E.Odjargal talks to B.Bayarsaikhan, Head of the National Development Agency, on the success or otherwise of the Public Investment Programme and other such moves in bringing in foreign direct investment, and on how to protect the investment climate from political instability.
How does the Public Investment Programme fit into state policy and how is it being implemented?
The National Development Agency was expected to have the Public Investment Programme (PIP) approved in 2017, but that was when the IMF Extended Fund Facility Programme was on, and its terms would not allow the government to take up the PIP. We then set up a new working group, and the Government changed the way in which it is to work. When the Prime Minister ordered us to align PIP with the Concept of Sustainable Development 2030, the Government decided that PIP would work to help reach the objectives of the Concept in its first phase, ending in 2020, and of the Action Plan of the Government 2016-2020. This led to the announcement of the Three-Pillar Development Policy and PIP was made the basic document of the policy by the Government in May 2018. PIP was thus adapted to the long- and medium-term development policy.
You have an ambitious list of targets to reach within a specified period of time. How do you plan to do this?
Successful implementation of PIP requires a good feasibility study and funding. Money can come from four principal sources: the state budget, foreign loans and grants, public-private partnership, foreign direct investment, or full private sector participation. Some ministries will use money allocated from the budget, and what comes from foreign loans and grants. The National Development Agency (NDA) is responsible for formalizing public-private partnerships and channelling foreign direct investment.
Efficient implementation depends on proper monitoring and regular evaluation. Thus, the NDA has a duty to report to the Government on whether projects under implementation with PIP funds are on schedule. Reports from ministries will be compiled by February 15 and all the work done in 2018 will then be reviewed and assessed.
Has any project been added or removed since the programme was approved?
All amendments should be made by 15 May each year. Reports on the progress of implementation, proposals to add or remove projects, or to make any other change will be received from the relevant ministries, and decisions taken after studying them. Currently reports are being collected from the ministries.
How have mining projects progressed, including work on the Tavan Tolgoi infrastructure?
The Tavan Tolgoi infrastructure package is our largest project. It will be funded by the money raised at the Erdenes Tavan Tolgoi IPO.
The whole thing will require a huge investment and so the IPO has to be very attractive to investors. Since budgetary investments have been reduced, the Government has decided to implement the TT infrastructure projects through public-private partnerships. New export routes will be opened as several roads are constructed from Tavan Tolgoi to China, including a road to Bayannuur aimag of Inner Mongolia through Gashuunsukhait port, another to Alishaa aimag through TsagaandelUul port, and yet another to Bugat city through Khangi port. The NDA has announced tenders for these projects as part of its responsibility over public-private partnership, foreign direct investment, and concession.
Preparatory work on construction of the 270-km road between Tavan Tolgoi and Tsagaandel Uul has begun following the signing of an agreement. As for the dual road between Tavan Tolgoi-Gashuunsukhait, it is now the responsibility of the foreign investor to raise the money, put a deposit of MNT1 billion and sign the agreement. We hope all this will be done soon. The Tavan Tolgoi-Khangi road project is being prepared and once the Government approves it, we shall offer it to the Chinese investor who has been chosen. Therefore, work on all three road construction projects in the Tavan Tolgoi package is likely to begin in March.
Since the initial investment on the Tavan Tolgoi-Gashuunsukhait railway was made by the state, the remaining part will also have to come from the state budget. Since budgetary allocations have had to be cut because of the IMF programme, the ministries have to find a solution. Maybe work will have to wait until the IPO is over. The Tavan Tolgoi-Zuunbayan railway project, however, will be taken up as a public-private partnership, with Mongolian Railways holding no less than 51 percent share. Once a partner is named, the NDA will negotiate with it the terms of a concession agreement. Some discussion has possibly already taken place with a prospective partner, but these negotiations take time. Some work has been done on a corridor, but instead of being used for the Tavan Tolgoi-Sainshand route, it will be part of the railway to Zuunbayan.
A new entity now owns the licence for the Gatsuurt gold deposit but with the local community opposed to the project,what do you think will happen?
The NDA remains responsible for the investment agreement, and when the Government asks us to go ahead we shall begin our work. The new owners must have bought the licence because they think they would be able to implement the project.
Some politicians want some form of state ownership of the TsagaanSuvarga project. Is there a risk this would affect its implementation?
Since the private sector has been investing in the project and implementing it, I think it is right to let it continue. However, in the case of other such deposits a public-private partnership (PPP) would be a good option. One such project is the Darkhan metallurgical plant. The concession agreement for the PPP allows the state to receive taxes and jobs to be created as infrastructure is built as a step to put the deposit into economic circulation. I think this is a good model for other large deposits.
Political instability and government involvement in projects are seen as negatively affecting the foreign investment climate. What can the NDA do to protect investors" interests and thus improve the investment climate?
As the economy recovers, there has been some increase in foreign direct investment, but it is true that the foreign investment climate does not look good in the current political situation.Large projects should progress without any political interference. The main issue in this regard is the stability of the public service. Projects would progress even if there is political disturbance or the Government changes, but only if the public service is stable. The Law on Civil Service, in effect since January 1, 2018 clearly demarcates the boundaries between political functionaries and the public administration, and these must be strictly maintained. For example, the civil administration apparatus must continue to work stably even ifthe parliamentary elections in 2020 ead to a change of government. Change of government is routine in a democracy but that does not mean everything is upended after such change. The Mongolian tradition of large-scale firing of civil servants by any new government frustrates foreign investors.
The NDA has taken several initiatives over the past two years to attract foreign investment and ensure a stable working environment for them. An Investment Policy Statement is being developed in collaboration with the International Finance Corporation and will be sent for Government approval before June. Different short-, medium- and long-term strategies for attracting foreign investment, the changes to be made in current practices, and the special conditions for each sector will be announced internationally. We mean to make it clear that the same policy will be followed in Mongolia, no matter what government is in power.
Major amendments have been made to the Foreign Investment Law more than once, leading to a drop in foreign investment. Today, no one is sure what our policy on foreign investment is, and the planned policy statement will make things internationally clear. But first we had to identify what has to be changed and this the NDA did in collaboration with the International Finance Corporation and the World Bank.
Another significant step planned is to have an online mechanism to redress investor grievance. Allowing complaints and disputes to reach the Arbitration Court ruined the country"s reputation. We need to create a mechanism for timely resolution of these issues, some of them quite small. Investors will record their grievances online,then track their progress in the respective ministry;if there is no resolution with in a reasonable time, they can demand an explanation. If an issue looks unlikely to be amicably resolved, it will be placed before the Secretariat of the Investment Protection Council in the NDA, which will decide whether any Mongolian law or international treaty has been violated. If the complaint is found to be just, the Secretariat will send a recommendation to the authority which took the original unlawful decision to retract it. If this is not done within the specified time, the case will go to the Investment Protection Council and submitted to the Government.
Often enough, a foreign investor arriving in Mongolia to establish a company and to begin work on a project does not know where to go and whom to see. Some of the reasons for this are lack of clear guidelines, the language barrier and bureaucracy. Generally speaking, the quality of our state service is poor. At every forum -- whether in Germany, Britain, Japan or China -- foreign investors ask us to establish a single window service. The NDA began work on this a year ago, after being asked by the Investment Protection Council to do so. However, no budget was provided for this work, and the NDA had to sound donor organizations to raise funds. Now we are collaborating on the work with the German organization, GIZ. A trial run has been given and the investors’ single window service would be officially launched on 24 January. Government agencies such as the General Authority for State Registration, the Foreign Nationals and Citizenship Authority, the Social Insurance General Office, and the General Department of Taxation will be available at the “window”, while the NDA will be responsible for investment agreements, stabilization certificates and investment advice.
What has been the experience of other countries with a similar single window service to attract investment?
KOTRA in South Korea has been very successful. This trade and investment promotion organization was set up under an IMF programme in 1998, at a time when the country faced increasing unemployment and an economic downturn, with the state budget slashed. KOTRA was able to bring in major investments. Mongolian delegates have studied how KOTRA has been so successful. It is a very large organization.
One representative each from the General Authority for State Registration, the Foreign Nationals and Citizenship Authority, the Social Insurance General Office, the General Department of Taxation, and the NDA accompanied our Prime Minister when he visited Japan. They studied the investors’ single window service in Japan, which is run by an organization smaller than KOTRA but that, and its compactness,made it very suitable for our country.
We announced in Tokyo that we would be setting up a similar single window service for investors to help introduce Japanese technology to Mongolia, attract investment, and to connect the SMEs of the two countries.
Japan has advanced technology and money to invest, while Mongolia has minerals and raw materials. It is a potent combination and the NDA will be working with the Small and Medium Enterprise Agency of Japan. We plan to hold a business forum in Ulaanbaatar this year to decide on how best to collaborate, but for this quite a lot of preparation is necessary.We must present accurate and clear information on what our companies need, so that the most suitable companies from Japan come to Mongolia.
There is so much to learn for Mongolians from Japanese methods to feed their industrial needs.
What sort of data do we have on our manufacturers?
The NDA is currently working on an integrated industrial information system. There are approximately 6,000 manufacturing units in Mongolia, and work on registering them by their location in 21 aimags and 9 districts began in March 2018. The exercise is aimed at knowing what is produced where, whether the product meets international standards and requirements, and which market it aims to reach. The information will be made available through the integrated system and will provide foreign investors with opportunities to establish cooperation.
