D. Oyunkhorol: Largest Construction Project of Public Private Partnership in Khushig ValleyEconomy
Ulaanbaatar, September 12, 2023 /MONTSAME/. We spoke with the Plenipotentiary Representative of the Government D. Oyunkhorol about the construction progress of Shine Zuunmod City in the Khushig Valley.
A year has passed since the development of the Master Plan for the Construction of Shine Zuunmod City and the decision to establish a Free Economic Zone in the Khushig Valley were issued. At what stage is now the Khushig Valley construction going on?
Focusing on decentralization of Ulaanbaatar and reduction of traffic congestion, the Government of Mongolia issued a number decisions to set up Shine Zuunmod City on a free economic zone of 31 thousand hectares in Khushig Valley with a population of 150 thousand, grounding on the new International Airport Chinggis Khaan. In April of the last year the Shine Zuunmod Development Master Plan and the Resolution on Creation of the Free Economic Zone were approved. Upon the approval of the Development Master Plan, we have been working to prepare infrastructure and legal policy documents as part of the implementation of the Master Plan. In the meantime, urban planning and legal policy documents of developed countries and countries that had successfully transitioned to market economy were studied and reflected in the planning.
As part of the first round of engineering preparatory measures, the financing of the 56.8 km flood protection canal, 50 km water supply and sewage line, and electricity supply work is being gradually settled, and the construction work is under way.
Infrastructure work is under way. When will the buildings and facilities’ construction work begin? Which of these big plans do you intend to start first?
Mongolia is making a plan to build a new city over 40 years after 1980. Building a city is not a matter of just starting to construct buildings and facilities. We aim to build up a pleasant city to live in by finely developing the legal environment, engineering and social infrastructures, and creating work places to attract human inflow, so as not to repeat the mistakes of previous city planning. The estimates of how to attract the flow of people was subtly developed in consultation with domestic and foreign researchers and experts. In this sense, no land was given to any enterprise in the Khushig Valley. Land will be allotted only according to the Master Plan and related detailed plans towards further development. In the first phase, we are working to intensify the construction of the Free Economic Zone.
How does the Government support the construction work?
The Prime Minister of Mongolia L. Oyun-Erdene announced the start of the major construction work to build a new city and a free economic zone in the Khushig Valley as part of the "New Revival Policy," and said, "In order to build a new city on the ground, it is necessary to entirely solve an issue of underground engineering infrastructure." Therefore, the Government of Mongolia has displayed leadership and decided to wholly resolve the infrastructure issue of the Khushig Valley. The Ministry of Construction and Urban Development has completed the necessary design drawings, the first round of partial infrastructure funding has been reflected in the state budget, and the infrastructure construction work is in progress. I would like to express gratitude to the staff of the Ministry of Construction and Urban Development who are working with passion and determination.
You said that, first of all, you will intensify the construction of the Khushig Valley Free Economic Zone. Will you please develop on this?
The core of the Free Economic Zone of the Khushig Valley will be tourism, trade and services. By now, about 450,000 tourists have visited our country, and 50 percent of them entered Mongolia through the "Chinggis Khan" International Airport in the Khushig Valley. This number will certainly increase in the future. Therefore, it is planned to construct a tourist hotel, entertainment center, indoor stadium, international conference and exhibition complex, transport and logistics center, industrial zone, trade and service center, duty-free goods center, international financial center and medical complex in the Khushig Valley Free Zone. According to this planning, we envisage to develop the service sector economy and create thousands of work places with high pay.
Can you clarify about the entertainment center and the indoor stadium?
Around 70% of the population of Mongolia is young people under the age of 35. A clear indication of this is that 30,000-40,000 people visited the shows organized at the central stadium this summer. During these events, five people were crammed into one square meter of space, which goes in no comparison with the standard of international music festivals, which should be one-three square meters per person. However, we in our country do not currently have a hall with the capacity to receive many spectators according to the standards of world music festivals. Therefore, it is planned to build a 20,000-seat indoor stadium for entertainment, shows, and sport events in the Free Economic Zone.
With a presence of the indoor stadium that meets international standards, Mongolian artists will get an opportunity to organize their shows and events without being confined to a single summer season. Besides, it will become possible to invite world-famous music groups, singers and artists to enjoy their performance in the country. This, in turn, will be a huge contribution to the development of the show and entertainment industries, as well as a big channel for attracting tourists.
What is going on with the issue of establishing a Casino in the Khushig Valley? How about the Casino Law?
Countries are developing casinos as a profitable business for income generation. Whilst 156 countries of the world had casinos so far, Japan, the United Arab Emirates and Thailand have decided to build casinos and have started construction. We have conducted research on the experience, positive and negative aspects, and legal environment of casinos in developing and developed countries, and cooperated with the working group of the Ministry of Justice and Internal Affairs. The Government submitted to the State Great Khural the Casino Law Draft in December 2022. Upon deciding to discuss it at the Parliament session, a working group of the Parliament has been established.
The UN COP-17 conference on desertification will be held in Mongolia. I heard that Khushig Valley Economic Free Zone was chosen as one of the places for the meeting.
The President of Mongolia Khurelsukh Ukhnaa, while participating in the conference of parties to the United Nations Framework Convention on Climate Change, made the decision to hold the 17th Conference of the Parties (COP17) of the United Nations Convention to Combat Desertification (UNCCD) in Mongolia. Altogether, 5000-7000 delegates from over 180 countries are expected to come to Mongolia to attend the conference. In 2019, approximately 6,000 people attended the 14th Conference of the Parties (COP) to the United Nations Convention to Combat Desertification (UNCCD) held in New Delhi, India. In 2022, about 7,000 people attended the COP-15 Meeting held in Abidjan, Cote D'Ivoire. In general, countries have experience in building a comprehensive complex for International Conferences according to standards for COP meetings. The United Nations sets requirements for the countries hosting the conference to have two large halls with 3,000 seats and 15 halls with a capacity of 200-300 people, equipped with advanced technique. On top of that, there will be numerous challenges, starting from ensuring security of the meeting, protection from any risk to road closures. Therefore, it is possible to include the conference halls in the planning of the International Conference and Exhibition Complex in the Khushig Valley Free Economic Zone. This opens up an opportunity to develop "MICE" (meetings, incentive programs, conferences, exhibitions/events, entertainment) or tourism packages.
What is the main reason for holding the COP-17 conference in the Khushig Valley Free Economic Zone?
It is advantageous for closeness to the airport, the infrastructure issues would have been resolved, and there is a healthy vacant land that can be developed. The free zone itself has a special visa regime and is unique in that it operates a one-stop service center for foreign investors, enterprises, and individuals, providing many government services such as visas, taxes, and permits. It also has the advantage of providing tax incentives to enterprises that participate in the zone development. In anticipation of this big conference, conference and exhibition complex, hotels, and ancillary service centers that meet international requirements will be constructed which would enable to hold international conferences in the future.
In addition to starting the basic construction of the new city, Mongolia will become the country that hosts the United Nations conference in a new environment with eco-friendly and green planning.
What are the stages of the construction of the Free Economic Zone and how long will it last?
It is planned to fully complete the construction of the Khushig Valley Free Economic Zone by 2030. Foreign and domestic investments are crucial to intensify the development. As for Mongolia, the amount of foreign direct investment continues to decrease due to the external situation, the rate of inflation, and the border and customs policy of neighboring countries. Real risks in the domestic economy will cause considerable difficulties in raising capital from the international market grounding on the past experience. Therefore, attracting financial flows from foreign banks and financial institutions to the domestic economy, and then transforming domestic banking and financial services into a multi-pillar and accessible financial system that is connected with the international financial market, is a goal of paramount importance.
How do we connect with the international financial market?
This is clearly reflected in Mongolia's development policy documents. In the long-term development policy of Mongolia "Vision-2050", the goal is to become a country with a multi-pillar economy and to develop a multi-pillared and accessible financial system connected to the international financial market in 2021-2030. Our domestic financial market is too dependent on the banking sector, the competitiveness of banks is weak, interest rates are too high, the types of financial intermediation services are limited, a portfolio of non-performing loans is huge. All these make it difficult to finance a large-scale construction project alone. We have conducted studies as per international financial center and drafted a law. The financial center will have an independent legal regulation. The Ministry of Justice and Internal Affairs, Ministry of Finance, Ministry of Economy and Development, Bank of Mongolia, Financial Regulatory Commission and other stakeholders of various sectors have formed a working group, which is currently in the process of preparing a detailed draft law. The law is being drafted so as to specifically regulate by common law business relations of securities work and services, trading, finance, insurance, and investment in the financial center, and other legal relations, such as criminal and administrative, will be regulated by the legislation of Mongolia. With the approval of this law and the establishment of the international financial center, opportunities and avenues for advancing economic development will open to meet the investment and financing needs of large projects.
Can we understand that the construction will be done by foreign investment?
Construction work will be carried out grounded on the public private partnership. In other words, the largest public private partnership project construction will commence in the Khushig Valley. There are many foreign and domestic investors to invest. What they request is to focus on the provision of a favorable and clear legal environment dominated by international agreements and rules, and a possibility to conduct stable activities.
So, will it become possible to attract investors by preparing a new legal environment?
The JICA International Cooperation Organization of the Japanese Government will implement the technical assistance project to improve the legal framework and investment required for the construction in the Khushig Valley. Since free zones are regulated by a separate law and developed according to international standards, it is necessary to change the methods and forms of management and development based on international experience. It was selected as an optimal option to put it in the form of a corporation based on public private partnership and make any decision together with investors and entrepreneurs.
How do we ensure the participation of public and private sectors’ partnership?
Investors will get more confidence to cooperate, provided the participation of the state is reduced and the participation of the private sector is increased. On the other hand, we envisage the reduction of administrative restrictions and bureaucracy. In case efforts of international researchers improve corporate governance, conditions for attracting private investments will be created. In order to attract and retain skilled managers, it is recommended that salaries and incentives should be provided based on market principles. In general, a responsible and skilled management team will bring high value for money and save money in the long run. It is also necessary to create an optimal financial mechanism for the development of the free zone. Land trading, leasing and allocation will be based on business development principles and development will be done according to a strict schedule. Otherwise, there is a risk that the development will not take place, but turn into a land deal. We will simplify the process of doing business. Current processes are too cumbersome and complicated. It is necessary to simplify business processes as much as possible and reduce stages. It is most important to create a favorable climate for investors. It will require long-term, consistent measures and activities to attract their interest. Investors should not be victimized by unfriendly business policies and regulations.
Thank you for taking your time. I wish you success in your future endeavors.
Thank you. Good luck to you and your team. I am confident that the time will come soon to brighten up the economy of Mongolia with the successful implementation of the Khushig Valley Development Project and the creation of Shine Zuunmod City on a Free Economic Zone.