Technical Assistance Report

Project Number: 41192 August 2008

Mongolia: Preparing the Regional Logistics Development Project

CURRENCY EQUIVALENTS (as of 24 July 2008)

Currency Unit – togrog (MNT) MNT1.00 = $0.00086 $1.00 = MNT1,155

ABBREVIATIONS

ADB – Asian Development Bank EA – executing agency IEE – initial environmental examination MRTT – Ministry of Road, Transport, and Tourism PPTA – project preparatory technical assistance PRC – People’s Republic of TA – technical assistance

TECHNICAL ASSISTANCE CLASSIFICATION

Targeting Classification – General intervention Sector – Transport and communications Subsector – Multimodal transport and sector development Themes – Sustainable economic growth, regional cooperation, capacity development Subthemes – Fostering physical infrastructure development, institutional development

NOTE

In this report, “$” refers to US dollars.

Vice-President C. Lawrence Greenwood, Jr., Operations Group 2 Director General K. Gerhaeusser, East Asia Department (EARD) Officer-in-Charge C. S. Chin, Transport Division, EARD

Team leader M. Parkash, Senior Transport Specialist (Railways), EARD 96o 00'E 111o 00'E

MONGOLIA R U S S I A N F E D E R A T I O N REGIONAL LOGISTICS DEVELOPMENT PROJECT

Hanh

o 50 o 00'N 50 00'N Ulaanbayshint Ulaangom Hatgal UVS Altanbulag HOVSGOL Tsengel Nogoonnuur Naranbulag Tes Ereentsav Tsagaan-Uul Moron Suhbaatar Dayan SELENGE Olgiy Olgiy BAYAN- Selenge Darhan OLGIY Hutag-Ondor DARHAN-UUL Bayan-Uul Tudevtey DORNOD Havirga Hovd ZAVHAN Bulgan ORHONSumber HENTIY Choybalsan ARHANGAY Hishig Ondor Tsahir Lun ULAANBAATAR Manhan Battsengel Batnorov Uliastay Baganuur Dariv Nalayh Maanit Tamsagbulag HOVD Tsetserleg Ondorhaan Monhhaan Tayshir TOV Matad Harhorin Yarant GOVISUMBER Baruun-Urt Uyench Altay Bayanhongor Choyr Arvayheer Erdenetsagaan Togrog Buutsagaan Bichigt Nariynteel SUHBAATAR GOVI-ALTAY OVORHANGAY DUNDGOVI Saynshand Burgastay BAYANHONGOR

Tsogt-Ovoo DORNOGOVI

Zamyn-Uud

42 o 00'N OMNOGOVI Bayan-Ovoo National Capital 42 o 00'N Provincial Capital Gashuun Suhayt City/Town ADB-Financed Road N National Road PEOPLE'S REPUBLIC OF CHINA Other Road Railway 0 50 100 150 200 250 River Provincial Boundary Kilometers International Boundary

0 Boundaries are not necessarily authoritative. 8 - 2 2 9 1

H 96o 00'E 111o 00'E R

I. INTRODUCTION

1. The Government of Mongolia has requested the Asian Development Bank (ADB) for project preparatory technical assistance (PPTA) for preparing the Regional Logistics Development Project. ADB considered this request, and a fact-finding mission visited the project area in June 2008. The mission carried out an initial poverty and social assessment and a rapid environmental assessment, and discussed technical and socioeconomic issues with representatives of the Government, the Ministry of Road, Transport, and Tourism (MRTT), and the Railway Authority of Mongolia. This paper is based on the Government’s concurrence with the impact, outcome, outputs, activities, implementation arrangements, cost, financing arrangements, and terms of reference for the PPTA.1 The PPTA is included in ADB’s country assistance program for 2008.2

II. ISSUES

2. Mongolia is a historical land bridge between the People’s Republic of China (PRC) to the south and the Russian Federation to the north. The transport sector, which consists mainly of roads and railways, is a key driver of economic development in Mongolia. The road network, including both state and local roads, totals approximately 49,250 kilometers (km), connecting 21 major cities and towns and 160 smaller villages. The Mongolian railway system is 1,810 km long and carries over 90% of the country's freight. The main line connects the PRC rail system in the south with the Russian Trans-Siberian line in the north. The north–south railway transport link, developed in 1949, is the lifeline of the economy and most of the economic development in the country during the last 60 years has taken place along this corridor. The strategic location of Mongolia as a transit country between the PRC and the Russian Federation has helped increase the transport demand, as has high economic growth in the country in recent years. Even though the transport capacity has risen in recent years, the transport sector in Mongolia is unable to meet this increasing demand, and this is seriously impacting economic growth.

3. Since 2002, Mongolia’s economy has been growing at a healthy rate, reaching 9.9% in 2007. A large part of this has been due to growth in the mining sector. The discovery of huge mineral and coal reserves in Mongolia, particularly in the South Gobi, are expected to stimulate the mining industry in the coming years, and this will contribute to high gross domestic product (GDP) growth (some estimates suggest GDP will increase by 4.7 times between 2007 and 2030). The mining industry and the development of the secondary and tertiary sector are dependent on efficient transportation and logistics. Most of the mining products are expected to be exported to the PRC or to international markets through Tianjin port in the PRC. These shipments will have to go through Zamyn Uud, the only gateway to the south.

4. Mongolia is also a landlocked country and as such faces greater transportation challenges than countries with their own seaports. Mongolia relies on its two large neighbors, the Russian Federation and the PRC, for access to seaports. In recent years, trade flows have been reoriented from the Russian Federation and most imports (over 80%) now come from the PRC, through the Zamyn Uud border point in the southeast of Mongolia. The bulk of Mongolia’s exports also travel through Zamyn Uud en route to Tianjin port, the only port in the PRC available to Mongolia for international trade. As a consequence, the traffic handled at Zamyn Uud has expanded rapidly in

1 The technical assistance (TA) first appeared in the business opportunities section of ADB’s website on 7 July 2008. 2 This PPTA is included in the 2008 TA program as a replacement for the South Gobi Infrastructure Development Project ($800,000) now split into two projects: ADB. 2008. Technical Assistance to Mongolia for Preparing the Regional Logistics Development Project. Manila; and ADB. 2008. Technical Assistance to Mongolia for Preparing the South Gobi Urban and Border Town Development Project. Manila.

2 recent years, to the point where Zamyn Uud is now badly congested,3 which affects imports, exports, and transit traffic. Although delays have several causes (such as nonavailability of rolling stock, change of rail gauge, and delays at customs), the main one is the grossly inadequate logistics capability in Mongolia in general and at Zamyn Uud in particular.

5. Efficient and well-developed logistics are identified as the key to cost-effective and competitive transportation. Trade logistics, or the capacity to connect to international markets to ship goods, is critical for developing countries if they are to improve their competitiveness, reap the benefits of globalization, and fight poverty more effectively in an increasingly integrated world. A World Bank-funded study,4 based on a world survey of international freight forwarders and express carriers, indicates that facilitating the capacity to connect firms, suppliers, and consumers are crucial in a world where predictability and reliability are becoming even more important than costs. A country's ability to connect to global markets is fast becoming a key aspect of its capacity to compete, grow, attract investment, create jobs, and reduce poverty. For those countries unable to connect, the costs of exclusion are large and growing. Unfortunately, Mongolia’s performance in all indicators of logistics management is at the bottom end. Based on a worldwide survey completed by more than 800 logistics professionals, the World Bank developed a comprehensive assessment of logistics performance in 150 countries and developed a logistics performance index.5 Mongolia has an overall logistics performance index ranking of 129–150 (1 is the best and 150 is the worst);6 its ranking for customs procedures is 131, for logistics costs (including freight rates) 144, infrastructure quality 129, ability to track and trace shipments 136, and timeliness in reaching a destination 142. Mongolia’s ranking clearly indicates serious issues in logistics development; this situation is hurting the country’s competitiveness and has serious repercussions for its economic performance.

6. Zamyn Uud, a town with a population of about 10,000 on the Mongolian–PRC border, is the historic intermodal interchange point for transport coming from the PRC to Mongolia, the Russian Federation, and Europe, and vice versa. It handles road to rail, rail to rail, and road to road traffic. For import traffic into Mongolia and the transit traffic to the Russian Federation, the bulk of the traffic coming from the PRC or Tianjin by rail is transshipped to rail. In recent years, the volume of traffic coming by road from the PRC is increasing and it is transshipped to rail at Zamyn Uud. A very small proportion of the traffic coming by road is directly transported by road, as no paved road currently exists between Zamyn Uud and Ulaanbaatar or to the Russian Federation border in the north.7 Most of the goods coming into Mongolia are destined for Ulaanbaatar, with construction material and foodstuffs accounting for the bulk of the cargo. Due to the limited logistics facilities available at Zamyn Uud, it can sometimes take 50–60 days to get shipments into Ulaanbaatar, which adversely affects the Mongolian people. In addition, the development of the mining sector is resulting in a huge demand for transporting coal and minerals.

7. To handle the traffic at Zamyn Uud, two facilities were created, one of which was financed by the Japan Bank for International Cooperation in 1995. A temporary facility was also opened on

3 Discussions with different stakeholders revealed that import cargoes could take anywhere between 10 and 60 days for clearance at Zamyn Uud. 4 World Bank. 2007. Connecting to Compete: Trade Logistics in the Global Economy. Washington, DC. 5 The logistics performance index aggregates performance in seven areas, from traditional ones—such as customs procedures, logistics costs (including freight rates), and infrastructure quality—to new areas like the ability to track and trace shipments, timeliness in reaching a destination, and the competence of the domestic logistics industry. The survey had the support and participation of the International Association of Freight Forwarders, the Global Express Association, the Global Facilitation Partnership, and the Turku School of Economics. 6 The only other countries in Asia with rankings lower than Mongolia are Tajikistan and Afghanistan. 7 A two-lane road from Choyr to Zamyn Uud, partially financed by ADB, is under construction and is expected to be completed by the end of 2009.

3

11 June 2008. The three facilities are all basic—they have no warehousing facilities, limited and outdated materials handling equipment, no planned layout, no transshipment facilities from road to rail, and no heavy-duty cranes, and they lack the operational concept of a logistics terminal. United States Agency for International Development (USAID) is also supporting the concept of establishing a logistics center at Zamyn Uud and is funding a study on possible public-private partnership project. ADB will liaise with USAID in finalizing the proposed feasibility study.

8. The Government supports the development of intermodal transport and seeks to build a strong logistics network in the country in order to enhance its global competitiveness. Because of its location, Mongolia is the focal point for international north–south transit trade, and the Government is signatory to a number of bilateral and multilateral agreements with neighboring countries and international organizations for facilitating international transport through the country. However, given the lack of logistics development in Mongolia and the situation at Zamyn Uud, the Government requested ADB to provide PPTA support for (i) developing a strategy for multimodal transport development in Mongolia, and (ii) developing logistics facilities at Zamyn Uud.

9. ADB has led international donor efforts in the Mongolian transport sector with a combination of policy and project interventions. The country strategy and program for Mongolia and the regional cooperation strategy and program update for Central Asia Regional Economic Cooperation8 identify transport as strategically important for ADB assistance. Since 1993, ADB has approved three loans and one grant for road sector development and two loans for aviation sector development, with an overall value of $184.7 million. In addition, ADB provided 12 TA projects totaling $6.37 million for the transport sector. The portfolio performance in Mongolia’s road sector has been satisfactory. The first three loans assisted rehabilitation and upgrading of Mongolia’s first north–south corridor.9 The corridor is part of the United Nations Economics and Social Commission for Asia and the Pacific (UNESCAP)-designated Asian Highway Network (Asian Highway 3). ADB is supporting the development of the first phase (431 km, from Yarant to Hovd) of a second north–south corridor in Mongolia, which runs for about 750 km from the border with the PRC at Yarant, through Hovd and Olgiy, to the border with the Russian Federation at Tsagaannuur, and is part of Asian Highway 4. ADB has not provided any assistance to the development of the railway sector in Mongolia. In trade facilitation, ADB has provided six TA projects (including five regional TA projects), and one loan for a customs modernization project.

10. The ADB strategy for Mongolia identifies the underdeveloped transport network and inefficient cross-border transport as major transport sector issues. The regional cooperation strategy and program update for Central Asia Regional Economic Cooperation identifies multimodal transport as a strategically important priority, and developing multimodal facilities at Zamyn Uud as a key intervention for possible ADB assistance. The ongoing sector assistance program evaluation also identifies the need for improving logistics as a key area for future support.

8 ADB. 2006. Mongolia: Country Strategy and Program Update (2007–2009). Manila; and ADB. 2005. Central Asia Regional Cooperation Strategy Program Update, 2006–2008: Development Through Cooperation. Manila. 9 The first project for rehabilitating the Altanbulag–Ulaanbaatar section was completed in 2001 and was rated "highly successful". The second project for developing the Nalayh–Choyr section was successfully completed in 2005 and was also rated "highly successful". Implementation of the third road project is ongoing. The ongoing sector evaluation identifies overall assessment of ADB involvement in the transport sector as successful. 4

III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

11. The impact of the PPTA will be to promote an efficient, competitive, reliable, and environmentally friendly multimodal transport network in Mongolia, under the overall framework of promoting environmentally sustainable development and inclusive growth in Mongolia. The outcome of the PPTA will be a strategy, agreed to with the Government, for developing multimodal transport and a project design for developing a multimodal transport facility at Zamyn Uud suitable for ADB-financing. The design and monitoring framework is in Appendix 1.

B. Methodology and Key Activities

12. The PPTA will have two components: component 1 produces a national strategy for promoting multimodal transport in Mongolia, and component 2 determines the scope of the project loan for developing a multimodal facility at Zamyn Uud, including the specific components to be financed by ADB and the Government.

13. For component 1, the consultants will review the current status of the transport sector at the national and regional level and develop short-term (2009–2015) and long-term (2016–2020) strategies for multimodal transport sector development in Mongolia. The PPTA will look at the complementarities of the different modes of transport and recommend measures to enhance multimodal transport development, logistics development and management, and freight forwarding activity in the country. Based on strengths, weaknesses, opportunities, and threats analysis for each mode, lessons learned, and the international experience in similar economies, the PPTA will prepare an investment plan and recommend the policy, institutional, reform, legal, and other facilitating measures to be adopted by the Government to create an enabling environment for developing multimodal transport in the country. A road map for promoting multimodal transport will be prepared at the end of the PPTA. A participatory approach will be taken while implementing the PPTA, and extensive consultation with stakeholders will also be undertaken. Two workshops and a seminar will be held to discuss and disseminate the findings of the PPTA. A final report will be published at the end of the PPTA.

14. For component 2, the PPTA will cover all relevant areas including technical, financial, economic viability, and institutional and organizational aspects of the project design. The PPTA will focus on (i) technical design of the multimodal facility at Zamyn Uud; (ii) financing and institutional arrangements for managing and operating the facility; (iii) economic and financial assessments; (iv) environment, resettlement, poverty, and social assessments; (v) stakeholder consultation; (vi) assessment of regional benefits; and (vii) examining and identifying key trade facilitation measures to enhance the competitiveness of external and internal trade. The key activities are field surveys, document review, data analysis, and consultation with stakeholders, including government officials, project beneficiaries, affected persons (including women and the poor), and other development partners.

15. The PPTA will (i) examine possible opportunities for private sector participation including the possibility of public–private partnerships, (ii) provide support for enterprise reforms and restructuring of transport enterprises, (iii) assess opportunities for promoting good governance in operation and procedures for enhancing efficiency and achieving financial self-sufficiency in a market environment, and (iv) examine the capacity-development initiatives that can be supported for developing a vibrant and sustainable logistics industry in Mongolia.

5

C. Cost and Financing

16. The total cost of the PPTA is estimated to be $500,000 equivalent. The Government has requested ADB to finance $400,000 equivalent. The PPTA will be financed on a grant basis by ADB’s TA funding program. The Government will finance the balance of the cost, equivalent to $100,000, through the provision of office accommodation and the counterpart staff required to implement the PPTA. The Government has been informed that approval of the PPTA does not commit ADB to finance any ensuing project. The details of the cost estimates and financing plan are in Appendix 3.

D. Implementation Arrangements

17. The Executing Agency for the PPTA will be the MRTT. A steering committee comprising representatives of the concerned departments and agencies will be set up to oversee implementation, provide guidance and direction, and facilitate coordination and cooperation among the subsectors and stakeholders. The committee will include representatives of agencies responsible for planning and development of roads, railways, civil aviation, and river and urban transport. Representatives of the Ministry of Finance, Industry and Trade, customs, legal department, freight forwarders, and other agencies will also attend the steering committee to ensure that all relevant information is readily available to the consultants. In addition, MRTT will appoint a project coordinator who will be responsible for coordinating and supervising the work of consultants on a day-to-day basis and serve as a liaison point between the consultants and other agencies.

18. The PPTA will require about 22 person-months of consulting services (11 person- months for international consultants, and 11 person-months for national consultants). The consultants will be engaged by ADB in accordance with its Guidelines on the Use of Consultants (2007, as amended from time to time). A consulting firm will be selected and engaged following the quality- and cost-based selection method (quality-cost ratio of 80:20), and biodata technical proposals will be required. The international and national consultants will work together and have expertise in (i) multimodal transport planning (economic analysis, financial analysis, and policy and institutional development); (ii) civil engineering as applied to development of multimodal facilities; (iii) handling equipment for multimodal facilities; (iv) poverty, social analysis, and resettlement; and (v) environmental issues. The consultants will procure equipment in accordance with procedures acceptable to ADB, and this equipment will be handed over to MRTT on completion of the PPTA. The PPTA will take into consideration all previous studies done by the Government, ADB, other multilateral agencies, and bilateral agencies. Appendix 4 gives the outline terms of reference for consulting services.

19. The PPTA is expected to begin in October 2008 and be completed by June 2009. MRTT agreed to provide the assistance required for implementing the PPTA. MRTT will also make available (i) all relevant reports, studies, and information; (ii) suitable office accommodation and appropriate and qualified counterpart staff; and (iii) any other assistance that the consultants may reasonably request, including liaison with the Government and local authorities.

IV. THE PRESIDENT'S DECISION

20. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $400,000 on a grant basis to the Government of Mongolia for preparing the Regional Logistics Development Project, and hereby reports this action to the Board. 6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Design Performance Targets Data Sources and/or Assumptions Summary and/or Indicators Reporting Mechanisms and Risks Impact Assumptions

An efficient, reliable, and Freight traffic volumes MRTT statistics and • Traffic forecasts are affordable multimodal increased by 50% in 2015 operating data before and realized transport system under compared with 2007 after the project the overall framework of • Associated facilities and promoting environmentally Waiting time at Zamyn Progress reports infrastructure are developed sustainable development Uud reduced by 30% in and inclusive growth is 2015 compared with 2007 Project administration developed in Mongolia missions and project completion report

Post-evaluation surveys and reports from MRTT

Outcome Assumptions

A strategy for developing Memorandum of Memorandum of • Government is willing to multimodal transport and understanding signed by understanding address necessary changes a project design for the Government and ADB in priorities developing a multimodal during appraisal mission transport facility at Zamyn of June 2009 • Government obtains Uud suitable for ADB necessary additional sources financing are agreed to by of funding for the project the Government and ADB

Outputs Assumption

1. Technical assessments Inception report submitted ADB document registration • Effective stakeholder completed to the Government and participation and ownership ADB by November 2008 Government document developed 2. Strategy document is registration completed IEE, poverty and social Risks analysis, and social 3. Project design development plan to be • Restricted availability and requirements submitted to the access to information accomplished Government and ADB by January 2009 • Restricted access to geographical sites Draft strategy and draft final report to be submitted to the Government and ADB by February 2009

Appendix 1 7

Activities with Milestones Inputs

Component 1 • 11 person-months of international and 1.1 Analyze transport sector of Mongolia (by December 2008). 11 person-months of 1.2 In the context of national and regional transport, assess the adequacy of multimodal national consultant services transport infrastructure (by December 2008). • ADB: $400,000 1.3 Conduct a strengths, weaknesses, opportunities, and threats analysis and • Government: $100,000 recommend policy, institutional, reform, legal, and other facilitating measures to be adopted by the Government to create an enabling environment for promoting multimodal transport (October 2008–February 2009). 1.4 Conduct two consultative workshops with stakeholders (one in November 2008, one in March 2009), and one seminar (May 2009). 1.5 Prepare short-term (2009–2015) and long-term (2016–2020) strategies, an executive summary, and a sector road map, clearly prioritizing the actions to be taken for promoting multimodal transport (October 2008–March 2009).

Component 2

2.1 Finalize the technical design, financing, and institutional arrangements related to the multimodal transport facility at Zamyn Uud (by March 2009). 2.2 Carry out an assessment of the regional benefits and examine the key trade and facilitation measures to enhance competitiveness of external and internal trade (by February 2009). 2.3 Develop a set of verifiable performance indicators, including socioeconomic and poverty (by February 2009). 2.4 Consult with MRTT, the World Bank, and other donors to recommend policy reform measures and institutional development needs (by February 2009). 2.5 Conduct surveys, discussions, and meetings with private investors to explore opportunities for private sector participation (by February 2009). 2.6 Consult with stakeholders, including government officials, project beneficiaries, and affected people, including women and the poor (October–December 2008). 2.7 Carry out environmental, social, and poverty assessments (by January 2009). 2.8 Complete baseline survey (by January 2009). 2.9 Carry out financial and economic analysis (by February 2009). 2.10 Carry out institutional analysis (by February 2009). 2.11 Prepare resettlement and social development plans (by January 2009). 2.12 Finalize project design and monitoring framework (by March 2009).

ADB = Asian Development Bank, IEE = initial environmental examination, MRTT = Ministry of Road, Transport, and Tourism.

8 Appendix 2

INITIAL POVERTY AND SOCIAL ANALYSIS

Country/Project Title: Mongolia/Regional Logistics Development Project

Lending/Financing Project Loan Department/ East Asia Department/ Modality: Division: Transport Division

I. POVERTY ISSUES A. Linkages to the National Poverty Reduction Strategy and Country Partnership Strategy Better multimodal transport will provide an enabling environment for poverty reduction through improved access to markets, employment, advanced education and medical facilities, new knowledge and information, families working or studying in other regions, other social and economic services, and facilitation of economic development and job creation. Improved access to markets opens up opportunities for expansion of locally produced goods and services. Construction and operation of the multimodal facility generates additional employment opportunities in local communities, providing an additional source of income for people, including poor households in the project area. This will speed up economic growth in this area, benefiting local residents, including the poor.

B. Targeting Classification 1. Select the targeting classification of the project:

General Intervention (GI) Individual or Household (TI-H); Geographic (TI-G); Non-Income MDGs (TI-M1, M2, etc.)

2. Explain the basis for the targeting classification: The project rationale is based on economic development, but some complementary measures can be included in project design and implementation to enhance social inclusion.

C. Poverty Analysis 1. If the project is classified as TI-H, or if it is policy-based, what type of poverty impact analysis is needed?

2. What resources are allocated in the project preparatory technical assistance (PPTA)/due diligence? Social and poverty analysis will be conducted as was done for previous transport projects.

3. If GI, is there any opportunity for pro-poor design (e.g., social inclusion subcomponents, cross-subsidy, pro-poor governance, and pro-poor growth)? This will be examined and included in a social development action plan (SDAP).

II. SOCIAL DEVELOPMENT ISSUES A. Initial Social Analysis Based on existing information: 1. Who are the potential primary beneficiaries of the project? How do the poor and the socially excluded benefit from the project? The primary beneficiaries are people and industries located in the cities and towns in Zamyn Uud, Choyr, and Ulaanbaatar, and the cities and towns along the north–south corridor. The construction of the facility will also generate many temporary jobs for unskilled local laborers, particularly in Zamyn Uud.

2. What are the potential needs of beneficiaries in relation to the proposed project? The local people and industries need quicker and more reliable logistics services, which will be provided by the new multimodal facility; in particular, Zamyn Uud will become a hub for new economic growth.

3. What are the potential constraints in accessing the proposed benefits and services, and how will the project address them? This will be examined and addressed in the SDAP. B. Consultation and Participation 1. Indicate the potential initial stakeholders. Government, industries, transport companies, small businesses, and residents.

2. What type of consultation and participation (C&P) is required during the PPTA or project processing (e.g., workshops, community mobilization, involvement of nongovernment organizations and community-based organizations, etc.)? Community meetings will be conducted to discuss the project design.

Appendix 2 9

3. What level of participation is envisaged for project design? Information sharing Consultation Collaborative decision making Empowerment

4. Will a C&P plan be prepared? Yes No Please explain. C&P plans will be prepared as part of the SDAP.

C. Gender and Development 1. What are the key gender issues in the sector/subsector that are likely to be relevant to this project/program? The improved multimodal facility will benefit women equally. Employment opportunities for women will occur during and after project completion (e.g., unskilled work during construction, area development, and induced economic development). These will be addressed in the SDAP.

2. Does the proposed project/program have the potential to promote gender equality and/or women’s empowerment by improving women’s access to and use of opportunities, services, resources, assets, and participation in decision making? Yes No Please explain. Women will have improved access to higher quality services in Zamyn Uud.

3. Could the proposed project have an adverse impact on women and/or girls or to widen gender inequality? Yes No Please explain

III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Significant/Limited/ Plan or Other Action Issue Nature of Social Issue No Impact/Not Known Required The land is already Full Plan Involuntary Resettlement acquired and has no Uncertain but likely little or Short Plan residents. no impact Resettlement Framework No Action Uncertain Government advised Indigenous Peoples there are no ethnic No Impact Plan minorities living in the Other Action project area. Indigenous Peoples Framework No Action Uncertain Labor Construction of the facility Employment Opportunities and induced economic Significant Plan Labor Retrenchment growth will generate (direct and indirect) Other Action (SDAP) Core Labor Standards employment. No Action Uncertain Transportation costs will Affordability be reduced. Positive impact Action No Action Uncertain

Other Risks and/or There are potential risks Limited Plan Vulnerabilities in this area and there are Other Action (SDAP or HIV/AIDS some existing programs EIA) Human Trafficking to address these issues. No Action Others (conflict, political Uncertain instability, etc.), please specify IV. PPTA/DUE DILIGENCE RESOURCE REQUIREMENT 1. Do the terms of references for the PPTA (or other due diligence) include poverty, social, and gender analysis and the relevant specialist/s? Yes No If no, please explain why. Social specialists will be responsible for poverty, social, and gender analysis.

2. Are resources (consultants, survey budget, and workshop) allocated for conducting poverty, social and/or gender analysis, and C&P during the PPTA/? Yes No If no, please explain why.

EIA = environmental impact assessment, SDAP = social development action plan.

10 Appendix 3

COST ESTIMATES AND FINANCING PLAN ($ '000)

Total Item Cost A. Asian Development Bank (ADB) Financinga 1. Consultants a. Remuneration and Per Diem i. International Consultants 220.0 ii. National Consultants 33.0 b. International and Local Travel 25.0 c. Reports and Communicationsb 10.0 2. Equipmentc 8.0 3. Training, Seminars, and Conferences 30.0 4. Surveys 9.0 5. Miscellaneous Administration and Support Costs 7.0 6. Representative for Contract Negotiations 5.0 7. Contingencies 53.0 Subtotal (A) 400.0

B. Government Financing 1. Office Accommodation and Transport 40.0 2. Remuneration and Per Diem of Counterpart Staff 40.0 3. Others 20.0 Subtotal (B) 100.0

Total 500.0 a Financed by ADB’s technical assistance funding program. b Includes cost of printing and translation costs. c Includes computer hardware and software, photocopier, facsimile machine, and other equipment to be procured under the consultant’s contract, in accordance with procedures acceptable to ADB. The ownership of all equipment procured will be transferred to the Ministry of Road, Transport, and Tourism on the completion of the project preparatory technical assistance. Source: ADB estimates.

Appendix 4 11 OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

A. Scope

1. The project preparatory technical assistance (PPTA) has two components: component 1 to prepare a national strategy for promoting multimodal transport in Mongolia; and component 2 to identify the scope of the multimodal facility to be developed at Zamyn Uud, including the specific components to be financed by the Asian Development Bank (ADB) and the Government. The international and national consultants (as a team) will work closely with the executing agency (EA) (the Ministry of Road, Transport, and Tourism [MRTT]) during the assignment. The international transport planner will serve as the team leader and will be responsible for coordinating the work of the other consultants.

B. Terms of Reference for Component 1

2. Transport Planners (international, 1.5 person-months; and national, 1.5 person- months) and Civil Engineering Experts (international, 1.5 person-months; and national, 1.5 person-months). The consultants will:

(i) Undertake a comprehensive and analytical review of the current status of the transport sector1 in Mongolia, and prepare an update. (ii) Identify the long-term challenges for the transport sector, taking into account the global and regional context, and the country’s geographic and demographic features. (iii) Examine the issues related to promoting multimodal transport and the regional corridors with neighboring countries as well as the development of the east–west and north–south international corridors to promote multimodal transport. (iv) Conduct a strengths, weaknesses, opportunities, and threats analysis for each mode based on the lessons and international experience in similar economies; prepare an investment plan; and recommend the policy, institutional, reform, legal, and other facilitating measures to be adopted by the Government to create an enabling environment for transport sector development. (v) Examine the complementarities of the different modes of transport and recommend suitable measures for improving their coordination. (vi) Recommend measures to enhance multimodal transport development in the country. Advise the Government on cross-border transport agreement and establishing international logistics center(s) to facilitate international and transit traffic, promote international trade, and improve movement of vehicles and goods in accordance with international practices. (vii) Prepare recommendations for financing multimodal facilities and financial management capacity analysis of entities managing these facilities; prepare a short-term (2009–2015) and a long-term (2016–2020) strategy for developing multimodal transport for Mongolia based on the sector review and stakeholder consultation. (viii) Develop a sector road map, clearly prioritizing the actions to be taken in the short and long term for developing multimodal transport. (ix) Recommend appropriate measures to improve human resource capacity in the transport sector. Identify MRTT’s and key stakeholders' capacity-building needs, and undertake/arrange selected training as appropriate. (x) Adopt a participatory approach while preparing the strategy and have extensive consultation with the relevant stakeholders. Organize at least two consultative workshops to be attended by representatives from the Government, transport

1 The transport sector covers roads, railways, civil aviation, and river and urban transport.

12 Appendix 4 operators, consumers, nongovernment organizations, the private sector, and international development partners. (xi) Prepare the final report and an executive summary, suitable for publication.

C. Reporting Requirements for Component 1

3. The consultants will submit to the Government and ADB (i) an inception report within 3 weeks after commencement of services, (ii) an interim report after 3 months, (iii) a draft final report (including appendixes) within 5 months after commencement of services, and (iv) a final report within 2 weeks after receipt of comments on the draft document. The consultants will also be required to submit brief project progress reports to the Government and ADB on a monthly basis during the services.

D. Terms of Reference for Component 2

4. The consultant services under the PPTA will include, but not necessarily be limited to, the following:

5. Civil Engineers. The consultants (international, 2 person-months; and national, 2 person-months) will:

(i) Review the Government’s planning for development of the transportation network and other infrastructure in the project area, including building of the multimodal facility and complementary rail and road network, and construction of link and access roads to the hinterland, other infrastructure, and social development programs. Document details of projects/programs giving estimated cost, funding source, implementing agency, schedule, and envisaged benefits. (ii) Analyze project alternatives to determine if the least-cost solution is proposed, while minimizing environmental impact and involuntary resettlement. Review the capacity of connecting transport infrastructure, identify network constraints that may affect traffic to and from the multimodal facility, and review plans for their mitigation. (iii) Based on technical standards provided by the materials handling experts, provide comprehensive preliminary designs, including safety aspects during construction and operation, and maintenance aspects of the new multimodal facility after its completion. (iv) Provide detailed cost estimates on the basis of current prices of goods and services, including the costs of environmental mitigation measures and monitoring, land acquisition, and resettlement. Prepare a procurement plan including a list of contract packages (with justification and estimated contract amount) for ADB financing. (v) Develop the implementation arrangements and the organizational set-up for project management. Prepare an implementation schedule and a schedule for disbursement of loan funds and counterpart funds. (vi) Prepare a logical framework that outlines the goals, purposes, outputs, inputs, and activities under the project.

6. Materials Handling Experts. The consultants (international, 1.5 person-months; and national, 1.5 person-months) will:

(i) Develop technical standards for equipment handling requirements based on traffic forecasts for various commodities provided by the transport planner (economist) and transportation network data provided by the civil engineer.

Appendix 4 13 Document the details of all proposed equipment and handling processes including costs. (ii) Provide a layout of the project area showing all materials handling locations and equipment requirements to meet current and future (20 year) traffic, and assess alternatives to the recommended equipment and materials handling equipment. (iii) Provide comprehensive preliminary designs including safety aspects during construction and operation, and maintenance aspects of the equipment and materials handling equipment after its completion. (iv) Prepare an implementation schedule including for training for the materials handling equipment and processes.

7. Transport Planners (Economic, Financial, and Institutional Analysis Experts). The consultants (international, 2.5 person-months; and national, 2.5 person-months) will:

(i) Conduct the economic analysis in accordance with ADB guidelines. (ii) Review the project rationale based on a problem diagnosis and provide a basis for ADB involvement. Assess the relevance and priority of the project to the strategy for the transport sector, the developmental strategy of ADB, the Government, and the Millennium Development Goals. Identify the main commodities to be transshipped at the facility, and the major beneficiaries. (iii) Assess alternatives to the proposed project, indicating least-cost solutions based on existing services and competition. Estimate the demand for transport of goods. The forecast should be subdivided into traffic diverted from road, traffic diverted from other modes, and generated traffic. (iv) Identify all project costs and benefits comparing with-project and without-project situations. Estimate the economic internal rate of return. (v) Undertake sensitivity analysis. If the project is sensitive to the value of a key variable, recommend measures to minimize the risk. Carry out quantitative risk analysis in accordance with ADB guidelines. (vi) Assess the developmental impact of the project, focusing on generated economic activities. Draw up a project performance management system. (vii) Estimate the project base-cost estimates and proposed drawdown schedule as provided by the civil engineering and materials handling experts. (viii) Prepare sustainability analysis looking at both financial implications and implementation capacity. This should discuss any policy instruments to be installed so as to ensure project sustainability, including tariffs and maintenance. (ix) Review and analyze the financial performance of the EA by reference to past audited financial statements. The analysis should include comments on operating performance, liquidity and returns on investment, achievements, and shortfalls, if any. Assess the impact of the capital assets investment program on the financial projections. (x) Compare the tariff rates with those offered by alternative transport and facilities. Assess the adequacy of the tariff rates to ensure sustained financial viability of the project and recommend appropriate tariff levels. (xi) Assess and prepare financial projections for the multimodal facility in accordance with ADB guidelines and carry out a financial evaluation for the project over the construction and operation period by calculating the financial internal rate of return and comparing it with a weighted average cost of capital. (xii) Design a funds-flow mechanism and identify appropriate ADB disbursement procedure, based on the project need and EA/implementing agency capacity to manage funds flow and disbursement. (xiii) Identify risk factors and test the sensitivity of the project to them, and propose mitigating measures. Undertake sensitivity analysis by varying tariff rates, project cost, implementation delay, traffic volume, and combinations of these factors.

14 Appendix 4 Switching values for these factors, excluding implementation delay, should also be calculated. Review the sensitivity of the financial viability of the project to future exchange rate movements. (xiv) Undertake a financial management assessment of the operating entity. The assessment should offer a conclusion as to whether or not EA financial management skills and capacity are sufficient and can be relied on for project financial management purposes, and/or recommend specific items to be included in either project design or incorporated into project management activities. Suggest appropriate financial covenants to monitor financial management and performance of the project. (xv) Establish the potential for private sector participation in the construction of project facilities and the provision of services during operations, and assess the financial impact. (xvi) Develop the organizational structure for the proposed multimodal facility and identify specific areas where support is required for institutional development.

8. Environmental Experts. The consultants (international, 1 person-month; and national, 1 person-month) will:

(i) Prepare an initial environmental examination (IEE) based on ADB guidelines. The PPTA consultant will help the EA to carry out further investigations and analysis, as required, to ensure compliance with ADB’s Environment Policy (2002) and guidelines. The PPTA consultant will be responsible for preparing the summary IEE and IEE in accordance with ADB requirements. The PPTA consultant will prepare indicative documentation for a full environmental impact assessment under Mongolian laws. (ii) Based on preliminary environment scoping, the major issues to be assessed in the IEE will include impacts on (a) ecological resources, (b) cultural heritage sites and tourism, (c) soil erosion, (d) noise and air quality, (e) potential spills of hazardous or toxic chemicals, and (f) local community disturbances from construction activities. There should be detailed plans for (a) protection of sensitive ecological areas, (b) protection or enhancement of environmental resources which promote tourism, and (c) mitigation of environmental impacts from construction activities. The PPTA consultant will prepare a preliminary environmental management plan, as appropriate. (iii) The PPTA consultant will (a) determine costs of the proposed environmental measures, (b) appraise the level of cost against expected environmental benefits, (c) assist the EA in incorporating appropriate mitigating measures into the project design, (d) prepare contractor specifications for environmental management and monitoring, and (e) prepare terms of reference and budget for independent environment monitoring and evaluation. (iv) The PPTA consultant will assist the EA with public consultation and involvement to promote broad-based acceptance of the report and full disclosure. At least two consultations with affected people and other stakeholders will be organized and properly documented.

9. Poverty, Social, and Resettlement Experts. The consultants (international, 1 person- month; and national, 1 person-month) will:

(i) Prepare socioeconomic and poverty profiles for the areas (aimags and soums) to be served by the construction of the facility and local roads. (ii) Conduct surveys to develop a profile of transport services and costs which are currently available in the project areas, and assess whether accessibility is

Appendix 4 15 affordable for low-income groups. This information will also serve as a baseline for performance monitoring. (iii) Based on the initial poverty and social assessment, conduct poverty and social analysis in accordance with ADB guidelines. Assess how the proposed construction of the facility will help improve people’s incomes and livelihoods. (iv) Assess other social issues including AIDS prevention and human trafficking. Prepare a social impact assessment, formulate mitigation or enhancement measures, and prepare a social development action plan. (v) Assist the EA to establish consultation and participatory processes that will continue throughout project design, construction, and operation. (vi) Review the local government’s policy, strategy, and programs for poverty reduction and regional economic development. Analyze how the proposed project will complement the government development programs. Evaluate (a) if there is need to develop a complementary program to strengthen the local road network feeding the proposed facility, and (b) how the proposed facility can influence the development of poor areas in the nearby growth centers using the facility. (vii) Assist with the preparation of the performance monitoring and evaluation systems, including a reporting format and how to measure indicators. (viii) Identify persons and communities potentially affected by resettlement based on ADB guidelines. A short resettlement plan should be prepared in the event of resettlement. It should address all project components, including the service areas, access roads, and construction areas. Conduct resettlement household surveys2 to ensure adequate understanding of social impacts. Determine and document in the resettlement plan the extent to which the project design and alignment has avoided or minimized land acquisition and displacement of people and businesses. (ix) Assess and justify that (a) the compensation standards are based on replacement value, and (b) the overall resettlement budget is sufficient to acquire the land and implement the resettlement plan based on the proposed entitlements and rehabilitation plans. Include a three-page executive summary in the resettlement plan. (x) Review the organizational structure and capacity for resettlement implementation and recommend improvements and actions required before the start of land acquisition. Assist the EA to prepare a resettlement implementation schedule that is linked to the overall project schedule.

E. Schedule and Reporting Requirements for Component 2

10. An inception report will be submitted within 3 weeks of starting work and a preliminary social analysis including population profile with demographic and socioeconomic data will be submitted within 6 weeks of starting work. The consultant will submit brief monthly progress reports. A draft summary IEE (and a supplement to the IEE if necessary) and a draft resettlement framework will be submitted within 3 months of starting work. The draft final report, including a detailed social analysis, will be submitted within 4 months of starting work. Comments provided by Government and ADB on the draft final report will be finalized at a tripartite meeting involving the Government, ADB, and the consultant. The final report will be submitted within 2 weeks of such meeting. All reports will be submitted to ADB in English (three copies) and to the Government and EA in English and Mongolian (three copies in each language).

2 For household surveys, ADB requires 10% to 20% of affected people and enterprises to be surveyed, including 20% of seriously affected people.