Technical Assistance Consultant s Report

Transcription

1 Technical Assistance Consultant s Report Project Number: September 2013 Government of Mongolia: Public-Private Partnership Development (Financed by the ADB s Technical Assistance Special Funds-IV) Prepared by Denzel Hankinson (PPP Institutional Expert) James Harris (Senior Legal Expert) Amgalan (National PPP Implementation Expert) Staff of the PPP Unit Ulaanbaatar, Mongolia For the Ministry of Finance (Executing Agency) This consultant s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project s design.

2 CURRENCY EQUIVALENTS (as of 12 November 2012) Currency unit tugrik (MNT) MNT1.00 = $ $1.00 = MNT ABBREVIATIONS ADB Asian Development Bank CHP Combined Heat and Power DMF Design and monitoring framework EIU Economist Intelligence Unit DPSP Development Policy and Strategic Planning HM Her Majesty s IPPP Innovation and Public Private Partnership IFC International Finance Corporation MED Ministry of Economic Development MOF Ministry of Finance MW Megawatt(s) NDIC National Development and Innovation Committee PATA Policy and Advisory Technical Assistance PIMAC Private Infrastructure Investment Management Center PPIAF Public Private Infrastructure Advisory Facility PPP Public Private Partnership SPC State Property Committee TA Technical Assistance TASF Technical Assistance Special Fund UK United Kingdom UNCITRAL United Nations Commission on International Trade Law US United States NOTE In this report, $ refers to US dollars.

3 EXECUTIVE SUMMARY The government of Mongolia sees an important role for the private sector in financing and delivering the infrastructure, health and education services needed to support its rapidly growing economy. This has spurred the development of a legal, regulatory and institutional framework for Public-Private Partnerships (PPPs), as a way of bringing private funding and expertise to the delivery of public services. The Asian Development Bank (ADB) has supported the government since 2009 in its work on PPPs. A first phase of Technical Assistance (TA) work helped draft a PPP law (the Concessions Law) and establish a PPP Unit as a coordinating body for PPPs. 1 A follow-on TA, Technical Assistance to Mongolia for Public-Private Partnership Development, is strengthening the legal and regulatory framework, building the capacity of the PPP Unit, helping developing a pipeline of PPP projects, and facilitating outreach to line ministries, local governments, the private sector and other stakeholders. 2 This final report examines the performance of the follow-on TA. The TA is rated as successful. The outputs expected in the project s Design and Monitoring Framework (DMF) were achieved in an efficient and effective manner. These outputs are: (i) an assessment and recommendations to address legal and regulatory constraints on PPPs, (ii) institutional development of the PPP Unit, and (iii) a PPP project pipeline development. The consultant s main deliverables were: a PPP Handbook; a whitepaper on proposed refinements of the Concessions Law; numerous examples of best practices in the design, procurement, and management of PPP contracts; formal dissemination and training events (including reference materials); extensive informal consultations (by , phone, and in-person) with staff of the PPP Unit and other, relevant government agencies; and advice on how to prioritize the more than 120 projects identified by Cabinet as possible PPPs. The PPP Handbook provides comprehensive policy guidance to the PPP Unit, line ministries, local governments, and potential investors on the policies and procedures used for identifying, preparing, procuring and managing PPPs. An agreement was made with the Head of the PPP Unit during the TA inception phase (December 2010) to consolidate many of the DMF activities and consultant deliverables under this handbook. The PPP Handbook was developed by the consultants in parallel with, and so as to be consistent with, the development of the SPC resolutions (referred to in the PPP Handbook as regulations ) aimed at operationalizing the Concessions Law. The regulations were developed by SPC staff with input and review from the international consultants. Overall, the TA remains relevant and is likely to achieve the outcomes and impact expected in the project s DMF; an outcome of establishing a modern, transparent institutional framework for PPPs that supports private sector engagement, and an impact of improved efficiency and effectiveness in the delivery of infrastructure services through PPP projects. The foundations for success have been laid by the creation of the PPP Handbook, the development of regulations under the Concessions Law, a series of capacity building workshops and dissemination events about PPPs, the PPP Unit and the Concessions Law. 1 ADB Technical Assistance for Mongolia to Support of Public-Private Partnerships. Manila. (TA 7291-MON for $200,000, approved 3 June). 2 ADB Technical Assistance to Mongolia for Public-Private Partnership Development. Manila. (TA 7577-MON for $500,000, approved 17 August).

4 The design of the TA was highly relevant to Mongolia s development priorities, and to the immediate need to operationalize the new legal and regulatory framework created for PPPs. The work of the TA remains highly relevant more than two years into the project. The new government, elected in June 2012, has made infrastructure a principal objective of its Action Plan. Responsibilities of the PPP Unit have been transferred to a new Innovations and PPP (IPPP) Department located in a new Ministry of Economic Development (MED). The IPPP Department and the Development Policy and Strategic Planning (DPSP) Department, which has taken over the role of the former National Development and Innovation Committee (NDIC), are expected to form the institutional pillars of infrastructure planning in the new Government. The prospects for continuity are also good. Roughly a third of the PPP Unit Staff have been transferred to the IPPP Department, and one of the national PPP specialists supported under an earlier ADB TA is the Department s Head, preserving much needed institutional knowledge.

5 1 I. INTRODUCTION 1. Mongolia s potential for rapid economic growth is constrained by a lack of adequate infrastructure and essential education and health services. The government views public-private partnerships (PPPs) as a way to accelerate the delivery of public services, and has supported development of an enabling environment for PPPs. The Parliament adopted a state policy on PPPs (the PPP Policy) on 15 October 2009, and a Law on Concessions (the Concessions Law) on 28 January A coordinating body for PPPs, the Department of PPP and Concessions (the PPP Unit) was established in April 2010 within the State Property Committee (SPC) to oversee the screening, procurement, negotiation, and management of PPPs. 2. ADB has supported the Government since 2009 in the development of the legal, regulatory and institutional foundations needed to facilitate PPPs. The first phase of TA work for PPPs in Mongolia developed a core legal, regulatory and institutional framework for PPPs. 1 The TA was integral to the development of the Concessions Law and to the establishment of the PPP Unit. The follow-on TA, Technical Assistance to Mongolia for Public-Private Partnership Development, is strengthening the legal and regulatory framework, building the capacity of the PPP Unit, developing a pipeline of PPP projects, and facilitating outreach to line ministries, local governments, the private sector and other stakeholders This final report examines the performance of the Technical Assistance to Mongolia for Public-Private Partnership Development. 3 The next section describes the formulation and rationale for the TA, and the delivery of inputs and conduct of activities. This section also describes significant changes occurring between TA preparation and implementation, and during the course of implementation. The subsequent section evaluates the quality of the TA outputs, and assesses the likelihood of the TA achieving the intended outcomes and impact. A rating of performance is also provided. The report concludes by identifying lessons emerging from the TA, for both the government and ADB. II. DELIVERY OF INPUTS AND CONDUCT OF ACTIVITIES A. Rationale 4. Mongolia s infrastructure needs are substantial. The Global Competitiveness Report from the World Economic Forum ranked Mongolia poorly in terms of the quality of its overall infrastructure. 4 Other service needs are also large, with universal coverage yet to be achieved of many essential education and health services, and substantial quality improvements also feasible. The large revenue expected from mining provides Mongolia the financial capacity to quickly address these shortcomings. The government adopted a National Development Strategy in February 2008 which identified capital investment needs of 1 ADB Technical Assistance for Mongolia to Support of Public-Private Partnerships. Manila. (TA 7291-MON for $200,000, approved 3 June). 2 ADB Technical Assistance to Mongolia for Public-Private Partnership Development. Manila. (TA 7577-MON for $500,000, approved 17 August). 3 The format of this final report follows ADB Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Operations Evaluation Department. Amended in Manila. (available at 4 World Economic Forum. The Global Competitiveness Report GCR09/index.html

6 approximately $15 billion. 5 The Strategy identified an important role for the private sector in helping to finance and deliver these investments. PPPs were identified as a potential mechanism to mobilize the private sector s contribution. 5. Government had made substantial headway, before the start of the TA, in building an enabling framework for such arrangements. The PPP Policy, adopted by Parliament in September 2009 defines PPPs in the Mongolian context, identifies the types of projects that are eligible to be procured as PPPs, and identifies SPC as the agency responsible for implementing the Policy. The Concessions Law, adopted in January 2010 mandates how PPP arrangements should be identified, procured, and awarded, and defines the respective roles and responsibilities of various levels of government. The PPP Unit was established under SPC by Prime Minister's Decree No. 31 of 7 April The PPP unit was responsible for the preparation, implementation, and execution of PPP projects. 6 It served as the focal point for PPP projects seeking government s direct and contingent fiscal support, and its role was to determine whether a PPP is the most appropriate option available to the government for a specific infrastructure service delivery outcome. 7. The TA, Technical Assistance to Mongolia for Public-Private Partnership Development, was designed to support the nascent PPP Unit in implementing the requirements of the Concessions Law. Mongolia has a tradition of private provision of public services under contract (for example, bath houses and toilets are operated by private individuals or companies under lease-type contracts) 7. There is little experience, however, in the preparation of more complex arrangements and in attracting high quality international service providers. Moreover, considerable secondary legislation was required to operationalize the Concessions Law. Responsibility fell to the PPP Unit to specify procedures and guidelines for identifying, preparing, procuring, negotiating and managing PPP arrangements. The TA was intended to help the PPP Unit become fully operational. It was also acknowledged that, whereas the Concessions Law was generally of good quality, continued refinement of the legal and regulatory frameworks for PPPs would be required. A legal component was therefore included in the TA. B. Formulation 8. The Concessions Law and design of the PPP Unit was developed with advice from ADB under the earlier TA-7291, Technical Assistance for Mongolia to Support of Public-Private Partnerships, in line with global good practices. The work of this follow-on TA was intended to build on that legal and institutional framework. The TA was included as part of ADB s Country Operations Business Plan, , which highlights ADB's support for creating an enabling PPP framework to attract investment and to enhance Mongolia's economic recovery and poverty reduction efforts. 8 The TA also reflects ADB's long-term strategic framework (Strategy 2020), which identifies PPPs as one of the five drivers of change and a modality in all ADB core operational areas. 9 5 Government of Mongolia Millennium Development Goals-Based Comprehensive National Development Strategy of Mongolia. Ulaanbaatar. 6 The PPP unit was established under Prime Minister's Decree No. 31 of 7 April These lease-type contracts are often referred to in Mongolia as management contracts or management concessions. 8 ADB Country Operations Business Plan: Mongolia, Manila. 9 ADB Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, Manila.

7 3 C. Cost, Financing, and Executing Arrangements 9. The total cost of the TA was estimated at $525,000 equivalent, of which $500,000 was funded on a grant basis by ADB s Technical Assistance Fund (TASF-IV). The government provided counterpart support in the form of office accommodation, counterpart staff, and other services to consultants. Roughly $50,000 in ADB funds remains uncommitted. 10. The Department of Development Financing and Cooperation of the Ministry of Finance was the executing agency (EA) for the TA, and the PPP Unit, within the State Property Committee (SPC) was the implementing agency (IA). The PPP unit staff were responsible for coordination and ensuring that the TA consultants complete their tasks. Responsibilities were transferred to the Ministry of Economy and Development upon its establishment in mid-2012 and acceptance of responsibility for PPPs. The ministry s Innovation and Public Private Partnerships (IPPP) Department adopted the role previously held by the SPC s PPP Unit. D. Procurement 11. Consultants were procured on the basis of individual selection in accordance with ADB s Guidelines on the Use of Consultants. The proceeds of the TA were disbursed in line with ADB s Technical Assistance Disbursement Handbook. An advance payment facility was used for the workshops hosted by the PPP Unit. E. Outputs 12. The outputs expected for the TA were: i) An assessment and recommendations to address legal and regulatory constraints on PPPs in Mongolia, ii) Institutional development of the PPP Unit, and iii) PPP project pipeline development. The table in Appendix 1 shows the outputs expected from the TA and how those outputs have been met through the work done by the TA consultants and the PPP Unit staff. 13. An agreement was made with the Head of the PPP Unit during the TA inception phase (December 2010) to consolidate many of the consultants deliverables into a single PPP Handbook. The intention of the Handbook was to provide comprehensive guidance to the PPP Unit, line ministries, local governments, and potential investors on the policies and procedures used for identifying, preparing, procuring and managing PPPs. The PPP Handbook was developed by the consultants in parallel with, and so as to be consistent with, the development of the SPC resolutions (referred to in the PPP Handbook as regulations ) aimed at operationalizing the Concessions Law. The regulations were developed by SPC staff with input and review from the international consultants The PPP Unit prepared the following SPC resolutions: Interim methodology to conduct cost-benefit analysis of concession proposals under State property Committee Resolution #153 issued in 2010; Competitive selection procedures for issuing concession rights under Government Resolution #177 issued in 2010; List of potential concession projects of some state properties under Government Resolution #198 issued in 2010; Sample documents of initial selection processes for issuing concession rights under State property Committee Resolution #342 issued in 2010; Sample documents of competitive selection processes for issuing concession rights under State property Committee Resolution #342 issued in 2010; Procedures for evaluating proposals under State property Committee Resolution #342 issued in 2010.

8 14. The principal consultant deliverables under the TA consisted of the PPP Handbook; workshop materials (presentation slides); a whitepaper on legal changes recommended to the Concessions Law; numerous examples of best practices in the design, procurement, and management of PPP contracts; and extensive informal consultations (by , phone, and in person) with PPP Unit staff and staff of other, relevant government agencies. Appendix 2 includes a detailed list of consultants deliverables. 15. The PPP Unit, with the support of the consultants as trainers, held two sets of 3-day training and dissemination events, in February 2011 and November Separate workshops were held for i) representatives from line ministries, ii) representatives from local government bodies, and iii) representatives from the public, including media organizations and universities. The purpose of the February workshop was to introduce the PPP Unit, its role, and general principles of PPP design and implementation. The purpose of the November workshop was to present the material contained in the draft PPP Handbook in more detail, and to solicit feedback on that material. 16. In May 2013, after the change in Government, MED s IPPP Department hosted a halfday event for a wide variety of stakeholders from Government agencies, universities, media and the private sector. The event provided an overview of the Department s role and plans, and sought feedback from stakeholders. Portions of the PPP Handbook were also covered in presentations. The PPP Unit and their consultant also held numerous informal meetings with national and local government officials throughout the TA. The staff of the PPP department within the Municipality of Ulaanbaatar were also invited to internal training sessions on the PPP Handbook held by the consultant for the IPPP Department over the course of five days in April, Other ADB-funded consultants had provided considerable support before the start of the TA in helping the PPP Unit to develop a project pipeline. Cabinet resolution #198 in July 2010 had established a list of more than 120 possible PPP projects or concession items. International consultants engaged under earlier ADB TA had worked with the PPP Unit to develop screening criteria for the priority projects, and used that screening criteria to develop a shorter list (21 projects). One of the international consultants engaged for this current TA had also been engaged under the earlier TA, and was therefore able to continue working with the PPP Unit on prioritization. Considerable Technical Assistance from the World Bank and International Finance Corporation (IFC) beginning in late 2010 also helped the PPP Unit to develop a project pipeline. Consultants for the TA reviewed and commented on the work done by World Bank/IFC. 18. The first projects selected by the PPP Unit for tender were for a new combined heat and power plant in Ulaanbaatar (CHP#5), and three road BOT projects. 11 The CHP#5 project was tendered and attracted pre-qualification applications from 11 consortia. Four reputable international consortia were shortlisted and two submitted bids. Negotiations are currently underway with the preferred bidder. A concession agreement for one of the roads projects (the mining road from Narynsukhait to Shiveekhuren) was signed in October A concession agreement is currently being negotiated with a preferred bidder for the Taavantolgoi-Khanbogd- Khangi mining route. One of the road project tenders failed to attract any bidders. 11 The PPP Unit also signed a concession agreement directly with a power plant developer, for a 60 MW power plant in the Zavkhan province.

9 5 19. Several other project are also currently in various stages of preparation, including a 220 kv, 180 kilometer electricity transmission line from Baganuur to Choir, a highway project from Altanbulag to Zamyn Uud, a university campus in Baganuur, and an 1800 kilometer railway project with several segments (Tavan Tolgoi to China; Choibalsan to China, and Choibalsan to Russia); and various road projects. 20. ADB staff and consultants advised the PPP Unit on the criteria for prioritizing the projects in its PPP pipeline, provided examples of relevant tender documentation from other countries, and provided informal, ad hoc advice in response to questions raised by the PPP Unit during the tender processes. 21. In the early stages of the TA, the PPP Unit also explored the possibility of a twinning arrangement with South Korea s Public and Private Infrastructure Investment Management Center (PIMAC). A draft Memorandum of Understanding (MoU) was negotiated by one of the local consultants employed under the earlier TA That consultant s contract with ADB ended in January 2011, and he was subsequently appointed as head of the PPP Unit in September The PPP Unit has also discussed with the Government of Singapore the potential availability of financing for business cases or feasibility studies for certain of the projects in the PPP Unit s pipeline. F. Consultants 22. The TA provided for 22 person-months (pm) of services from three international and one national consultant. The international consultants included including a Senior PPP Implementation (5 pm), a Senior Legal Expert (3 pm), and a PPP Institutional Expert (2 pm). 23. The consultants developed a good working relationship with the PPP Unit staff and subsequently with the staff of the IPPP Department within MED. Expectations for PPPs were, and remain high in Mongolia. The consultants have been flexible in responding to the day-today exigencies of supporting PPP Unit staff (who themselves were under tremendous political pressure to show results), while still delivering most of the outputs required in their Terms of Reference. Some of the local and international consultants had worked together before, as part of the earlier ADB TA, in developing the Concessions Law and designing the PPP Unit, and therefore were able to continue to work together productively on this assignment. G. Design Changes 24. As noted above, it was decided at Inception that many of the consultants deliverables should be consolidated under the umbrella of a PPP Handbook. Consultants activities related to the drafting of guidelines, activities, procedures, policies or methodologies became sections or subsections of the PPP Handbook. Consultants activities related to rules or regulations of the PPP Unit were directed at advising the Unit on the drafting of SPC resolutions (refer to footnote 10, above). 25. The Head of the PPP Unit emphasized at Inception that certain activities in the ToR, including the preparation of a business plan, and capacity building plan, were no longer priorities because the PPP Unit had already been established, and was operational. Priority was therefore given instead to development of the PPP Handbook and in providing examples of good practice tender documentation (including examples of PPP agreements). Moreover, many of the decisions that would be part of a full business plan had already been made. Consultants

10 were instead asked to provide advice on the functions, internal structure, funding and staffing of the PPP Unit. 26. The principal reason for the changes described above were the strong interest in the PPP program at a high political level and the consequent pressure to show results as soon as possible in the form of successful transactions. 27. The June 2012 parliamentary elections resulted in a change in government. The new government introduced wide-ranging changes in the number and responsibilities of line ministries and other government agencies. As part of the restructuring, the functions of the PPP Unit were transferred to a new Innovations and PPP (IPPP) Department located in a new Ministry of Economic Development (MED). The IPPP Department and the Development Policy and Strategic Planning (DPSP) Department, which has taken over the role of the former National Development and Innovation Committee, are expected to form the institutional pillars of infrastructure planning in the new Government. 28. It was anticipated that the TA would be carried out over a period of 18 months, from August 2010 to February International consultants were not, however, contracted until November 2010, and could not mobilize until December of that year. The duration of the TA was extended beyond February 2012 to allow consultants to use their remaining time to address other priorities of the PPP Unit, to help provide some continuity of capacity building between SPC s PPP Unit and MED s IPPP Department, and between TA-7577 subsequent ADB TA to the IPPP Department. III. EVALUATION OF OUTPUTS AND ACHIEVEMENT OF OUTCOMES 29. The TA, Technical Assistance to Mongolia for Public-Private Partnership Development, was successful in that it was highly relevant, is likely to be effective and sustainable, and was implemented relatively efficiently given the changes in government, and subsequent changes in location and staffing of the PPP Unit. The sub-sections below provide, in more detail, a preliminary assessment of the performance of the TA using four evaluation criteria: Relevance, efficiency, effectiveness, and sustainability. A. Relevance 30. The work of the TA was highly relevant to Mongolia s development priorities as stated in the National Development Strategy. The government recognizes the importance of attracting private capital to infrastructure projects, and the importance of PPPs as a involving the private sector in the provision of public services. The TA helped the natural progression of the legal and institutional foundations provided by the PPP Policy and Concessions Law. 31. The work of the TA remains as relevant now as it was at the design stage. The new Government has made infrastructure a principal objective of its Action Plan. As interest in, and awareness of PPP arrangements in Mongolia increases, it is all the more important to continue the capacity building started by the TA. Mongolia ranked second to last among Asia-Pacific countries in terms of the environment for PPPs according to a 2011 study

11 7 by the Economist Intelligence Unit (EIU). 12 The study noted the following issues that weaken the environment for PPPs: (i) no demonstration of PPP project implementation in the past 10 years, (ii) weak legal and regulatory environment, (iii) below-market prices for energy, water, and transport, (iv) lack of specialist expertise to design and implement PPP projects, and (v) underdeveloped capital markets. The study acknowledged the importance of the Concessions Law and the PPP Unit as first steps to improving the environment for PPPs, but concluded that additional capacity building and reform is required. The TA has supported the continued strengthening of the enabling environment for PPPs. B. Efficiency 32. The implementation of the TA was cost efficient in that most of the outputs were delivered with only 90% of the budget. Delivery of most outputs was, however, delayed, according to schedules indicated by the activity milestones. The delays were due to recruitment taking longer than expected. Abstracting from this initial delay, (treating the completion of recruitment as month 0), TA timelines generally complied with the original schedule. C. Effectiveness 33. The work completed under the TA will likely be effective in achieving the outcomes expected by the Design and Monitoring Framework (DMF), namely, the establishment of A modern, transparent institutional framework for PPPs that supports private sector engagement. The foundations for such a framework have been laid by the PPP Handbook, the workshops and other capacity building done led by consultants, and the regulations developed under the Concessions Law as SPC resolutions. 34. Because of the often intense demands placed on the PPP Unit, its needs for support changed quickly. The flexibility of ADB staff and consultants in shifting emphasis from one set of activities to another helped improve the effectiveness of the TA. 35. The DMF performance targets/indicators for the expected outcome were i) the PPP unit facilitates 1-2 transactions by 2012; and ii) At least 2 PPP projects are processed per year, from 2013 to The first of these indicators was achieved through support for preparation of the CHP#5 project, roads, and 60 MW power project. While the CHP#5 has not yet reached financial close, a preferred bidder has been selected through a competitive tender. The foundation for supporting at least 2 PPPs per year from 2013 is now also in place. As noted above, several projects are in various stages of preparation. 36. Most of the outputs expected by the TA have been achieved or are likely to be achieved in the future. One output PPP Unit acceptance of a business plan was only partially achieved because the PPP has not yet developed a full business plan. As noted above, the PPP Unit (under SPC) had asked for consultants to focus on other activities instead of the business plan. The IPPP Department, under MED, asked the consultant to focus specifically on structure, function, funding, and staffing, with an emphasis on funding and staffing with the idea that it will use these as inputs to an eventual, future high-level business plan. It was determined that the development of a full business plan would be premature because of the new and still evolving nature of the IPPP Department and its responsibilities. Many decisions therefore still need to be 12 Economist Intelligence Unit, Ltd. Evaluating the Environment for Public-Private Partnership in Asia-Pacific: The 2011 Infrascope. Economist Intelligence Unit, Ltd. and Asian Development Bank

12 made including, critically, clarification of the IPPP Department s role in the PPP program relative other government agencies. The consultant therefore produced what was essentially an options study for the IPPP Department on its functions, funding, and staffing. The issues of function, funding and staffing were priorities for the IPPP Department because of the principal challenges the IPPP Department faces moment in attracting and affording sufficient, experienced staff, and in funding its substantial responsibilities. Another output A number of PPP projects reaching financial closure by 2017 is likely to be achieved given the current pace of the program, but has not yet been achieved. Appendix 1 shows how the results achieved compare with the expectations of the DMF. D. Sustainability 37. The work completed under the TA is likely sustainable because of the Government s continued commitment to using PPPs, the nature of the work done under the TA, and the successful experience thus far of CHP#5 as a flagship PPP transaction for Mongolia. 38. Many of the outputs delivered under the TA were i) documentation (the PPP Handbook and good practice documentation from other countries PPP programs) which can be used by any government agency responsible for PPPs, or ii) capacity building for individuals in other branches of government, or for the general public, to increase awareness of PPPs and the role of the PPP Unit. Capacity building and institutional memory for PPP Unit staff will also be retained, as two of the six former PPP Unit staff, and one of ADB s local consultants are now part of the IPPP Department (as mentioned above, a previous national consultant from 2011 is now Head of the IPPP Department). 39. The reorganization of government does present, however, substantial risks that some of the value of the work under this TA could be lost. Because some of the regulatory and institutional development work was done in the context of a PPP Unit located in SPC in the particular the work developing SPC regulations to operationalize the Concessions Law it may no longer be relevant to the PPP Unit in its current location. IV. ISSUES, LESSONS AND FOLLOW-UP ACTIONS 40. The rapid pace of change in Mongolia meant that the needs of the Implementing Agencies (first the PPP Unit within SPC and later the IPPP Department within MED) changed frequently and often quickly. The consultants and ADB did their best to accommodate the changing needs which ultimately helped to improve the effectiveness of the TA. These changes were most often agreed informally with the implementing agency. The flexibility is important, but it is also important to document such changes in more periodic implementation or progress reports (for example, through quarterly reports or more targeted and more frequent progress reports). Such documentation and formalization is important to ensuring the accountability of all parties (the consultants, ADB and IA) but is also critically important to making sure that institutional memory is preserved. 41. A further lesson from this TA is the need to provide more realistic timetables for recruitment of PPP consultant. PPP support requires specialist skills that are more time consuming to locate than normal. Moverover, the higher than average fee rate for such work, given its commercial nature, means that recruitment will take longer than usual. The absence of realistic timelines for recruitment will result in a longer than planned implementation.

13 42. An important follow-on action for this TA include is to clarify and eventually formalize the responsibilities of the IPPP Department relative to other government agencies. The Concessions Law provides high level rules for the allocation of responsibilities, but many details remain unclear and in the consultant s opinion are best worked out first through actual practice and then through mandate. The IPPP Department s experience with its first few transactions will make it clearer how the various agencies involved in identifying, preparing, procuring and implementing a PPP need to interact. This experience can then be used to inform future revisions to the Concessions Law or secondary legislation (regulations) under the Concessions Law. Once more clarity is reached on the IPPP Department s actual role vis-à-vis other government agencies it will make sense (by the end of the current TA) to adopt a high level business plan for the IPPP Department. 9

14 Appendix 1 10 REVIEW OF PERFORMANCE AGAINST THE DESIGN AND MONITORING FRAMEWORK Design Summary Impact Performance Targets and/or Indicators Status Comments/explanation Improved efficiency and effectiveness in the delivery of infrastructure services through PPP projects Outcome Infrastructure efficiency indicators for PPP-related projects show a 10% improvement by Likely to be achieved A modern, transparent institutional framework for PPPs that supports private sector engagement is established PPP unit facilitates 1 2 PPP transactions by The PPP Unit has led preparation of the CHP#5 project, roads, and 60 MW power project. While CHP#5 has not reached financial close, a preferred bidder has been selected through a competitive tender. Outputs At least 2 PPP projects processed per year from 2013 to Likely to be achieved from 2014 to 2017 The foundation for supporting at least 2 PPPs per year from 2013 is now also in place. Several projects are in various stages of preparation, including a 220 kv, 180 kilometer electricity transmission line from Baganuur to Choir, a highway project from Altanbulag to Zamyn Uud, a university campus in Baganuur, and an 1800 kilometer railway project with several segments (Tavan Tolgoi to China; Choibalsan to China, and Choibalsan to Russia); and various road projects. 1. Assessment and recommendations to address legal and regulatory constraints on PPPs in Mongolia Key legal and regulatory amendments are proposed for consideration by June White paper drafted by Senior Legal Expert, and various informal consultation by Senior Legal expert with PPP Unit staff and other government officials. Regulations drafted by PPP Unit (as SPC resolutions), with input from consultants, to operationalize Concessions Law. 2. Institutional development of the PPP unit PPP unit business plan accepted by December Partially achieved Consultant prepared specific inputs (on functions, structure, staffing and funding) which can eventually be used to formulate a detailed business plan in the future, but a full business plan was not formally accepted or approved as given the shift in responsibilities from SPC to MED the IPPP Department is still deciding on many aspects of the business plan.

15 Appendix 1 11 Design Summary Performance Targets and/or Indicators Status Comments/explanation Guidelines, standard operations manuals and PPP handbook completed by December 2011 Delayed, but achieved Draft of the PPP Handbook was completed in February 2011, final English version in December (Consultants agreed with ADB and PPP Unit head at inception that the Handbook would encompass all of the key guidelines and standards required by the new Unit.) Mongolian version completed in February A revised version was submitted in September 2013 after incorporating comments from the new IPPP Department under MED. Attendance and participation of intergovernmental agency PPP capacity building seminars and MOF participation in PPP finance training course. PPP Unit hosted two 3-day workshops, in February and November 2011 with separate sessions for line ministries and national government agencies, local governments, and other stakeholders (which included the private sector, press and universities). Internal training sessions on the PPP handbook in April IPPP Department then hosted workshops in May 2013 for wide variety of stakeholders from Government agencies, universities, media and the private sector. PPP Unit and their consultant also held numerous informal meetings with national and local government officials, throughout the duration of the TA. Staff of the PPP department within the Municipality of Ulaanbaatar were also invited. 3. PPP project pipeline development High-quality and bankable work program for pilot PPP projects in pipeline by December 2011 A number of such pipeline projects successfully reach financial closure by 2017 Likely to be achieved Pipeline of roughly 20 projects had been developed by the PPP Institutional Expert, local consultant and the PPP Unit under TA Consultants and continued to work with PPP Unit to define screening criteria during Several projects are in various stages of preparation (see above, under Outcomes ) Activities with Milestones 1.1 Inception report produced by consultants Inception reports from PPP Senior

16 12 Appendix 1 Performance Targets Design Summary and/or Indicators regarding work plan and preliminary diagnostics. (month 1) 1.2 Conduct diagnostic assessment of the current legal and regulatory constraints to the execution of PPPs in Mongolia, with particular attention to the Law on Concessions (month 4) 1.3 Circulate drafts of regulation amendments to appropriate government officials and legal peer reviewer (month 8). 1.4 Organize workshops with relevant stakeholders (month 6). 1.5 Propose recommendations on legal and regulatory amendments in line with global best practices that will be applicable to the Mongolian legal framework (month 8). 2.1 Conduct capacity assessment of PPP unit, and schedule training plan (month 2) 2.2 Prepare a detailed work plan and business plan for the PPP unit, outlining its core functions, structure, staffing, and funding requirements (month 6). 2.3 Develop guidelines for needs analyses, project concept notes, cost benefit analyses, feasibility studies, means to measure service indicator improvements, and full business cases (month 8). Status with a delay with a delay with a delay with a delay with a delay Partially achieved with a delay Comments/explanation Inception reports completed by Senior Legal Expert and PPP Institutional Expert (the latter, as Power Point presentation) White Paper written by Senior Legal Expert in December 2011 (month 16) PPP Unit drafted regulations (SPC resolutions) throughout 2011 and 2012 (most of them, after month 8). Three-day workshops conducted by international and local consultant in February and November 2011 (months 6 and 15) for wide variety of stakeholders. IPPP Department then hosted workshops in May 2013 for wide variety of stakeholders from Government agencies, universities, media and the private sector. White Paper written by Senior Legal Expert in December 2011 (month 16), and regulations drafted by SPC (as SPC resolutions), with input from consultants, to operationalize Concessions Law. Written capacity assessment not completed earlier because PPP Unit (within SPC) had other priorities. However, training of PPP Unit staff was conducted internally, both as formal workshops and informal handson training. Capacity of staff under new IPPP Department was assessed in training workshops held during April 2013 (month 32). Priority was shifted to preparing inputs to a high level business plan on issues related to functions, structure, staffing and funding. Contained in the PPP Handbook, which had a first draft by February 2012 (month 18), and final draft by December 2012 (month 28).

17 Appendix 1 13 Performance Targets Design Summary and/or Indicators 2.4 Develop guidelines for bid documents, including value-for-money assessment (month 8). 2.5 Conduct training and capacity building sessions as scheduled. 2.6 Develop knowledge sharing arrangements and cooperation and twinning with experienced PPP units in other countries. 2.7 Provide capacity building to various government agencies on the PPP process through training workshops and seminars, and work with MOF to provide a training course on PPP finance covering sourcing financing arrangements, transaction financial analysis, and management and valuation of government contingent liabilities (month 10). 3.1 Identify roles and responsibilities of line agencies and PPP unit at each stage in the PPP process (month 2). Status with a delay Comments/explanation Contained in the PPP Handbook and in various examples of international good practice handed over to PPP Unit. These examples were provided throughout the period of the TA, mostly between October 2011 (month 14) and April 2012 (month 20). Both formal workshops and hands-on training for PPP Unit staff. Similar material presented in 3-day workshops conducted by international and local consultant in February and November 2011 (months 6 and 15). Intensive training on the PPP Handbook contents was also delivered to staff of the new IPPP Department during March and April 2013 (months 31 and 32) over a five-day period. Draft MoU with Korea s PPP Unit (PIMAC) negotiated under existing knowledge sharing agreement with Government of Korea. Government of Singapore is also considering support to the PPP Unit to develop business cases. Two 3-day workshops conducted by international and local consultant in February and November 2011 for wide variety of stakeholders (months 6 and 15). IPPP Department also hosted workshops in May 2013 for wide variety of stakeholders from Government agencies, universities, media and the private sector. Staff of the PPP department within the Municipality of Ulaanbaatar was also invited to internal training sessions on the PPP Handbook, held by the consultant for the IPPP Department over the course of five days in April, The roles and responsibilities of the agencies and PPP Unit were reasonably clear at the beginning of the TA because they are described in the Concessions Law and were

18 14 Appendix 1 Design Summary Performance Targets and/or Indicators Status Comments/explanation elaborated by previous ADB TA. The roles and responsibilities of various actors were discussed throughout the TA, but formally described in the PPP Handbook (draft delivered in month 6) and discussed in 3-day training sessions in November and February 2011 (months 6 and 15), and again with the IPPP Department within MED between January and June Develop guidelines on working with various government agencies and ministries (month 6). 3.3 Carry out awareness campaign promoting PPPs and the PPP unit to various government agencies and the private sector to increase visibility and to promote greater engagement by them to identify potential projects (month 6, month 8). 3.4 As part of the awareness campaign, conduct training for various stakeholders, and disseminate knowledge through additional workshops and publications such as a PPP handbook (month 10). with a delay with a delay Contained in the PPP Handbook and discussed in 3-day training sessions in November and February 2011 (months 6 and 15), and again with the IPPP Department within MED between January and June day workshops conducted by international and local consultant in February and November 2011 (months 6 and 15) for wide variety of stakeholders. IPPP Department also hosted workshops in May 2013 for wide variety of stakeholders from Government agencies, universities, media and the private sector. Staff of the PPP department within the Municipality of Ulaanbaatar was also invited to internal training sessions on the PPP Handbook, held by the consultant for the IPPP Department over the course of five days in April, day workshops conducted by international and local consultant in February and November 2011 (months 6 and 15) for wide variety of stakeholders. PPP Handbook ready for publication and dissemination in September 2013 (month 37). IPPP Department also hosted workshops in May 2013 for wide variety of stakeholders from Government agencies, universities, media and the private sector. Staff of the PPP department within the Municipality of Ulaanbaatar was also

19 Appendix 1 15 Design Summary Performance Targets and/or Indicators Status Comments/explanation invited to internal training sessions on the PPP Handbook, held by the consultant for the IPPP Department over the course of five days in April, Encourage the PPP unit to work with various government agencies to evaluate a list of potential projects and to shortlist a pipeline that could be implemented through the PPP model (month 12). with a delay Advised SPC on the criteria for screening 120 concession list items identified by Cabinet (September October 2011 (months 13 to 14). A new concessions list emerged in 2013 with roughly 100 concession items. Consultants also provided feedback on how best to prioritize projects on this new list. 3.6 Provide assistance and advice in preliminary development and preparation of pilot projects, and use a learning-by-doing approach when consultants work on processing various project components with the PPP unit (month 12). MOF = Ministry of Finance, PPP = public private partnership, TA = technical assistance. Source: Asian Development Bank. Provided hands-on in preparing various tenders in power sector and transport (roads) sectors throughout September 2011 to August 2012 (months 13 to 24).

20 Appendix 2 16 List of Consultant Deliverables A. Inception Report and Work plans Draft Work plan from Team Leader From Senior Legal Expert From PPP Institutional Expert (Power Point Presentation) B. PPP Handbook C. White Paper on Legal and Regulatory constraints to PPPs D. Capacity Building and Dissemination Events Capacity building Basics of PPPs (for SPC, Power Point Presentation) Capacity building November 2011 Stakeholder workshop and dissemination event (Power Point Presentations) Capacity Building February 2011 Stakeholder workshop and dissemination event (Power Point Presentations) Power plant financial model sample (provided on confidential basis by Team Leader, in Excel) E. Inputs to High-Level Business Plan Power Point Presentation for discussion (Discussed in March/April 2013) Written inputs (Paper) with inputs to high-level business plan, incorporating comments from discussion Excel files with analysis supporting budgeting/staffing section of inputs to high-level business plan F. Other Capacity Building Sample evaluation model (provided by Team Leader, in Excel) Sample model (copper mine) for using sensitivity analysis (provided by Team Leader, in Excel) Written guidance from Team Leader on modelling approaches, evaluation risk analysis and sensitivity analysis Written guidance material from Team Leader on estimating value-for-money Memo on methods for evaluating unsolicited proposals G. Examples of Good Practice Indian Model Concession Agreement for National Highways Indian Model Concession Agreement for Small Roads Projects Example of an Indian Airport Concession Agreement HM Treasury's (UK) "Standardisation of PFI Contracts, Version 4" Pre-qualification document for the M25 Motorway Expansion project Local Partnerships UK Procurement Pack (Street Lightning) Local Partnerships UK Procurement Pack (Sports and Leisure) HM Treasury Taskforce (UK) Technical Note No 4 "How to appoint or work with a preferred bidder" HM Treasury (UK) - "Value For Money Assessment Guidance" HM Treasury (UK) - Green Book - "Appraisal and Evaluation in Central Government" Practical Law Company Guidance Note - "Evaluation of Tenders"