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8/7/2019 Integration Presentation ENG
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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 e overnmen o ongo a s ream ne new aws an po c es a me a mass ve grow
A flood of foreign liquidity waiting to pour in
3
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Millennium Development Goals based Comprehensive National
Development Strategy of Mongolia
We, Mongols, shall respect our history and culture, have our national Mongolias development is a
Development Strategy (NDS) of Mongolia*
Vision
with vast lands, abundant naturalresources, admirable history, and
glorious future.
dignity, be highly educated andconfident in ourselves so as to
realize our desires and aspirations,live comfortable, prosperous andcontented lives in our homeland.
guarantee of its security andindependence. The root source of its
development lies in the nationalunity.
egy
2007 - 2015 2016 2021 period2007 - 2015 period
Synchronize EGSPR with NDS Increase obs unem lo ment rate at max 3% Enhance coordination for poverty reduction
Stra
ls
Create a nation-wide database Provide economic incentives for new jobs
v w u Reduce poverty
Mon olia successfull develo ed its economic rowth vision and
Go
GDP per capita: $5,000
GDP per capita: $12,000
4
now 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
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Mongolias National Development Strategy objectives in perspective
$40,000
30,000
35,000
20,000
25,000
10,000
15,0002021 Objectives: GDP per capita $12,000
stan
epal
mar
este
esh
odia
aos
ndia
stan
nam
Isd N
Gibati
ines nk
aolia
utan
esia
uatu
nga
moa
hina
ives Fiji
land
ysia
wan re
aong
unei
pan
ore
0
5,000,
Achievement of the National Develo ment Strate would cata ult Mon olia into
Afghani N
Myan
Timor-L
Bangla
Camb I
Paki
Viet
Solomo
Papua
Kir
Philipp
Sri L
Mon B
h
Indon
Van T
oSa C
Mald
Thail
Mala
Tai K
Hong B
r Ja
Singa
5
one of the top economies in the regions
* International Monetary Fund, World Economic Outlook Database, October 2009
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A new railway infrastructure planning should consider linking all
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.
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The Government of Mongolia retained the Boston Consulting Group to
71) Boston Consulting Group, Railway Infrastructure Development Strategy for Mongolia, October 2009
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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
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New railway infrastructure would enable Mongolia to export resources
101) Ministry of Road, Transportation, Construction and Urban Development of Mongolia, Railway Policy for Mongolia, April 2010
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Industrialization foot-print of Mongolia is based on processing of
111) Boston Consulting Group, Railway Infrastructure Development Strategy for Mongolia, October 2009
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Experiences of building industrial clusters show that development
JUBAIL INDUSTRIAL CITY
Saudi Arabia
MIDAMERICA INDUSTRIAL PARK
Oklahoma USA
SHANGHAI FENGPU INDUSTRIAL PARK
China Project Developer:
Royal Commission for Jubail and Yanbu
Year: 1975Process Units:
,Project Developer:
Public Trust
Year: 1960Process Units:
Project Developer:Government of ChinaMunicipal Governments
Year: 2003Process Units:
Petrochemical Facilities Steel Works Facilities Fertilizer Facilities Railways Highways
Construction Oil and Gas Piping Fertilizer Facilities Pulp Paper Plants Petrochemical Facilities
Electronics Factories Communication Plants Biotechnology Facilities Healthcare Facilities High Technology Facilities
Ports Power Plants
Highways Aiport Ports Power Plants
Leather and Textile Plants Power Plants Highways Railways Ai orts
Concentration of infrastructure (railways, electricity, gas, communication)decrease operating costs of the industrial users
Project Amount:US$ 30 billion
Project Amount:US$ 19 billion
Project Amount:US$ 15 billion
Governments aimin to create a sustainable economic develo ment
121212
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.
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The Government established to implementation units to create an
NDS GovernmentResolutions Relevant Institutions Resolution 118 Planned Projects
Sainshand industrial complex (Projects)
Coke Plantess Units
Steering Committee Cement PlantSteering Committee: PrimeMinister, Ministers, MPs
Task ForceIron Pellets Plant
HBI/DRI Plant
Pro
eso u onResolution 320Meeting Note 52Resolution 118
e1
Implementation Task Force:Chairman of CabinetSecretariat of the GOM
Advisors: Program Manager
Coal Gasification Plant
Oil RefineryInfrastructuNDIC
MOF, MFALI, MRTCUD,MMRE, MOE & others
International Counseltogether with LocalAdvisor
Financial Advisor Environmental Power Plantsac
ilities
2 Copper Smelter Agencies: SPC, MRAM,RAM, PAM, WAM others
The Government will im lement these ro ects throu h Public-Private-Partnershi s PPP
Consultant
Railways (Phase 1)Civil Implementation Agency:
NDIC
13131313
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.
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Sainshand Industrial Complex implementation phases
Phase 2Phase 1
Master Planning
NDIC (with Advisors)
Tender for Advisors
The Task Force team willannounce internationaltender for followin
Execution of Sainshand Industrial Complex(Construction period: 5+ years. Below steps to be repeated for each Process Unit)
SteeringImplementation
decision
advisors to work together NDIC:
PMC+ 1 International counsel
together with the Local
Tender on Process Units
Phase 3
Documentation / Closing
Phase 4
Construction
Phase 5
Decision to stopthe Project
v sor
EIA consultant Provisioning of local
labor for construction State Property Committee Advisors
State Property Committee Advisors
State Property Committee(Commissioning)
Advisors
dissolved
6/2010 3/2011 2011 2017
Process Unit 1Process Unit 2
1414
... .
1) The advertisement is envisioned to be 1/8 of the newspaper page. The cost for a global ad on Wall Street Journal is $32,301.44, Financial Times - $13,608.00.
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Visualization of Sainshand Industrial Complex
Following Process Units are
in the complex:
1. Cement Plant2. Coke Plant3. Iron Pellets Plant4. HBI / DRI Plant5. Coal Gasification Plant6. Oil Refinery7. Co er Smelter 8. Power Plant
151) Government of Mongolia resolution 140 dated June 2, 2010.
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Implementation of the industrial complex shall start with PMC+
The NDIC team will worktogether with the International
Program Manager Plus2
Counsel and the LocalAdvisor
Railway EPC Process Units EPC
Oversight on selective projects(If required)
Contractors Contractors
Power Plants
Water FacilitiesOffsites
Process Units 3 Plant
Plant
Plant
Smelter
Refinery
Gasification
Civil Facilitieses
161616
1) Program Manager Plus Terms of Reference is described in Attachment 1.2) Bechtel and Fluor have expressed interest in the Global Project Managers 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.
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Preferred delivery model is EPCM or EPCMain contractor or responsible
Subcontractor or support
Supervision
Contractual relationship
Managerial relationship
Deliver
Project value chain*
SU O&
CM & IDEFEED
Multi le lot
Owner contracts with all
suppliers necessary toerform ro ect
Owner Owner
model Basic description Agent Contractual relationship modelP S.E&F &C M
(ownerintegrated)
completion and is fullyresponsible for allintegration tasks
Contractors
Contr. A(Engin.)
Contr. B(Equip.)
Contr. C(Constr.)
EPCM
EPCM is responsible for managing all aspects of Engineering, Procure-ment, Construction,
Owner
EPCM
Owner
EPCM
Contractor assumesEn ineerin Procure- Owner Owner
of all contractorscontracted by the owner
ContractorsContr. A Contr. B Contr. C
EPC
,ment, Constructionactivities for a definedproject scope and isresponsible for all itssub-contractors
EPC
Sub-contractors Subctr A Subctr B Subctr C
EPC
17*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
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Authorized Entity announces a tender as per the engineering design
Parliament of Mongolia
Government of Mongolia
Concession Approval
Concession Decision 1
Related Line Ministr
Tender Participants 5
Regulatory Authority
State Pro ert Committee idding4
Authorized Entity
Tender
Concession Agreement
18
. . . .2) 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
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The Law of Mongolia on Concession will provide a legal framework for
MRTCUD Central train control systemRailway AuthorityRegulatory Authority 1
at a way ut or ty(PTC 2-a , GPS 2-b)
JSC UBTZ
Operator
State Property
Owner of the railwayinfrastructure
Authorized Entity 3
100% government ownership 5Terms of Concession
BOT basis 4
Engineering design standards
Land lease payment 6Payments
e gauge ,
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 Mon olia on Concession 2010.01.28 - Article 3.1.7
Freight payment(greater of) 7 Number of wagons
Freight (ton/km)
pa y anOperator
20
4 Law of Mongolia on Concession 2010.01.28 - Article 45) Law of Mongolia on Railway Transportation 2007.07.05 - Article 6.1
6) 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
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The Government of Mongolia resolved to build new railways on a Build-Operate-
Interested parties to fill out a SolicitationTerms Sheet for railway construction
Based on the market interest the railwayconstruction is to be bundled
Depending on the interests, a selectrou is to form a Railwa Pro ect
Parliament of MongoliaConcession Approval
r
Korea Rail Network Authority 5
Companyovernment o ongo aConcession Decision 1
MRTCUD MRA
national tend Infrastructure Development LLC
China Ministry of Transport
Regulatory Authority 2
State Property Committee International tender
bidding 4
Railway inte Hopu Investments LLC
Deutsche Bahn GmbH
Others
21
1) Law of Mongolia on Concession 2010.01.28 Article 6.1.22) Law of Mongolia on Concession 2010.01.28 Article 3.1.6
3) Law of Mongolia on Concession 2010.01.28 Article 3.1.74) Law of Mongolia on Concession 2010.01.28 Articles 11, 12, 135) Korea Rail Network Authority is fronting for Hyundai E&C, Posco E&C, GS E&C, Byucksan Engineering Co., Ltd., Daerim E&C, Soosung E&C, Sejong Engineering
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A financing structure envisaged for the railway construction in
Options for Mongolian stateequity contributions:1. Develo ment Bank tee 3
Railway Project Company2
2. Sovereign bond issue 43. Concession Agreement
TavanTolgoi
Project Co.Mongolian
RailwaySPV
IntlInfrastructure
Fund
UITY
1: 30-40
Multilaterals
JSC UBTZRail
UtilizationAgreement
EPC orEPCM
Contractor
EPC
EPC contract
yu o goLLC
Othermineral
ECA Tranche
E
Freight Intl Banks
on racPayments
Excess Funds
Offtake
Agreements
deposits
Multilaterals Tranche
EBT: 60-70%
greemen
Loan
Guarantees
Loan
AgreementsDebtService
Commercial TrancheIntlOfftakers ECAs
Payments
222222
1) Envisioned capital structure of the Railway Project Company2) Such type of a railway project SPV could be established on each route depending on the market appetite.3) A possible financial guarantee from newly established state Development Bank. The structure for capitalization of the Development Bank is under discussions.4) Potential issue of a debut sovereign bond for Mongolia.
Sales Proceeds
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Equipment suppliers and engineering companies could serve as
Financing Mix Objectives / Motivation Pros Cons
OECD countrys 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 ro ect rofile
Processing length could be longcom ared to commercial
Multilateral Tranche%
Debt
Commercial tranches Some structures could be self-liquidating structure
Track record creation
Market interest ratesCommercial Tranche60 70
Supply chain and/or geographic New technologyStrategic Investors
Take-out financing for commercialtranche, given favorable marketconditions
Economy of scale Special features
Market condition and pricing Mismatched assets / liability Rating requirement
Capital market transaction
uity
Maximize investment return(IRR > 25%)
Economic development Giving up upside potentialPossible loss of management
control
Financial Sponsors
40 %
E Equipment and technologysuppliers
Sales technology andequipment
No deposit ownership New technology introduction
Engineering andconstruction com anies
EPC or EPCM contract No deposit ownership New technolo introduction
30
23
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According to BCGs socioeconomic impact for building railways and
1 3
2 4
24
Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009
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Industrialization could increase Mongolian GDP to $41 bln over 11 years
25
Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009
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Action timetable for 2010-2011
26