Ulaanbaatar July 7, 2009 - The World Bank noted that development of infrastructure to support mining in Southern Mongolia would take years, and urged the Government to establish a clear timetable, and greater public consultation, in developing detailed plans for infrastructure development in the region.
Presenting a new report done by the World Bank “Southern Mongolia Infrastructure Strategy”, to members of the Great Hural, the World Bank Country Manager and Resident Representative for Mongolia, Mr Arshad Sayed, said “A lot of attention has been given to the terms of proposed investment agreements for major mines in Southern Mongolia. But the signing of those investment agreements will only be the first step. Without railways, towns, power plants, roads, and water resources none of the proposed mines will ever be realized.”
The report suggests that Southern Mongolia’s coal and copper mines could generate sales of over $5 billion per year, but this would require up-front investment of around $5 billion in infrastructure.
“Mongolia’s entire economic production for one year is currently worth about $5 billion, so realizing this initial investment will be a huge task” said Mr Sayed. “Making it a reality will require a clear vision of which investments will be undertaken, who will prepare the plans, and how the investments will be financed.”
While the Parliament can set the overall vision, detailed implementation will fall to Government agencies. The report suggests that a single institution should be responsible for taking the lead on infrastructure development in Southern Mongolia.
The report stresses the importance of consultative processes, noting that Government decisions could be improved if the advice of mining companies, other private investors, sub-national governments, local communities, NGOs and donor organizations is considered before final decisions are taken.
The report’s author and the Senior Economist of the World Bank Michael Warlters, acknowledged that some of the report’s recommendations would be controversial, but said it was the report’s methodologies that were most important. “With different assumptions, the Government might come to different conclusions”, he said, but he hoped that the Government’s key decisions would be informed by solid economic analysis.
The report’s economic analysis suggests that the value of Southern Mongolia’s coal is closely linked with decisions concerning which railways are built. The lowest cost railway would be a railway from Tavan Tolgoi directly to Baoutou, which could result in $1,460 million of profit from sales of 20 million tonnes per year. In contrast, selling the same quantity of coal by way of a new railway to Russia might generate profit of around $246 million per year.
The report also suggests that there is no current need to develop water pipelines from the Orhon or Kherlen Rivers. Based on existing studies it appears there is enough groundwater in Southern Mongolia to support extensive development, and this would be about half the cost of developing long-distance pipelines. But the report does note that more detailed studies are needed to fully understand the extent of groundwater resources and eventually alternative water sources may need to be identified.
As well as examining the economic justification for various infrastructure investments, the report also considers potential environmental and social impacts.
Around 8000 workers might be employed directly in the mines of Southern Mongolia. Over time this might induce population inflow totaling 80,000 new residents. Ensuring adequate town services, including health and law and order will stretch the capacities of local governments. Attention will be needed to ensure that local governments have the financial and human resources to provide these services.
The World Bank has proposed financial assistance to the Government to help the Government develop its own plans, and to assist in seeking private investment in infrastructure. The World Bank could also provide finance for government investment in infrastructure that generates foreign revenue.