Mongolia Compact

Covering 1.56 million square kilometers, roughly the size of Western Europe, Mongolia’s limited, aging transportation infrastructure and young institutions have been shown to be significant constraints to economic growth and development, particularly given the pressures of the country’s abrupt transition to a market economy, the loss of financial support from the Soviet Union, and the rapid urbanization of what traditionally has been a highly dispersed and pastoral society. Nearly half of Mongolia’s 2.6 million people live in the capital city of Ulaanbaatar, and approximately 60 percent are located along the north-south rail corridor between Russia and China.

The Millennium Challenge Corporation (MCC) and the Government of Mongolia, after extensive consultations with the private sector and civil society and involved broad public participation across the country, signed a five-year, $284.9 million compact in October 2007, designed to increase the country’s economic growth and reduce poverty by investing in five project areas:   

  • property rights;
  • health;
  • vocational education;
  • energy and environment; and
  • transportation.

In developing their proposal, Mongolia’s National Council, the team formed by the government to develop their compact proposal, relied in part on the national development plan and poverty reduction strategy papers while also conducting targeted consultations with sector experts and stakeholders. All five projects were designed to increase the productive capacity of Mongolians—both individuals and enterprises—and unlock opportunities for growth in domestic and regional economies. By the end of the compact in September 2013, the Government of Mongolia and MCC had spent 94 percent of the anticipated compact funds to increase land security, reduce impacts of non-communicable diseases and injuries, provide enhanced vocational training, expand distribution of energy-efficient household products, and construct roads for commercial traffic. The Government of Mongolia and MCC expect more than 2 million people to benefit from the investments over the 20-year lifetime of the investment. Further details of the compact results and impacts will be shared in forthcoming impact and performance evaluations, expected starting December 2015.

  • Original Amount at Compact Signing: $284,911,363
  • Amount spent: $268,993,805
  • Signed: October 22, 2007
  • Entry Into Force: September 17, 2008
  • Closed: September 17, 2013

Estimated benefits at compact close correspond to $218.1 million of compact funds, where cost-benefit analysis was conducted:

  • 2,057,532Estimated beneficiaries at compact close over 20 years

  • $134,000,000Estimated net benefits at compact close over 20 years

Compact Changes

The Mongolia Compact included a diverse portfolio of projects that provided key investments in infrastructure and technical assistance. Because MCC compacts are a fixed amount implemented over five years, partner governments must focus on attaining compact results while constantly balancing changes in costs, speed and feasibility of implementation.

  • The original compact contemplated funding up to $188,300,000 to modernize the critical but antiquated freight rail system, but only if certain conditions for transparency were fulfilled by the Mongolian rail company’s Russian partners.  On April 27, 2009, the Government of Mongolia notified MCC that it intended to withdraw the Rail Project from the compact due to an inability to fulfill those conditions (see below). Following Board approval in December 2009, MCC executed a formal compact amendment in January 2010 that reallocated approximately $180 million from the Rail Project toward the expansion of the Health (roughly $8 million), Property Rights (roughly $25 million) and Education Projects (roughly $25 million), as well as the addition of the new North-South Road (roughly $75 million) and Energy and Environment Projects (roughly $47 million). All projects resulting from this reallocation were completed on time and within budget at compact close.
  • The $79.7 million North-South Road Project was identified through close coordination with the Government and other international financial institutions in Mongolia. As with the original compact development process, MCC worked closely with the government to consider the project’s suitability for MCC funding, including its impact on addressing constraints to economic growth. The project filled an important gap in the key north-south economic corridor of the country, through the construction of an important link in Mongolia’s first all-weather paved road running from its southern border with China to its northern border with Russia.
  • Development of the $47.2 million Energy and Environment Project was a result of a collaborative effort with the Government of Mongolia and other stakeholders on addressing the growing phenomenon of winter-time air pollution in Mongolia’s capital city of Ulaanbaatar. A number of project proposals having both health and economic dimensions were reviewed, taking into consideration past efforts of air pollution reduction. The Energy and Environment Project design was developed after undergoing MCC due diligence and economic analysis. In addition, the project included a small component to support the development of Mongolia’s first on-grid commercial wind farm—MCC’s first investment in wind energy.   
  • MCC’s fixed budgets and strict five year clock mean constant monitoring of compact programs’ status, progress and viability.  At the time the Mongolian Compact came to a close, $269,002,143 of the original budget of $284,911,363 had been expended, leaving approximately $15.9 million in funds returned to MCC to target new program funding. 

Project Results

Energy and Environment Project (EEP)

  • $0Original Compact Project Amount
  • $47,200,000Amount at Project Inception
  • $40,420,819Total Disbursed
  • 60%Estimated Economic Rate of Return over 20 years

Mongolia has an extremely harsh winter climate, and mid-winter temperatures in the capital can drop to as low as minus-40 degrees, making Ulaanbaatar, where nearly half of all Mongolians live, the coldest capital city in the world as well as the world’s second-most air polluted city. At levels of up to 10 times the international standards for particulate matter, air pollution is a major cause of serious respiratory problems among urban residents and contributes to increased health disability of the working population and decreased life expectancy. The primary source of the pollution comes from inefficient stoves burning raw coal that are used to heat poorly insulated homes in the city’s vast ger districts. Typically these homes, constructed of traditional felt, are not connected to the city’s heating grid. The Energy and Environment Project was designed to increase economic growth by reducing urban air pollution in the capital, decreasing related health costs, and lowering energy costs through more efficient fuel consumption. The project provided financial incentives for ger district residents to adopt energy-efficient and lower-emission technologies, and funded the upgrade of the electrical network. The project’s Wind Activity supported the development and production of the first commercial wind-powered electricity generation facility in Mongolia by funding an upgrade to the Nalaikh substation and installation of a training simulator for dispatchers of the National Dispatching Center in Ulaanbaatar.

Additional funds were made available after the Rail Project was withdrawn from the compact. 

Estimated benefits at compact close correspond to $36.9 million of project funds, where cost‑benefit analysis was conducted:

  • 338,425Estimated beneficiaries at compact close over 20 years
  • $38,200,000Estimated net benefits at compact close over 20 years

Evaluation Findings

The Energy and Environment (Stove Subsidies component) Final Evaluation Report was released in December 2014 on the MCC Evaluation Catalog. A summary of key results includes:

  • Participants in the EEP stove subsidy had 65 percent lower emissions of PM2.5 and 16 percent lower carbon monoxide emissions compared to traditional stove owners. Through data modeling, this is estimated to have resulted in a 30 percent reduction in ambient concentrations of PM2.5 attributable to heating stoves in Ulaanbaatar and consequently 47 avoided deaths and 1,643 disability-adjusted life years during the 2012-2013 winter season.
  • There was no significant reduction in fuel consumption or expenditures, however.
  • There was a significant increase in indoor temperature from 60.3 degrees to 63.6 degrees, suggesting household utilized the energy-efficient stoves to keep their homes warmer, rather than reduce fuel consumption. 

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
Millennium Challenge Energy Efficiency Innovation Facility Activity

Outcome: (1) Reduced incidence of respiratory-related morbidity. (2) Reduced fuel consumption. (3) Increased energy

Subsidized stoves sold 0 103,255 %
Heat Only Boilers (HOBs) sites upgraded 0 10 10 100%
Wind Activity

Outcome: Substitution of wind power for additional coal-fired power generation capacity and improved power quality

Power dispatched from substation (Million Kilowatt Hours)
  • Due to construction delays and incomplete works at compact end, power generation from the Wind Farm Activity did not meet the indicator target.
0 112 12 11%

North-South Road Project

  • $0Original Compact Project Amount
  • $79,750,000Amount at Project Inception
  • $74,775,867Total Disbursed
  • 9.4%Estimated Economic Rate of Return over 20 years

With a small population but large geographic land area including vast mineral resources, adequate and reliable transport infrastructure is critical for the future development of Mongolia. Nearly half of Mongolia’s population is concentrated in Ulaanbaatar, and approximately 60 percent are located along the crucial economic road and rail corridor between Russia and China. A portion of this link, the Choir-Sainshand Road, was unpaved and drivers were forced to make frequent detours to avoid its potholes and deep trenches—negatively impacting neighboring pastureland.

The North-South Road Project sought to mitigate the inadequate transport infrastructure in the critical economic corridor of the country by constructing an all-weather road in a key segment and connecting Mongolian markets to key trading partners. MCC funded the design of 19 additional kilometers to allow for construction on the entirety of the 176-kilometer road. Following approval of the project in 2009, significant increases in the cost of works for the North-South road led to a decision to re-allocate compact funds from the Bayanzurkh Bridge and the Ulaanbaatar-Nalaikh road to finance work on the Choir-Sainshand segment.  These two investments of the project were dropped entirely.

Additional funds were made available after the Rail Project was withdrawn from the compact. 

Estimated benefits at compact close correspond to $74.77 million of project funds, where cost‑benefit analysis was conducted:

  • 161,000Estimated beneficiaries at compact close over 20 years
  • $273,000,000Estimated net benefits at compact close over 20 years

Evaluation Findings

MCC is planning an evaluation of the North-South Road Project that will measure road maintenance, annual traffic, and vehicle operating costs. It will use the Highway Development and Management (HDM-4) Model and is expected in December 2015. 

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
All Activities

Outcome:

Percent disbursed of road construction contracts 0 100 91 91%
Kilometers of roads under design 0 20 19 97%
Kilometers of roads completed 0 176 176 100%

Health Project

  • $17,027,119Original Compact Project Amount
  • $41,873,775Total Disbursed
  • 13%Estimated Economic Rate of Return over 20 years

In Mongolia, rates of non-communicable diseases and injuries (NCDI) such as cardiovascular diseases, cancer and traffic-accident induced injuries are a major cause of death and disability, particularly in younger age groups. This creates a negative impact on the productivity of the country’s labor force. The Health Project aimed to strengthen the national program for prevention, early diagnosis and management of NCDIs and also sought to address major causes and risks of NCDIs. At the end of the compact, more than 1.4 million health education materials had been disseminated, 49.7 percent of the target population had been screened for diabetes, and more than 9,100 girls age 11-15 received human papillomavirus vaccinations.

Additional funds were made available to this project after the Rail Project was withdrawn from the compact.

Estimated benefits at compact close correspond to $38.6 million of project funds, where cost‑benefit analysis was conducted:

  • 1,727,000Estimated beneficiaries at compact close over 20 years
  • $12,800,000Estimated net benefits at compact close over 20 years

Evaluation Findings

The Health Project Final Process Evaluation Report was released in June 2014 on the MCC Evaluation Catalog. A summary of key results includes:

  • Most activities the Health Project were well-planned and implemented, resulting in a strengthening of Mongolia’s health system.
  • The Health Project strengthened a culture of quality of thoroughness of planning and analysis while also stimulating a culture of efficiency and accountability in the health sector.
  • However, the five year period of actual compact implementation was far too short for a complex program that is so deeply embedded in the health system and assessing the achievement of the ultimate goal of the Health Project, which sought an overall increase in the life expectancy of the Mongolian population, is not possible within the timeframe of the project or immediately afterwards.

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
All Non Communicable Diseases and Injuries (NCDI) Activities

Outcome:

Amount of civil socity grants (USD) 0 2,300,000 2,424,099 105%
NCDI Capacity Building Activity

Outcome: Improved national and local response to NCDI and increased availability of sound services

Primary healthcare facilities with non-communicable disease (NCD) services (%) 10 70 90 134%
School teachers trained 0 565 65 100%
Health staff trained 179 5,000 15,604 320%
NCDI Early Detection Activity

Outcome: Increased availability of sound services in early detection of NCD

Screening for hypertension (%) 0 66 58 88%
Cervical cancer cases detected early (%) 38 47 53 169%
NCDI Management Activity

Outcome: Improved national and local response to NCDI

Screening for hypertension (%) 0 66 58 88%
Cervical cancer cases detected early (%) 38 47 53 169%
NCDI Prevention Activity

Outcome: Increased availability of sound services in understanding and prevention of NCD

Screening for hypertension (%) 0 66 58 88%
Cervical cancer cases detected early (%) 38 47 53 169%

Property Rights Project

  • $23,062,286Original Compact Project Amount
  • $28,543,830Total Disbursed
  • 21.9%Estimated Economic Rate of Return over 20 years

Many low-income rural Mongolians have abandoned traditional nomadic herding practices and are migrating to cities in search of better jobs and better education for their children. The bulk of these migrants are moving to Mongolia’s three biggest cities—Ulaanbaatar, Erdenet and Darkhan—where they either settle in suburban (ger) districts, rural or peri-urban areas. Mongolian law allows ger district residents the right to obtain ownership of the land upon which they live. However, the complexity and expense of the registration process has made it difficult for these people to become property owners and be able to fully realize the benefits of property ownership, such as borrowing against property as collateral. The Property Rights Project sought to improve the national property registration system and help poor households obtain titles to land in ger districts. The project also facilitated the leasing of pastureland near cities to herder groups in peri-urban areas and invested in infrastructure and training to improve livestock productivity and herder incomes in peri-urban areas. At the end of the compact, 15 land registry office buildings were renovated and received modern equipment, which improved the processes these offices used to register rights. MCC also funded the design of a land-leasing system for pasture areas around cities, providing 15-year land leases to approximately 1,300 herder households, installing 346 wells on leased lands providing water to the majority of these households and training herder groups on sustainable pasture use and improving livestock productivity.

Estimated benefits at compact close correspond to $28.2 million of project funds, where cost‑benefit analysis was conducted:

  • 102,168Estimated beneficiaries at compact close over 20 years
  • $28,200,000Estimated net benefits at compact close over 20 years

Evaluation Findings

MCC is conducting a performance evaluation of the Land Registration System Activity that will measure changes in the time it takes to access a loan, as well as assess the back office procedures at Mongolia’s Land Registry at the General State Registry. It is expected to be available in December 2016. MCC is also planning an evaluation of the Privatization of Ger Area Land Plots Activity that will be available in March 2016.

Finally, MCC is conducting two impact evaluations of the Peri-Urban Land Leasing Activity: Phase I will evaluate the leasing activities located in the cities of Ulaanbaatar, Darkhan and Erdenet. The evaluation will measure the activity’s impacts on the herder groups and associated households, including livestock productivity across these areas. Phase II will evaluate activities that have taken place in the cities of Choibalsan and Kharkhorin, including the impact on environmental degradation and rangeland quality of land parcels. These are expected to be available in December 2017. 

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
Improvement of Land Privatization and Registration System Activity

Outcome: Increased land right formalization

Stakeholders trained 0 465 1,586 341%
Legal and regulatory reforms adopted 0 6 6 100%
Household land right formalized 0 52,995 19,357 37%
Official cost prescribed for property transactions (first-time) 52 59 %
Peri-Urban Land Leasing Activity

Outcome: Optimized peri-urban rangeland carrying capacity and range management

Project herder groups limiting their livestock population to the carrying capacity of their leases on farms in 3 central aimags (Ulaanbataar, Darkhan and Erdenet) (%) 40 100 41 1%
Leases awarded 0 465 387 83%
Stakeholders trained 0 1,515 2,334 154%
Wells completed 0 420 346 82%
Privatization of Ger Area Land Plots Activity

Outcome: Increased land right formalization

Stakeholders trained 0 465 1,586 341%
Legal and regulatory reforms adopted 0 6 6 100%
Household land right formalized 0 52,995 19,357 37%
Official cost prescribed for property transactions (first-time) 52 59 %

Vocational Education Project (TVET)

  • $25,512,856Original Compact Project Amount
  • $49,322,727Total Disbursed
  • 20%Estimated Economic Rate of Return over 20 years

As the Mongolian economy transitioned to a market economy after the fall of the Soviet Union, its technical vocational education and training (TVET) system remained outdated and dysfunctional: The technical content of the trade and occupational courses no longer applied to increasingly sophisticated economy sectors, learning programs focused heavily on theory, and graduates of TVET programs had a reputation of being ill-equipped for the modern workplace.

 In response to a strong demand for a skilled workforce in a growing economy, the Vocational Education Project was designed to upgrade technical education and training, increase employment and income among the unemployed and marginally employed by improving technical skills and productivity and developing the TVET sector to become more responsive to meet labor market demands. The project had five main components: policy and operational framework reform, implementing professional development programs for TVET instructors, updating curricula based on competency-based training standards, establishing a labor market information system, and providing state-of-the-art equipment. 

At the end of the compact, nearly 12,000 students had graduated from MCC-supported educational facilities, 54 technology labs had been installed and upgraded, and 106 practical training sites had been modernized.

Additional funds were made available after the Rail Project was withdrawn from the compact.

Estimated benefits at compact close correspond to $49.2 million of project funds, where cost‑benefit analysis was conducted:

  • 170,000Estimated beneficiaries at compact close over 20 years
  • $27,500,000Estimated net benefits at compact close over 20 years

Evaluation Findings

MCC is planning an impact evaluation of the Vocational Education Project that will measure the impact of attending the TVET schools on students’ academic achievements, skill levels, post-graduation employment rates, and salary levels. The evaluation will also examine what characteristics of applicants predict greater academic and labor market success. It is expected to be available in March 2016. 

Key performance indicators and outputs at Compact End Date

Key performance indicators and outputs at Compact End Date
Activity/Outcome Key Performance Indicators Baseline End of Compact Target Quarter 1 through Quarter 20 actuals (Dec. 2013) Percent Compact Target Satisfied (Dec. 2013)
All Activities

Outcome:

Students participating in MCC-supported education activities
  • Reported end-of-compact student participation and public-private partnership funding was based on preliminary monitoring data. An independent evaluation firm is currently analyzing the final dataset that will be published as part of the impact evaluation results.
0 50,000 17,480 35%
Competency Based Training System Activity

Outcome: Implement the new competency-based training system in TVET schools

Instructors trained 0 1,500 1,370 91%
Improvement of Learning Environment Activity

Outcome: Upgrade equipment and technology in practical training sites of selected TVET schools

Educational facilities constructed or rehabilitated 0 18 18 100%
Reforms to TVET Framework and Operational Framework Acitivity

Outcome: Improved quality and relevance to TVET system

Public-Private Partnership (PPP) funcing contributed to Technical Vocational Education and Training (TVET) schools (%)
  • Non-governmental funding of vocational education (%) – Data from Ministry of Labor is not currently available. This figure includes only non-governmental funding from private partners given directly to the schools.
  • Reported end-of-compact student participation and public-private partnership funding was based on preliminary monitoring data. An independent evaluation firm is currently analyzing the final dataset that will be published as part of the impact evaluation results.
1 16 2 7%
Skills and Standard Competencies Activity

Outcome: Establish skills standards and a competency-based qualification training system based on nationally approved units of competency, modules and courses

Instructors trained 0 1,500 1,370 91%

Coordination and Partnerships

Close coordination with governments, the private sector, other international donors and development agencies saves time and money, avoids costly duplication and unsuccessful approaches, minimizes transaction costs for partner countries and is critical to the success of MCC compacts. Highlights of coordination during the Mongolia Compact are:

  • In a demonstration of ownership over the compact activities, the Government of Mongolia committed to funding the recurrent costs of the NCDI program and screening and disease management activities for low-income people. The government also contributed additional funding to the Energy and Environment Project subsidy program.
  • The Ministry of Economic Development and the Cabinet Secretariat has committed to replicating MCA-Mongolia’s project management strategies—with a program logic based on economic rates of return, projects that uphold international environmental and social standards, and diligent monitoring and evaluation.
  • MCC’s Environmental and Social Assessment unit worked closely with the Government of Mongolia to develop and implement Hazardous Materials and Waste Management Guidelines, which resulted in the proper handling, transportation, storage, and disposal of asbestos, lead-based paint and other hazardous wastes during the rehabilitation of project sites.  Due in large part to the exposure MCA-Mongolia gave to the issue, in 2010 the Government of Mongolia banned the use of asbestos in construction materials.
  • In the North-South Road Project, MCC and MCA-Mongolia used the Asian Development Bank’s designs and environmental management plans for the 176-kilometer Choir-Sainshand Road, which enabled MCA-Mongolia to pick up an ambitious construction project with a limited timeframe remaining in the compact.
  • The World Health Organization helped MCA-Mongolia produce technical guidelines for the Health Project and also assisted with the technical training of staff involved in the screening component of the project. In the Health Project, Merck and Axios International were key private sector partners in the delivery of human papillomavirus vaccines. Merck covered the cost of the donated vaccines for the program in Mongolia, while all operational costs of implementation of the pilot program were covered by the project.
  • The Property Rights Project made use of the results of the Asian Development Bank’s Cadastral Survey and Land Registration Project and built upon previous efforts by the United Nations Development Program and the World Bank.
  • In 2010 and 2011, MCC signed an interagency agreement with the Department of Energy’s Lawrence Berkeley National Laboratory for technical support for stove testing and selection—as well as monitoring and evaluation—for the Energy and Environment Project.  At the end of 2012, the Government of Mongolia officially became a partner in the Global Alliance for Clean Cookstoves, an initiative that was launched by the State Department in 2010.

Key Conditions Precedent

To facilitate and incentivize the desired investment outcomes under the compact, MCC and the Government of Mongolia agreed that the following conditions precedent (CP) would be met before disbursing funds needed for the projects identified below.

Key Conditions Precedent
Key Compact Component(s) Major Condition Precedent or Policy Reform Required Rating

LeaseCo Operation Activity

Prior to investment in the Rail Project, UBTZ, owned jointly by the Government of Mongolia and the Government of Russia, shall allow its books to be audited.

Not met

Health Project

NCDI Capacity Building Activity

Provide increased budget allocations for NCDIs beginning 2013, which budget allocation shall be at least $1,000,000 per year.

Met late

Property Rights Project

Privatization of Ger Area Land Plots Activity

Met late

North-South Road Project

Road Operations and Maintenance Budget

Met on time

Annual CP
Vocational Education Project (TVET)

TVET National Framework Activity

Prior to any disbursement for the Creation of Skills Standards and Competencies System Activity the Competency-Based Training System Activity or the Career Guidance System Activity, the Government shall develop a legal and policy framework to support a modern vocational technical education system.

Met late

Energy and Environment Project (EEP)

Wind Activity

Prior to any disbursements for the subsidy component of the Wind Activity, the Government shall provide a plan for increasing electricity tariffs that will eliminate the need for subsidies by 2015, including an initial increase to take place at the time the power purchase agreement for the wind farm begins and a second increase the following year.

Met late