1. Policy, Law nd Regulatory Analysis
for PPPs Development
By NARANTSETSEG P.
Associate/CC Mongolia
2. Content
-Goal
-Research importance
-Analysis for PPP development:
•Infrascope Index
•Lenders and investors requirements
•Risk assessment
•Assessment for law and regulations
-Recommendation and improving ways
3. Goal of Research
Main goal is to analyze PPP policy, law and
regulations of Mongolia, to evaluate and to make
recommendation for the intensifying effective PPP
development.
4. -Contributions to intensive development,
-Stakeholder’s effective relationship
management,
-Complex method for procuring with VFM, risk
allocation and high quality service,
-Knowledge management process with high
professional skills,
-Mechanism to decide lack of budget,
-Effective risk and guarantee management to
protect investors.
Importance
5. Infrascope Index
Country Infrascope PPP readiness
Australia 92.3 Mature
Korea 71.3 Developed
Japan 63.7 Developed
UK 89.7 Mature
Bangladesh 39.2 Emerging
India 64.8 Developed
China 49.8 Emerging
Pakistan 38.8 Emerging
Philippines 47.1 Emerging
Mongolia 23.3 Nascent
6. Infrascope Index
Country Law,
regulation
framework
Institutio
nal frame
Operatio-
nal
Invest.
climate
Financial
facilities
Sub-
national
adjust.
Australia 100 100 66.5 87.4 94.4 100
Korea 78.1 75 68.8 54.2 88.9 50
Japan 50 66.7 61.4 57.5 83.3 75
UK 96.9 100 76.7 82.3 94.4 75
Bangladesh 40.6 33.3 41 47.3 44.4 25
India 59.4 66.7 70 52.3 72.2 75
China 31.3 25 78.1 51.6 66.7 75
Pakistan 34.4 33.3 41.8 43 38.9 50
Philippines 43.8 41.7 44.8 46.3 61.1 50
Mongolia 25 25 3.1 46.9 13.9 25
7. Lenders and investors requirements
Deciding questions State Policy on PPPs,
Resolution No 64
Concession law of
Mongolia, 2010
fair, transparent is the PPP bidding
process
-√ +√
Robust, forward planning program
of public sector
-√ -√
Allocation process to ensure
government payments
-√ -√
Legal capacity of public sector on
long-term payment commitments
-√ -√
Risk that obligations transfer to
body without legal capacity
-√ -√
Transition path for harmonizing
contract with regulations
-√ -√
Certain roles of regulator in
supervising and during
implementation
-√ -√
8. Lenders and investors requirements
Deciding questions State Policy on PPPs,
Resolution No 64
Concession law of
Mongolia, 2010
End-user tariffs and
availability tariffs
-√ -√
Investors right in contract
termination
-√ -√
Government right in
contract termination
-√ -√
Accounting regulation affect
to profit distribution
-√ -√
Restriction and use of
qualified expatriate
personnel
-√ -√
Lender’s right to take over
assets management
-√ -√
9. Lenders and investors requirements
Deciding questions State Policy on PPPs,
Resolution No 64
Concession law of
Mongolia, 2010
Form of government
guarantee available for
certain risks
-√ -√
Handling contract change -√ +√
Compensation
mechanism
-√ +√
Bear risk of law change -√ -√
Combined procurement
of construction, long-term
operation and
maintenance
-√ -√
10. Advantages for creating PPP law
-Created PPP law and regulatory environment.
-Provision on the PPP bidding process principles.
-Provision on compensation mechanism.
-Provision related to right to receive commission
11. Risk Assessment
-Banking industry country risk assessment
-Mongolian government rating for credit enhancement
Main source:
Banking industry country risk assessment from web
www.standardandpoors.com, 22-Mar-2012
13. Strengths and weaknesses of banking industry
Strengths
-Controllable economic imbalance with moderate growth
records in credit levels and property prices.
-Low reliance on external funding in the banking sector.
-Banks' limited exposure to innovative, complex, and
risky products.
14. Strengths and weaknesses of banking industry
Weaknesses
-Vulnerabilities inherent in a small, undeveloped,
primarily commodity-based, low-income economy.
-Loose regulatory framework with weak transparency
and disclosure.
-Aggressive lending and weak underwriting standards.
15. Economic Risks
Economic risks Risk situation Main factor
Economic resilience Very high risk Economic structure and stability,
Macroeconomic policy flexibility,
Political risk,
Economic imbalances High risk Expansionary phase,
Private sector credit growth,
Real estate prices
Equity prices
Current account and external debt position
Credit risk in the economy Extremely high risk Private sector debt capacity and leverage
Lending and underwriting standards
Payment culture and rule of law.
16. Industrial Risks
Industrial risks Risk situation Main factor
Institutional framework Extremely high
risk
Banking regulation and supervision
Regulatory track record
Governance and transparency
Competitive dynamics High risk Risk appetite
Industry stability
Market distortions
Systemwide funding high risk Core customer deposits & external
funding
Domestic debt capital markets
Government role
17. Mongolian Government Rating for Credit Enhancement
Issuer Credit Rating
Ratings Rating Date
Foreign Long Term BB- 13-Dec-2007
Foreign Short Term B 14-Jun-2001
Local Long Term BB- 13-Dec-2007
Local Short Term B 14-Jun-2001
18. Issuer Credit Rating
Issuer Credit Rating (MMC)
Ratings Rating Date
Foreign Long Term B+ 14-Mar-2012
Local Long Term B+ 14-Mar-2012
19. Possible Risk for PPP projects in Mongolia
Risks category Risk status Risk impact
1 Completion risks high high
2 Cost overrun risk high high
3 Design risk high high
4 Environmental risk high high
5 Exchange rate risk medium Medium
6 Force Majeure risks high high
7 Inflation risks high high
8 Market, demand, volume risks medium medium
9 Operating risks high high
20. Possible Risk for PPP projects in Mongolia
Risks category Risk status Risk impact
10 Political risk high high
11 Regulatory risks high high
12 Resource and input risks low medium
13 Tax rate change risk high high
14 Technology risks medium high
15 Utilities risks medium High
21. Specific of law and regulations
-Analyzed documents:
•State policy on PPP, Great hural resolution No. 64 ,
15 October, 2009
•Concession law, Mongolia
28 January, 2010
22. Specific of law and regulations
PPP contract
management
framework:
PPP methodology Mongolian specific
partnership
management
relationships between
government and private
sector.
Accountability for law violations (article 35):
-assets accountability,
-administrative punishment and penalty,
-discipline punishment.
service delivery
management
Risk management and
performance.
Risk allocation (article 31 of concession law)
-operational risks
-Force majeure risks
-Concession owner’s responsibility for loss, damage and
roles
contract
administration
management
administrative processes is
contained in PPP contract
and all documentation.
Power of state and local administrative organization on
concession:
-Control implementation auditing-article 25:
23. Main improving ways
-To create favorable PPPs law and regulation environment ,
-To improve contractual environment,
-Accurate formula, tariff and price adjustments,
-To identify risk, risk matrix and risk allocation, risk management method,
-Allocation process to ensure government payments ,
-Legal capacity of public sector on long-term payment commitments ,
-Risk that obligations transfer to body without legal capacity should be reflected ,
-Matters on Lender’s right to take over assets management should be regulated,
-Form of government guarantee available for certain risks and bear risk of law
change should be defined .
