INFRASTRUCTURE INVESTING IN MONGOLIA IS ATTRACTIVE INVESTMENT CLASS DUE TO BOOMING ECONOMY AND TRANSPORT

According to National Statistics Office of Mongolia, in the first half 2011, GDP increased by 14.3 percent or 269.1 bln.tog to 2152.6 bln.tog at current prices, compared to the previous year.

In the first 8 months of 2011, 11763.7 thous.t freight and 2561.8 thous.passengers (double counting) were carried by railway transport. Compared to the same period of the previous year, the number of carried freight rose by 1270.3 thous.t or 12.1 percent and the number of carried passengers rose by 202.8 thous.persons or 8.6 percent. Due to the increases in carried freight and passengers, revenue from railway transport increased by 62.4 bln.tog or 32.7 percent to 253.2 bln.tog in the first 8 months of 2011, compared to the same period of the previous year.

In the first 8 months of 2011, 1626.0 t. freight and 378.9 thous.passengers(double counting) were carried by air transport. Compared to the same period of the previous year, the number of carried freight increased by 519.5 t or 47.0 percent, the number of carried passengers rose by 118.1 thous.

persons or 45.3 percent. Due to the increases in carried freight and passengers, revenue from air transport increased by 28.0 bln.tog or 34.9 percent to 108.1 bln.tog in the first 8 months of 2011, compared to the same period of the previous year.

Road transportation in Mongolia

Background information
Road network of 49,250 km, includes international, state, internal and local road networks. Domestic road networks connect the capital city with the surrounding region.

Mongolian state road network of 11,200 km is comprised of 1,500 km paved roads, 1,440 km of gravel surface, 1,346 km with improved earth surface, and over 6,900 km is earth tracks

At present, road transport infrastructure connecting Ulaanbaatar with Russia and China is nearly completed.

In addition to government funding, transportation infrastructure development is also supported by major development partners as shown in the table below. This information signifies that foreign-based stakeholders are willing to invest in international transport development of Mongolia.



The Ministry of Road, Transportation , Construction and Urban Development (MRTCU) is seeking for up to US$ 2 billions in private investment for its road development project in northern Mongolia from Ulaanbaatar to Altanbulag, adjacent to Russian border. In line with the national transport strategic policies, the investment in road network expansion (e.g. Asian Highway Network, Regional Road Development project) is fundamental to the economic growth of Mongolia and proliferation of other industries such as, logistics, tourism and manufacturing. We view that it is internationally competitively priced so that there is attractive investment opportunity via pre-financing efficient contractors.

Interested entities are required to submit a Request for Proposal (RFP), which are to be evaluated by a ministry-appointed Selection Committee. 4 qualified candidates will be selected as cornerstone investors.

The RFP mandate requires candidates to propose concessionary terms, specify budgeting proposal, provide financial projection, and specify the technicality and operational aspects of the project implementation in details.

The recently enacted Concession Law in Mongolia is designed to create an investor-friendly institutional arrangement. In effect, this legal framework accommodates establishment of Public-Private Partnership (PPP), by which foreign funds are allowed to invest in certain asset classes (utility and infrastructure, for instance) with certain legal protection.

Frontier Securities view that this project is very important because of following reasons

· Roads are much cheaper than rails

· Rail has issue of gage.

· This road project is important not only for Mongolia, but also for Russia and China. At the moment goods are transported via east or west. Not through Mongolia at this moment. If this road project is build that will save time and money.

Frontier Securities, with our local connection and market expertise, would like to invite interested investors and multinational organizations to participate in the bidding process for this road development project.




CHIEF INVESTMENT STRATEGIST
Dale Choi
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Frontier Securities
Ulaanbaatar, MONGOLIA
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