Integration Presentation ENG

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

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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


Project Developer:Government of ChinaMunicipal Governments


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



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

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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

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. . . .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

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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

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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

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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

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According to BCGs socioeconomic impact for building railways and

1 3

2 4

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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

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Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009


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Action timetable for 2010-2011

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Integration Presentation ENG

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