Mongolia: building a sustainable economic growth through downstream industries and infrastructure
Presentation • June 2010
National Development and Innovation Committeeat o a e e op e t a d o at o Co tteeSainshand Industrial Complex Task Force Team
Agenda
Executive summary 3
Macro-economic goals of Mongolia 4
Industrial park development in Sainshand city, Mongolia 8
Mongolia railway strategy 9
I l i l f l i d i l d i f j 12Implementation plan for large industrial and infrastructure projects 12
Integration of large mines with industrial developments 16
Fi i t t f il t ti 17Financing structure of railway construction 17
Next steps 21
2
Executive summary
• Mongolia has huge, untapped resource reserves
• It is a back-door to #1 commodity consumer nation in the world
• Miniscule GDP compared to market valuation of reserves
Th G t f M li t li d l d li i i d t i th• The Government of Mongolia streamlined new laws and policies aimed at massive growth
• A flood of foreign liquidity waiting to pour in
3
Millennium Development Goals based Comprehensive National Development Strategy of MongoliaDevelopment Strategy of Mongolia
NationalNationalNational Development Strategy of Mongolia
Mongolia is a country of contentment
We, Mongols, shall respect our history and culture, have our national Mongolia’s development is a
National Development Strategy (NDS) of Mongolia*
Visi
on
Mongolia is a country of contentment with vast lands, abundant natural resources, admirable history, and
glorious future.
dignity, be highly educated and confident in ourselves so as to
realize our desires and aspirations, live comfortable, prosperous and contented lives in our homeland.
guarantee of its security and independence. The root source of its
development lies in the national unity.
tegy
2007 - 2015 2016 – 2021 period2007 - 2015 period
• Synchronize EGSPR with NDS• Increase jobs (unemployment rate at max 3%) • Enhance coordination for poverty reduction
Create a so ereign ealth f nd
Stra
tal
s
j ( p y )• Create a nation-wide database• Provide economic incentives for new jobs
• Create a sovereign wealth fund• Reduce poverty
GDP growth: 14% GDP growth: 12%
Mongolia successfully developed its economic growth vision and
Goa
GDP growth: 14%GDP per capita: $5,000
GDP growth: 12%GDP per capita: $12,000
44
g y p gnow it is working on the process on how to achieve these targets
* Parliament of Mongolia resolution 12 dated Jan. 31, 2008 endorsing National Development Strategy of Mongolia
Mongolia’s National Development Strategy objectives in perspective with other Asian advanced and developing countrieswith other Asian advanced and developing countries
$40,000
30,000
35,000
20,000
25,000
10,000
15,0002021 Objectives: GDP per capita $12,000
2015 Objectives: GDP per capita $5 000
stan
epal
mar
este
desh
odia
Laos
ndia
stan
nam
n Is
d
NG
ibat
i
ines
anka
golia
utan
esia
uatu
onga
moa
hina
ives Fi
ji
land ysia
wan
orea
Kon
g
unei
apan
pore
0
5,0002015 Objectives: GDP per capita $5,000
Achievement of the National Development Strategy would catapult Mongolia into
Afg
hani
s
Ne
Mya
n
Tim
or-L
e
Ban
glad
Cam
bo L In
Pak
is
Vie
tn
Sol
omon
Pap
ua
Kiri
Phi
lippi
Sri
La
Mon
g
Bhu
Indo
ne
Van
u
To Sam C
h
Mal
d
Thai
l
Mal
a
Tai w Ko
Hon
g K Bru Ja
Sin
gap
55
p gy p gone of the top economies in the regions
* International Monetary Fund, World Economic Outlook Database, October 2009
A new railway infrastructure planning should consider linking all mineral deposits of Mongolia(1)mineral deposits of Mongolia(1)
Coal Deposits Iron Ore Deposits
Uranium Deposits Oil Deposits
61) The minerals study prepared by Mr. Odkhuu, D., a Member of Parliament, lead group of geologists from Geosan LLC, Mongolia.
The Government of Mongolia retained the Boston Consulting Group to assist in development of an integrated mining and railway strategy(1)assist in development of an integrated mining and railway strategy(1)
71) Boston Consulting Group, Railway Infrastructure Development Strategy for Mongolia, October 2009
Creation of downstream industries would enable to achieve a sustainable economic growth for Mongoliasustainable economic growth for Mongolia
Mining Diversified Exports1Processing in Sainshand industrial clusterRailways Railways
Coa
l / Ir
on
TavanTolgoi
Tomortei& others
Coal imports into Asian countries will grow ~9% a year between 2009-2015
Coal imports into Asian countries will grow ~9% a year between 2009-2015
55 68
Coking coalconsumption (M t)
~2500
Coal imports into Asian countries will grow ~9% a year between 2009-2015
Coal imports into Asian countries will grow ~9% a year between 2009-2015
55 68
Coking coalconsumption (M t)
~2500
CokePlant
IronPellets Plant
HBI / DRIPlant
Coal Gasification
Cop
per
OyuTolgoi
& others*
Taiwan
Republic of Korea
China
India
30
2009 2015
112009 2015
2009 2015
6
2009
9
201535
56
2009 2015
Japan*~435 **
Taiwan
Republic of Korea
China
India
30
2009 2015
112009 2015
2009 2015
6
2009
9
201535
56
2009 2015
Japan**~435
Copper Treament
Copper Smelter
Cde
Oil
Tamsag& others
India
Domestic consumption supplied by domestic productionCoking coal imports
India
Domestic consumption supplied by domestic productionCoking coal imports
Oil Refinery
Cru
d & others
Utilities Mine Power Plants~650 MW
Cluster Power Plant~800 MW
China is the biggest Asian market for copper, concentrate makes the bulk of imports
China is the biggest Asian market for copper, concentrate makes the bulk of imports
*
1,317
2009
1,337
2015
3,812
Copper consumption (M t)
~1,151
China is the biggest Asian market for copper, concentrate makes the bulk of imports
China is the biggest Asian market for copper, concentrate makes the bulk of imports
**
1,317
2009
1,337
2015
3,812
Copper consumption (M t)
~1,151
Refinery
Companies that send letters of interest for participation:• Coke plant – ThyssenKrupp Uhde GmbH• Metallurgical facilities – Midrex Inc., a company of Kobe Steel• Coal chemical facility – ThyssenKrupp Uhde GmbH
Offsites Water Facilities, Housing and Other Offsites*
?????
2009 2015
446406
2009
618492
2015
1,558
1,504
2009
2,178
2015 585
2009
766
2015
593
2009
669
2015
Japan
Republic
of Korea
TaiwanChina
**
?????
2009 2015
446406
2009
618492
2015
1,558
1,504
2009
2,178
2015 585
2009
766
2015
593
2009
669
2015
Japan
Republic
of Korea
TaiwanChina
81) Source: Boston Consulting Group
Coal chemical facility ThyssenKrupp Uhde GmbH• Power plant – RWE GmbH• Crushing and concentration – Outotec Oy• Copper smelting – Outotec Oy Copper cathode imports
Copper concentrate imports
Domestic consumption supplied by domestic productionCopper cathode importsCopper concentrate imports
Domestic consumption supplied by domestic production
Illustration of the railway infrastructure development of Mongolia(1)
91) Ministry of Road, Transportation, Construction and Urban Development of Mongolia, Railway Policy for Mongolia, April 2010
New railway infrastructure would enable Mongolia to export resources and processed goods to multiple export markets(1)and processed goods to multiple export markets(1)
101) Ministry of Road, Transportation, Construction and Urban Development of Mongolia, Railway Policy for Mongolia, April 2010
Industrialization foot-print of Mongolia is based on processing of mineral resources(1)mineral resources(1)
111) Boston Consulting Group, Railway Infrastructure Development Strategy for Mongolia, October 2009
Experiences of building industrial clusters show that development through cluster concepts increase economy competitiveness1through cluster concepts increase economy competitiveness1
JUBAIL INDUSTRIAL CITY
Country: Saudi Arabia
MIDAMERICA INDUSTRIAL PARK
Country: Oklahoma USA
SHANGHAI FENGPU INDUSTRIAL PARK
Country: ChinaCountry: Saudi ArabiaProject Developer:
Royal Commission for Jubail and Yanbu
Year: 1975Process Units:
Country: Oklahoma, USAProject Developer:
Public Trust
Year: 1960Process Units:
Country: ChinaProject Developer:
Government of ChinaMunicipal Governments
Year: 2003Process Units:
• Petrochemical Facilities• Steel Works Facilities• Fertilizer Facilities• Railways• Highways• Airport
• Construction• Oil and Gas Piping• Fertilizer Facilities• Pulp Paper Plants• Petrochemical Facilities• Railways
• Electronics Factories• Communication Plants• Biotechnology Facilities• Healthcare Facilities• High Technology Facilities• Construction Facilities• Airport
• Ports• Power Plants
• Railways• Highways• Aiport• Ports• Power Plants
• Construction Facilities• Leather and Textile Plants• Power Plants• Highways• Railways• Aiports
Concentration of infrastructure (railways, electricity, gas, communication) decrease operating costs of the industrial users
Project Amount:US$ 30 billion
Project Amount:US$ 19 billion
AiportsProject Amount:
US$ 15 billion
Governments, aiming to create a sustainable economic development,
p g
121212
, g p ,attracted investments by the development of industrial clusters.
1) Michael E. Porter, Council on Competitiveness. See also “The Development of the cluster concept – present experiences and further developments”, Christian Ketels, Harvard Business School, 11/26/2003.
The Government established to implementation units to create an environment to attract local and international investmentsenvironment to attract local and international investments
NDS Government Resolutions Relevant Institutions Resolution 118 Planned Projects
“Sainshand” industrial complex (“Projects”)
Coke Plant
cess
Uni
ts
Resol tion 299
Steering Committee Cement PlantSteering Committee: Prime Minister, Ministers, MPs
Task Force Iron Pellets Plant
HBI/DRI Plant
ProcResolution 299
Resolution 320Meeting Note 52Resolution 118
re1
Implementation Task Force: Chairman of Cabinet Secretariat of the GOM
Advisors:• Program Manager
Plus (PMC+)
Coal Gasification Plant
Oil RefineryInfr
astr
uctu
rNDICMOF, MFALI, MRTCUD, MMRE, MOE & others
Plus (PMC+)• International Counsel
together with Local Advisor
• Financial Advisor• Environmental Power Plants
Faci
litie
s2 Copper SmelterAgencies: SPC, MRAM, RAM, PAM, WAM others
The Government will implement these projects through Public-Private-Partnerships (“PPP”)
Consultant
Railways (Phase 1) Civ
il F
Working group: NDIC
13131313
p p j g p ( )by providing concession rights to local and international investors.
1) The Steering Committee shall include Parliament members, Government and non-government organizations.2) NDIC shall be the contracting party to all local and international advisors. MOF is to fund necessary operating capital.
Visualization of Sainshand Industrial Complex
Following Process Units are envisioned to be builtenvisioned to be built in the complex:
1. Cement Plant2. Coke Plant3. Iron Pellets Plant4. HBI / DRI Plant5. Coal Gasification Plant6. Oil Refinery7. Copper Smelter7. Copper Smelter8. Power Plant
141) Government of Mongolia resolution 140 dated June 2, 2010.
Implementation of the industrial complex shall start with PMC+ developing a Master Plan together with NDIC1developing a Master Plan together with NDIC1
NDIC
The NDIC team will work together with the International
NDIC
Program Manager Plus(PMC+)2
gCounsel and the Local Advisor
Railway EPC Process Units EPC
Oversight on selective projects(If required)
(PMC+)2
Contractors Contractors
Coke Iron Pellets HBI/DRI CopperOilCoal
Power Plants
Water FacilitiesOffsites& Utiliti
Process Units3 Coke Plant
Iron Pellets Plant
HBI/DRI Plant
Copper Smelter
Oil Refinery
Coal Gasification
Civil Facilities& Utilities
151515
1) Program Manager Plus Terms of Reference is described in Attachment 1.2) Bechtel and Fluor have expressed interest in the Global Project Manager’s role. US Eximbank formally issued a letter of interest to support project development activities of
these companies. 3) Ministry of Mineral Resources and Energy conducted preliminary study on multiple industrial zones.
Preferred delivery model is EPCM or EPC Main contractor or responsible
Subcontractor or support
Supervision
Contractual relationship
Managerial relationship
Delivery
Project value chain*
S BD C SU&C
O&CM & I
DEFEED
Multiple lot
Owner contracts with all suppliers necessary to perform project
• Owner Owner
ymodel Basic description Agent Contractual relationship model
S BDP S.E&F
C &C M
Multiple lot (owner integrated)
perform project completion and is fully responsible for all integration tasks
• Contractors
Contr. A(Engin.)
Contr. B(Equip.)
Contr. C(Constr.)
EPCM
EPCM is responsible for managing all aspects of Engineering, Procure-ment, Construction, including management
• Owner
• EPCM
Owner
EPCM
Contractor assumes Engineering, Procure- • Owner Owner
including management of all contractors contracted by the owner
• ContractorsContr. A Contr. B Contr. C
EPC
Engineering, Procurement, Construction activities for a defined project scope and is responsible for all its sub-contractors
• EPC
• Sub-contractors Subctr A Subctr B Subctr C
EPC
16*S – scoping, BD – basic design, FEED – front-end engineering and design, P – procurement, DE – detailed engineeringS.E&F – supplier engineering & fabrication, SU&C – start-up and commissioning, O&M – operations and maintenance
Industrial and Railway project will be implemented under the Law of Mongolia on ConcessionsMongolia on Concessions
Parliament of MongoliaC
Government of Mongolia
Concession Approval
Concession Decision1
Related Line Ministry
Tender Participants5
yRegulatory Authority ²
State Property Committee Bidd
ing4
p yAuthorized Entity³
Tend
er B
Concession Agreement
1) Law of Mongolia on Concession 2010 01 28 – Article 6 1 2
1717
1) Law of Mongolia on Concession 2010.01.28 – Article 6.1.22) Law of Mongolia on Concession 2010.01.28 - Article 3.1.63) Law of Mongolia on Concession 2010.01.28 - Article 3.1.74) Law of Mongolia on Concession 2010.01.28 - Article 11, 12, 135) Law of Mongolia on Concession 2010.01.28 - Article 11.3.35-a) Chinese, German, Korean, Russian and US companies expressed interests to participate
The private sector is the driving force for building of Processing Units on international project financing basison international project financing basis
State Property Committee
Mongolia Commodity E h
PROCESS UNITS1F i ht A t
Committee
Concession Agreement
Exchange
• Linking with NYMEX and other commodity exchanges
• Provides price discovery
TY:
30-4
0%
PROCESS UNITS
Supply Agreement
Freight Agreement
Products:Companies that
expressed interest:Freight Agreement
• Provides price discovery• TransparencyTavan
Tolgoi LLC
O T l i
Local Sponsors
International Sponsors
EQ
UIT
ECA Guaranteed
• Coke• Iron pellets• HBI/DRI• Copper cathodes• Synthetic gas
Oil fi
• ThyssenKrupp• Noble Group• Hopu Investments• and others
Offtake Agreement
Oyu Tolgoi LLC
Other mineral
Multilateral Tranche
Tranche
BT:
60-7
0%
EPC Agreement
• Oil refinery(industrial diesel and other oil products)
deposit
Commercial Tranche
DEB
Operations & Maint.
Agreement International Banks
1818Ministry of Mineral Resources and Energy conducted a preliminary study on other possible industrial zones in Mongolia.
The Law of Mongolia on Concession will provide a legal framework for building a new railway infrastructurebuilding a new railway infrastructure
MRTCUD Central train control system t R il A th it 2Railway Authority
Regulatory Authority1at Railway Authority2
(PTC2-a, GPS2-b)
JSC UBTZ
Operator
State Property Committee
Owner of the railway infrastructure
CommitteeAuthorized Entity3
Railway building on a
100% government ownership5
Terms of Concession
Wid (1 520 ) 8Railway building on a BOT basis4
Engineering design standards
Land lease payment6Paymentsid b
Wide gauge (1,520 мм) 8
CASH FLOW STREAM FOR FINANCING
1) Law of Mongolia on Concession 2010.01.28 – Article 3.1.62) Law of Mongolia on Railway Transportation 2007.07.05 – Article 142-a) Positive Train Control System2-b) Global Positioning System3 Law of Mongolia on Concession 2010.01.28 - Article 3.1.7
Freight payment (greater of)7 Number of wagons
Freight (ton/km)
paid by an Operator
19
CASH FLOW STREAM FOR FINANCINGg4 Law of Mongolia on Concession 2010.01.28 - Article 45) Law of Mongolia on Railway Transportation 2007.07.05 - Article 6.16) Law of Mongolia on Railway Transportation 2007.07.05 - Article 19.1.17) Law of Mongolia on Railway Transportation 2007.07.05 - Article 20.1.38) Mongolian Railway Strategy, MRTCUD
Concessionaire Railway Project Company financing structure either via project finance or a sovereign bondproject finance or a sovereign bond
Eq it Sponsors E port Credit Agencies1•State Property CommitteeGovernment of Mongolia Equity Sponsors Export Credit Agencies1
ShareholdersAgreement
Guarantee or Insurance
p y• International Sponsor
gMRTCUD & Railway Auth.
ConcessionApproval
Railway Project Company
ConcessionAgreement
State Property Committee International BanksLoan
Documents
Operating & Maint. ContractEPC
or EPCM Contracts
Offtake Contracts
Engineering and Construction Company
Offtakers Operating Company
Construction CompanySupply
Contracts
Sub-Cont. #1Sub-Cont. #2
Sub-Cont. #3
201) Other types of credit enhancements could be used, such as Multilaterals and private insurance companies
Supplier #1Supplier #2
Supplier #3
Railway financing transaction diagram
15% Down paymentEPC(M) Contractors n R il P j t CEPC(M) Contractors
Sales Contract 100%
Rai
l Util
izat
ion
Agre
emen
tRailway Project Companypm
ent P
aym
ent
Mining Company
e C
ontra
ct
Equ
ip
JSC UBTZ
mm
odity
Offt
ake
Freight Contract
International Banks OfftakersSales Proceeds C
om
85% GuaranteeExport Credit Agencies
2121
Equipment suppliers and engineering companies could serve as alternative equity investments with no deposit ownership claimalternative equity investments with no deposit ownership claim
Financing Mix Objectives / Motivation Pros Cons
OECD country’s exports increase • Long tenor, low cost • Assets / liability match• Credit history creation
• ECA processing lengthECA Guaranteed Tranche
Local economy development • Long tenor, low cost• Increase project profile
• Processing length could be long compared to commercial
Multilateral Tranche
%
Deb
t
Commercial tranches • Some structures could be self-liquidating structure
• Track record creation
• Market interest ratesCommercial Tranche
T k t fi i f i l E f l M k t diti d i iC it l k t t ti
p j p p
60 –
70
Supply chain and/or geographic market share interest
New technology Corporate governance
Strategic Investors
Take-out financing for commercial tranche, given favorable market conditions
• Economy of scale• Special features
• Market condition and pricing• Mismatched assets / liability• Rating requirement
Capital market transaction
quity
Maximize investment return (IRR > 25%)
Economic development Giving up upside potential Possible loss of management control
Financial Sponsors
market share interest Corporate governance
–40
%
Eq Equipment and technology suppliers
• Sales technology and equipment
• No deposit ownership• New technology introduction
Engineering and construction companies
• EPC or EPCM contract • No deposit ownership• New technology introduction
30 –
22
p gy
According to BCG’s socioeconomic impact for building railways and Sainshand industrial parkSainshand industrial park…
1 3
2 4
2323
Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009
Industrialization could increase Mongolian GDP to $41 bln over 11 years compared to current approximately $5 blncompared to current approximately $5 bln
2424
Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009
Action timetable for 2010-2011
2525
Contact address, telephone:
N ti l D l t d I ti C ittNational Development and Innovation CommitteeShainshand Industrial Complex Task Force TeamGovernment building 2, United Nations Street 5/1, Chingeltei district, Ulaanbaatar 15160, MongoliaTelephone: 976-11-265912Fax: 976-11-327914
National Development and Innovation Committee
2626
pSainshand Industrial Complex Task Force Team
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