In­vest­ment driven Great Tu­men Ini­tia­tive

The UB Post - - Politics - By B.CHINTUSHIG

The 18th Meet­ing of the Con­sul­ta­tive Com­mis­sion of the Greater Tu­men Ini­tia­tive (GTI) Pro­gram took place in Ulaan­baatar from June 21 to 22. Out­side of Mongolia, the Con­sul­ta­tive Com­mis­sion in­cludes China, Rus­sia, and South Korea. Del­e­ga­tions and ad­min­is­tra­tors from min­istries of fi­nance, trade, econ­omy, ex­port, and im­port of the afore­men­tioned coun­tries par­tic­i­pated in the meet­ing.

The GTI is an in­ter­gov­ern­men­tal co­op­er­a­tion mech­a­nism of four coun­tries: China, Mongolia, Repub­lic of Korea and Rus­sian Fed­er­a­tion, sup­ported by the United Na­tions De­vel­op­ment Pro­gramme (UNDP).

In 1995, GTI mem­ber gov­ern­ments signed agree­ments to es­tab­lish this mech­a­nism, aimed at strength­en­ing economic and tech­ni­cal co­op­er­a­tion, and at­tain­ing greater growth and sus­tain­able de­vel­op­ment in NEA and spe­cially the Greater Tu­men re­gion. In par­tic­u­lar, the GTI fo­cuses on the pri­or­ity ar­eas of trans­port, trade and in­vest­ment, tourism, agri­cul­ture, en­ergy, with en­vi­ron­ment as a cross-cut­ting sec­tor.

The ini­tia­tive was named af­ter the 520-kilo­me­ter Tu­men River that flows through China, Rus­sia, and North Korea. Mon­go­lian prov­inces in the Greater Tu­men re­gion in­clude Dornod, Khen­tii, and Sukhbaatar.

On the first day of the meet­ing, De­vel­op­ment Bank of Mongolia (DBM) took the op­por­tu­nity to present the na­tional in­vest­ment agenda, the govern­ment’s pol­icy, and op­por­tu­ni­ties for fi­nanc­ing agri­cul­tural and min­ing projects.

Deputy Prime Min­is­ter U.Enkhtu­vshin opened the high-level discussion on the topic of “Pri­or­ity De­vel­op­ment Pro­grams: Fi­nan­cial Co­op­er­a­tion Ini­tia­tives”.

In his ad­dress he said, “Look­ing at the for­eign trade data for Mongolia in the last 10 years, around 70 to 90 per­cent of all trade is con­ducted with mem­ber coun­tries of the GTI; Rus­sia, China, and South Korea. China ac­counted for around 80 per­cent of Mongolia’s ex­ports while Rus­sia ac­counted for 30 per­cent of im­ports into Mongolia,” U.Enkhtu­vshin said.

“Cabi­net is in the process of pre­par­ing to econ­o­mize the Tavan Tol­goi mine as part of its ac­tion plan to im­ple­ment large-scale projects. The plan is to work to­gether openly and trans­par­ently with the pri­vate sec­tor and for­eign in­vestors to fi­nance and de­velop a com­pre­hen­sive com­plex that fea­tures a coal pro­cess­ing plant, lo­cal power sta­tion, and a road sys­tem,” the deputy prime min­is­ter said.

Ever since a con­tro­ver­sial bill by Par­lia­ment in 2012 to re­strict for­eign in­vest­ment in strate­gic sec­tors, for­eign in­vestors have been wary of in­vest­ing in Mongolia. In his speech at the con­fer­ence, Head of In­vest­ment Pol­icy at the Na­tional De­vel­op­ment Agency L.Munkhbat un­der­lined that the 54 per­cent resur­gence in for­eign in­vest­ment seen this year is a sign of re­cov­ery in con­fi­dence.

He high­lighted that the de­ci­sion to es­tab­lish a coun­cil to pro­tect in­vestor rights un­der Cabi­net has been a sig­nif­i­cant ac­com­plish­ment. The coun­cil is in­tended to re­ceive com­plaints from in­vestors and help ad­dress the is­sue.

L.Munkhbat also re­ported that 115 projects cost­ing 16.1 bil­lion MNT have been planned to be im­ple­mented as part of the three pil­lar de­vel­op­ment pol­icy. Cabi­net is seek­ing to fund 59 of these projects with for­eign loans and fi­nan­cial sup­port. In­vestors that in­vest up­wards of 500 bil­lion MNT will be able to es­tab­lish a sta­bil­ity agree­ment with Cabi­net.

Other in­vestors will be el­i­gi­ble to re­ceive sta­bil­ity per­mits, be ex­empt from taxes for five years by in­vest­ing in free trade zones, and be ex­empt from cus­toms tax on equip­ment and ma­chin­ery if the com­pany is a SME. In terms of non-tax in­cen­tives, the govern­ment is will­ing to pro­vide fi­nan­cial guar­an­tees for in­no­va­tive project and prod­ucts, looser re­stric­tions on fac­to­ries and tech­no­log­i­cal parks, and ex­emp­tion of for­eign em­ployee tax for com­pa­nies op­er­at­ing in in­fra­struc­ture, man­u­fac­tur­ing, ed­u­ca­tion, and sci­ence.

Rep­re­sent­ing the min­ing sec­tor at the con­fer­ence, Deputy Di­rec­tor of Er­denes Mon­gol O.Od­ba­yar pre­sented on Mongolia’s min­ing as­sets. He re­ported that the govern­ment has planned a 67.5 mil­lion USD ex­pan­sion of the Ba­ganuur mine and a 18 mil­lion USD ex­pan­sion of the Shive-Ovoo mine. Ad­di­tion­ally, plans have been made to con­struct a 320 mil­lion USD met­al­lurgy fac­tory, lay down the Tavan Tol­goi – Khangi road for 215 mil­lion USD and the Tavan Tol­goi – Choir road for 176 mil­lion USD. Mean­while, a 6.9 bil­lion USD power com­plex is be­ing planned to be built at the Shivee-Ovoo mine and a 123 mil­lion USD coal pro­cess­ing plant is planned to be built at the Tavan Tol­goi mine.

In the agri­cul­tural sec­tor, the Min­istry of Food, Agri­cul­ture and Light In­dus­try re­ported that there is a com­pre­hen­sive project that in­cludes sta­bi­liz­ing farm­ing pro­duc­tion and increasing pro­duc­tion of meat, milk prod­ucts, and wool and cash­mere. On the side­lines of the con­fer­ence, the ad­min­is­tra­tion of DBM gave an interview re­gard­ing some of the projects that will be im­ple­mented.

CEO OF DBM B.BATBAYAR

What role will DBM have in at­tract­ing for­eign in­vestors to projects and agen­das in Mongolia?

For­eign in­vestors mainly in­vest in Mongolia for two dif­fer­ent rea­sons. One is to trade with us and the sec­ond is to re­ceive re­turns on a prof­itable project. Our coun­try is fo­cused on de­vel­op­ing the foun­da­tional in­fra­struc­ture while im­ple­ment­ing ben­e­fi­cial projects. We are fo­cused on mak­ing sure that the benefits from de­vel­op­ing fun­da­men­tal in­fra­struc­ture and prof­itable projects helps ac­ti­vate the econ­omy. It is im­por­tant to be upfront and clear about ex­actly which projects will be fi­nanced with the funds from a for­eign in­vestor. DBM not only pro­vides fund­ing in the tra­di­tional sense but also is pro­vid­ing joint-loans through its in­volve­ment in ben­e­fi­cial projects. If a for­eign fi­nan­cial or­ga­ni­za­tion pro­vides equip­ment and ma­chin­ery at con­ces­sional rates, we can lease the equip­ment to busi­nesses in Mongolia that are in­ter­ested. Our equip­ment leas­ing com­pany was es­tab­lished rel­a­tively re­cently. But it has found early suc­cess. It has be­gun to pro­vide equip­ment and ma­chin­ery to the min­ing, agri­cul­tural, and trans­port sec­tors. Mov­ing for­ward, it is pos­si­ble to ex­pand the op­er­a­tions of the leas­ing com­pany into the en­ergy and fuel sec­tors.

If an in­vestor is in­ter­ested in in­vest­ing for the long-term and re­ceiv­ing div­i­dends, they can put money into our in­vest­ment fund and re­ceive div­i­dends each year. Our in­vest­ment fund must be ready in or­der to take ad­van­tage of these op­por­tu­ni­ties. It needs to be in line with the in­ter­na­tional rules, pro­ce­dures, and stan­dards of an in­vest­ment fund. It needs to be clear from the start on how and when an in­vestor in the fund will re­ceive their div­i­dends. An in­vestor will only put their money into some­thing that is clear and hon­est from the start. In or­der to speed up our implementation of the in­vest­ment fund, we are work­ing with sev­eral ex­perts and con­sul­tants from the US. The in­vest­ment fund will pri­or­i­tize fund­ing in min­ing and man­u­fac­tur­ing. In ad­di­tion, it will likely also in­vest in green eco­log­i­cal prod­ucts and spe­cific sec­tors, such as agri­cul­ture. By open­ing up these chan­nels and op­por­tu­ni­ties, Mongolia can at­tract for­eign capital. Our bank’s role is to fa­cil­i­tate the mech­a­nism to in­cor­po­rate trade, in­vest­ment, and co­op­er­a­tion into the de­vel­op­ment of the econ­omy.

Are for­eign ex­port im­port banks in­ter­ested in work­ing with you and jointly in­vest­ing in projects?

Of course. Coun­tries es­tab­lish an exim bank in or­der to sup­ple­ment economic growth. It also works to sup­port the for­eign trade of its re­spec­tive coun­try. First and fore­most, it is im­por­tant to in­vest in ven­tures and prod­ucts that do­mes­tic man­u­fac­tur­ers can pro­duce right now. This means we are fol­low­ing the model of other coun­tries to de­velop their na­tional economies first. Our main sec­tors of min­ing, agri­cul­ture, and en­ergy need for­eign in­vest­ment and new tech­nol­ogy. We are work­ing to de­ter­mine which coun­try’s tech­nol­ogy fits best with the main sec­tors in Mongolia and to es­tab­lish a con­ces­sional agree­ment with the exim bank of that coun­try to lease or pur­chase equip­ment. In other words, if a com­pany de­ter­mines that a par­tic­u­lar ma­chin­ery or equip­ment is most suit­able for their op­er­a­tions, we can use our chan­nels with that exim bank to sup­port the project. For in­stance, a credit line has been opened be­tween DBM and the exim banks of China and Rus­sia. There are credit lines with other exim banks as well. Busi­nesses in the light in­dus­try sec­tor have an open chan­nel to re­ceive a loan from European Union coun­tries to pur­chase equip­ment.

How many projects have re­quested fund­ing from DBM?

There are many projects that re­quest fund­ing from us. But there are few projects that ful­fill the five re­quire­ments set forth by DBM. A com­pany must ful­fill 100 per­cent of the le­gal re­quire­ments be­fore re­ceiv­ing fund­ing from us. Our op­er­a­tions will be flawed if we be­gin to fi­nance projects with no fea­si­bil­ity stud­ies, no en­vi­ron­men­tal stud­ies, no col­lat­eral, or guar­an­tees. Even though DBM is man­dated to pro­vide de­vel­op­ment loans, at the end of the day, it is a for-profit or­ga­ni­za­tion. Our stan­dards are rather high. In ad­di­tion, we are legally re­quired to pro­vide no less than 60 per­cent of our loans at projects aimed at ex­ports. DBM also fi­nances projects that seek to pro­vide al­ter­na­tives to im­ports and cre­ate new jobs. There­fore, it is not only about ful­fill­ing the re­quire­ments but the project must be ex­port-di­rected or fo­cused on re­plac­ing im­ports. This year, DBM in­vested large amounts of money into increasing ex­port vol­umes and ex­pand­ing the pro­cess­ing ca­pac­ity of ex­port prod­ucts. For ex­am­ple, as part of the cash­mere agenda, a loan was pro­vided to cash­mere ex­port­ing com­pa­nies to re­new their equip­ment and ma­chin­ery, as well as strengthen their op­er­a­tional as­sets.

Busi­nesses in the light in­dus­try sec­tor lack the equip­ment and ma­chin­ery to fully process raw ma­te­ri­als do­mes­ti­cally. Our fund­ing will be geared to­wards increasing pro­duc­tion ca­pac­ity and increasing value added pro­duc­tion. When a com­pany in­creases its pro­duc­tion ca­pac­ity, it will need to pur­chase more raw ma­te­ri­als. As a re­sult, we have pro­vided loans to pur­chase raw ma­te­ri­als with­out de­lay. Min­ing projects such as iron ore pro­cess­ing plants, steel pro­cess­ing plants, and gold min­ing were sup­ported with our fund­ing. Gold not only makes up one of the main ex­port prod­ucts of Mongolia but it also is a large con­trib­u­tor to the for­eign ex­change re­serves. DBM in­vested a lot of money into gold com­pa­nies op­er­at­ing at sec­ondary de­posits. Be­gin­ning this year, we will be fi­nan­cially sup­port­ing com­pa­nies that op­er­ate gold mines at pri­mary de­posits. We must first de­ter­mine what mech­a­nism will be used to in­vest in these ven­tures. In or­der to op­er­ate pri­mary de­posit gold min­ing, it re­quires a lot of equip­ment and ma­chin­ery to be im­ported into the coun­try. One of our im­por­tant re­quire­ments is that a com­pany is able to op­er­ate with­out dam­ag­ing or de­stroy­ing its sur­round­ing en­vi­ron­ment. It is pos­si­ble to fi­nance a project once it is clear that it has no neg­a­tive en­vi­ron­men­tal im­pacts. Even if it is eco­nom­i­cally ben­e­fi­cial, we will not fi­nance a project if it is en­vi­ron­men­tally neg­li­gi­ble. There­fore, our ca­pac­ity of fund­ing and the time­line of a project must be in line. Writ­ing a few ideas on a piece of pa­per is not a project. A com­pany needs to pre­pare re­search, data, and ba­sis for fund­ing, same as with any bank. We pro­vide in­for­ma­tion about our re­quire­ments reg­u­larly. We also saw that we need to im­prove the fea­si­bil­ity stud­ies and en­vi­ron­men­tal im­pact stud­ies of even pro­fes­sional or­ga­ni­za­tions. This will in­crease the projects that meet our re­quire­ments.

Is it true that the ma­jor­ity of pro­posed projects are not able to ful­fill the re­quire­ments for col­lat­eral as­set?

There are in­stances where projects are not able to ful­fill the re­quire­ment of col­lat­eral. We pro­vide loans at val­ues up to 90 per­cent of the col­lat­eral. If a project is eco­nom­i­cally ben­e­fi­cial and has no neg­a­tive en­vi­ron­men­tal im­pacts, but does not ful­fill the col­lat­eral re­quire­ment, it can still be fi­nanced through the in­vest­ment fund, which helps dis­trib­ute risk evenly. We are work­ing to im­prove these op­por­tu­ni­ties. There is no pos­si­bil­ity to not ex­pend any money and re­ceive bil­lions of MNT in loans from DBM.

Doesn’t the Law on De­vel­op­ment Bank re­quire that all in­vest­ment be jointly-funded?

Yes. Ev­ery in­vest­ment must be made in col­lab­o­ra­tion with a for­eign in­vestor or for­eign fi­nan­cial or­ga­ni­za­tion. It is one way of shar­ing the risk on the in­vest­ment.

GEN­ERAL ECON­O­MIST OF DBM

D.DELGERSAIKHAN

How would you sig­nify the im­por­tance of the trade in the GTI?

The GTI has been ac­tively im­ple­mented since 1995. It is the only ini­tia­tive to de­velop North­east Asia that is sup­ported by United Na­tions De­vel­op­ment Pro­gram. In other words, it is some­thing that op­er­ates un­der the flag of the UN. The ini­tia­tive pri­or­i­tizes in­vest­ment in trade, tourism, in­fra­struc­ture, and heavy and light in­dus­try. The main or­ga­ni­za­tion that in­vests in these ven­tures is the exim bank of a coun­try. Our coun­try does not have an exim bank. Amend­ments were made to the Law on De­vel­op­ment Bank to re­quire that at least 60 per­cent of fund­ing goes to­wards increasing ex­ports. This al­lows DBM to act both as a de­vel­op­ment bank and exim bank. This is why our bank is at the fore­front of or­ga­niz­ing the con­fer­ence of the GTI. China, Rus­sia, and South Korea are the other mem­bers of the ini­tia­tive. China is the sec­ond largest econ­omy in the world and Rus­sia and South Korea are in the top 10 glob­ally. There­fore, it is of great im­por­tance that we are able to in­tro­duce and present in­vest­ment op­por­tu­ni­ties in Mongolia to these coun­tries.

How con­fi­dent can we be that these coun­tries will in­vest more into our econ­omy?

These coun­tries have in­vested in our coun­try and have ex­pe­ri­ence work­ing with us in the past. This leads to some ex­pec­ta­tion. Cabi­net an­nounced that it is im­ple­ment­ing its three pil­lar de­vel­op­ment strat­egy. This, how­ever, re­quires bil­lions of dol­lars. We be­lieve that it is a sig­nif­i­cant step in the right di­rec­tion to present these large-scale projects at a con­fer­ence of the GTI. We are hop­ing and ex­pect­ing great re­sults.

Isn’t it pos­si­ble to jointly fi­nance these projects to­gether with the exim banks of GTI mem­ber coun­tries?

That is pos­si­ble. The new up­dated Law on De­vel­op­ment Bank al­lows us to jointly fund loans, in­vest­ment, and fund­ing into the in­vest­ment fund. DBM has also been pre­sent­ing op­por­tu­ni­ties for co­op­er­a­tion to par­tic­i­pants.

Photo by E.KHARTSAGA

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