PRESENTATION

1. IFC Investor Protection Project for Mongolia
December 2013

2. MODULE 1: INVESTOR
PROTECTION AND CONFIDENCE,
AND INVESTMENT
The Case for IP Reform
Political risk (PR) has emerged as one of the most important constraints for foreign
investment in developing countries, including Mongolia, a finding that has been consistently
sustained by investor surveys reported in MIGA’s World Investment and Political Risk.
As such, PR affects governments’ ability to successfully attract and retain investment and can
result in:
a. Lost investment: More than a quarter of corporate investors surveyed by MIGA in 2012
and 2013 said that in the past year, political risk had caused their companies to withdraw
from existing investments or cancel planned ones.
b. Significant (investment) opportunity costs: Even when investments take place, PR
imposes a risk premium that investors initially absorb but ultimately pass on to the host
country, through increased demand for incentives or reduced benefits / or scope of
investments.
c. Risk of high-cost investor-State disputes: PR exposes host governments to loss of the
investment, damaged reputation, and significant cost of litigation and arbitral awards
(average of $3 million in administrative costs and $10.4 million in damages per case).
d. Weak Governance: PR is associated with weak governance structures characterized by
low levels of transparency, high corruption etc. which, in turn, make the business
environment less competitive.

3. Expansion of established investments –and keeping existing
investors happy-- is as important as to attract new investors….
Reinvested earnings are becoming increasing sources of FDI…

4. Perceptions of political risk can deter investment
Ranking of the most important constraints for
FDI in Developing Countries (MIGA 2012)

5. Stability and predictability is key for investors

6. Why should Governments be concerned?
One out of four corporate investors either withdrew from an existing investment or
canceled planned investments due to political risk concerns over the past twelve
months
0 5 10 15 20 25 30
Transfer and convertibility restrictions
Breach of contract
Non-honoring of gov't guarantees
Expropriation/nationalization
Adverse regulatory changes
War
Terrorism
Civil disturbance
Withdraw existing investment Cancel planned investments
Source: WIPR 2012
Political risks that
investors are most
concerned about relate to
government actions

7. Mongolia faces the same issues
Political risk has been increasing for the last 4-5 years:
♦ Adverse regulatory changes
♦ Breach of contract
♦ Expropriation
♦ Policy and decisions gap between central and local government
Resulted in:
♦ Drop in FDI
♦ Deterioration of Investment climate and sinking reputation
♦ Lost investment opportunities
♦ International arbitration
Measures and first steps:
♦ New Investment law – stabilization and incentives. Abolishment of SEFIL.
Implementation? Effective incentive policy?
♦ Investor protection through grievance management mechanism – GoM/IFC
project (implementation starts in July 2014)

8. Increasing Investor Protection and Confidence – ultimate
goal of the project
Objective
• Unlock investment constraints
through identification, tracking of
investor protection issues (such as
expropriation, breach of
contract, arbitrary government
action and lack of transparency,
transfer and conversion of
currency)
• Implementation of regulatory
frameworks to reduce political
and regulatory risk
Overall
Impact
• Retention of existing investment
• Prevention of investor-State
disputes

9. Implementation is critical….
How Can the IP Project Help?
Expropriation
Lack of transparency,
unpredictable and
arbitrary government
action
Local Government
decisions
Investors face problems
relating to…
INVESTORS
1. Tracking and Monitoring System
For each grievance/ problem record:
a) Investor profile and amount of stock of investment
b) Issue area
c) Government agencies involved
d) Impact of grievance on investment plan
e) Impact of grievance on revenue and other aspects
f) Action taken by investor
g) Existence of a domestic/international court case
relating to grievance; current status of case.
2. Grievance Management Mechanism
Key objectives will be:
a) Establishment of the Lead agency and its attributes
b) Information Sharing
c) Early Alert
d) Best practices on problem solving techniques
e) Implementation of solution
Breach of Contract

10. Example:
Grievance Tracking and Monitoring
Grievance A
Grievance B
Grievance C RESOLUTION
Investment
Retained $
Investment not
retained $
Arbitration
Dispute
Investment not
retained + cost
of handling
dispute
Grievance
filed with
tracking and
monitoring
system
GRIEVANCE MANAGEMENT SYSTEM
NO
RESOLUTION
Investment at Risk $

11. Grievance Management:
Preventing grievances from escalating into legal disputes
Conflict becomes a dispute
(notice of Intent for Investor-State
Arbitration)
Grievance
Management
Dispute resolution
Investor-State
Arbitration
State or Agreement
GrievanceProblem
Award
Countries could improve their
investment climate by taken care of
Investors’ grievances an this stage

12. THANK YOU!
IFC Mongolia
Investment Climate Program