework does not forbid PPP, and it does not facilitate it. What we

suggest is that the company can be started, and it is up to the government to decide through which agency or which directors it excises

its share ownership. The most logical way from our perspective would be customs. It has the technology and computer software. It is a

revenue issue after all. The other partner is a private sector. The problem here is, who is a private sector. Somebody has to stand in for

the private sector. It could be an association of freight forwarders or any such association. My boss would allow me from USAID and are

willing to provide a help to the company on the feasibility study and to assist with an issue of an international tender open to everybody,

with a bit of luck we hope that by Tsagaan Sar the tender to be open on the streets, and we will work on that real hard. If you have any

questions I will be happy to answer them.

S.Bayar: Thank you Mr.Bertoli. Are there any questions regarding this brief, although rich in content presentation?

Ch.hill: Thank you very much. First of all, I would like to say that the US Government certainly welcomes the mechanisms that

promote dialogue between the government and the Mongolian private sector. I would like to congratulate the organizers of this council

meeting today in facilitating this dialogue. Two agenda items today are related to trade facilitation which is extremely important for any

country’s economic development, so I think that I really welcome seeing them on the agenda. I want to ask very specific question on

SEW, which is about how much it would cost to implement and how is it going to be financed?

F.Bertoli: We don’t have straight costs. A lot of it will depend on how it gets structured, and what the bidding process would

be. If I would give you a thumb-suck at initial capitalization I would probably say the total capitalization of 5 million USD to get it up

and running, and that would imply the evaluation of Gamus customs system, and it would also include some discounted cash flows to

include the Chamber of Commerce. Then there are also an on-going operations and expansion of the system, security and technology,

and once the system is put into place it will track more and more things. Probably at the end of the seven or eight years you may have

a total investment of ten to twelve million USD at the end of the day. That’s rough estimates, and we have not done the full feasibility

study. how much it worth, it would be determined by international tender. What the potential strategic investors would like to put in,

and how many years they would have as concession and turn it over to a company. There are so many variations; these are indications

of magnitude. In terms of financing I don’t think the Government needs to put one cent and that’s the beauty of it. I think there is a lot of

interest overseas. There is for example the SGS. Obviously, for transparency purposes it has to be an open international tender. I hope

that the strategic investors and Mongolian investors will come to the table.

S.Bayar: There are quite a few issues in Mongolia that are not resolved. One if these “bottleneck” issues is the issue of Zamiin-Uud.

Private sector representatives know very well about difficulties, obstacles and losses that are faced in Zamiin-Uud border point while

transshipping loads through trains and roads. In this respect, I would like to invite the General Director of Tuushin company Mr.N.Zorigt

to make his presentation.

N.Zorigt: I would like to express my greetings of this day to you.

This time, I would like to provide with brief information on difficulties faced by transport and logistics sector and what measures are

required to take in order to overcome them.

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To formulate simply, the transport and logistics sector can be understood as a channel that connects producers with each other and

with customers. If this channel has an obstruction somewhere or is too narrow, sufficient quantity of products and service will not be

available to producers and customers and will lead to a market crisis. Therefore, those who develop and implement transport policies are

sometimes called “coordinators of arterial functions of the economy”.

Today, I would like to draw your attention to the following issues.

• Transport and Logistics sector, it’s current situation, constraints to the businesses, negative impacts on economy;

• Importance of Zamiin-Uud port and needs for development;

• Current situation on policy and measures of the Government of Mongolia, support from international

organizations, expected results;

• Proposed solution on responsibility of entity, private sector needs, participation and readiness.

There are a number of issues to be solved in the transport and logistics sector and today I would like to specifically introduce you the

issues related to Zamiin-Uud port. Mr. Zanashir, President of the Freight Forwarders” Association will present this issue.

What level is this sector at today?

To be harsh, it can be concluded that the current situation of Zamiin-Uud is holding back the development of Mongolia. The reason is

that according to the international practice, it is considered that a business environment is favorable if in international trade the transport

and logistics cost is less than 12 percent of the price of goods. But today this share for goods transshipped through Zamiin-Uud is 18-24

percent depending on type. This dependence of goods from transportation costs is too high.

In the past years, development of transport and logistics sector of Mongolia has been left out of concern, thus value-added logistics service

was almost not developed. This underdevelopment of transport and logistics sector has negatively affected other sectors’ development,

even more the social and economic development of the country. For example, every one is aware that due to lack of facilities to supply

construction materials at cheaper price without shortage, caused limitations in construction at reasonable prices.

Let me point out several things related to the capacity and legal environment. Currently there are:

• Insufficient wagons and locomotives,

• Limited capacity of Zamiin-Uud transshipment facility.

• The regulatory framework does not encourage the private sector participation and investment, the law is not

implemented accurately.

• Capacity of Zamiin-Uud customs inspection site is limited.

All of which certainly require urgent measures to be taken by public and private sectors.

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Now let me draw few examples what the businesses face due to above hardships. Today, Zamiin Uud transport and logistics facility

does not meet current requirements thus causes delay of goods, and according to surveys, the average delay hours of the goods are as

follows.

• 23.5 hours for inspection of lorries with non-uniform loads

• 28.2 hours for uniform loads to be scanned

• 34.2 hours for lorries queuing in China waiting to get to the Zamiin Uud border crossing point.

• 135 hours for non-uniform loads of lorries to be transferred to rail with waiting hours

Some negative impacts caused by delay of goods are:

• As of 2007 year end, total 11 freight forwarding companies have paid demurrage fee (fine for delayed shipment of the empty

containers back) around US$900 thousand, i.e. over one billion togrogs.

• As of July 2007, about 450 wagons carrying cement were delayed in Zamiin Uud for 16-35 days. Consequently the retail price of

cement at Ulaanbaatar was increased by 76 percent. In addition, as cement mark decreases by 50 units for each 14 days, the quality

of cement supplied to market was 50-100 units lower than the label mark which can be deemed as direct negative impact to the

construction quality.

• Transshipment waiting cost for a loaded lorry estimated to be 70-120 thousand MNT per day, and if we assume that a lorry waited

for about 20 days, it can be said that the cost of goods increased by 1,400,000- 2,400,000 MNT.

• In order to have goods transshipped quickly, traders started to pay “unofficial fees” to purchase the position in the line and to skip

the queue. And today it has become a normal phenomenon with unofficial rates. For instance, it costs 50-100 thousand togrogs to

obtain a position in the line that allows the shipment on the next day, and 250-360 thousand togrogs to have one wagon loaded.

Current situation does not only obstruct our business interests and profits but also negatively impacts the prospects of business and

economy of our country. For example,

• It does not allow the private sector representatives to put their ideas and initiatives into realization. For instance, in 2002 Tuushin

Company initiated the “Mongolian Vector” train. Wagons from Europe are accumulated at the Brest port in Byelorussia, and trains

are sent on the 15th and 30th of each month for the past 6 years. This time when Zamiin Uud port is in such difficult conditions, our

transportation initiative is of greater importance now. Subsequently, loads from China to Europe may be transported by auto and rail

roads, located in Zamiin Uud and shipped on above mentioned train, but there are too many obstacles to realize this idea. We have

been planning to have one complete train every 3 months or weekly.

• UB Railway declares it does not have sufficient quantity of wagons and locomotives. Although there are companies that are willing

to bring them in according to applicable regulations, UB Railway is failing to approve the procedure to utilize wagons and tariffs with

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acceptable allowances which led to the current non-compliance with the laws, and this has made a more difficult situation of the

transport sector.

• The decision of the UB Railway to not increase transit loads but instead to seize transportation of transit goods that arrived at Zamiin

Uud on auto vehicles and transported to Russia and Europe starting from April 1, 2008, had become the reason for significant

decrease of transit goods flow.

• Such underdevelopment of UB Railway and Zamiin Uud logistics does not only negatively affect home economy but also might serve

as the grounds to leave out our country outside the international trade and transport network. For example, some Chinese companies

invested in Erlian aiming at Russian market have stopped to make an additional investment in Erlian but are moving their new

investments into Manchuria and Alashankoy. Also, on October 6, the Russian Railways opened a modern auto and rail road terminal

with capacity to process 200,000 high capacity containers per year in Zabaikalsk (bordered with Manchuria). Yakunin V.I., President

of the Russian Railways, personally attended the opening ceremony and said that they were preparing to not only transport 49 million

tons of oil from Manchuria to Zabaikalsk but also transship 53.7 million tons of other loads in 2012.

Let me draw some examples of impacts on the economy.

Zamiin Uud serves as the main transshipment route connecting Russia and China. Ulaanbaatar Railway established the transit transport

price according to ETT tariff, and has been covering the loss from earnings of domestic transportation of certain goods. It may be

deemed that insufficient transport and logistics infrastructure in Zamiin-Uud caused decrease in transit loads which required increase

in domestic tariffs. In 2008 UBRW tariffs increased three times. Briefly,

• Delay in Zamiin-Uud serving as a potential constrain for supply shortage causes inflation.

• Income earning from transit transportation has been decreasing due to inaccurate regulatory framework, inefficient international

cooperation and lack of activities to strengthen the country’s competitiveness in transport and logistics sector.

• Increase of domestic transport tariff causes inflation as well as decreases the price competition of export products.

• Due to delay of goods, in order to conduct uninterrupted business activities, businesses need more financial resources, at the same

time increasing the prices unreasonably taking the situation of supply shortage.

• A delay in using the country’s geographical advantages and as well as a faster development of competing corridors / Manchuria,

Alashankoy/ may create some negative impacts on the country’s competitiveness and further more excluding Mongolia from

international trade and transport network

As mentioned above, the transport and logistics sector is the vein of economy that connects producers with customers. As the first

company in the sector, we are interested to participate in the elimination of issues occurred in the sector and implementation of orderly

and effective policies and actions in transport and logistics sector with its leading role. Tuushin Company contributed in the establishment

of freight forwarding sector in Mongolia and for the past 18 years, it has been making the best efforts for development of transportation

in Mongolia with its sustainable operations, tight cooperation with international financial organizations and has sincerely provided them

with support to the desired extent. Other representatives of our sector have the same willingness and readiness to cooperate with the

Government. Specific proposals will be presented by Mr. Zanashir, President of Freight Forwarders’ Association.

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S.Bayar: Thank you to General Director of Tuushin company Mr.Zorigt. Now I would like to invite Mr.T.Zanashir, General Secretary

of Mongolia Freight Forwarders Association, to continue the presentation.

T.Zanashir: My greetings of this day to you. With following facts I would like to explain the reason for special focus on the Zamiin-

Uud port.

• For landlocked Mongolia, Zamiin-Uud is the short cut to connect Europe with Asia with its geographical location and is of strategic

importance for it serves as the northern corridor that connects Europe and Pacific countries through Germany, Poland, Byelorussia,

Russia, Kazakhstan, Mongolia and China, one of the four rail road corridors of Trans-Asian railway network for transshipment

between Europe and Asia, and as auto road corridor of Ah-3, Asian highway network between Ulan-Ude, Russia and Tangu, China

to connect Mongolia to the international road transport network.

• Transshipment of goods from Europe to South Asia through Mongolia is 1135 km and 1600 km shorter than that of South Baikal-

Manchuria, Central Asia-South Asia routes respectively. In addition it is estimated that there is a high potential to save time and

expenses if above land road corridors are used.

• Zamiin-Uud port is significant for its transportation infrastructure, and 51.9% of total foreign trade cycle including 72.2% of export

and 30.65 of import goods belong to China. In terms of transported load, 90% of import, 75% of export and nearly all transit goods

are transported through this port.

how should we develop Zamiin-Uud? What do we imply when we talk about establishment of the transport and logistics infrastructure?

Long-term strategic importance to develop Zamiin-Uud of Mongolia is to contribute to intensive economic development by using

the geographical advantages establish a modern transport and logistics corridor connecting Europe and Asia using the geographical

advantages, and to integrate to the international trade and transport network.

We present a concept to develop Zamiin-Uud as a regional development center that focused on providing transport and logistics services

on the international trade and transport gateway.

Components of transport and logistics facility are as follows depending on the international practices and market conditions of

Mongolia.

• Auto to rail transshipment facility

• Warehouses for temporary storage and whole sale distribution

• ICT networks

• Customs inspection sites, bonded warehouses, laboratories and etc.

• State specialized inspection sites, laboratories etc.

• Banks, post office, and other business service centers

• Parking spaces etc.

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We are of the view that strategy for Zamiin-Uud development should be implemented by module-by-module schemes depending on

the market demand

What are the benefits of establishing the Zamiin-Uud logistics facility?

Upon establishment of this facility,

• Infrastructure that enables continuous operations of Zamiin-Uud transit and domestic transportation at low cost.

• The improvement of transport and logistics infrastructure will cause increased supply of goods, meet the standards, and share of

“costs for inefficiency” in the price will decrease.

• The transport logistics facility will enable the customs and state specialized inspectors to conduct “warehouse-to-warehouse”

inspections, widely used in international practices, thereby the efficiency of state services will improve and room for bureaucracy

and bribing will decrease.

• Smoothened transportation flow will open an opportunity to increase the volume of transit transportation as well as earning from

transit transportation.

• Domestic freight forwarding services as well as follow on new businesses and services will develop.

• Zamiin-Uud logistics development will contribute to the creation of larger markets, and will serve as a basis for implementation a

regional development concept in Mongolia.

Now I would like to present you some facts on what activities have been carried out for development of Zamiin-Uud and how much we

are ready to commence this operation.

• The Government of Mongolia is of the view that one significant solution of development is to make the transport and logistics

sector of Mongolia comply with the international standards and increase its competitiveness, as well as taking advantage of the

geographical location, to create stable economic growth. This concept was formulated as the “Transit Mongolia” national program,

and this program was approved with the Resolution of the Government of Mongolia #183 dated May 14, 2008.

• The issue of establishment of Zamiin Uud logistics facility was reflected in the provision 2.16 of the Program Action Plan and

other relevant provisions. We are of the view that this was a reflection of the importance of the issue in the state policy document

to establish a transport and logistics facility in Zamiin Uud, the largest international trade port of Mongolia that is located at the

intersection of wide and narrow rail roads connecting Mongolia with the PRC, a new industrial and trade center of the world, South

East Asia and the nearest sea port.

With assistance of the Economic Policy Reform and Competitiveness Project, a preliminary conclusion was made on the current

situation of the transport and logistics sector and certain detailed studies were made on the needs to improve Zamiin Uud transportation

infrastructure. They are:

• Pre-Feasibility study on Zamiin-Uud transport and logistics facility

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• General Engineering plan for Zamiin-Uud customs inspection site expansion

• Business model and business plan on Zamiin-Uud auto-to-rail transshipment facility

ADB • Construction of Àh3

• Study on Zamiin-Uud and Erlian transport and logistics facility

The Government of Japan built the rail-to-rail transshipment facility in 1995.

Our major issue is that we need to identify the most urgent actions and determine methods of implementation.

We think that the current institutional structure responsible for coordinating the establishment of Zamiin-Uud transport and logistics

facility is weak and consequently the program implementation is slow and not well concerted.

Therefore, in order to improve this situation, it is necessary to establish an institutional structure to be in charge of implementation that

ensures equal rights and participation of the Government and private sector representatives.

We present our proposal that this issue may be solved by establishment of an economic entity based on the public and private sector

partnership.

In other words, in order to solve the issue of establishing the Zamiin-Uud logistics center and bringing the border, customs and

specialized inspection facilities and services to the international level, an entity that combines needs and interests of both the public and

private sectors needs to be established that will bear a responsibility to manage, monitor and assess implementation of the Government

Program.

We are of the view that we need to solve the issue by establishing a “for profit” legal company based on the public and private sector

partnership.

This company shall perform following daily activities required for implementation of the program. They are:

1. have detailed feasibility study and engineering plan done,

2. Develop tender document,

3. Determine the state participation,

4. Provide advice to businesses and take actions to minimize their risks,

5. Attract foreign investors and undertake other actions needed for implementation in concerted manner.

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There is an actual necessity for private sector to get involved in above activities and our freight forwarding companies are expressing

their willingness to be involved.

In establishing a public and private sector partnership, first of all, we need to: • Create favorable regulatory environment

• Assure fair market competition

• Facilitate to decrease the investment risks and costs

• Create a sustainable business environment

In order to establish above entity, freight forwarding companies have

• Experiences in the freight forwarding sector

• Current position in the international trade and transport and existing business network

• Experiences in management and human resources

• Investment opportunities

S.Bayar: Thank you. Are there any questions with respect to this presentation?

A.Ruthenberg: Thank you for inviting. Just to demonstrate the importance of reducing trade and logistics cost, ADB did a

study in 2004 for Kyrgyzstan. here, we did a general equilibrium model, which showed that reducing by half of the transportation and

logistics cost would result in doubling of GDP within 10 years and most surprisingly 60 percent of benefits are pro-poor. So this is

just an example of the study which shows how important is logistics and transports costs in the economy. As far as ADB is concerned,

we have plans for Zamiin-Uud, we have allocated 25 million for the next year for improving the transhipment facility. On top of that we

have allocated 20 million USD to improve border towns and urban infrastructure in South Gobi. On top of that, as you may know we are

rehabilitating the road from Choir to Zamiin-Uud. Thank you Mr. Chairman.

S.Bayar: Thank you. Any questions? I think it is right to establish logistics facility in Zamiin-Uud within the framework of Transit

Mongolia program. however, what kind of action are undertaken to ensure liaison between the local administration and free trade zone?

It seems that parties are working on different sides for one goal. What is the opinion of Mr.Zorigt and Mr.Zanashir on this point? have

you done any studies and exchanged your opinions with relevant agencies on these points?

N.Zorigt: With regard to Zamiin-Uud, probably everyone has done certain things and has developed projects, for example on

different parallel railroads. In general, I believe the Zamiin-Uud development should be linked to the border town development path.

Instead of targeting the establishment of free economic zone, Zamiin-Uud should become an international logistic center and facilitate

services for shipment of goods not only for Mongolia, but also for international community, and help Mongolia to get its own factual

niche in the international transportation market. Therefore, the transshipment center built up by Japanese Government assistance has

been performing its duties, though it is necessary for us to expand it. Ulaanbaatar Railways does its investments, however some private

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companies have proposed to build small roads or small scale complexes. I believe we need to find solution based on nationwide

arrangement under joint coordination. It is necessary to establish a business entity with investments coming from both the state and

the private sector. We need to target the creation of complex center with a capacity to arrange railway to truck, truck to railway, and truck

to truck transfer, which is an appropriate solution. These activities desperately need state coordination. I do not support any selfish

and short sighted solutions. In any case, the state should take appropriate measures to build public private partnership, and ensure

the participation of both the state and private sector. The government management should be sustainable and on an on-going basis. I

believe it shall be the best solution. I believe Zamiin-Uud should become large international transport and logistics center rather than

a free economic zone.

T.Zanashir: The logistics center should develop in parallel with the Zamiin-Uud free trade zone. I believe the logistic center should

coordinate shipments both coming to Mongolia and transit shipments via Zamiin-Uud. Therefore my personal view is that this issue

should go on without direct connection to Zamiin-Uud free zone development.

S.Bayar: The presentation on the World Bank “Doing Business – 2009” preliminary assessment results and issues to be addressed in

this framework has been prepared. I would like to open floor to Mr. David Lawrence, Program Manager, International Finance Corporation

to make presentation on this topic.

D.Lawrence: Your Excellency, Minister, Distinguished Colleagues and Guests. It’s a great honour to be here today. And I would

like to thank Mr.Amarsaikhan for inviting me to speak today. For the next few minutes I would like to talk about Mongolia’s business

environment as shown through the Doing Business Report for 2009 and draw the link with topics of today. For those of you who are

unfamiliar with the Doing Business, it is essentially a survey conducted annually in 181 countries, which compares 10 indicators across

countries. This allows any country to see how it does compared to others and also to measure its own progress towards reform. Ten

topics or ten indicators are shown on the left of the slide. They basically represent the lifecycle of the business from start to finish.

The overall goal is to give policy makers or development organizations a clear picture of what needs to be addressed, so that reforms

are more easily implemented. In 2009 Mongolia scored 58 out of 181 economies, small slip from last year. It’s actually a very good

score. If you look at this comparison with neighbouring countries, you will see that Mongolia outperforms almost every former Soviet

country, outperforms China, and outperforms Russia. The only countries in the former Soviet Union that have done better are countries

in Caucasus and counties in Baltic. Mongolia outperforms the Europe and Central Asia which has an average ranking of 76, outperforms

East Asia with average ranking of 83 and significantly outperforms landlocked economies with average ranking 107. This slide shows

ten indicators with Mongolia’s ranking and comparison with its nearest neighbours. In some ways, Mongolia has done very well, like

registering property is excellent, protecting investors is excellent. however, as we heard earlier trading across borders is 156 that is an

improvement from last year’s rating of 168, but it still shows that there is much room for improvement. Closing a business and dealing

with construction permits are also poorly scored.

So we have already heard number of ways to streamline trade logistics, basically anything that will reduce the number of documents,

increase the speed will help, electronic submission of documents will help, of course, this is the subject of Bertoli’s speech, and also the

studies showing the map out, process and identify the blockages. It says how to reform trade logistics? It is quite clear to me today that

these steps are already taken and I commend to the government of Mongolia for doing this. Very briefly, closing a business, Mongolia

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has improved slightly, but still has a very low score. It takes about four years to close a business, when the recovery rate is increased a

little bit, but remains at twenty-two cents on the dollar.

And dealing with construction permits, which I wouldn’t think would be a problem given how much construction under way, is also very

low. The procedures and the days required to get the permit remain unchanged in the last few years, although costs have decreased.

Next steps, priorities for the Mongolian government for reform have to be clearly identified, I think this cross border trade issue is clearly

the one.

There needs to be further analysis, I know much has been done already, but to help to figure out what needs to be done in each of the

problem areas and continue support from the World Bank, ADB, EBRD, EPRC and other institutions for promoting this reform.

That was very brief, I could not go into details of Mongolia’s performance, but you are able to go to this web-site. You will find as much

details as you want on how the scores were calculated, you will see a tool which allows you to experiment with how reforms will change

the rating Mongolia has. You are also welcome to send an e-mail to me with questions.

S.Bayar: Thank you Mr. David Lawrence. Since we have your email address people may get additional information on issues of their

interest. I welcome Ambassador Ichihashi to give a speech.

I.Yasuyoshia: First of all, I would like to express my thanks for being invited to this important meeting. This is my first time to

be present for this important meeting. On this subject of trade and investment environment, I have also submitted my own papers, for

instance at the time of the World Bank and Mongolian Government sponsored technical meeting, we provided papers on ten areas, which

we, from foreign investor side, wish to see improvements in Mongolia. There have been a lot of talks on this matter. We firmly believe

that the Government of Mongolia is taking steps to improve the investment and trade environment, and I fully appreciate these efforts.

What I am going to do today is to present two concrete examples of foreign companies, in this case Japanese firms, what they are facing

in Mongolia. here I don’t get into details of the cases, but two cases are basically what was approved or licensed about four to five years

ago, those approvals, license terms, commitments, promises were not honoured later, because of various reasons, maybe when the

parliament starts to discuss the revisions of the law, the bureaucracy will stop taking actions in accordance with earlier approvals or

people may change, as the government changes the bureaucracy also changes; and previous commitments cannot be honored. These

are two examples, but this is the environment foreign companies are operating in Mongolia.

The most serious issue as I see it no one is taking responsibility. I mean we have raised this issue in a bilateral Government and private

sector joint meeting, which was held two weeks ago, but there were not clear answers or even a hint or a suggestion for solution of

these issues, so I think since this is the highest fora with the presence of the Prime Minister and Finance Minister and with important

participants. Since it is my first time of presence here it might be not quite appropriate for me to raise concrete example. I thought I

should be here to submit such cases and seek solutions. Because the Ministries and agencies talk differently, for instance FIFTA in

favour of companies, but they have no rights, the relevant Ministries say “no” which is a clear answer, sometimes they don’t give any

answers without any explanations. So I hope these matters will be also tackled I think it’s one of the elements to be looked at in context

of doing business in Mongolia. Thank you very much.

S.Bayar: Thank you Mr. Ambassador for very business minded and critical proposal. I would like mention that this year was a

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very interesting year for Mongolia. There were Olympic Games held, and each Olympic Games year is accompanied by long lasting

elections in Mongolia. This meeting is our second one, the previous meeting was held just before the elections. You may consider last

four months as a transitional period. Thank you all for sharing your proposals, comments and asking questions. I would like to stress

that the Government of Mongolia shall take into consideration these issues.

I would like to welcome S.Bayartsogt, Minister of Finance, to share his views on this meeting and conclusions he reached.

S.Bayartsogt: Thank you Prime Minister. I would like to thank three main presenters and all who shared their comments and

views. Today’s meeting on investment climate in Mongolia is a special one since it takes place just after one month after the new

Cabinet was formed. It coincides with the period when guidelines for the new Government have been worked out and currently undergo

last discussions before its submission. I would like to inform that two issues on the agenda of today’s meeting are being incorporated

into the Government Guidelines.

The first issue is a component of an initiative, which the Prime Minister proposed during his previous term in the office and was related to

streamlining of information and registration systems. In addition to the improvement of foreign trade turnover, this program also aimed to

support the creation of more favorable environment for entrepreneurs and fighting problems of non-tariff nature, corruption and bribes.

In terms of the second issue, I appreciate earlier activities undertaken with the assistance from Japan. Also I support proposals and

initiatives to develop it into a major logistic center which connects Asia with Europe through a business entity based on public and private

partnership or joint venture. As for the Mongolian government participation, there are special administrative unit in Zamiin-Uud and

state institution which has a status of Zamiin-Uud free trade zone. Therefore the state has a responsibility to provide these institutions

with coordinating efforts. Though this logistic center in institutional terms is separate from the Zamiin-Uud free zone, I believe the state

has a responsibility to ensure appropriate coordination of their operations.

S.Bayar: Thank you to Minister of Finance S.Bayartsogt. Our meeting is almost finishing. Are there any opinions on general topic,

structure and content of the next meeting besides the two issues that we have discussed?

N.Zorigt: I have a few words to say. In case of Zamiin-Uud logistic facility, it shall be established with state and private participation,

and on behalf of the private sector I would like to say that with the purpose to ensure sustainable performance of this facility, it would be

appropriate to have the private sector participation with a majority share. Although the government should own a certain amount of the

share, the private sector should own the control package of shares. I am saying this to avoid political influence and ensure sustainable

performance of this facility.

S.Bayar: Mr.Baatar, the Government Plenipotentiary Representative in Zamiin-Uud, is participating in our meeting today. I would

like to give a floor to Mr.Baatar to express his opinion.

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Baatar: Mr. Prime Minister, Ladies and Gentlemen. I am happy to participate in this meeting and would like to say that very important

issues were discussed here today. Nevertheless, I find it important to present you the real situation, because many issues are discussed

at the same time, some of them are duplicated, some of them go along with each other, and at the end we have very little outcome. At the

present three transshipment facilities are operating in Zamiin-Uud, and another facility will be in operation soon. The AirTrans company

has almost completed two lanes of railway and auto transport road with two ways. Overall, four companies are operating in this field.

Moreover, the General Customs Agency completed its paper work for ownership of 400 hectares of land to start the establishment of

logistics facility. If the economic free zone will be set up, it shall also have a logistics facility as well. In that case, we should take into

account the amount of shipments. Today the narrow and broad train tracks in Zamiin-Uud are overloaded. The narrow tracks are old,

manual and non-automatic ones. If we can improve the present situation, the speed of transshipments will increase. With the initiative

of Vinswei company from Chinese side, the 15 lane train track is going to be built soon, although the work and roads from our side have

not been started. Today, a highway with 5 lanes is bordering with Mongolia. Therefore, it is vital to pay attention to the logistics such

as border stations and railway junctions. Our work has to be in line with the Government policy on planning and policy matters. It is not

right to develop logistics and free trade zone separately. This project will be successful if every action is planned under one policy. I am

in position to implement the results of this conference. Thank you.

S. Bayar: Thank you. Prior to this conference, the council members have discussed and the Secretariat prepared and brought up

above mentioned issues for discussions. Following the issues that we have discussed, Council has come up with a recommendation

consisting of four points. Within the framework of PPP, right now it is difficult to say whether the public-private business entity should

be a liability company. Therefore, I would like to assign the Cabinet, in particular the Minister of Finance S.Bayartsogt and the Chief

of the State Property Committee D.Sugar the task of establishing a state-owned legal entity, approving its initial paid-in capital and

directing its activities to implement functions of introducing the Single Electronic Window, and secondly, under the Transit Mongolia

project, a logistics facility in Zamiin Uud. however, it is worthwhile note that establishment of logistics facility should be in line with the

establishment of free trade zone and other local projects. I believe that you have same opinion on this matter.

Thirdly, it is important to invite delegates of bilateral and multilateral cooperation apart from the Government of Mongolia and private sector.

I would like to request the EBRD and IFC if they would be interested to invest in the new state-owned firms that will be established.

Fourth, it is advisable to collaborate with the working group of the World Bank Doing Business visiting to Mongolia in November 2008

to assess Mongolia’s business environment. It is advisable to the Cabinet to include into its list of priorities the issue of improving the

indicators of Doing Business. For the moment, the Cabinet is working toward to finalize its Action Plan and will make every effort to

include this issue in the Action Plan. It is necessary to prepare a plan and formulate a guidance and project in order to improve each

and every 10 indicators of Doing Business. The most suitable agency for undertaking this work is the Ministry of Finance or Minister

Bayartsogt. Based on earlier mentioned issues that we have discussed today, the draft recommendation to assign these responsibilities

to Mr. Bayartsogt has been formulated. Are there any comments on this draft? No. As I understand everyone agrees with this draft.

The meeting of the Consultative Council on Investment Climate and Private Sector Development has convened for the second time.

These two meetings helped us to streamline our activities. I have noted earlier that the first meeting took place just before elections. In

my opinion it would be more competent to invite more delegates for the third meeting. Moreover, it is advisable to inform discussion

topics of the meeting to participants one month ahead, get the feedback and depending on the issues to be discussed invite not only

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the Prime Minister and Finance Minister, but also other Ministers. The Finance Minister has always participated in the meeting and I

think he will do so in the future as well. Depending on the issue to be discussed for the next meeting it would be right to invite Cabinet

member in charge of specific issue or sector as well as heads of relevant agencies. Would it be possible to organize next meeting within

this year?

Kh.Amarsaikhan: It is possible in January 2009.

S.Bayar: It is essential to organize the third meeting in January 2009. By that time, the Government Action Plan, 2009 Budget

and Government priorities will be approved. I would like to inform that we made changes in general methodology for formulation of the

budget and Government priorities. From now on, the Government priorities will be discussed not in autumn, but in spring. Therefore,

I anticipate that the Minister of Finance will give a briefing in advance on issues that will be incorporated in the Government priorities,

and I think that relevant organizations and representatives of organizations that are present here will have an opportunity to actively

participate in discussions.

We have high expectations from the Council’s work. We believe that Mongolia has a bright future and high growth if we can improve the

investment climate and support private sectors that produce 80% of national wealth. I would like to note that I and Minister of Finance

will pay attention to transform into actions the ideas and issues as well as the Government policy that were discussed during these

meetings. I wish that the consultative council will become a good practical mechanism for both bilateral and multilateral cooperation

that will support Mongolia’s development. I would like to state to all of you that your ideas are very valuable. In particular, I would like to

express my appreciation to Mr. Varel Freeman, First Vice President of the EBRD. Further on, I would like to make a suggestion to discuss

major issues of importance with a support of other banking and international organizations, Embassy of Japan, Embassy of the USA and

other relevant organizations during these meetings. I hope by January next year, during the third meeting of the Consultative Council

we will give a briefing on mining sector issues, policies implemented by the Government regarding these issues, success stories and

mistakes. One month and one week has passed since the establishment of the new Cabinet. Therefore, there are many issues that need

to be resolved. According to procedures at first we are going to submit for discussion the amendments to the budget and actual budget

of the last year, and then inevitably we have to submit the budget for 2009 and Government Action Plan. Moreover, Government is making

all effort to pass the mining law within this year or within November of next year. It appears to me that if we have agreed in advance we

would discuss issues such as impact of global banking and financial crises on cooperation and investment, its influence on economy of

Mongolia. however we could not do so as the meeting was planned and topics for discussion were prepared in advance. I would like to

express my appreciation to all of you. In this respect I would like to say that we are expecting specific proposals and comments from all

of you, who have a profound experience to make this meeting more efficient.

Thank you for your attention.

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Consultative Council on InvestmentClimate and Private Sector

Development under the Prime Minister of Mongolia

ANNUAL REPORT

2008

Ulaantaatar, Mongolia Suite 301, 8 Zovkhis, Seoul Street 21, Ulaanbaatar 14251, Mongolia

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ANNUAL REPORT 2008 - ebrd.com · Annual Report 2007 7 well as preparation of spade work for the...

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