NDIC-Brief Introduction of Sainshand Industrial Comlex ENG

COMPREHENSIVE INTRODUCTION

“SAINSHAND”INDUSTRIAL COMPLEX”

NATIONAL DEVELOPMENT AND INNOVATION

COMMITTEE

NATIONAL DEVELOPMENT AND

INNOVATION COMMITTEE

June 30, 2010

SAINSHAND INDUSTRIAL PARK COMPLEX

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COMPREHENSIVE INTRODUCTION OF

“SAINSHAND” INDUSTRIAL COMPLEX

June 30, 2010


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TABLE OF CONTENTS

ONE. BACKGROUND INFORMATION FOR ESTABLISHING "SAINSHAND" INDUSTRIAL

COMPLEX ............................................................................................................................................. 3

1.1. Background and General information ....................................................................................... 3

1.2. Legal background ..................................................................................................................... 4

TWO. "SAINSHAND" INDUSTRIAL COMPLEX PROJECT ........................................................... 5

2.1. Principles of project implementation /concept / ....................................................................... 5

2.2. Steps for project implementation ............................................................................................. 6

THREE. INFRASTRUCTURE, URBAN DEVELOPMENT AND SOCIAL WELFARE ................. 8

3.1. Infrastructure ............................................................................................................................ 8

3.2. Urban development, land utilization and engineering structure ............................................ 11

3.3. Social welfare and human resource capacity ......................................................................... 13

FOUR. STRUCTURE AND OF MANAGEMENT INDUSTRIAL COMPLEX .............................. 15

FIVE. FUNDING ................................................................................................................................ 17

5.1. Funding of Sainshand Industrial Complex ............................................................................. 17

5.2. Risk assessment of establishing the processing industrial complex in Sainshand ................. 18

5.3. Macroeconomic absorption capacity ...................................................................................... 20

5.4. Financial absorption capacity ................................................................................................. 21

SIX. SIGNIFICANCE OF "SAINSHAND" INDUSTRIAL COMPLEX AND ITS SOCIO-

ECONOMIC IMPACTS ...................................................................................................................... 22

6.1. Projection of cluster impact of Sainshand industrial complex. .............................................. 22

6.2. Direct impact of "Sainshand" industrial complex on real economic growth ......................... 23

6.3. Impact of "Sainshand" industrial complex on foreign trade .................................................. 24

6.4. Impact of "Sainshand" industrial complex on the region........................................................ 25

SEVEN. ANNEX: INTERNATONAL EXPERIENCES OF INDUSTRIAL COMPLEX

ESTABLISHMENT ............................................................................................................................ 31


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ONE.BACKGROUND INFORMATION FOR ESTABLISHING ―SAINSHAND‖ INDUSTRIAL COMPLEX

1.1.Background and General information

This project is formulated with a purpose to fulfill Comprehensive National Development Strategy,

Government Action Plan, Implementation Program, Government ordinance No.320 of 2009 and 118

of 2010 as well as Cabinet meeting note No.52 of 2010.

Establishing processing industries complex in Sainshand and introducing leading technique and high

technology will increase the competitiveness of Mongolia and possibility for industries that are inter-

related in terms of sector activities, technique and technology and capable of producing value-added

end products will be developed and they are very significant in bringing positive impact on social and

economic development of the country.

Sainshand is a capital city of Dornogovi province and has population of 20.4 thousand people. 70

percent of the population lives in housing equipped with engineering structure and 30 percent lives in

private housing. The city is located 463 kms northeast of Ulaanbaatar and 938 m above sea level with

234.6 thousand ha of territory.

Sainshand city has a large terminal which is located on the vertical railroad line linking Altanbulag-

Ulaanbaatar and Zamin-Uud and Beijing-Ulaanbaatar railroad as well as vertical axis of ―Millennium

Road Project‖ passing through the city. There are regular trains connecting Ulaanbaatar-Sainshand,

Ulaanbaatar-Choir-Sainshand-Zamin-Uud every day. In short, passengers have the opportunity to

travel due to sufficient capacity.

Sainshand city is well-connected with central heating system and fiber optic network and engineering

structure developed relatively well in the city. All cell phone carriers are operating there as well.

Center of soum has an integrated system for heating, fresh water supply and sewerage.

Dornogovi province has a high population density and as of 2009, working-age population reached

37.2 thousand which is 3.8 percent higher compared to last year and economically active population

reached 20.7 thousand. A total of 13 thousand students are going to school in Sainshand soum, of

which, 1.9 thousand students are studying in occupational training and production center and Medical

College.

Sainshand soum produced products worth of MNT 5.6 billion in 2009 and sold goods worth of MNT

4.5 billion in domestic and international markets.

In terms of natural resources, the province is rich in construction material, sand, mud and clay,

variety of natural pigments, spar, zeolite, brown coal, petroleum reserves, many wells. The region has

also rich sources of natural plants and fruits including saxaul forest, saltwort, wild leek, wild onion,

goyo /cynomorium soongaricum/, harmag /Nitraria sibinca Pall/, Temeen huh /Vencetoxicum

Sibiricum/. Its wild and pristine nature of Gobi captivates interests of both national and foreign

businessmen and women and tourists.


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1.2. Legal environment

Establishment of industrial complex will be regulated by the Law of Mongolia on Concession, Law

on Legal Status of Production and Technology Complex, Law on Land, Law on Water and Law on

Urban Development.

As stated on the Clause 3.1.1. of Article 3 of the Law on Legal Status of Production and Technology

Complex which is currently in effect, ―production and technology complex‖ means ―production,

technology and services complex that are interrelated with their activities in certain sector in

specially designated area where favorable business environment and infrastructure are provided in

order to implement specific objectives of production and technology development‖. In line with the

law, ―Sainshand‖ industrial complex will be a group of interrelated industries.

If ―Sainshand‘ industrial complex does not meet the requirement by the law to be ―interrelated with

their activities in certain sector‖, there is a possibility to amend and introduce reforms in legal

background in the future. Furthermore, there can be a need to employ a consultant on law and legal

issues. Including:

Amending the Law on Legal Status of Production and Technology Complex in accordance with

―General Guidelines on establishment and development of production and technology complex‖

which was approved by the Parliament Decree No.54 of 2003. /excluding the part of interrelated

with their activities in certain sector from Clause 3.1.1 of Article 3./,

Decisively changing the fact that complex management team should have power to grant licenses

because industrial complex will never develop without making the license granting process more

flexible. In other words, law should be amended so that it is mandatory for every legal owner of

factories to be a member of complex council /complex management/ and this council has power

and responsibilities to a level in which they can make decisions in town planning, urban

development and social issues of workers. /When looking at the projections for social protection

of workers, a number of schools, kindergartens, most of the workers will be men as majority of

the industries are heavy industries. Therefore, labor issues of ―women workers‖ should also be

resolved altogether/

It will bring more fruitful outcome if guarantee, reduction and exemption are provided to investors

through industrial complex and concession agreement combined. Project financing forms of

concession can be chosen according to the types of industries, but BOOT / Build-Own-Operate-

Transfer / type will be trusted more by the investors.

In terms of timeframe of Concession agreements: Clause 22.1, Article 22 of the Law states that

―Timeframe of concession contract will be decided by contract parties upon taking into account of

peculiarity of each sector, timeline to implement investment plan, amount of investment, timframe to

return the investment, amount of profit, operating period of concession project and etc. Clause

13.2.7, Article 13 of the Business Entity and Organization Income Tax Law of Mongolia states that

for buildings and constructions within production and technological complex that are the property of

industrial and technological park, depreciation and amortization rates will be calculated for a period

of 20 years. Taking this into account, timeline for concession agreement shall not exceed a period of

20 years.


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TWO. “SAINSHAND” INDUSTRIAL COMPLEX PROJECT

A preliminary projection of investment worth of about USD 10 billion /calculated based on

Government decree No.320 of 2009/ is needed as of current situation in order to implement

construction of ―Sainshand‖ industrial complex including appropriate factories and infrastructure

projects.

Project objective is to construct ―Coking coal‖, ―Black metallurgy‖, ―Coal gasification‖, ―Copper

smelting‖, ―Construction material‖ and ―Petroleum refinery‖ industries with leading technology

through private investment and high technology. All these factors will form an industrial complex

that has engineering and social amenities to ensure steady operation of industries, have environment

friendly and superior urban planning and are economically competitive at the global level.

Industries in the complex will be constructed in steps. For example, ―Coking coal‖ industry will be

constructed at the same time Tavantolgoi –Sainshand railroad line project completes and ―Petroleum

refinery‖ will be interconnected with conclusion of Tavantolgoi-Choibalsan railroad project.

2.1. Principles of project implementation /concept/

Following principles should be adhered in establishing ―Sainshand‖ industrial complex which will

increase export by partial and full processing in its factories based on mineral resource reserves and

produce import-substituting products. These principles are:

To conduct research on supplies of raw materials, energy, water and labor force needed

for factories in ―Sainshand‖ industrial complex by professional institutions in advance and

provide working group evaluation.;

To formulate a Master Plan which provides preliminary feasibility studies of related

infrastructure projects, defines connection among engineering constructions and calculate

main indicators of possible industries with 30 percent accuracy if the working group

deems it necessary to conduct further research works on establishment of Sainshand

industrial park;

To appoint team members of project management and to implement it in line with the

Master Plan;

To make sure production technology is modern, compatible with world standards and

environment friendly;

To ensure that infrastructure development projects such as railroad, highway, airport,

electricity, energy and water supply and border point are prerequisites before

implementing industrial projects and execute them step by step in accordance with the

integrated plan /Abide by Public Private Partnership principle/;

To sign agreements with mining companies to supply coking coal, copper concentrate and

iron ore to national companies first;

To publish comprehensive research report on labor market, to prepare workforce needed

for factories to be built and construction works with specific policy.


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2.2. Steps for project implementation

―Project implementation steps and timeframe of ―Sainshand‖ industrial complex is shown in Figure

1.

During the first step of project implementation, following consultants will be hired to formulate the

Master Plan:

General project consultant: it will be a construction and project management company known

worldwide which will develop the Master Plan and must have worked as a General project

consultant in industrial and infrastructure projects worth at least USD 5 billion during the last 5

years. In order to formulate the Master Plan, which will be a guarantee for attracting a large

amount of money needed for the project from international markets in the future, General project

consultant company will be hired with specific criteria.

International legal and national advisor: International legal advisor is definitely necessary to

give advice, provide recommendation for project implementation and to draft agreements for

shareholders‘, concession, procurement, sales, and loan that can meet global standards and are

compatible with related laws and regulations of Mongolia. Legal advisor will be a private sector

institution or company. National legal advisor, together with the international legal advisor, will

prepare necessary materials to the working group and monitor financing forms and their

regulation. Also, they will act as representatives of the state in financial relations linking the state

and private sector in constructing industries.

Figure1. Project implementation steps

Working group will define general direction of the project, integrate it with related

professional institutions and provide general guidance to the advisors. Head of working group will

present the outcome to the Council for decision making.

Executors tendering

3rd phase

• NDIC – Environment – Training and supply of

workforces • State property office • Consultants

Contract/ financing

4th phase

• NDIC • State property office • Consultants

Construction

5th phase

• NDIC • State property office

(to commission) • Consultants

“Sainshand” industrial complex project implementation : ( Each industrial project is to be implemented in following steps

and total project implementation timeframe is to be at least 5 years

Master plan

2nd phase

• NDIC ( With consultants)

Council

Decision to

implement

To dissolve

working group

Decision

to stop

Advisors tendering

1st phase

• Working group will select

following consultants to

work with NDIC. - These are:

– General project consultant

– A team of international

and national legal

consultants

6 /2010 – 3/ 2011 2011 – 2017

Factory 1 Factory 2

Factory 3 ...etc


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If the Council decides to establish ―Sainshand‖ industrial complex after the formulation of the Master

Plan or the 2nd

stage, all of 3rd

, 4th

and 5th

stages will be same for all factories. Total amount of time

needed for development will come out from the Master Plan research, but by preliminary projection,

it is to be longer than 5 years.

International and national advisors as listed below will be involved in 3rd

, 4th

and 5th

stages of project

implementation. /table 1/.

Table1. Responsibilities of consultants

№ International consultant Responsibility Timeframe

1 General project consultant

(―PMC+‖, ―Program Manager‖)

To formulate the Master Plan and feasibility study, to

regulate engineering coordination among factories Project completion

3 International legal and national

consultant

To formulate drafts of all contracts and agreements, to

participate in negotiations and do all organizing works

of the project

Project completion

4 Financial consultant To raise capital and loan financing from international

market Project completion

5 Environmental consultant To conduct environment assessment in conformity with

World Bank requirement Project completion

№ National consultant Responsibility Timeframe

1 National legal consultant To advise the international legal consultant about

Mongolian laws and regulations Project completion

2 Geological consultant To provide advices on mineral resource reserves

needed for the project and their locations Master Plan completion

3 Water consultant To provide advice on water reserve needed for the

project and its location Master Plan completion

4 Environmental consultant To conduct environment assessment jointly with

international environmental consultant Master Plan completion

5 Construction engineer To advice on characteristic of Mongolian buildings

during construction designs

Completion of

construction works of

initial projects

International consultants can employ and cooperate with national consulting companies when

necessary.

General Project Consultant will cooperate directly with the Working group on the agreement basis. In

some cases, the consultant will be in charge of selecting construction work executor. In accordance

with the contracting forms of either Engineering-Procurement-Construction-Management /hereinafter

referred as EPCM) or Engineering-Procurement-Construction (hereinafter referred as EPC),

monitoring quality and timeframe of execution and accepting the final work. If there are

discrepancies in quality or duration of the project that was already accepted by the General Project

Consultant, consultant itself will be liable for financial responsibilities.


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THREE. INFRASTRUCTURE, URBAN DEVELOPMENT AND SOCIAL WELFARE

3.1. Infrastructure

New railroad line. Tavantolgoi-Sainshand-Choibalsan railroad on horizontal axis will be constructed

in 2 stages. /Picture 1/.

1. First stage consists of constructing 400 km railroad network from Tavantolgoi-Sainshand;

2. Second stage will build 600km railway from Sainshand-Choibalsan;

Picture1. Railroad network of Mongolia to connect East Asia

Tavantolgoi-Sainshand-Choibalsan railroad network on horizontal axis

Construction cost for building 1 km of railroad structure is estimated to be around USD 1.5 to 2

million. In terms of preparing supplies of materials needed for railway structure, materials such as

steel concrete sleepers, wooden logs for railroad switches, timber and gap fillers can be prepared

using domestic resources. Rail tracks, railroad switches, their reinforcement materials are bought

from Russia. Therefore, it is essential to study possibility of manufacturing these products

domestically.

Auto road. Sainshand city will be connected with Ulaanbaatar, Choir and Zamin-Uud border point

via national auto road. /Picture2/


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Picture2. Planned auto road and transportation network

Electricity and energy. According to the preliminary study, 400-800 mWt of electricity and energy

are required for the industrial complex and it is not possible to provide it from the central electricity

grid. Therefore, it is planned to conduct studies on options of constructing Tavantologi power station

which will supply Sainshand via overhead power line and constructing a power station in Sainshand.

/Picture 3/.

Picture3. Planned electricity and power network

Water supply. It is possible to supply Sainshand soum and the industrial park‘s water needs from

‗Zeegiin hutul‘ and ‗Bor huuvur‘. These two river basins have a capacity of supplying about 60000


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cubic meter of water per day. Gobi lowland at Bor huuvur is located amid mountains with a length of

about 70 km from east to west on latitude and has width of 13-14 km. /picture 4/.

Picture4. Location of water supply source

Groundwater survey was conducted at the central and wing region of this lowland in 1986-1987 and

bored a total of 26 wells gushing 2-15 liter per second from 94-291 meters below ground level.

Proper hydrogeology experiments and air lifting process were completed and the survey defined that

an aquifer with high absorption of water was formed in Bayanshiree‘s ground layers aging from

around Cretaceous period.

Table2. Water reserve of ―Bor huuvur‖

№ Groundwater reserve categories Groundwater usage reserve

Liter/second м3/day

1 B category reserve 93.0 8,035.2

2 С1 category reserve 230.0 19,872.0

3 С2 category reserve 428.0 36,979.2

As can be seen from above, B and C1 categories of water resource amounting to 323 l/s or 27,907.2

m3/day are determined in Bor huuvur, but it is crucial to validate this estimation through detailed

hydrogeology research. /table 2/.

Four main water pipeline alternatives are considered for installation from ‗Bor huuvur‘ gobi to

Sainshand and Zamin-Uud, but the shortest option was chosen for further research. Water Authority

of Mongolia has conducted a preliminary study in which 45 km long main pipeline with 600 mm in

diameter and secondary pipeline with 125-300 mm in diameter are to be installed between ‗Bor

huuvur‘ and Sainshand at the initial stage.


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Including accompanying factories and service operators of Sainshand industrial complex, water

consumption is calculated to be around 355 l/s.

3.2. Urban development, land utilization and engineering structure

Urban development and land usage. Right selection of location, rational decision of land usage,

general plan, well-planned development works and preliminary calculations are all important in

successful implementation of Sainshand industrial complex development. Therefore, following

preliminary studies are to be carried out:

1. Territory valuation and location assessment,

2. Assessment on current structure, construction, and engineering infrastructure,

3. Formulating Sainshand development program and general plan,

4. Cost calculation for development works

Picture5. Location of Sainshand Industrial complex /tentative location/

Tentative location for the industrial complex is on largely smooth plain with little bumps, and

southeast of Sainshand soum where it is close to basic infrastructure and under the wind. /picture 5/

This location is suitable for town development and final selection will be made upon territory

valuation, location assessment and comprehensive research on town development.

Current situation of engineering structures in Sainshand soum center. Currently, capacity of

engineering structures of Sainshand soum center, where industrial complex is to be built, is as

follows /picture 6/.


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Picture6. Layout of engineering networks of Sainshand soum center

Water supply. Water supply source is located at 17-24 km north of the city, a place called Zeegiin

hutul. Water is drawn from a facility with 3 Abyssinian wells which have been in use since 1992 and

accumulated in water reservoir with a capacity of 1000 cubic meter after streaming through 3

pumping stations and disinfecting appliance. Water is then distributed through a total of 54.2 km long

pipes with diameter of 100-150mm. Fresh water pumping station is in full operation. Full capacity of

water supply source is 2100 cubic meter per day, but current output is 1250 cubic meter per day.


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Sewerage system. Waste water treatment plant has a capacity of 2700 cubic meter water per day and

put into operation in 1987, but it is not working currently. Central sewerage system for waste water

treatment was commissioned in 1987 and utilizes 10.5 km long cast iron tubes with a diameter of

150-400mm and its capacity level is medium. Within the framework of ―2nd

Phase of Integrated

Development of Basic Urban Services in Provincial Towns Project‖ implementation, financed by the

soft loan from the Asian Development Bank, waste water treatment plant was rehabilitated and

upgraded.

Heating supply. Heating is provided by a thermal heating station with a full capacity of 45 gKal/hour

and has КЕ-25/14 types of 3 boilers with a capacity of 45 gKal per hour. Infrastructure has a total of

9 km long pipeline with a diameter of 320-350мм, of which, main line is 5.8 km long. Main line has

been repaired and replaced in parts since 2000. It has 3 centers for water and heat delivery.

A total of 83 customer companies receive its services and their demand volume for heating is 11.9

gKal per hour.

Within the framework of ―2nd

Phase of Integrated Development of Basic Urban Services in

Provincial Towns Project‖ implementation, rapairing works for 1st and 2

nd boiler of the station,

improvement of boiler, pumping equipment, other accompanied equipments, electricity and

automatic gears, and replacement of heating pipeline are currently in process.

Current capacity of infrastructure and engineering network in Sainshand city is not capable to meet

operating load of Sainshand industrial complex‘s factory and engineering infrastructure, and social

services. Therefore, basic infrastructure , energy and water supply and sewerage system have to be

constructed and improved and capacity of distribution system and network has to be increased.

3.3. Social welfare and human resources capacity

Social welfare. After establishing ―Sainshand‖ industrial complex, scope of production and services

sector will drastically increase in Sainshand soum, province as well as in the region. As a result, there

will be a need to broaden and improve basic social services including health, education, and housing

in the city of industrial complex.

Preliminary calculation states that a total of 5 thousand engineers, technical workers and professional

personals is needed for constructing Sainshand industrial complex. Along with the personals, their

families will need housing and apartments to live. Therefore, it is important to have these people

registered with the local registration office and provide condition to receive basic social welfare

services.

Moreover, with a purpose to prepare specialized workforce, training and production centers operating

in provincial cities such as Dalanzadgad, Choir and Sainshand will need investment for their further

development.

It is advisable to provide local residents with employment and implement policy to distribute positive

impact of the industrial complex to all levels of the population. It is also wise to offer local business

owners and companies an opportunity to make profit though servicing mining companies and

supplying goods and products.


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Human resources capacity: In connection with the increasing production of mining sector, labor

demand, labor force structure and vocational training requirements are changing extensively. As of

current situation, around 4.5 thousand workers are working in coal sector, 399 personnel are working

petroleum and natural gas exploration. In addition, about 7.7 thousand workforces is employed in

extracting metal ores while workforces of around 2 thousand people are currently working in other

natural resources exploitation.

Since Mongolia started training its labor force in 1948, a total of 68.3 thousand people have been

trained in geology, mining and petroleum. For instance, in order to prepare workforce for mining and

energy sector, School of Geology and Petroleum (MUST) trained 2.5 thousand engineers. School of

Mining Engineer (MUST) instructed around 2.6 thousand engineers and technicians while School of

Energy (MUST) supplied around 4 thousand engineers. In addition, Technical College of Darkhan

and Vocational Training and Production Center of Nalaikh district and other training institutions

currently train specialized workforce.

At national level, University of Science and Technology is training 4.5 thousand future engineers for

mining sector. In other words, around 900 personnel are trained annually.

Mongolian Railway College has trained around 8.7 thousand specialists and about 4.5 thousand

workers since 1953. In addition to specialists in railroad sector, the college has trained around 15

thousand professional personnel for road transportation, auto road, communication as well as

petroleum supply sector. Currently, around 700 students are receiving instructions on & main areas

including railway locomotive engineering, railway car engineering, railway construction, track, track

facilities, railway car and machinery utilization, railway automatic tele-mechanic, and railway

electric power supply in Mongolian Railway College. In other words, around 175 personnel are

graduating annually.

In order to construct ―Sainshand‖ industrial complex, a total of 500 engineers and technical workers

are needed according to the calculation.

When constructing the industrial complex, majority of the workforce needed is mainly engineers and

technicians specialized in hydrogeology, petroleum engineering, geo-ecology, engineering-geology,

mining technology, granulation of natural resources, processing, mining machinery, transportation

vehicle, stationary machinery and equipment and mining electricity equipment. Moreover, 97 percent

of total specialized workforce or 60 percent of total engineers and technicians will consist of drivers

or people to operate excavators, heavy capacity trucks, bulldozer, drill and factory, people to install

equipments and other factory workers as well as miners.

In addition, when building railway line, around 200 professional workforces of railway car engineers,

railway locomotive engineers, railway construction engineers, railway track engineers and railway

track facilities engineers, railway automatic tele-mechanic technicians and power supply electricians

are necessary. Another 200 specialized personnel including repairmen and servicemen for railway

car, locomotive, small appliances, and heavy-load machineries and trucks are required. Currently,

such demand is possible to be provided from domestic institutions.

Looking at above calculation and research, there will be a necessity to train a large number of

professional and specialized workforces in the next 5-6 years. According to this calculation, it is

important to formulate special program on training and preparing necessary workforce.


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Following activities have to be implemented promptly after paying special attention on preparing

specialized personnel. For instance:

To establish training and production center that will provide opportunity to conduct training

and practice on latest equipments and machineries of mining sector.;

To organize training to prepare specialized workforce based on colleges with enough material

resources and capable teaching staff;

To support training of specialized personnel relying upon large entities and companies and to

organize on-job training for those personnel.

4. THE STRUCTURE AND MANAGEMENT OF INDUSTRIAL PARK

Figure1. Sainshand Industrial Complex Management

Working Group

National Development and

Innovation Committee

Management of the Complex

Program Management Consultant

Project Director ( Mongolian )

Deputy Director ( Operation )

Deputy Director ( Industry/Social work )

Preparation for the factories

Transportation

Infrastructure

Coordinator for the factories

Social work/Warehouse Camp

Building

Material procurement

Health/Safety Security

Construction

Planning and Monitoring

Supply

Engineering,

Technique/Technology

Finance/Accounting

Officer appointed by the

Government of Mongolia Program Management Consultant Joint


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According to the paragraph 1.2 of Article 3, Law on Legal Status of the Industry and Technology

Park, the legal entity that holds a park license shall be the park management and its rights and

obligations are to conclude a contract with the central government administrative organization, to

enhance fulfillment of the contract and to make necessary arrangements for the park as it was

referred to Article 11 of this law.

According to the above figure mentioned, the management system of Sainshand Industrial Complex

shall consist of the working group, National Development and Innovation Committee and

management of the complex. It‘s necessary that the working group organizes coordination between

the program management consultant and the project director representing Mongolian side. By

collaborating with the program management consultant, the project director /Mongolian/ will learn

from its experience and ease the transfer process of industrial park management. There will be deputy

project directors who are responsible to the Project Director for day-to-day management of the

project and industrial process. The project deputy director who is responsible for the operation shall

carry out operations on construction, engineering, technique/technology, supply, planning&

monitoring and finance. The project deputy director who is responsible for industry, social work and

warehouse shall carry out operations on land preparation, infrastructure, factories‘ coordination,

material procurement, health and social work with the professional team of Mongolian side.

These factories shall operate activities in accordance with Company Law of Mongolia and other laws

of Mongolia.

Figure2. Proposal for the refinery/manufactory and general structure

The main reason for success of industrial parks that managed to attract international investment was

the efficient management system which provided favorable conditions of work as well as tax

exemption and favorable business/legal condition. Jubail industrial city which implemented single

window system that enabled the entrepreneurs and people to submit regulatory documents at a single

location is a successful example of it.

Board of Directors

Industrial division

Supply

division

Marketing and sales division

Human resourse division

Financial division

Chief Financial Officer

Chief Operational

Officer

Director


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The management system and structure of industrial complex will be determined after the

accomplishment of Master Plan. Based on the experiences of Jubail Industrial City in Saudi Arabia

and Shanghai Fengpu Industrial park, we have made a this proposal on Sainshand Industrial Complex

management and structure.

/Please see the Annex/

5. FUNDING

5.1. Funding of Sainshand Industrial Complex

According to the previous study, over 10 billion USD is needed to finance Sainshand Industrial

Complex in more than 5 years. Since single funding channel can‘t be enough to raise such a large

amount of capital, there will be multiple options of funding. Fund raising process should be done as it

is mentioned in Master Plan.

The factories to be built in Sainshand shall be funded through public private partnership.

Participation and funding shall be as follows:

Government participation: Those national entrepreneurs who don‘t have sufficient potential

(financial capacity, experience in this field and human resource) to implement this project themselves

demands the Government of Mongolia (the GoM) to contribute the implementation.

The Government of Mongolia‘s participation and support on this project will be within the areas such

as a favorable condition, especially in infrastructure projects, competitive legal system and the

exemptions. Direction of the GoM‘s support on Sainshand Industrial Complex Project will be clear

when the research on this project is in process.

Relations between the government and private sector, a major factor in implementation of the project,

shall be regulated under Concession law of Mongolia and other legal acts. There might be need of

amendments on related legal acts.

Public-Private Partnership (PPP): The legal environment of PPP investment consists of

Government policy on Public-Private Partnership (2009) and Concession Law (2010). According to

the concerning legislative documents1, Sainshand Industrial Complex Project is expected to be

implemented through the public-private partnership process.

Creating favorable condition to attract the investors and enhancing economic benefit are crucial for

success of the public-private partnership processes. And it‘s also vital to create a condition that can

be beneficial for both of public sector authority and private party.

Diversity of the projects expected to be implemented through the public-private partnership process

creates different risks and the feasibility studies therefore should be done for each projects.

1 The legislative documents related to Sainshand Industrial Park Project consist of the following documents:

Government policy on Public-Private Partnership, Concession Law, the Arrangement for implementation of

the Government Action Plan, the Government decree No 320 dated in 2009, the Government decree No 118

dated in 2010 and Record of the government cabinet meeting No 52 dated in 2010.


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Depending on diversity of the projects, public-private partnerships may come in a variety of forms

such as Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT) and Design-Build-

Finance-Own-Operate-Transfer (DBFOOT). By transferring risks to the private party according to

this concept, possibilities of project implementation shall be stronger and responsibility mechanism

of the participators shall be improved.

To implement the projects through the public-private partnership, it‘s necessary to pay attention on

following common requirements: volume of a project, estimated time for a project, estimated time for

tendering process, sources of additional revenues, need of new up-building, diversification of risk,

location, possibility of complex solution, a performance-based contract, innovation and market size

etc. Also, projection to attract investors is crucial for the project implementation.

Options of funding from private sector: There could be two channels of financing for the industrial

park; one through equities of the private companies (30-40%), the other through lending (60-70%).

By building refineries/factories involving private companies, the industrial complex will improve its

competitiveness in the global marketplace. Investment opportunity is open to either domestic

investors or international investors. Based on these assumptions, funding would be fully financed

through the private sector.

Options of funding from the financial institutions: Loans shall be made when the borrower is able

to finance the rest of funding need itself. There could be three options to finance the project through

loan process:

Export-Import Bank (Export-Import Bank, also Ex-Im Bank, is a financial institution which is

responsible for aiding the export of technology owner‘s goods and services.)

International financial organizations (World Bank, Asian Development Bank, European

Bank for Reconstruction and Development etc.)

Commercial Banks.

5.2. Risk assessment of establishing the processing industrial complex in Sainshand

Based on international practices and researches done by international organizations, this table

designed to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in Sainshand

Industrial Complex Project was made.

Table3. SWOT analysis overview for Sainshand Industrial Complex

Strengths Weaknesses

Geographical location,

Location laid along the Trans-Siberian

Railway,

Possible to build centralized infrastructure

including :

Railway;

Electricity;

Communication;

Water supply system;

Gas.

Possible to expand infrastructure system

(Electricity, Heating, Water supply etc.),

Nearest location to Oyutolgoi mine and

Tavantolgoi mine. Thus, the investment for

Shortage of Grassland/Cropland

Manpower tightness

Need of water prospecting

Negative impacts on the environment

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19

railway towards those mines would be less

costly.

Possible to provide infrastructure

centralization for new factories.

Exemptions for Industrial Complex and legal

advantages;

Opportunities Threats

Possibility to accommodate the town‘s

expansion to the city,

Main market is nearby,

Possible to decrease negative impacts on the

environment and the community,

Availability of regional monitoring for the

environment,

Availability of subsidiary services for the

community,

Industrial park‘s insufficient competiveness may

not meet standards of the global market,

Lack of natural resources,

Lack of financial resources,

Possible price fluctuation may decrease project

profitability,

Failure to plan,

Possible large amount of financial loss ,

Possibility of time consuming,

By using these strengths and opportunities mentioned above, it would be possible to reduce expenses

of interested national and foreign companies and increase their competiveness through infrastructure

centralization policy of economy and human development implemented by the local government.

To neutralize weakness and threats, it‘s vital to make arrangements as follows.

To enhance policy coordination for intensive agriculture (By implementing Sainshand

Industrial Complex Project, there would be natural population growth, grassland shortage and

increase in food demand.),

To elaborate a program designed to provide vocational/technical training within 5 or 6 years

to solve skilled manpower shortage,

To curb the negative impacts of human involvement on the environment by using

environmental technology (green technology),

To consider wind direction before choosing location for industrial park (Right location is one

factor to neutralize the risk of accident),

To hold hydro-geological study to prove groundwater sources and search new groundwater

sources,

To attract foreign investors with the aim of sharing its risk, involving participation in transfer

of technology/innovation and increasing competitiveness,

To create commodity exchange system that enables the stakeholders to neutralize price risk

(This system is to avoid decreasing project profitability),

To clarify conditions of penalty in the contract with the program management consultant and

strategic consultant (It would prevent the project stakeholders from failure of plan, large

amount of financial loss and time consumption),

To study international unfair trade practices (Mongolia‘s case of threatened commodity

market ) and implement trade policy of restraining possible protectionism from other

countries through methods such as tariffs and export guarantee,

To find solution to the lack of natural resources,

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20

To find solution to the lack of financial resources,

5.3. Macroeconomic absorption capacity

Large investment projects may be implemented when the evaluation that determines certain country‘s

macroeconomic absorption capacity is deemed done and economic development policy is clear.

Implementation of large investment projects should maximize macroeconomic efficiency of certain

country.

Recent practices of large investment projects at implementation such as Oyutolgoi project have

shown that the Government should focus to increase national capacity of human resource,

technology, finance and the others. Therefore, working group needs to do research in this field when

the project analysis is in process.

Large amount of investment will be needed to finance Sainshand Industrial Complex Project. Under

the circumstances of international cash flow to Mongolia, net official international reserves of

Mongolia is estimated to increase 5.6 times and reach 10 billion USD in 2011-2015 /See Table 4/.

This dramatic growth of international reserves will strengthen Mongolian tugrik against foreign

currencies. As a result of this situation, it will be more expensive to export and impact negatively on

national entrepreneurs.

By distributing export revenue to the right sectors, budget expansion will promote the economic

growth and industrial sector when export revenue is distributed to the right sectors. With Mongolia‘s

economic expansion, productivity in industrial sector will be improved and annual growth in money

supply will be around 30 percent in coming years. As a result of sufficient currency reserves, it will

be possibly to stabilize the foreign exchange market.

Refineries will be expanded through the process of producing refined copper cathode, coke, refined

coal, petroleum products, cement, ferrous metal and other products in Sainshand Industrial Complex.

By producing cement and building armatures in the domestic refineries, Mongolia will be able to

reduce her dependence on imported construction materials. Moreover, producing petroleum products

in domestic refineries will create a condition to stabilize fuel price, one of the main factors that

increases inflation rate.

Establishing Sainshand Industrial Complex shall increase Mongolia‘s currency reserves and decrease

exchange market volatility, besides improving employment, developing infrastructure system and

expanding national economy.

Table4. Forecast of the main macroeconomic indicators /2010-2015/

Indicators 2010 2011 2012 2013 2014 2015

Real GDP growth

/percentage/ 7.5 8.5 8.4 22 16.9 15.5

Money Supply

/million tugrik/ 4,137 492.7 5,143 120.7 6,568,917.2 8,663,219.3 10,937 487.7 13,706 586.1

Money-Supply Growth

(percentage) 43.7 24.3 27.7 31.9 26.3 25.3

Exchange Rate, US$/₮ 1397.0 1,375 1,375.0 1,375.0 1,375.0 1,375.0

Inflation Rate (percentage) 20.1 9.7 8.6 8.1 8.0 8.5


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5.4. Financial absorption capacity

As it has been shown in most researches, it is proved that foreign direct investment has a major role

to play in the economic development of the host country when her financial sector development is in

certain level.

Currently, there are fourteen commercial banks, 186 non-banking financial institutions, 207 savings

and loan associations, over 200 pawnbrokers, 16 insurance companies and 49 security brokers and

dealers companies in Mongolia. That commercial banks hold around 95 percent of total financial

sector assets shows they are dominating in Mongolia‘s financial sector. Compared to other financial

service providers except the banks, a number of new achievements have been made by the security

brokers and dealers companies. There is almost no insurance market and pension system in Mongolia

though they nominally exist. Development level of mortgage market is in an early stage. Briefly,

investment opportunity is limited to the commercial bank‘s financial capacity. Expansion of banks

ability to meet the growing financial needs is dramatically increasing their loan amount.

According to international practices, countries can be divided into two groups by their level of

financial sector development: developed countries and less developed countries. Mongolia is a

country where the financial market development is still in an early stage.

Niels Hermes and Robert Lensink found out that the private sector bank loan is a main factor that

makes foreign direct investment to the particular country more beneficial (Niels Hermes & Robert

Lensink ,"Foreign direct investment, financial development and economic growth, 2003). Their

results implied that FDI would have a positive effect on growth in countries where credit to the

private sector as a percentage of GDP is above 12.9 percent and a more developed financial system

contributed positively to the process of technological diffusion associated with FDI.

Chart2. Absorptive capacity of Mongolia

- Credit to the private sector as a percentage of GDP

- Optimal percentage

The above chart shows that credit to the private sector as a percentage of GDP was below 12 percent

in 1995-2001. The chart also shows that this indicator has been above 12 percent since 2002 though

there was temporary down trend from 2004 to 2006. Based on this chart that shows Mongolia‘s

0

5

10

15

20

25

30

35

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013


22

indicator has been above 12 percent, it can be said that Mongolia‘s absorptive capacity is good

enough to attract FDI.

According to the results of Niels Hermes and Robert Lensink, high interest rates offered by the

commercial banks has negative impacts to absorptive capacity of Mongolia while money supply

(M2) as a percentage of GDP and total assets in the banks have positive ones. Therefore, Mongolia‘s

absorptive capacity will be increased when the interest rate is lowered.

A number of researches indicate that domestic capital market in Mongolia has almost no impacts on

foreign investment. In contrast, development of the banking system has strong impacts on foreign

investment. Mongolia‘s poorly developed capital market is not able to make impacts on Mongolia‘s

macro-economy. Based on the results of researches, development of domestic capital makes impact

on the economic growth with 2 year lag. This is all because of abnormality in domestic capital

market.

SIX. SIGNIFICANCE OF SAINSHAND INDUSTRIAL COMPLEX AND ITS SOCIO-

ECONOMIC IMPACTS

The benefit of this project is a diversified economy. By developing domestic refineries, it will be

possible to diversify the economy, be less reliant on the commodity reserves and stabilize the macro-

economy.

Implementation of this project is vital for Mongolia‘s human development. Industrial complex shall

increase the employment of vocational and technology workers and professionals.

6.1. Proposal of Cluster’s Impacts on Sainshand Industrial Complex

According to the proposal of Sainshand Industrial Complex, the following projects shall be

implemented when the complex is in process:

Coal gasification factory project

Copper smelting factory project

Construction materials factory project

Oil refinery project

Railway project

Water supply network project

Urban construction project

Other projects

By building factories within a cluster, the following socio-economic positive impacts will be made:

1. The factories shall be designed to produce final goods by using domestic commodity

resources. Foundation of particular schools of Mongolian University of Science and

Technology around Sainshand Industrial Complex will make it possible to train skilled

vocational workers and professionals for the complex. Thus, Sainshand Industrial Complex

shall serve as a great way for the students to learn more about their professions and obtain real

experience.


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2. By building factories within a cluster, it will be long term solution to the problems of

infrastructure and welfare services (hospitals, schools and kindergartens etc) that Sainshand

Industrial Complex has to face.

3. Founding vocational education and technology schools in Sainshand doesn‘t only mean to

offer solution to the manpower problem. It shall contribute the research activities and promote

the process of technological diffusion and innovation transfer.

6.2. Direct Impact of Sainshand Industrial Complex on Real Economic Growth

By implementing Sainshand Industrial Complex Projects, it will be possible to build the

factories/refineries such as coal gasification factory, copper smelting factory project, construction

materials factory project, ferrous metals factory and oil refinery that contributes Mongolia‘s real

economic growth and a number of new infrastructure projects will be in process.

Implementation of the project shall create dramatic GDP growth. It‘s estimated that industrial sector

as a percentage of GDP will be 57 percent and refineries a percentage of GDP will be 14 percent

while the average economic growth will be 15.8 in years 2013-2013. Real economic growth will be

4.3 units higher than the base indicator.

Table5. Impacts of Sainshand Industrial Complex on real economic growth

1. Basic indicator 2010** 2011** 2012** 2013** 2014** 2015** 2016 2017 2018 2019 2020 2021

GDP, at current

prices, billion

tugrik

7043.1 8047.4 9140.8 11675.3 13885.3 16597.3 20303.7 23070.1 26801.3 30236.6 34400.8 39230.1

Real economic

growth 7.5 8.2 7.8 20.8 15.6 13.6 16.3 9.7 12.1 8.5 8.1 8.4

GDP per capita,

USD 1824.3 2076.4 2312.1 2892.4 3628.1 4379.0 5303.6 6040.9 6861.8 7567.4 8411.8 9363.2

Industrial sector

as a percentage

of GDP

34.9 35.7 35.9 42.9 43.9 45.6 49.6 49.3 50.3 49.4 48.8 48.2

2. When Sainshand industrial Complex is in operation, the base indicators will be as follows:

GDP, at current

prices, billion

tugrik

7043.1 8067.9 9210.1 11870.6 14263.4 17291.1 21627.4 25466.6 30331.5 35657.8 42298.9 49963.5

Real economic

growth 7.5 8.5 8.4 22.0 16.9 15.5 19.5 14.8 15.1 13.2 12.8 12.2

GDP per capita,

USD 1824.3 2081.7 2329.6 2940.8 3726.9 4562.1 5649.4 6668.4 7765.6 8924.2 10343.0 11925.0

Industrial sector

as a percentage

of GDP

34.9 35.7 35.9 42.9 45.6 48.0 52.6 53.7 55.1 55.6 56.4 56.8

Notice: According to basic indicator, GDP per capita will be 9363.2 USD by 2021. By implementing Sainshand Industrial

Complex Project, GDP per capita will reach 11925.0 USD, up by 2561.8 USD compared to basic indicator.


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6.2. Impact of Sainshand Industrial Complex on Foreign Trade

By implementing Sainshand Industrial Complex, it will be possible to produce pure copper, coke, coal,

petroleum products, cement, ferrous metals as well as by-products (coal tar and sulfuric acid etc) and offer

these products to the market.

Chart3. Foreign trade 2013-2020 /million USD/

When Sainshand Industrial Complex is in process, by 2023, the total export revenue will be USD 5.7 billion

and be increased from 5.7 percent to 21 percent higher than it would be if mining products were exported as

commodities.

By building cement factory and oil refinery, it will be possible to save 0.8 or 1.5 USD billion from import.

Over USD 10 billion will be needed to build Sainshand Industrial Complex and its railway between 2011 and

2015. 500 or 1000 million USD will also be needed to import construction materials each year.

That average amount of export goods produced by Shainshand Industrial Complex will be 1 billion USD

between 2013 and 2010 means it will be increased 1.3 or 1.7 times higher than that of in 2010. Between 2013

and 2020, average amount of export is expected to reach 10.6 billion USD while import is around 6.5 billion

USD. And there will trade surplus of 4 billion USD in that time /Chart 3/.

Impact of foreign debt.

If Sainshand Industrial Complex Project is implemented, each year external debt will be increased by

500 hundred million USD for six years and external debt as percentage of GDP might rise to 78.8

percent which is 38.8 percent higher than it should be limited /Table 6/.

Table 6. Foreign debt indicators /billion tigrik/

INDICATORS 2007 2008 2009 2010 2010* 2010** 2011* 2011**

External Debt

Debt Outstanding Disbursed (DOD) 1,788.4 2,028.8 2,609.0 2,823.0 11,939.8 11,514.4 11,677.6 11,422.3

Economic indicators

Gross Domestic Product, (current prices) 4,599.5 6,019.8 6,055.8 7,043.1 7,043.1 7,043.1 8,047.5 8,047.5

Export 2,210.2 2,969.2 2,741.3 2,741.3 2,741.3 2,741.3 2,741.3 2,741.3

Government revenue 1,856.0 1,973.0 1,972.6 1,972.6 1,972.6 1,972.6 1,972.6 1,972.6

Government expenditure 1,747.3 2,466.8 2,336.6 2,336.6 2,336.6 2,336.6 2,336.6 2,336.6

Foreign debt indicators

DOD/GDP 38.9% 33.7% 43.1% 40.1% 169.5% 163.5% 145.1% 141.9%

DOD(pv)/GDP (within 40%) 24.5% 24.0% 29.6% 27.5% 107.4% 78.8% 93.6% 93.1%

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DOD/Export 80.9% 68.3% 95.2% 103.0% 435.6% 420.0% 426.0% 426.7%

DOD(pv)/Expert (within 150%) 51.0% 48.7% 65.3% 70.7% 276.0% 202.4% 274.7% 273.4%

DOD/Government revenue 96.4% 102.8% 132.3% 143.1% 605.3% 583.7% 592.0% 579.0%

DOD(pv)/Government revenue

(within 250%) 60.7% 73.3% 90.8% 98.3% 383.6% 281.3% 381.7% 379.9%

Total amount of principal payment/ Export

(within 20%) 2.7% 2.4% 4.5% 3.7% 5.2% 4.3% 6.4% 4.4%

Total amount of principal payment/

Government revenue (within 30%) 3.2% 3.6% 6.3% 5.2% 7.3% 6.0% 8.9% 6.1%

Total amount of principal payment/

Government expanditure (within 25%) 3.4% 2.9% 5.3% 4.4% 6.1% 5.1% 7.5% 5.1%

Loan disbursement/ Government revenue 5.2% 4.5% 20.4% 10.9% 128.8% 56.9% 116.3% 52.4%

Note: *1,500,000,000.00 USD

** 500,000,000.00 USD

6.4. Impact of Sainshand Industrial Complex on regional development

Population and workforce: That there were 58.3 thousand inhabitants in Dornogovi province in

2009 means the population growth was 1.9 percent higher than that of previous year and number of

the inhabitants was increased by 7.1 thousand or 14.1 percent compared to the result of census held in

2000. Average growth of inhabitants in Dornogobi province has been 1.48 pervent since the

population and housing census held in 2000.

Most inhabitants of this province (province) live in five soums (country subdivision): Sainshand

(20.4 thousand), Zamiin uud (12.8 thousand), Airag (3598), Khatanbulag (2985) and Dalanjargalan

(2554).

In 2009, 1458 people of 298 families migrated to Dornogovi aimak, whereas 1529 people of 301

people migrated to other administrative divisions. It was the first time that net immigration rate was

negative (-0.12) since 2004.

In 2009, numbers of economically active population were 20722 from total labor force of 37144.

Compared to the previous year, number of labor force increased by 3.8 percent. On the other hand,

number of economically active population decreased by 0.3 percent.

Chart4. Employment number

164

475

955

1369

2212

627

330

2492

1284

1893

548

598

156

579

6488

Community, social & personal services

Social work

Health and Social welfare

Education

Public administration and …

Real estate, rent and other business …

Financial intermediation

Transport, storage and communication

Hotel and restaurant

Wholesale, retail trade and repair of …

Construction

Electricity, gas and water supply

Manufacturing

Mining & quarring

Agriculture, hunting and forestry


26

GDP structure of dornogobi province: In 2009, Dornogobi province‘s GDP reached 50.5 billion

tugrik and increased by 8 billion tugrik or 18.8 percent compared to the amount of previous year.

In 2009, dornogobi province‘s gdp per capita reached 875.5 thousand tugrik and increased by 113.3

thousand tugrik compared to the previous year‘s amount.

The factors that contributed to Dornogobi province‘s GDP were agriculture (7.1%), industry (2.3)

and service (9.5).

Chart5. Dornogobi province’s GDP

Impact of Sainshand Industrial Complex on local budget: According to the preliminary estimates

of 2009, local government revenue reached 7052.4 million tugrik while local government

expenditure decelerated to 6967.4 million tugrik. Local government revenue consists of tax income

(91.2%), non-tax income (6.5%) and income on property (2.3%).

Table 7.Overall Balance of Dornogobi province

/million tugrik/

2006 2007 2008 2009*

Revenue 2 646.5 4 343.5 5 882.2 7 052.4

Expenditure 2 712.1 4 120.8 7 008.5 6 967.4

Overall Balance - 65.6 222.7 - 1 126.3 85.0

* Preliminary estimates

Taxation in the local government consists of following taxes:

Real estate tax

Land use fee

Water and mineral water use fee

Personal Income tax

Education, 10.6

Public administration

and

defense, compuldory

social security, 8.6

Financial

intermediate, 5.1

Transport, storage

and

communication, 11.5

Wholesale & retail

trade, repair of motor

vehicle, & personal

household goods, 7.7Construction, 3.7

Electricity, gas and

water supply, 3.1Manufacturing, 1.5

Mining &

quarring, 3.9

Agriculture, hunting

and forestry, 37.4


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Tax on auto vehicles and self-moving vehicles

Stamp fees

Royalty

Land use fee: Land fees shall be established as rates or amounts using the base assessment indicators

as defined in Article 6 of Law on land fees within the following limits: for use and possession of city,

village and other settlement land, the fee shall be 0.1 – 1.0% (percent) per hectare2. Annual land use

fee per hectare is usually 7500 tugrik. According to proposal of Sainshand Industrial Complex, 9

hectares land is generally needed for a factory. Therefore, Sainshand Industrial Complex will be

operational in 54 hectares and 405 thousand tugrik will be annually paid to the local government as

land use fee.

Water and mineral water use fee: The following shall be limits of water use fees determined

consistent with the basis described in paragraph 1, Article 6 of Law on Water and Mineral Water Use

Fee3:

Water Subject to Fees Unit Fee Limits

Surface and Well Water

minimum-maximum fees

Ground Water

Minimum-maximum fees

1. Income earned from production or

service such as hydroelectric power

stations, water transportation,

breeding of commonly distributed

water flora and fauna, travel and

sport

% S.I. 0.1 – 0.5 - -

2. Per cubic meter for portable water

and water used for household

purposes

MNT/m3 - - 1.00 – 10.00

3. Per cubic meter of water used for

production, service and commercial

by citizens, economic entities or

organizations

MNT/m3 1.005 – 5.00 1.00 – 20.00

According to this law, 150 tugrik must be paid for per cubic meter of water and annual water and

mineral water use fee of Sainshand Industrial Complex will be 15 billion tugrik for 100 million cubic

meter of water.

Real estate tax: The value of real estate is determined, firstly, by the valuation registered with real

estate state registry. If there is no such registration, the value is determined by the valuation of

insurance on the real estate. And if there is no registration or insurance valuation, the value will be

established as the value that is written down in accounting books4.

Tax rate on real estate is 0.6 percent of the value defined above (Article 5).

2 Land Fees Law of Mongolia, Paragraph 3 of Article 7

3 Water and Mineral Water Use Fee Law of Mongolia, Paragraph 1 of Article 7

4 Real Estate Tax Law of Mongolia, Article 6


28

Table8. Amount of tax and fees /2011-2021/

Land Use Fee

(million

tugrik)

Water and

Mineral Water

Use Fee

(million

tugrik)

Real Estate

Tax (million

tugrik)

Personal

Income Tax

(million

tugrik)

Total amount

(million

tugrik)

2011 0.405 0 0 0.4

2012 0.405 0 0 0.4

2013 0.405 0 0 0.4

2014 0.405 0 0 0.4

2015 0.405 15000 67200 560 82760.4

2016 0.800 15000 67200 560 82760.8

2017 0.800 15000 67200 560 82760.8

2018 0.800 15000 67200 560 82760.8

2019 0.800 15000 67200 560 82760.8

2020 0.800 15000 67200 560 82760.8

2021 0.800 15000 67200 560 82760.8

Impacts on regional GDP and employment (Output-Input Model)

Based on 2008 statistics (at 2005 constant data) by National Statistical Office, this analysis was done

through Output-Input Model.

It indicates that indirect impacts of manufacturing on other divisions are 2.35. It means that 1 tugrik

input in manufacturing is 2.35 tugrik output to other divisions (table 9).

Table9. Indirect impacts of manufacturing on other divisions

Indirect multiplier of manufacturing in Output-Input Table

Divisions

1 Agriculture, hunting and forestry 0.409696

2 Fishing 0.000025

3 Mining and quarrying 0.034033

4 Manufacturing 1.452069

5 Electricity, gas and water supply 0.082956

6 Construction 0.011479

7

Wholesale & Retail trade, repair of motor vehicle and personal

& household goods 0.105703

8 Hotels and Restaurants 0.008567

9 Transport, storage and communication 0.135241

10 Financial intermediate 0.063753

11 Real estate, renting and other business activities 0.040058

12 Public administration and defense, compulsory social security 0.000093

13 Education 0.000269

14 Health and social security 0.002297

15 Community, social and personal services 0.004007

Division multiplier 2.350246

Based on 2009 statistics, direct labor force multiplier of Dornogobi province was estimated (Table

10).

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29

Table10. Direct labor force multiplier of Dornogobi province

Divisions

GDP, by

divisions,

million tugrik*

Employment

Employment

multiplier per

million

Agriculture, hunting and

forestry 1 284 787.1 348785 0.2714730

Fishing 17.5 9 0.5142857

Mining and quarrying 1 337 983.7 34799 0.0260085

Manufacturing 254 301.8 62730 0.2466754

Electricity, gas and water

supply 144 222.6 15637 0.1084227

Construction 49 439.2 49585 1.0029483

Wholesale & Retail trade,

repair of motor vehicle and

personal & household goods

363 255.6 160311 0.4413174

Hotels and Restaurants 34 903.2 23306 0.6677329

Transport, storage and

communication 644 602.6 78852 0.1223265

Financial intermediate 179 285.3 12265 0.0684105

Real estate, renting and other

business activities 543 472.4 223 0.0004103

Public administration and

defense, compulsory social

security

270 066.1 75888 0.2809979

Education 296 862.8 74904 0.2523186

Health and social security 134 471.0 35745 0.2658194

Community, social and

personal services 82 403.8 33357 0.4047994

Note: * Preliminary estimates

According to above estimation, industrial growth of 1 billion tugrik in construction division would

create 246 new employment positions.

Based on statistics by National Statistics Office and its branch in Dornogobi province, direct and

indirect employment multiplier of Dornogobi province was estimated. As results of this estimation, it

was found that growth of 1 billion tugrik in manufacturing would indirectly create 391 employment

positions in other divisions: agriculture, hunting and forestry (208), refinery (11), Electricity, gas and

water supply (12) and Wholesale & Retail trade, repair of motor vehicle and personal & household

goods (38).

Table11. Indirect employment multiplier

Divisions

Indirect employment

multiplier

Agriculture, hunting and forestry 0.20808

Fishing 0.00012

Mining and quarrying 0.00142

Manufacturing 0.11028

Electricity, gas and water supply 0.01210

Construction 0.00169

Wholesale & Retail trade, repair of motor vehicle and

personal & household goods 0.03820

Hotels and Restaurants 0.00407

Transport, storage and communication 0.00696

Financial intermediate 0.00481


30

Real estate, renting and other business activities 0.00082

Public administration and defense, compulsory social

security 0.00001

Education 0.00010

Health and social security 0.00100

Community, social and personal services 0.00144

Indirect employment multiplier 0.39110

Based on the results, it is clear that growth of 1 billion tugrik in manufacturing would create 339 new

employment positions: directly 248 and indirectly 391.


31

APPENDIX

INTERNATONAL EXPERIENCES OF INDUSTRIAL COMPLEX ESTABLISHMENT

Jubail Industrial City5

Jubail Industrial City is the largest civil engineering project in the world today. It also is one of

Bechtel‘s most remarkable achievements—a city built from the ground up, requiring vast resources

and logistical planning on an unprecedented scale.

With a population of more than 100,000, Jubail today accounts for more than 7 percent of the

kingdom‘s gross domestic product. The city has evolved into a major player in the global

petrochemicals market, attracting top technical and business minds from 40 countries. Its residents

attend two dozen schools, shop at 14 shopping centers, and play golf at the Whispering Sands course.

The industrial city is the largest industrial complex of its kind in the world and consists of

petrochemical plants, fertilizer plants, steel works, industrial port and huge number support

industries. There is also the Royal Saudi Naval Base plus a separate Commercial Port and Military

Air Base. It holds the Middle East's largest and the world's 4th largest petrochemical company,

SABIC. Jubail is home to the world's largest seawater desalination plant, MARAFIQ. It provides

50% of the country's drinking water through desalination of seawater from the Persian Gulf.

Bechtel has managed the Jubail project, located in the Eastern Province of the Kingdom of Saudi

Arabia, since it began in the mid-1970s. In 2004, the Royal Commission for Jubail and Yanbu asked

the company to manage Jubail II, a $3.8 billion expansion of the city‘s industrial and residential

areas.

Picture8. Jubail Industrial City

5 Bechtel Corporation, Jubail Industrial City, http://www.bechtel.com/jubail_industrial_city.html

http://en.wikipedia.org/wiki/Petrochemical

http://en.wikipedia.org/wiki/Royal_Saudi_Naval_Base

http://en.wikipedia.org/wiki/SABIC

http://en.wikipedia.org/wiki/Seawater

http://en.wikipedia.org/wiki/Water_desalination

http://en.wikipedia.org/w/index.php?title=MARAFIQ&action=edit&redlink=1

http://www.bechtel.com/jubail_industrial_city.html


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MidAmerica Industrial Park6

Founded in 1960, MidAmerica Industrial Park has evolved into one of the leading centers for

manufacturing, processing and distribution in the United States. Often described as the nation's

largest rural industrial park, MidAmerica is located between Pryor Creek and Chouteau in northeast

Oklahoma just about 38 miles east of Tulsa. The development has been recognized by leading

economic development publications as a top-ranked expansion or relocation site for growing

companies and has been named as a "Certified Industrial Park" by the Oklahoma Department of

Commerce.

Businesses looking for a new expansion or relocation site will find ample reasons to put us on the

short list. MidAmerica's industries benefit from our profit-enhancing infrastructure with:

Over 101,000 people in 20-mile radius Over 328,000 people in 30-mile radius

Over 913,000 people in 40-mile radius 20%-50% savings on electrical costs

Skilled workforce with free training Interstate access to markets

Very low cost water and wastewater Abundant, affordable natural gas

A location in the center of the country On-site airport with 5,000 foot runway

Exceptional transportation options Financing and build-to-suit capability

Picture9. MidAmerica Industrial Park

6 MidAmerica Industrial Park, http://www.maip.com/overview.php

http://www.maip.com/overview.php


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Shanghai Fengpu Industrial Park7

After 10 years development, Shanghai Fengpu Industrial Park has formed some mainly industries

such as the electronic and information industry, modern biology and medicine industry, high-tech

material industry, electronic equipments industry etc.

Up to the end of 2003, there had been 77 foreign enterprises with the total investment of USD$1.54

billion, including GE from USA, SGL from Germany, Pioneer, NAIS, HINO, Exedy from Japan,

MAHLE, Autolive, Lemforder from Germany and Plastics of Greece come into Fengpu Industrial

park.

What's more, many famous domestic enterprises also had located in our park such as China Putian,

Shanghai Lei Yun Shang Pharmaceutical enterprise, TCL, ZheZhong Electric and Zhejiang Cixing

Bearing etc.

Picture10. Shanghai Fengpu Industrial Park

7 Shanghai Fengpu Industrial Park, Export Processing Zone, http://industrial-zone.fengpu.com/

http://industrial-zone.fengpu.com/

Documents

NDIC-Brief Introduction of Sainshand Industrial Comlex ENG