Mr. Ch.Ganbat, Advisor to the Mongolian Minister of Road, Transportation, Construction and Urban Development

1. Mongolia: building a sustainable economic growth
through downstream industries and infrastructure
Presentation • June 2010
National Development and Innovation Committeeat o a e e op e t a d o at o Co ttee
Sainshand Industrial Complex Task Force Team

2. Agenda
Executive summary 3
Macro-economic goals of Mongolia 4
Industrial park development in Sainshand city, Mongolia 8
Mongolia railway strategy 9
I l i l f l i d i l d i f j 12Implementation plan for large industrial and infrastructure projects 12
Integration of large mines with industrial developments 16
Fi i t t f il t ti 17Financing structure of railway construction 17
Next steps 21
2

3. Executive summary
• Mongolia has huge, untapped resource reserves
• It is a back-door to #1 commodity consumer nation in the world
• Miniscule GDP compared to market valuation of reserves
Th G t f M li t li d l d li i i d t i th• The Government of Mongolia streamlined new laws and policies aimed at massive growth
• A flood of foreign liquidity waiting to pour in
3

4. Millennium Development Goals based Comprehensive National
Development Strategy of MongoliaDevelopment Strategy of Mongolia
NationalNationalNational
Development Strategy of Mongolia
Mongolia is a country of contentment
We, Mongols, shall respect our
history and culture, have our national Mongolia’s development is a
National
Development Strategy (NDS) of Mongolia*
Vision
Mongolia is a country of contentment
with vast lands, abundant natural
resources, admirable history, and
glorious future.
dignity, be highly educated and
confident in ourselves so as to
realize our desires and aspirations,
live comfortable, prosperous and
contented lives in our homeland.
guarantee of its security and
independence. The root source of its
development lies in the national
unity.
tegy
2007 - 2015 2016 – 2021 period2007 - 2015 period
• Synchronize EGSPR with NDS
• Increase jobs (unemployment rate at max 3%)
• Enhance coordination for poverty reduction
Create a so ereign ealth f nd
Stratals
j ( p y )
• Create a nation-wide database
• Provide economic incentives for new jobs
• Create a sovereign wealth fund
• Reduce poverty
GDP growth: 14% GDP growth: 12%
Mongolia successfully developed its economic growth vision and
Goa
GDP growth: 14%
GDP per capita: $5,000
GDP growth: 12%
GDP per capita: $12,000
44
g y p g
now it is working on the process on how to achieve these targets
* Parliament of Mongolia resolution 12 dated Jan. 31, 2008 endorsing National Development Strategy of Mongolia

5. Mongolia’s National Development Strategy objectives in perspective
with other Asian advanced and developing countrieswith other Asian advanced and developing countries
$40,000
30,000
35,000
20,000
25,000
10,000
15,000
2021 Objectives: GDP per capita $12,000
2015 Objectives: GDP per capita $5 000
stan
epal
mar
este
desh
odia
Laos
ndia
stan
nam
nIsd
NG
ibati
ines
anka
golia
utan
esia
uatu
onga
moa
hina
ives
Fiji
land
ysia
wan
orea
Kong
unei
apan
pore
0
5,000
2015 Objectives: GDP per capita $5,000
Achievement of the National Development Strategy would catapult Mongolia into
Afghanis
Ne
Myan
Timor-Le
Banglad
Cambo
L
In
Pakis
Vietn
Solomon
Papua
Kiri
Philippi
SriLa
Mong
Bhu
Indone
Vanu
To
Sam
Ch
Mald
Thail
Mala
Taiw
Ko
HongK
Bru
Ja
Singap
55
p gy p g
one of the top economies in the regions
* International Monetary Fund, World Economic Outlook Database, October 2009

6. A new railway infrastructure planning should consider linking all
mineral deposits of Mongolia(1)mineral deposits of Mongolia(1)
Coal Deposits Iron Ore Deposits
Uranium Deposits Oil Deposits
6
1) The minerals study prepared by Mr. Odkhuu, D., a Member of Parliament, lead group of geologists from Geosan LLC, Mongolia.

7. The Government of Mongolia retained the Boston Consulting Group to
assist in development of an integrated mining and railway strategy(1)assist in development of an integrated mining and railway strategy(1)
7
1) Boston Consulting Group, Railway Infrastructure Development Strategy for Mongolia, October 2009

8. Creation of downstream industries would enable to achieve a
sustainable economic growth for Mongoliasustainable economic growth for Mongolia
Mining Diversified Exports1Processing in Sainshand industrial clusterRailways Railways
Coal/Iron
Tavan
Tolgoi
Tomortei
& others
Coal imports into Asian countries will grow ~9%
a year between 2009-2015
Coal imports into Asian countries will grow ~9%
a year between 2009-2015
55
68
Coking coalconsumption (M t)
~2500
Coal imports into Asian countries will grow ~9%
a year between 2009-2015
Coal imports into Asian countries will grow ~9%
a year between 2009-2015
55
68
Coking coalconsumption (M t)
~2500
Coke
Plant
Iron
Pellets Plant
HBI / DRI
Plant
Coal
Gasification
Copper
Oyu
Tolgoi
& others
*
Taiwan
Republic of Korea
China
India
30
2009 2015
11
2009 2015
2009 2015
6
2009
9
2015
35
56
2009 2015
Japan*~435
**
Taiwan
Republic of Korea
China
India
30
2009 2015
11
2009 2015
2009 2015
6
2009
9
2015
35
56
2009 2015
Japan**~435
Copper
Treament
Copper
Smelter
CdeOil
Tamsag
& others
India
Domestic consumption supplied by domestic production
Coking coal imports
India
Domestic consumption supplied by domestic production
Coking coal imports
Oil
Refinery
Crud
& others
Utilities
Mine Power Plants
~650 MW
Cluster Power Plant
~800 MW
China is the biggest Asian market for copper,
concentrate makes the bulk of imports
China is the biggest Asian market for copper,
concentrate makes the bulk of imports
*
1,317
2009
1,337
2015
3,812
Copper consumption (M t)
~1,151
China is the biggest Asian market for copper,
concentrate makes the bulk of imports
China is the biggest Asian market for copper,
concentrate makes the bulk of imports
**
1,317
2009
1,337
2015
3,812
Copper consumption (M t)
~1,151
Refinery
Companies that send letters of interest for participation:
• Coke plant – ThyssenKrupp Uhde GmbH
• Metallurgical facilities – Midrex Inc., a company of Kobe Steel
• Coal chemical facility – ThyssenKrupp Uhde GmbH
Offsites Water Facilities, Housing and Other Offsites
*
?????
2009 2015
446
406
2009
618
492
2015
1,558
1,504
2009
2,178
2015
585
2009
766
2015
593
2009
669
2015
Japan
Republic
of Korea
Taiwan
China
**
?????
2009 2015
446
406
2009
618
492
2015
1,558
1,504
2009
2,178
2015
585
2009
766
2015
593
2009
669
2015
Japan
Republic
of Korea
Taiwan
China
8
1) Source: Boston Consulting Group
Coal chemical facility ThyssenKrupp Uhde GmbH
• Power plant – RWE GmbH
• Crushing and concentration – Outotec Oy
• Copper smelting – Outotec Oy Copper cathode imports
Copper concentrate imports
Domestic consumption supplied by domestic production
Copper cathode imports
Copper concentrate imports
Domestic consumption supplied by domestic production

9. Illustration of the railway infrastructure development of Mongolia(1)
91) Ministry of Road, Transportation, Construction and Urban Development of Mongolia, Railway Policy for Mongolia, April 2010

10. New railway infrastructure would enable Mongolia to export resources
and processed goods to multiple export markets(1)and processed goods to multiple export markets(1)
101) Ministry of Road, Transportation, Construction and Urban Development of Mongolia, Railway Policy for Mongolia, April 2010

11. Industrialization foot-print of Mongolia is based on processing of
mineral resources(1)mineral resources(1)
11
1) Boston Consulting Group, Railway Infrastructure Development Strategy for Mongolia, October 2009

12. Experiences of building industrial clusters show that development
through cluster concepts increase economy competitiveness1through cluster concepts increase economy competitiveness1
JUBAIL INDUSTRIAL CITY
Country: Saudi Arabia
MIDAMERICA INDUSTRIAL PARK
Country: Oklahoma USA
SHANGHAI FENGPU INDUSTRIAL PARK
Country: ChinaCountry: Saudi Arabia
Project Developer:
Royal Commission for
Jubail and Yanbu
Year: 1975
Process Units:
Country: Oklahoma, USA
Project Developer:
Public Trust
Year: 1960
Process Units:
Country: China
Project Developer:
Government of China
Municipal Governments
Year: 2003
Process Units:
• Petrochemical Facilities
• Steel Works Facilities
• Fertilizer Facilities
• Railways
• Highways
• Airport
• Construction
• Oil and Gas Piping
• Fertilizer Facilities
• Pulp Paper Plants
• Petrochemical Facilities
• Railways
• Electronics Factories
• Communication Plants
• Biotechnology Facilities
• Healthcare Facilities
• High Technology Facilities
• Construction Facilities• Airport
• Ports
• Power Plants
• Railways
• Highways
• Aiport
• Ports
• Power Plants
• Construction Facilities
• Leather and Textile Plants
• Power Plants
• Highways
• Railways
• Aiports
Concentration of infrastructure (railways, electricity, gas, communication)
decrease operating costs of the industrial users
Project Amount:
US$ 30 billion
Project Amount:
US$ 19 billion
Aiports
Project Amount:
US$ 15 billion
Governments, aiming to create a sustainable economic development,
p g
121212
, g p ,
attracted investments by the development of industrial clusters.
1) Michael E. Porter, Council on Competitiveness. See also “The Development of the cluster concept – present experiences and further developments”, Christian Ketels,
Harvard Business School, 11/26/2003.

13. The Government established to implementation units to create an
environment to attract local and international investmentsenvironment to attract local and international investments
NDS
Government
Resolutions
Relevant Institutions Resolution 118 Planned Projects
“Sainshand” industrial complex (“Projects”)
Coke Plant
cessUnits
Resol tion 299
Steering Committee
Cement PlantSteering Committee: Prime
Minister, Ministers, MPs
Task Force
Iron Pellets Plant
HBI/DRI Plant
Proc
Resolution 299
Resolution 320
Meeting Note 52
Resolution 118
re1
Implementation Task Force:
Chairman of Cabinet
Secretariat of the GOM
Advisors:
• Program Manager
Plus (PMC+)
Coal Gasification Plant
Oil Refinery
Infrastructur
NDIC
MOF, MFALI, MRTCUD,
MMRE, MOE & others
Plus (PMC+)
• International Counsel
together with Local
Advisor
• Financial Advisor
• Environmental Power Plants
Facilities2
Copper Smelter
Agencies: SPC, MRAM,
RAM, PAM, WAM others
The Government will implement these projects through Public-Private-Partnerships (“PPP”)
Consultant
Railways (Phase 1)
CivilF
Working group: NDIC
13131313
p p j g p ( )
by providing concession rights to local and international investors.
1) The Steering Committee shall include Parliament members, Government and non-government organizations.
2) NDIC shall be the contracting party to all local and international advisors. MOF is to fund necessary operating capital.

14. Visualization of Sainshand Industrial Complex
Following Process Units are
envisioned to be builtenvisioned to be built
in the complex:
1. Cement Plant
2. Coke Plant
3. Iron Pellets Plant
4. HBI / DRI Plant
5. Coal Gasification Plant
6. Oil Refinery
7. Copper Smelter7. Copper Smelter
8. Power Plant
14
1) Government of Mongolia resolution 140 dated June 2, 2010.

15. Implementation of the industrial complex shall start with PMC+
developing a Master Plan together with NDIC1developing a Master Plan together with NDIC1
NDIC
The NDIC team will work
together with the International
NDIC
Program Manager Plus
(PMC+)2
g
Counsel and the Local
Advisor
Railway EPC Process Units EPC
Oversight on selective projects
(If required)
(PMC+)2
Contractors Contractors
Coke Iron Pellets HBI/DRI CopperOilCoal
Power Plants
Water FacilitiesOffsites
& Utiliti
Process Units3 Coke
Plant
Iron Pellets
Plant
HBI/DRI
Plant
Copper
Smelter
Oil
Refinery
Coal
Gasification
Civil Facilities
& Utilities
151515
1) Program Manager Plus Terms of Reference is described in Attachment 1.
2) Bechtel and Fluor have expressed interest in the Global Project Manager’s role. US Eximbank formally issued a letter of interest to support project development activities of
these companies.
3) Ministry of Mineral Resources and Energy conducted preliminary study on multiple industrial zones.

16. Preferred delivery model is EPCM or EPC
Main contractor or responsible
Subcontractor or support
Supervision
Contractual relationship
Managerial relationship
Delivery
Project value chain*
S BD C
SU
&C
O&
CM & I
DEFEED
Multiple lot
Owner contracts with all
suppliers necessary to
perform project
• Owner Owner
y
model Basic description Agent Contractual relationship model
S BD
P S.E&F
C
&C M
Multiple lot
(owner
integrated)
perform project
completion and is fully
responsible for all
integration tasks
• Contractors
Contr. A
(Engin.)
Contr. B
(Equip.)
Contr. C
(Constr.)
EPCM
EPCM is responsible for
managing all aspects of
Engineering, Procure-
ment, Construction,
including management
• Owner
• EPCM
Owner
EPCM
Contractor assumes
Engineering, Procure-
• Owner Owner
including management
of all contractors
contracted by the owner
• Contractors
Contr. A Contr. B Contr. C
EPC
Engineering, Procure
ment, Construction
activities for a defined
project scope and is
responsible for all its
sub-contractors
• EPC
• Sub-
contractors Subctr A Subctr B Subctr C
EPC
16*S – scoping, BD – basic design, FEED – front-end engineering and design, P – procurement, DE – detailed engineering
S.E&F – supplier engineering & fabrication, SU&C – start-up and commissioning, O&M – operations and maintenance

17. Industrial and Railway project will be implemented under the Law of
Mongolia on ConcessionsMongolia on Concessions
Parliament of Mongolia
C
Government of Mongolia
Concession Approval
Concession Decision1
Related Line Ministry
Tender Participants5
y
Regulatory Authority ²
State Property Committee
Bidding4
p y
Authorized Entity³
TenderB
Concession Agreement
1) Law of Mongolia on Concession 2010 01 28 – Article 6 1 2
1717
1) Law of Mongolia on Concession 2010.01.28 – Article 6.1.2
2) Law of Mongolia on Concession 2010.01.28 - Article 3.1.6
3) Law of Mongolia on Concession 2010.01.28 - Article 3.1.7
4) Law of Mongolia on Concession 2010.01.28 - Article 11, 12, 13
5) Law of Mongolia on Concession 2010.01.28 - Article 11.3.3
5-a) Chinese, German, Korean, Russian and US companies expressed interests to participate

18. The private sector is the driving force for building of Processing Units
on international project financing basison international project financing basis
State Property
Committee
Mongolia Commodity
E h
PROCESS UNITS1
F i ht A t
Committee
Concession Agreement
Exchange
• Linking with NYMEX and
other commodity
exchanges
• Provides price discovery
TY:30-40%
PROCESS UNITS
Supply
Agreement
Freight Agreement
Products:
Companies that
expressed interest:
Freight Agreement
• Provides price discovery
• Transparency
Tavan
Tolgoi LLC
O T l i
Local
Sponsors
International
SponsorsEQUIT
ECA Guaranteed
• Coke
• Iron pellets
• HBI/DRI
• Copper cathodes
• Synthetic gas
Oil fi
• ThyssenKrupp
• Noble Group
• Hopu Investments
• and others
Offtake
Agreement
Oyu Tolgoi
LLC
Other
mineral
Multilateral Tranche
Tranche
BT:60-70%
EPC
Agreement
• Oil refinery
(industrial diesel
and other oil
products)
deposit
Commercial Tranche
DEB
Operations
& Maint.
Agreement
International Banks
1818
Ministry of Mineral Resources and Energy conducted a preliminary study on other possible industrial zones in Mongolia.

19. The Law of Mongolia on Concession will provide a legal framework for
building a new railway infrastructurebuilding a new railway infrastructure
MRTCUD Central train control system
t R il A th it 2
Railway Authority
Regulatory Authority1
at Railway Authority2
(PTC2-a, GPS2-b)
JSC UBTZ
Operator
State Property
Committee
Owner of the railway
infrastructure
Committee
Authorized Entity3
Railway building on a
100% government ownership5
Terms of Concession
Wid (1 520 ) 8Railway building on a
BOT basis4
Engineering design standards
Land lease payment6Payments
id b
Wide gauge (1,520 мм) 8
CASH FLOW STREAM FOR FINANCING
1) Law of Mongolia on Concession 2010.01.28 – Article 3.1.6
2) Law of Mongolia on Railway Transportation 2007.07.05 – Article 14
2-a) Positive Train Control System
2-b) Global Positioning System
3 Law of Mongolia on Concession 2010.01.28 - Article 3.1.7
Freight payment
(greater of)7 Number of wagons
Freight (ton/km)
paid by an
Operator
19
CASH FLOW STREAM FOR FINANCINGg
4 Law of Mongolia on Concession 2010.01.28 - Article 4
5) Law of Mongolia on Railway Transportation 2007.07.05 - Article 6.1
6) Law of Mongolia on Railway Transportation 2007.07.05 - Article 19.1.1
7) Law of Mongolia on Railway Transportation 2007.07.05 - Article 20.1.3
8) Mongolian Railway Strategy, MRTCUD

20. Concessionaire Railway Project Company financing structure either via
project finance or a sovereign bondproject finance or a sovereign bond
Eq it Sponsors E port Credit Agencies1•State Property CommitteeGovernment of Mongolia
Equity Sponsors Export Credit Agencies1
Shareholders
Agreement
Guarantee or
Insurance
p y
•International Sponsor
g
MRTCUD & Railway Auth.
Concession
Approval
Railway Project
Company
Concession
Agreement
State Property
Committee
International Banks
Loan
Documents
Operating
& Maint.
ContractEPC
or EPCM
Contracts
Offtake
Contracts
Engineering and
Construction Company
Offtakers Operating Company
Construction Company
Supply
Contracts
Sub-Cont. #1
Sub-Cont. #2
Sub-Cont. #3
20
1) Other types of credit enhancements could be used, such as Multilaterals and private insurance companies
Supplier #1
Supplier #2
Supplier #3

21. Railway financing transaction diagram
15% Down payment
EPC(M) Contractors
n
R il P j t CEPC(M) Contractors
Sales Contract 100%
RailUtilization
Agreement
Railway Project CompanypmentPayment
Mining Company
eContract
Equip
JSC UBTZ
mmodityOfftake
Freight
Contract
International Banks Offtakers
Sales Proceeds
Com
85% Guarantee
Export Credit Agencies
2121

22. Equipment suppliers and engineering companies could serve as
alternative equity investments with no deposit ownership claimalternative equity investments with no deposit ownership claim
Financing Mix Objectives / Motivation Pros Cons
OECD country’s exports increase • Long tenor, low cost
• Assets / liability match
• Credit history creation
• ECA processing lengthECA Guaranteed Tranche
Local economy development • Long tenor, low cost
• Increase project profile
• Processing length could be long
compared to commercial
Multilateral Tranche
%
Debt
Commercial tranches • Some structures could be self-
liquidating structure
• Track record creation
• Market interest ratesCommercial Tranche
T k t fi i f i l E f l M k t diti d i iC it l k t t ti
p j p p
60–70
Supply chain and/or geographic
market share interest
New technology
Corporate governance
Strategic Investors
Take-out financing for commercial
tranche, given favorable market
conditions
• Economy of scale
• Special features
• Market condition and pricing
• Mismatched assets / liability
• Rating requirement
Capital market transaction
quity
Maximize investment return
(IRR > 25%)
Economic development Giving up upside potential
Possible loss of management
control
Financial Sponsors
market share interest Corporate governance
–40%
Eq
Equipment and technology
suppliers
• Sales technology and
equipment
• No deposit ownership
• New technology introduction
Engineering and
construction companies
• EPC or EPCM contract • No deposit ownership
• New technology introduction
30–
22
p gy

23. According to BCG’s socioeconomic impact for building railways and
Sainshand industrial parkSainshand industrial park…
1 3
2 4
2323
Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

24. Industrialization could increase Mongolian GDP to $41 bln over 11 years
compared to current approximately $5 blncompared to current approximately $5 bln
2424
Source: The Boston Consulting Group, Railway infrastructure development strategy for Mongolia, October 16, 2009

25. Action timetable for 2010-2011
2525

26. Contact address, telephone:
N ti l D l t d I ti C ittNational Development and Innovation Committee
Shainshand Industrial Complex Task Force Team
Government building 2, United Nations Street 5/1,
Chingeltei district, Ulaanbaatar 15160, Mongolia
Telephone: 976-11-265912
Fax: 976-11-327914
National Development and Innovation Committee
2626
p
Sainshand Industrial Complex Task Force Team