Ch.Khashchuluun: We selected the path to have the Mongolian Bank within three years.

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Mr. Ch.Khashchuluun, Chairman of the National Development and Innovation Committee and Chairman of the Board of the Development Bank of Mongolia, shares his opinion on the recent development of establishing the Development Bank of Mongolia.

Q: Law on Development bank was adopted and its old regulation was amended. Board is going to be changed also. Is there any change in the pre-requirement for management team or from the team? Can you provide us the importance of this amended law?

Ch.Hashchuluun: In 2007, Development Bank was planned and in order to establish the bank, the law was being developed, but its implementation was failed. The NDIC was established in 2009. It was understood that budget can’t provide sufficient fund for the planned projects of the Government. Therefore, it was necessary to have a new structure of financing – the Development Bank. At the first instance, we worked with international advisers to compose the rule of the Development Bank to be approved by the Government. This rule was the soil for the new law. Adopting the separate law was inevitable.

As for the timing, the above-mentioned path was quicker. Because, it is hard to issue the law, without introduction of the concept to public. It was obvious that it is necessary to have the all approvals from the Government and establishment of the Board of Directors. But now, according to the law, little changes would be made within the Board. Bank rule said that it should have three independent board members and these members are suggested to the Cabinet Meeting.

Q: Can you give us details on the independent board members?

Ch.Hashchuluun: Representative from Mongolbank, Mongolian Banks’ Association and MNCCI (Mongolian National Chamber of Commerce and Industry) will be appointed.

Q: The foreign management team will direct the Development Bank. When this team will be composed from the Mongolians?

Ch.Hashchuluun: Having foreign management team for the Development Bank has advantages. Mongolia lacks experience of industrialization, especially through the Development Bank, in its history of last 20 years. Financing structure of the Development Bank has much difference from those commercial banks. Its fund shall be paid back, therefore it is different from budget. We ca prepare and train our HR ourselves. But it takes 3-4 years. Within this period, we shall seek assistance from foreign expertise. This team was selected from teams of the developed countries. The agreement with team will be concluded this Friday (April 29 2011).

I believe by April 27, 2011, management team can start its activities. As result of the newspaper announcement, over 200 CVs were submitted to our administration office. There are many excellent professionals. Hence, our joint management team can recruit HR within relatively short time span. Selected professionals shall have intensive training in next three months. Training will not be conducted by only Korean Development Bank, but it will be conducted by Japan, German banks. The bank will have international advisers’ council, but this council shall not intervene to the operation of the bank. There is a method of selecting such well known and reputable advisers. I think that this council is important.

Q: The Government granted an opportunity to issue bond for the Developmennt Bank. When the first bond will be issued?

Ch.Hashchuluun: Bond funding would start in May and it’s preparation works are underwent. The request was submitted to the Mongolbank and the Ministry of Finance. Executive Director’s signature will be required for the issuance of the bond, so once the director will be appointed, the bond will be issued. We talked with our management team members and the bond can be issued partially in US$ and MN₮. Also, starting from mid-May, we can start raising fund from investors. Because recently we are meeting with many investment organizations which interested in buying our bond. Thanks to the sales of this bond, we can raise fund for the development of Mongolia, therefore, we are actively and intensively meeting with them.

Q: Where will be the location of the Bank and who will be the employees?

Ch.Haschuluun: 90% of the total employees will be the Mongolians and few Korean managers will work. Half of the management team will be the Mongolians. As for the office, it is located at Ministry of Finance and there will be 40-50 people working for the bank, so I believe this building is enough to host all of our employees.

Q: How would you guarantee on the independent operation of the bank?

Ch.Hashchuluun: According to the law, it shall operate independently. Being as the chairman, I invited local and foreign teams for the selection. But local teams failed to satisfy the expectation.

Q: This fund will be used for Industrila Park, new industrialization and railway building. What project shall attract the biggest attention?

Ch.Hashchuluun: I think energy and construction will be the first ones and we have the list of projects. Because of lag in the development of infrastrcutre, there are certain obstacles in the national development. Therefore, electricity network shall be created in Ulaanbataar and countryside immediately. Also, heating, clean water supply and sewage system shall be developed for Ulaanbaatar, urging housing program for 100,000 households. Moreover, SME development request is made by many people and Korean Development Bank has rich experience in supporting SME. Its management team says that intensive funding for SME is possible, especially in food, agriculture and innovating processing factories. It has own interest in developing it also.

Third. Preparation work of the Industrial Park. We are negotiating with Bechtel Company to hire as the General Consultant. Bechtel will procude the main Feasibility Study of Industrial Park, infrastructure requirements, drawings and factories. Hence, building the industrial park work will start from building heating, water and sewage system and then SME complex will be created. According to the plan, 3-4 big factories will be built, in doing so SME will be developed in parallel. It is called as the development of cluster. It shall steeply decrease infrastructure cost, while allowing centralization of many industrialization objects and projects on the existing infrastructure, yet promoting competition.

It will not be limited only by Sainshand, also it will be created in Darkhan, Selenge, Gobi regions. But infrastructure building cost is higher in Gobi region, just for an example, raod building takes 2-3 years. But it needs water, heating and sewage system also. As for now, it is correct to concentrate on Sainshand, Darkhan, Selenge, Erdenet where the infrastructure is decently developed.

Q: How much fund will be required for this industrialization?

Ch.Hashchuluun: Only copper smelting factory will require $300 million, for example in Inner Mongolia, factory with capacity of 90,000 tons per year is built with such fund. According to the technology, solutions are usually similar, so we can reckon it will be around $300 million also. If capacity is increased, its effectiveness and profitability will increase. Mostly, private sector is interested in investing, saying we can build them but only as if infrastructure is developed, legal environment is stable and tax regime is softened. It can be said that the Government is not creating the industrial park, but it is enabling the environment of establishing it. When infrastructure is established, we will invite private investors and modify tax policy. It will also encourage competition and competency.

As for the first 3-4 factories can be build within funding of $1 billion. Because, capacity of these factories shall fit to the market demand and resource with less loss. Furthermore, we will build huge oil and chemical complex based on Tavan Tolgoi, meantime, infrastructure will be built, so, I believe it will be the good timing.

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