MEETING ULAANBAATAR’S INFRASTRUCTURE NEEDS

Considerable opportunities remain untapped but challenges remain

Ulaanbaatar is by most account one of the fastest growing cities in the world set within a country that still posts healthy levels of growth with strong fundamentals based on some of the largest untapped mineral deposits still available. Despite this, the city of Ulaanbaatar is blighted by social and infrastructure problems, over 50% of its population still lives in largely informal housing with limited access to heating, electricity, paved roads or sewer systems.

Ulaanbaatar started its present life as a soviet built and designed city, along the rigid urban plans so common throughout the ex-Soviet territories with large boulevards, tree lined avenues and clearly defined zoning by type of use. Following the 91 collapse of the Soviet Union, it has become a busy metropolis with construction cranes dominating the skyline and retail units encroaching on sidewalks. The city has expanded extraordinarily rapidly but the enthusiasm shown in developing luxury malls, residences and hotels has neglected the infrastructure requirements of the city. This lack of foresighted is today being felt through regular power cuts, legendary traffic congestion and some the highest pollution levels to be found in the world.

Central Ulaanbaatar - 1983

For Ulaanbaatar (UB) to serve its population adequately and continue its growth in a sustainable fashion, it must reform its policy environment, improve enforcement of existing rules but most importantly it must invest heavily in its infrastructure provision. Today’s infrastructure has barely been updated since the Soviets left and the strain of time is showing, new power plants, improved roads, new bridges, water treatment and waste disposal systems have all become essential requirements. Thankfully the past few years have shown signs of progress and a realization from the political class that while infrastructure projects may not be attractive or particularly vote grabbing, they are an essential tool for continued economic growth.

A key bottleneck to much of the infrastructure development in Mongolia is the limited qualified human resources that the country possess. With a population of only 3 million people of which 1.3 million are in Ulaanbaatar, there are only a few with the skills and qualifications to manage large scale projects both within the private and public sectors, this while the country is in the midst of extraordinary growth. Mongolia has a high literacy rates but a poor standard of higher education, leaving a considerable gap in those administrators, civil servants and financiers able to launch and manage mega infrastructure projects. It is feared that when the predicted mining boom begins again in 2016 and 2017, the “Dutch disease” phenomenon will kick in and the mining industry, with its high paid jobs, will attract the best Mongolian workers away from the public sector or other industries.

There are never the less some very positive developments currently taking place. CHP5, a new power plant to be built and operated by a consortium led by ENGIE (formerly GDF Suez) is nearing the completion of its negotiation stages and is expected to be online by the end of 2019/2020 while a new international airport (financed by JICA) is expected to come online in 2017. A number of road and bridge improvements have been made in the past few years and there is now a strong political will to move those ‘mega’ projects along, as is exemplified with the signature of the Oyu Tolgoi phase 2 agreement on the 20th of May, 2015.

The World Bank, the EBRD, the ADB, JICA, Asian bank for investment in infrastructure, Silk Road Fund and a number of other development agencies are heavily involved in some infrastructure developments throughout the city, attempting to meet the needs of those most disenfranchised by

building sceptic tanks, roads, street lighting and public utilities, an estimated 750 Million USD has been disbursed in concessionary soft loans in the past 3 years but much more investment is required.

Narendra Modi, the Indian Prime Minister, in his historic visit to Mongolia in May 2015 offered the country a 1 Billion USD credit line dedicated to infrastructure projects, the Millennium Challenge Account is finalising negotiations on a further 250 Million USD grant for regulatory and infrastructure projects, Russia has pledged to provide in-kind support for the development of the railways and it is hoped that the French Government will further contribute towards Mongolia’s infrastructure expansion. An estimated 8 Billion USD is required to meet Mongolia’s current infrastructure needs and up to 15 Billion USD to prepare for the rapid economic growth of the country.

The Government is currently establishing a number of Public-Private Partnership (PPP) opportunities throughout the country. The largest of which is the Sainshand Industrial Complex i the South Gobi but PPP’s range from wind power plants to road constructions. For those PPP’s to bloom in viable projects, the country needs to improve its regulatory environment, as well as its capacity to manage such projects. Mongolia’s looks to diversifying its trade partner in line with its so-colled ‘Third neighbour’ policy with countries, such as France (well known for its high technology and knowhow in energy and agriculture fields) or Germany (renowned for the quality of their product) For those few firms that have the stamina and capacity to deal with a fragmented political class within Mongolia as well as to deliver creative financing methods (such as a built, own, operate, transfer model), the opportunities in Mongolia are ripe for the taking. They range from smelters and coal washing plants for the mining industry, large railway construction projects to transport mineral products, treatment and recycling plants for waste water, solid waste and finally renewable energy centers to make the most of the extraordinary wind and solar capacity of Mongolia.