41712 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Rethinking theDeliveryofInfrastructureServicesinMongolia i THE WORLD BANK Foundation for Sustainable Development: Rethinking the Delivery of Infrastructure Services in Mongolia June 2007 Rethinking the Delivery of Infrastructure Services in Mongolia TABLE OF CONTENTS Currency Equivalents ......................................................................................................... x Units of Measure................................................................................................................. x Acronyms and Abbreviations............................................................................................. x Foreword.......................................................................................................................... xiii Acknowledgments........................................................................................................... xiv Executive Summary......................................................................................................... xvi Current Status and Infrastructure Challenges....................................................... xvii Better Aligning Prices with Costs......................................................................... xviii Improving Efficiency and Governance................................................................... xix Planning Better ....................................................................................................... xxi Prioritization ......................................................................................................... xxiii Chapter I: An Introduction................................................................................................ 1 Chapter II: Mongolia’s Infrastructure and Future Development: Taking Stock.............. 3 Challenges and Opportunities................................................................................... 3 Current Status of Infrastructure Provision................................................................ 6 Extent of Networks.................................................................................................... 7 Urban-Rural and Formal-Informal Divides ............................................................ 12 Quality and Efficiency of Provision......................................................................... 12 Environmental Concerns......................................................................................... 14 Mongolia’s Investment Plans versus Financing Realities ....................................... 15 Conclusion ............................................................................................................... 23 Chapter III: Aligning Pricing and Costs.......................................................................... 24 The Need for Pricing Reform................................................................................... 24 Managing the Political Economy of Reform............................................................ 30 Chapter IV: Improving Efficiency and Governance........................................................ 35 Existing Management of Government-Owned Infrastructure................................ 35 Improving the Management of State-Owned Businesses ....................................... 37 Maximizing Sustainable Private Sector Investment................................................ 39 Fostering Competition............................................................................................. 42 Improving Regulatory Governance......................................................................... 45 Chapter V: Better Planning.............................................................................................. 52 Improving Current Infrastructure Planning ........................................................... 53 Maintenance: A Growing Problem................................................................. 53 Economic Assessment of Investment Plans.................................................... 54 Public versus Private Financing..................................................................... 57 Improved Planning for Sustainability ............................................................ 57 Fostering Regional Development............................................................................ 62 Experience with Regional Planning................................................................ 62 A Highly Centralized Governance Structure................................................. 64 Reviving Local Government........................................................................... 64 Promoting Mining Activity ............................................................................ 65 Improving Urban Performance............................................................................... 66 Weak Planning at the City Level .................................................................... 66 Improving Outcomes in Ulaanbaatar............................................................. 67 Chapter VI: Prioritization ................................................................................................ 70 References........................................................................................................................263 iii Rethinking the Delivery of Infrastructure Services in Mongolia April 2007 Boxes Box 1: Mining Sector Growth and Infrastructure............................................................... 6 Box 2: Creating Fiscal Space for Investment..................................................................... 21 Box 3: Who Will Pay with Pricing Reform ....................................................................... 30 Box 4: Political Economy of Infrastructure Reform: Fuel Subsidies in Indonesia............ 31 Box 5: Community Participation in Price Increases ......................................................... 32 Box 6: Bangalore’s Experiments with Citizen Report Cards............................................ 39 Box 7: Public-Private Partnership Units: What Do They Do? .......................................... 41 Box 8: The Business Environment in Mongolia................................................................ 43 Box 9: Designing a Pro-poor Regulatory Strategy in East Asia........................................ 50 Box 10: The Roles of the Private Sector, Government and Donors in Infrastructure....... 53 Box 11: Public Finance, Cost Benefit Analysis, and Plannin g .......................................... 59 Box 12: The Scorecard on Regional Development Policies............................................... 63 Box 13: Mining and Infrastructure Policies: An International Perspective...................... 66 Figures Figure ES-1: A Cross-Sectoral Perspective: The Way Forward...................................... xxv Figure 1: Mongolia’s Economic Density in International Perspective ............................... 3 Figure 2: Mongolia’s Urban and Rural Populations.......................................................... 4 Figure 3. Mongolia’s GDP by Source and Location........................................................... 4 Figure 4: Mongolia’s Urbanization Challenge.................................................................... 5 Figure 5: Road Density and Income Density Across Countries......................................... 7 Figure 6: Paved Road Density and Income Density across Countries............................... 8 Figure 7: Distribution of Rail Traffic in Mongolia.............................................................. 8 Figure 8: Household Access to Electricity: Mongolia in International Perspective........... 9 Figure 9: Mobile Phone Coverage: Mongolia in International Perspective ..................... 10 Figure 10: The Costs of Small Scale: Providing Water in Mongolia’s Urban Centers...... 11 Figure 11: Access to Improved Water and GNI per Capita ............................................. 12 Figure 12: Rural and Urban Access to Utility Services..................................................... 12 Figure 13: Mongolia’s Road Safety in International Perspective ..................................... 13 Figure 14: Mongolia’s Electricity Transmission and Distribution Losses in International Perspective........................................................................................................................ 14 Figure 15: Historical Sources of Infrastructure Investment Financing ............................ 16 Figure 16: Investment in Infrastructure as a Percentage of GDP..................................... 17 Figure 17: Annual Investment Requirements in Water and Sanitation ........................... 18 Figure 18: Historical and Planned Investment in Infrastructure as a Percentage of GD P18 Figure 19: Mongolia’s Annual Investment Plans and Unidentified Resources ............... 19 Figure 20: Loans and Grants to Infrastructure ................................................................. 20 Figure 21: Fifty Years of International Copper Prices ...................................................... 20 Figure 22: Mongolia’s Annual Investment Plans Allowing for Reform........................... 22 Figure 23: Mongolia’s Gasoline Prices in International Perspective................................ 25 Figure 24: Mongolia’s Electricity Prices