Inception Report
Inception Report
Inception Report
Prepared by
Philip Kelly
Ulaanbaatar, Mongolia
For the Ministry of Economic Development (Executing Agency) and Innovation and Public-Private
Partnerships Department (Implementing Agency)
This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and
ADB and the Government cannot be held liable for its contents. (For project preparatory technical
assistance: All the views expressed herein may not be incorporated into the proposed project’s design.
Table of Contents
Page
A. INTRODUCTION 2
B. OUTLINE OF THE INCEPTION REPORT 2
C. BACKGROUND 3
1. ADB Support for PPPs in Mongolia 3
2. Policy Context 5
3. Assessment of the PPP Environment in Mongolia 5
4. Government Executing and Implementing Agency and PPP Project Team 5
D. KEY ISSUES 6
1. PPP Project Activity 6
2. Learning by Doing 6
3. Public Investment Planning and PPP Project Pipeline 8
4. Legal and Regulatory Framework for PPP 8
E. TA IMPLEMENTION 9
5. Mobilisation 9
6. Key Activities to Date 9
F. APPENDIX: UPDATE OF TA STATUS 10
ABBREVIATIONS
a plan and schedule for implementing the technical assistance (TA) under TA 8236
MON Developing a Conducive Environment for Public-Private Partnerships
(PPP)1,2,3,
The report confirms the scope and direction of the TA rationale and design, while indicating
adjustments that reflect evolving circumstances and that will improve TA performance. No major
impediment has been encountered and the project is proceeding broadly along the path set out
in the TA report.
3. The inception report places the TA in the context of (i) ADB Support for PPP in
Mongolia, (ii) the Mongolia policy context, (iii) an assessment of Mongolia’s PPP environment,
and (iv) Mongolia’s experience with PPP project activity to date.
1
ADB 2012 Technical Assistance to Mongolia for Developing a Conducive Environment for Public-Private
Partnerships Manila (TA 8236-MON, December)
2
“Within ADB operations, all contracts such as performance-based contracts (management and service contracts),
lease–operate–transfer, build–own–operate–transfer, design–build–finance–operate, variants, and concessions
are considered as various forms of PPP. Contracts involving turnkey design and construction as part of public
procurement (engineering, procurement, and construction contracts) are excluded. Also excluded are simple
service contracts that are not linked to performance standards (those that are more aligned to outsourcing to
private contractor staff to operate public assets) and construction contracts with extended warranties and/or
maintenance provisions of, for example, up to 5 years post-completion (wherein performance risk-sharing is
minimal as the assets are new and need only basic maintenance). However, in some cases, service contracts can
be used as a first step in moving to a higher form of PPP, especially in situations where the public sector is just
beginning to explore PPP modalities.” ADB 2012 Public–Private Partnership Operational Plan 2012–2020
Realizing the Vision for Strategy 2020: The Transformational Role of Public–Private Partnerships in Asian
Development Bank Operations
3
In Mongolia the term concession is used interchangeably with PPP instead of seeing concession as one form of
PPP
4. The inception report reviews the tasks to be addressed in the project under the headings
of:
public investment planning and PPP pipeline: this includes the TA elements of
screening priority projects to identify those suited to inclusion in a PPP project
pipeline and integration of PPP planning with the public investment planning process;
legal and regulatory framework for PPP: this addresses the TA component of
strengthening the legal and regulatory framework for PPPs.
5. The inception report describes what has happened in the TA, the mobilising of the TA
consultants, the working relationship with the executing and implementing agency (IPPPD of
MED), and activities to date.
6. The report concludes by setting out the work plan and use of resources to be carried out
in the TA.
C. BACKGROUND
7. The TA builds on the work carried out in two earlier phases of ADB TA support4,5. A first
phase of support helped to develop a basic legal and institutional framework for PPP by
contributing to the Law on Concessions and the establishment of the PPP unit at State Property
Committee (SPC). The second phase strengthened the capacity of the PPP unit and supported
the preparation of a PPP handbook and other material to explain how to identify and structure
PPP projects, PPP tendering, and monitoring and managing private partner implementation of
PPP arrangements.
8. ADB’s country partnership strategy for Mongolia, 2012–2016 aims to achieve inclusive
and sustainable growth.6 Support for PPPs will assist by bringing in private financing for the
infrastructure needed to improve access to essential public services in transport, energy, and
water supply, as well as other municipal infrastructure. This will ease bottlenecks in the
economy, resulting in more equitable and efficient growth. Private sector development, which is
expected to play a significant role in achieving the strategic objectives of the government and
ADB, will be fostered through support for PPPs.
9. ADB’s support continues across the four pillars of the PPP Operational Plan:
(i) Advocacy and capacity development, by helping create awareness of the
potential of PPPs, encouraging leadership in PPPs, working at a sector level to identify
the potential of PPPs, and developing the capacity of government and the private sector
for PPPs;
4
ADB 2009 Technical Assistance to Mongolia to Support Public–Private Partnerships Manila (TA 7291-MON)
5
ADB 2010 Technical Assistance to Mongolia for Public-Private Partnership Development Manila (TA 7577-MON)
6
ADB 2012 Country Partnership Strategy: Mongolia, 2012–2016 Manila
(ii) Fostering the enabling environment, by helping develop the policy, legal,
regulatory, and institutional framework needed to facilitate, guide, and manage the
development of PPPs;
(iii) Project development, by assisting in the development and finalization of
pathfinder projects. This could be provided via expert support, tool kits, funding costs of
transaction advisors, or procurement support; and
(iv) Project financing: this could include the provision of credit enhancement products
(e.g., equity, long-term debt, re-financing, subordinate debt, co-financing, and
guarantees), establishing credit guarantee facilities, or provide public sector financial
support through schemes such as viability gap funding.
10. Support for advocacy and capacity development, the strengthening of the enabling
environment, and project identification will continue under TAs managed by East Asia Regional
Department of ADB (EARD). EARD has offered support to the central and local government for
the development and processing of pathfinder PPP projects. Additional and non-programmed
transaction advisory support could be provided possibly on a cost-recovery basis through a
development fee paid by the private partner.7
11. Prospective areas include health, public transport, logistics, water supply, and urban
development. A number of good opportunities exist with ADB supported projects, including: the
bus-way and bus e-ticketing within the Urban Transport Development Investment Programme
with UB City; the demonstration hospital to be funded under the Additional Financing for the
Fourth Health Sector Development Project; water, sanitation and heating services within the
Southeast Gobi Urban and Border Town Development Project and the Ulaanbaatar Urban
Services and Ger Areas Development Investment Programme; and logistics facilities within the
Regional Logistics Development Project and the Regional Logistics Development II.8
12. ADB’s sovereign support needs to carefully target achievable results and be mindful of
the potential to overload government agencies. Simple and quick PPPs probably provide the
best option for consolidating a good practice PPP programme in Mongolia.
7
Support for transaction advisory services would be additional to the existing country program. Funds are available
on a grant basis, but ideally would be recovered from successful PPP bidder. A mandate to provide such services
and to recover costs would need to be agreed with the executing agency.
8
ADB 2012 Report and Recommendation of the President to the Board of Directors on a Proposed Loan to
Mongolia for the Proposed Multi-tranche Financing Facility Mongolia: Urban Transport Development Investment
Program Manila (August);
ADB 2012 Mongolia: Public-Private Partnership in Urban Public Transport Sector of Ulaanbaatar Application for
PPIAF Support Draft (December);
ADB 2012 Report and Recommendation of the President to the Board of Directors on a Proposed Loan to
Mongolia for Additional Financing Mongolia: Fourth Health Sector Development Project Manila (October);
ADB 2010 Report and Recommendation of the President to the Board of Directors on a Proposed Loan to
Mongolia for Southeast Gobi Urban and Border Town Development Project Manila (March);
Castalia 2012 Southeast Gobi Urban Border Town Development Project: Establishment of a Long-Term
Concession Agreement to Carry Out Public Utility Service and Establishment of an Independent Sector Regulator
Inception Report prepared for the ADB (September)
ADB 2010 Technical Assistance Consultant’s Report Project Number: TA 7110-MON: Regional Logistics
Development Project—Component 2 Zamyn Uud Logistics Center 31 December 2010
ADB 2012 Project Number: 45264 Capacity Development Technical Assistance (CDTA) Mongolia: Logistics
Capacity Development (Financed by the Japan Fund for Poverty Reduction) May 2012
2. Policy Context
13. Mongolia’s legislative assembly (Ikh Khural) resolved to adopt a state policy on public-
private partnership (PPP) in 2009. A Law on Concessions became effective in 2010 and has
been amended on a number of occasions since then, with further changes under consideration.
In 2011, a PPP unit was established in the State Property Committee (SPC). In 2012, following
a change in the composition of the Government of Mongolia, responsibility for PPP was
transferred to the Innovation and Public Private Partnership Department (IPPPD) in the newly
established Ministry of Economic Development (MED).
14. The Government action plan for 2012–2016 commits to an enlarged role for PPPs9 and
the Government has adopted a list of projects to be included in the concession list required to
be compiled by the Law on Concession.
15. A 2011 regional study of the enabling environment for PPPs ranked Mongolia in the
nascent category of countries.10 The study, supported by ADB, noted that the enabling
environment for PPPs was weakened by
(iv) a lack of the expertise needed to design and implement PPPs; and
16. The TA addresses issues identified in the EIU Infrascope study. The need for the TA
project is supported by the fact that Mongolia has yet to deliver a major PPP project or to reach
financial closure on a major PPP project.
17. MED is the executing agency and implementing agency for the TA. The IPPPD provides
overall guidance to the TA and is responsible for coordination. The TA is supporting IPPPD in
working closely with DPSP to integrate public investment planning and PPP project identification
and to work with Ministries, agencies and local government to identify PPP opportunities.
18. The TA Report provides for engaging a team of international consultants for up to 12
person-months made up of a team leader and PPP institutional adviser, a PPP legal adviser, a
capacity development adviser, and PPP expert(s). National consultants made up of a deputy
team leader, a legal specialist, a capacity development specialist, and technical specialist(s) to
be engaged for up to 51 person-months. A copy of the full Terms of Reference (TOR) is
contained in the original TA paper.
9
Government of Mongolia 2012 Action Plan of the Reform Government to be Implemented Through the Years
2012–2016 http://www.bcmongolia.org/images/banner/gov.pdf
10
Economist Intelligence Unit 2011 Evaluating the Environment for Public–Private Partnership in Asia-Pacific: The
2011 Infrascope Economist Intelligence Unit Ltd. and ADB (March).
D. KEY ISSUES
19. In 2011, the SPC issued a request for persons to express interest in being qualified to
participate in a tender process for a build-operate-transfer (BOT) arrangement for a combined
heat and power plant (CHP5) and in 2012 issued a request for proposals to qualified persons.
As of November 2013, agreements with a preferred bidder have not been finalised. The entire
process was prolonged for a variety of reasons that include the change of Government in mid-
2012, transfer of PPP responsibility from SPC to IPPPD at MED later in 2012, changes in
personnel involved with the process, a change in site location for the power plant during the
course of the tender process, and a request to submit best and final offers in early 2013.
20. A number of other large concessions are under consideration. One of these is a $5.2
billion, 1,800 km rail concession which is intended to provide two new connections from the
main coal mines to the People’s Republic China (PRC), with one route heading east and the
other heading south. The concession will be awarded on a non-competitive basis to a joint
venture between the government and private investors (foreign and domestic). International
legal and financial advisers were appointed, and consultation with potential international
investors is under way. Civil works on the short, southern section to the border with the PRC
commenced in May 2013 using government funds. An open access regime is to apply that will
allow for competition in the use of the line.
21. The 1,000 km Altanbulag–UB–Zamiin-Uud road concession - the (near) north-south road
runs from the Russian border to Ulaan Baatar, and on to the border with the PRC. It is
described as a new transport route between Europe and Asia, and has an estimated cost of
$3.5 billion. A request for qualification for the northern and southern sections of the road was
issued in August 2011, but interest was confined to the northern section. A concession for both
sections was announced in July 2012 and in March 2013, the government issued a decree in
March 2013 authorising MED to negotiate the concession agreement with a consortium that had
initially expressed interest only in the northern section of the road.
22. The experience with these projects indicate that improvements in linking public
investment planning and PPP projects, better PPP project cycle management and further
developing the legal and regulatory framework are required.
2. Learning by Doing
23. There is limited experience in the public or private sector in Mongolia in designing and
implementing a PPP programme, managing a PPP project management cycle, concluding
negotiations and finalising agreements for an individual project, raising project finance, and
contract and performance management of a PPP project.
24. MED staff are well educated but, given that PPPs are new in Mongolia, have limited
experience with implementing a PPP programme and processing PPP projects. Training in
Mongolia and abroad has helped to improve the base of knowledge on PPP. This TA and the
earlier ADB TA projects have provided training and support for training has also been provided
by other donor and development agencies.
25. Other Ministries and government agencies that should be proposing projects for PPP
lack capacity and experience in project analysis and understanding of when PPP may provide a
better outcome than traditional public procurement.
26. There is a shortage of Mongolian project analysis, project finance, legal and financial
expertise and experience in the private sector.
27. Training and workshops on PPP have helped create a basic level of understanding but
they are not a substitute for active involvement in projects, where learning by doing allows
individuals to gain experience and helps build institutional memory on PPP issues and
implementation. For example, the exposure and experience gained in the course of developing
and tendering CHP5 is helpful in identifying issues to be addressed in the legal and institutional
framework. The process of working on projects shows where improvements can be made to
accelerate delivery of PPP facilities and services.
28. The MED, Ministry of Finance, Ministries and agencies responsible for delivering
facilities and services, local government, including Ulaan Baatar City Council, must agree on
clear roles and responsibilities and working relationships in identifying and implementing a PPP
programme and individual PPP projects. There must be efficient and shared use of the limited
number of people that have PPP and sharing of experience.
29. The TA will work with MED to develop this systematic approach to who does what in
PPP throughout the public investment planning and PPP project cycle management processes.
The TA will focus on the enabling environment and systems which require technical solutions
while recognising that Mongolia needs to evolve its own approach to leadership and decision-
making in the PPP process. The emphasis is on practical examples and application to issues
and projects that exist in Mongolia. Providing training on PPP to individuals is necessary, it is
not sufficient to build a sustainable PPP system in Mongolia that is embedded in institutions and
that is sufficiently robust to survive changes in personnel.
31. A small number of large and small projects in a variety of activities at national and local
government levels need to be identified to be used as pilot exercises that permit learning by
doing. The TA will work with MED and other agencies to identify these projects and the
resources required to manage the projects through the PPP project cycle. This work should be
linked to the public investment planning process and lead on to project screening and project
appraisal to build up a PPP project pipeline to be implemented on a multi-year basis.
32. Projects mooted for PPP include: education - school construction and maintenance, rail
projects, demonstration hospital, government buildings construction and maintenance, high
tech, free trade and special economic zones, elderly people homes, social housing. Facilities
and services at the level of national government and local government need to be assessed to
identify PPP projects that can provide early results. The TA will help apply PPP project
screening.
3. Public Investment Planning and PPP Project Pipeline
34. The Development Policy and Strategic Planning (DPSP) Department in the MED is to
consolidate investment and planning functions and streamline and coordinate medium-term and
long-term strategic planning. DPSP and IPPPD in MED and Ministry of Finance need to develop
good working relationships and clear allocation of responsibilities to have a coherent system
implementing PPP, public investment planning and capital budgeting.
35. The legal and regulatory framework for PPP refers to more than the Law on Concession.
It includes a wide range of laws and regulations that are related to PPP including public
investment planning, fiscal impact, investment and operating PPP facilities and services, project
finance, investors and lenders rights, and monitoring PPP performance. The Mongolia Law on
Investment, Budget Law, Civil Code and other laws on secured transactions, land law and
sector laws need to be considered in a PPP context. SPC resolutions were adopted in 201011.
36. The legal and regulatory framework will be assessed from the standpoint of national
government, local government, private sector and lenders.
38. Presentations have been made to the staff of IPPPD within the Ministry of Economic
Development (MED) on subjects that include:
legal terminology, phrases and terms found in legal and financing documents for a
concession arrangement;
the inter-relationship between risk allocation, the treatment of events of default, different
types of force majeure, insurance, termination, compensation and other means of
dealing with risks in PPP;
11
Interim methodology to conduct cost-benefit analysis of concession proposals SPC Resolution No 153 2010;
Competitive selection procedures for issuing concession rights Government Resolution No 177 2010; List of
potential concession projects of some state properties Government Resolution No 198 2010; Sample documents
of initial selection processes for issuing concession rights SPC Resolution No 342 2010; Sample documents of
competitive selection processes for issuing concession rights SPC Resolution No 342 2010; Procedures for
evaluating proposals SPC Resolution No 342 2010.
why and how these matters need to be considered at the project identification and
project screening stage of the PPP project cycle and should not be left to be considered
towards the end of the cycle;
the need to develop standardised clauses for inclusion in PPP agreements.
39. While PPP agreements for major projects will be written in English as required by
international lenders, a common and consistent Mongolian language glossary containing of the
main phrases and terms in PPP project agreements, project financing documents and
information memoranda is being compiled during the course of the TA project.
E. TA IMPLEMENTION
5. Mobilisation
40. Consultants were procured on the basis of individual selection in accordance with ADB’s
Guidelines on the Use of Consultants. The project commenced in March 2013 with the
recruitment of the Deputy Team Leader, Bailikhuu Dambachultem and Capacity Development
Specialist, Unurtsetseg Ulaankhuu. The Team Leader and PPP Institutional Specialist Philip
Kelly and a national legal adviser Maizorig were engaged in April 2013. The international PPP
Legal Adviser was engaged in September 2013.
41. An inception workshop was held in May 2013 attended by representatives from various
Ministries and agencies. Presentations were made by Bekhbat Sodnom Director General of
IPPPD at MED, Craig Sugden Principal Public-Private Partnership Specialist Public
Management, Financial Sector and Regional Cooperation Division East Asia Department, ADB,
TA Team Leader and PPP Institutional Specialist Philip Kelly, Deputy Team Leader D. Bailikhuu
and Denzel Hankinson from TA 7355.
42. Meetings have been held with DPSD in MED, Ministries including Energy, Education and
Health, Ulaan Baatar City Council, ADB staff in Ulaan Baatar with responsibility for investment
and infrastructure sectors.
43. A close working relationship has been developed with IPPPD Director General and staff
members and the TA personnel have been formed into a cohesive team.
44. Discussions have taken place with Japanese International Cooperation Agency (JICA)
and on how to optimise donor coordination in supporting PPP in Mongolia.
45. The TA is emphasising learning by doing rather than individual training in the use of
resources. IPPPD has resources available for training and capacity development from World
Bank and other sources. It was decided to conserve the resources under the international
capacity development adviser and focus on providing support to IPPD in how to carry out
specific activities e.g. managing the PPP project cycle. There is a need for the TA to further
consider how its activities can be integrated with support to be provided by the Japan
International Cooperation Agency and others.
F. APPENDIX: UPDATE OF TA STATUS
Public Investment Planning and PPP Project Pipeline Identify list of pilot projects for By end
Screening priority projects to identify projects suited learning by doing and January 2014
to inclusion in a PPP project pipeline commence work on these with
IPPPD staff
Integration of PPP planning and public investment
planning process Review existing concession list,
list of projects being proposed
Activities and Milestones for inclusion in public
investment plan, list of projects
2.1 Prepare an assessment of existing planning at Ulaan Baatar City Council
processes (by month 3) and apply initial screening
2.2 Develop operational guidelines for the integration criteria to determine if the By end March
of PPP and public investment planning processes project is suited to be admitted 2014
(by month 6) to the PPP project cycle
2.3 Update procedures for coordination with line
ministries on PPPs (by month 6) Provide advice and assistance
2.4 Update the PPP screening checklist to allow for and document on how public By end April
integration into the public investment planning investment planning and PPP 2014
process (by month 9) should be integrated in a way
2.5 Support adoption of improved operational that is suited to Mongolia and
guidelines and procedures (throughout the TA) how integration should be
2.6 Carry out awareness campaigns with line implemented
ministries and other government stakeholders of
an integrated PPP and public investment
planning process (throughout the TA)
Assess the capacity of MED staff to facilitate PPPs,
and identify knowledge gaps and capacity
weaknesses (by month 3)
Strengthening the legal and regulatory framework for Review all laws, regulations By mid
PPPs and agreements that affect December
PPP programme and projects 2013
[Activities and milestones at all stages of the PPP project
cycle, including the relationship
1.1 Review legal and regulatory amendments between public investment
recommended under previous development planning and PPP, PPP and
partner assistance, identifying amendments budget affordability, PPP at
made to date and those still to be made (by central and local government
month 6)
1.2 Draft amendments to the Concessions Law and Recommend improvements to
other relevant legislation based on the review of the legal and regulatory
previous work and feedback from private and framework for PPP By mid
public stakeholders, including a recommended implementation and for December
time line for implementation (by month 12) integration of PPP and public 2013
1.3 Support the implementation of legislative investment planning and PPP
amendments (throughout the TA) and budgets
1.4 Support the IPPP Department in raising
understanding and acceptance of the need to Draft changes to laws and
strengthen the legal and regulatory framework regulations and obtain support
(throughout the TA)] for submission to Cabinet and
Link between Activities and Milestones in TAR Tasks Time-table
and Main subjects to be addressed
By mid
February 2014
Preparation of knowledge products including short Knowledge products and policy On-going
policy and technical notes / build on PPP handbook and technical notes on specific
provided in TA issues to support learning by
doing efforts that build into a
[Activities and Milestones PPP manual of how to address
issues that arise in PPP
1.5 Prepare targeted, widely accessible knowledge process
products to support outreach (throughout the TA)
Support identification of priority PPPs suitable for These are results of activities
a pre-screening assessment (by month 3) carried out under public
4.2 Prepare pre-screening assessments for priority investment planning / PPP
PPPs in accordance with the PPP handbook (by screening / identification of pilot
month 18) projects and implementation of
4.3 Prepare terms of reference for transaction activities under learning by
advisory services for pre-screened PPPs that are doing
to proceed (by month 18)
4.4 Consult with key government stakeholders on
findings of the pre-screening assessments (by
month 18)
4.5 Present pre-screening assessments in a
workshop with a wide range of stakeholders
Link between Activities and Milestones in TAR Tasks Time-table
and Main subjects to be addressed